1. Future trends and opportunities
FUTURE PROOFING THE REGION
in the Upper Hunter
Dr Alan Rai – Principal Economist
16 September 2014

2. Agenda
Topic: Adapting to key longer‐run trends
• Five longer‐run trends
– Global and national forces, which could
negatively impact our economy and
wellbeing…if ignored!
• Opportunities and threats to the Upper
Hunter – diversification, innovation
– diversification makes us more resilient to the ‘megatrends’
• HRF’s role in providing insights that move the
Region forward
FUTURE PROOFING THE REGION

3. Longer‐run forces impacting the Region
• China’s ‘rebalancing’ (the “Asian century”)
• Demographic changes at home
• Increasingly service‐oriented economy
• Re‐defining energy provision
• Globalisation and greater competition
FUTURE PROOFING THE REGION

4. • Trends affect all of Australia, not just the Hunter
• Now is the time to start planning
• Choice between:
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OR
Key messages

5. Megatrend A: Rebalancing the dragon
70
60
50
40
30
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70
60
50
40
30
20
20
China's consumption as a share of its GDP
1995 2000 2005 2010 2015 2020 2025 2030
Sources: China Development Research Center of the State Council; China Global Trade; The Economist;

6. Implications for our exports
• More services
– Pharma & medical
equipment
– Agriculture
– Tourism
• value‐add throughout
the supply chain
• moderate future
demand for our coal
FUTURE PROOFING THE REGION

7. A fun ride….
3750
3000
2250
1500
750
Impact of the mining boom on the Hunter Balance
FUTURE PROOFING THE REGION
200
160
120
80
40
0
0
Jobs created Extra household income ($/wk)
Estimated
historical
impact
Forecast
future impact
2001 2006 2011 2016 2021 2026 2001 2006 2011 2016 2021 2026
Sources: ABS Census of Population and Housing; Downes et al. (2014); NSW Dept of Planning and Investment; RBA

8. …while it lasted
• Potential threats:
– Increase in unemployment, lower growth in incomes
• Also opportunities:
– energy efficiency
– value‐add potential in rest of supply chain (success of EU)
– integration into global supply chains (e.g. outsourcing)
– technology adoption
FUTURE PROOFING THE REGION

9. Megatrend B: Growing and greying at home
50
40
30
20
10
25-54
0-24
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50
40
30
20
10
0
0
Population share by age group
Hunter Balance Newcastle & Lake Macquarie
65+
55-64
1996 2006 2016 2026 1996 2006 2016 2026
Sources: ABS Census of Population and Housing; NSW Dept of Planning and Investment

10. Demographic shifts (cont.)
• Potential threats:
– insufficient ‘young’ workers to replace retirees
– decline in income growth in the Region if trend is ignored
• Opportunities:
– growing role for aged care services & manufacturing
– exporting to rest of Australia (ageing is a national trend)
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11. Megatrend C: More service‐oriented…..
100
80
60
40
20
Industry share of regional employment
Hunter Balance Newcastle and Lake Macquarie
Services
Manufacturing*
Agriculture,
forestry & fishing
Shift to services boosted by ‘population greying’
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100
80
60
40
20
0
0
1996 2006 2016 2026 2001 2011 2021
* Includes mining
Sources: ABS Census of Population and Housing; Department of Employment; HRF

12. …doesn’t mean manufacturing is doomed
Manufacturing costs compared to the U.S.
Cheaper than the
U.S.
-20 -10 0 10 20 30 40
Indonesia
India
Thailand
Mexico
China
Spain
UK
Japan
Germany
Italy
Brazil
France
Switzerland
Australia
We’re as expensive as the Swiss and French!
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% difference from U.S. cost
Source: Boston Consulting Group (2014)
More expensive than the U.S.

13. Megatrend D: Energy provision re‐defined
• Change in utility’s role: two‐way energy solutions provider
• Threats and opportunities for the Region
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14. Why is this change needed?
85
75
65
55
NSW annual electricity demand (in TWh)
Historical
'Low'
'High'
'Medium'
'Most likely'
‘Most likely’: no new plants needed (only replacement)
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85
75
65
55
45
45
2005-06 2009-10 2013-14 2017-18 2021-22 2025-26 2029-30 2033-34
Source: Australian Energy Market Operator

15. Megatrend E: Globalisation and competition
• Opportunities:
– new consumer markets
(e.g. tourism)
– learn global best‐practices
• Threats:
– competition: not just
manufacturing
– computerisation and
robotics
• One of HRF’s key themes
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16. Globalisation affects services too
• Increasingly, competition is occurring in services
– more commoditised and marketable
• Recent examples:
– Financial services (financial planning, wealth management)
– Legal and professional services (compliance paperwork)
– Media (e.g. Newcastle Herald sub‐editors and journalists)
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KurunjaWorldwide Services: an example of foreign competition

17. Impact of globalisation: multiculturalism
14
12
10
8
6
4
2
Proportion of foreign-born people in the Hunter
Newcastle &
Lake Macquarie
Hunter Balance
Opportunities for Hunter businesses
FUTURE PROOFING THE REGION
14
12
10
8
6
4
2
0
0
1996 2001 2006 2011 2016 2021 2026 2031
* Based on historical growth rates
Sources: ABS Census of Population and Housing; HRF
Forecast*

18. Economic diversification – what, why?
• Diversification – multiple
industries not directly linked
to each other
• Can provide resilience and
flexibility to our Region
– living standards are not tied to
the fate of a few industries
– without it, we may suffer greatly
during bad events (e.g. end of
the mining boom)
FUTURE PROOFING THE REGION

19. Economic diversification: how?
• Key determinants of diversification/resilience:
– skilled and mobile workforce able to adapt to change
– risk‐taking entrepreneurs
• Yet we score poorly on:
– productivity
– business sophistication
• Opportunities:
– Increase youth tertiary training
– strengthen intra‐industry clusters/links (e.g. HunterNet)
– diversify funding sources for capex and R&D
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20. HRF – Looking Forward
Our research programs look holistically at the key areas that
will ensure the region’s future
FUTURE PROOFING THE REGION
Education
Employment
Income
Health
Innovation
Investment
Collaboration
Infrastructure
Skills
Resilient
Connectedness
Housing and
Neighbourhoods
Relationships
Crime and Safety
Civics and
Environment
Internationally
Competitive
HRF values the continuing support of our local sponsors
and partners

21. We look forward to working together to
creating a thriving Hunter Region for current
FUTURE PROOFING THE REGION
and future generations.
Thank you

22. Q&A PANELISTS
Dr ALAN BROADFOOT,
FUTURE PROOFING THE REGION
NIER
Dr ALAN RAI, HRF
JENNY WILLIAMS, HRF
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