Looking South

There are parallels between the struggles of the Southlandeconomy and New Zealand’s struggles in an international context.   Southland isisolated, its climate is challenging, its population and market is small, andagriculture is a big part of its economy.   But through wise use of theirresources and some smart choices, Southland has been able to turn itselfaround.   As a nation we can learn from that.

Southland’s economy is currently running hot.   While most ofthe country faces rapidly slowing property price growth the real estate marketin Southland is booming.   House prices in Invercargill grew by almost 25% overthe past year, compared with 6% in Christchurch, 8% in Auckland and 10% in Wellington.   And despite that recent growth, the average house price in Invercargill isstill considerably less than half the average in Wellington.

The mood in Southland is one of optimism which is borne outby a host of economic statistics. Unemployment has dropped to an unheard of 1.6%.  There are two vacancies for every unemployed person. And being unemployed inSouthland means you are either particularly choosy about what position you takeup or you are doggedly determined not to take up employment.

The economy is currently being driven by the dairy boom.   Thedairy herd in Southland has increased tenfold since 1990 and farmers continueto convert to dairy due to the higher returns.   This season alone more than 100conversions are taking place and the building of new milking sheds isstretching all parts of the economy.   Whereas most other dairy regions havebeen hit hard by the drought, Southland has come off relatively lightly.     Milkvolumes will be down by less than 2% this year so farmers will be able tocapitalise on the high dairy payout.

The rapid increase in milk production has prompted Fonterrato invest $200m on expansion of the milk processing plant at Edendale, whichwill make it one of the biggest plants in the world.   And even that is notenough, as a new processing plant near Gore has just been given the greenlight.

Although dairy is currently the engine of growth in Southland,there are other prospects that could lift the region onto a higher growthpath.   Southland has huge resources of lignite, a low grade coal.   Plans areafoot to mine the lignite and invest almost $5bn in a hugely capital intensivecoal-to-liquids plant.   If this project goes ahead, the plant could convertlignite into 18m barrels of diesel each year over the 25-year life of the plant– about equal to New Zealand’s current diesel consumption.   While there arestill many hoops for the project sponsors to jump through, rising fuel costsmake the project increasingly attractive.

Of course, Southland’s real wild card is oil.   The Great South Basin could produce up to ten times the amount of oil and gas as the Maui field in Taranaki.   Seismic studies are due to be wrapped up soon and a decision to conductexploratory drilling will be taken in the next couple of years.   Four years ofexploration will reveal whether full production is feasible.   A positivedecision would irreversibly change the face of the province.  

The region’s resurgence cannot be ascribed to dairyingalone. Some innovative moves have helped revitalise the province. At the top ofthe list is the Southern Institute of Technology’s zero fees scheme.   Throughsmart management SIT was able to do away with fees and increased their studentnumbers from 1,780 in 2000 to around 4,600 in 2007.   The region hassuccessfully marketed itself as a sporting centre.   The netball team has luredsome of the best players and won the national provincial championships seventimes in the past ten years.   The new velodrome is the base for New Zealand’s indoor track cycling programme.

Southland lost almost 15% of its population over a 25-yearperiod as its young and talented headed north and beyond.   But due to thereasons outlined above, those demographic trends are reversing.   There is now anet inflow of migrants to the region.   Southland’s newfound confidence andoptimism is reflected in its surging birth rate.   The number of births lastyear hit a ten-year high.

Southland’s economic success is particularly sweet as it isa region that has known hard times.

 

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