There are parallels between the struggles of the Southland economy and New Zealand’s struggles in an international context. Southland is isolated, its climate is challenging, its population and market is small, and agriculture is a big part of its economy. But through wise use of their resources and some smart choices, Southland has been able to turn itself around. As a nation we can learn from that.
Southland’s economy is currently running hot. While most of the country faces rapidly slowing property price growth the real estate market in Southland is booming. House prices in Invercargill grew by almost 25% over the 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 is still considerably less than half the average in Wellington.
The mood in Southland is one of optimism which is borne out by 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 in Southland means you are either particularly choosy about what position you take up or you are doggedly determined not to take up employment.
The economy is currently being driven by the dairy boom. The dairy herd in Southland has increased tenfold since 1990 and farmers continue to convert to dairy due to the higher returns. This season alone more than 100 conversions are taking place and the building of new milking sheds is stretching all parts of the economy. Whereas most other dairy regions have been hit hard by the drought, Southland has come off relatively lightly. Milk volumes will be down by less than 2% this year so farmers will be able to capitalise on the high dairy pay out.
The rapid increase in milk production has prompted Fonterra to invest $200m on expansion of the milk processing plant at Edendale, which will make it one of the biggest plants in the world. And even that is not enough, 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 growth path. Southland has huge resources of lignite, a low grade coal. Plans area foot to mine the lignite and invest almost $5bn in a hugely capital intensive coal-to-liquids plant. If this project goes ahead, the plant could convert lignite 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 are still many hoops for the project sponsors to jump through, rising fuel costs make 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 conduct exploratory drilling will be taken in the next couple of years. Four years of exploration will reveal whether full production is feasible. A positive decision would irreversibly change the face of the province.
The region’s resurgence cannot be ascribed to dairying alone. Some innovative moves have helped revitalise the province. At the top of the list is the Southern Institute of Technology’s zero fees scheme. Through smart management SIT was able to do away with fees and increased their student numbers from 1,780 in 2000 to around 4,600 in 2007. The region has successfully marketed itself as a sporting centre. The netball team has lured some of the best players and won the national provincial championships seven times 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-year period as its young and talented headed north and beyond. But due to the reasons outlined above, those demographic trends are reversing. There is now a net inflow of migrants to the region. Southland’s newfound confidence and optimism is reflected in its surging birth rate. The number of births last year hit a ten-year high.
Southland’s economic success is particularly sweet as it is a region that has known hard times.