1. Corporate Governance Forum 2013 Economic outlook for South Australia Kevin Osborn Deputy Chairman, Economic Development Board Thursday, 6 June 2013 OPEN THE DOOR TO SOUTH AUSTRALIA

2. Economic Outlook for South Australia Why are we saving? China, China, China? Future of Manufacturing

3. Household savings ratio ABS Australian National Accounts - 5206.0 – released 6 June 2012. The national household saving ratio was 9.4% in trend terms in the March Quarter 2012. Saving levels declined steadily from the mid ‑ 1970s to the mid-2000s, falling below zero for the first time on record in the early 2000s. Australian households have been saving more in recent years than in the previous two decades. Changes in household savings intensified following the onset of the GFC.

4. Why are we saving? It’s a strange world we live in … China boom Investment flowed easily … and then the GFC hit in 2007 Over-leveraged positions exposed Asset prices fell Private debt transferred to the public sector Global defence spending dropped How have we responded? Reduce monthly expenditure and cut debt Reduce consumption – led to slow down in retail and construction sectors Increase in bank deposits (which our Aussie banks love!)

5. Why are we saving? (continued) Psyche of western families is one of nervousness BankSA survey, consumer confidence in May 2013 was at its lowest point since survey began in 1997 due to European situation, cost-of-living pressure, Federal election. Jobs feel less secure Spending deferred Pensions are not going to allow for a comfortable lifestyle post retirement USA house values have messed up many net worth calculations – coming back with 11.0% rise in past 12 months Therefore, the commodity that is in short supply now is CONFIDENCE – confidence needs to be strengthened by stronger predictability in the medium-term fiscal policy.

6. Confidence So the answer is:- Global train wrecks have damaged the CONFIDENCE of the western consumer – BIG TIME. Global consumer confidence will not come back until: 1. Housing markets recover globally and remain somewhat stable 2. Unemployment stabalises and the feeling of losing your job disappears. 3. Commodity prices become less volatile. 4. Governments, especially European leaders, hold their nerve and demand balancing of their economies. 5. Infrastructure investment goes to projects that create efficiency and not votes.

7. China, China, China?  By 2030, China will have overtaken the US and become the world’s largest economy.  During the past 30 years, China’s economy has grown to US$ 7.7 trillion, expanding an average rate of 10.0% a year.  China’s policy to shift its population from rural to urban has created an explosion in new cities. Currently, 125 cities have populations of more than 1 million people – this is projected to soar to 221 cities by 2025.  China’s one child policy is resulting in an aging population and rising dependency ratio. Currently, 8.2% of China’s population is over 65 years old, this will reach 26.0% by 2050. Demand for health-related services will rise accordingly. China’s new rich are looking for quality in investment, education, leisure and food and beverage products.

8. China’s growth and impact on our economy  Growing supply of low-cost imports that have put downward pressure on prices.  Massive shift of manufacturing in China has created significant challenges for the South Australian economy by accelerating structural changes in our own manufacturing industry.  China’s urbanisation – funded by its export dominance – has created demand for our minerals and energy. This demand has driven historically high commodity prices and underpinned our strong $A.  The value of our goods exports to China reached over $2 billion and accounted for 20.0% of the State’s total goods exports year to March 2013.  The average value of trade with China per South Australian household in 2011 was $13,470 – an increase of 30.0% on 2010.  The South Australian Chinese community is one of our largest ethnic communities and represents significant potential for the development of critical relationships.

9. China’s growth and opportunities for South Australia  Challenge is to develop platforms for effective engagement.  Focus on growth hubs of China’s tier-two and tier-three cities.  Businesses in all sectors must make themselves ‘China ready’.  South Australia has the right mix of commodities.  International education city  - 28,000 international students in 2012 (40% were from China)  - export income from education activities reached $852m in 2012  Agriculture, leader in premium food and wine  - we produce 60% of the nation’s wine and 20.0% of nation grain exports  Defence State  - 30% of the nation’s defence is located here 

10. Shandong Province  South Australia and Shandong Province began a sister-state relationship in 1986. Shandong has grown significantly during three decades of ‘opening up’ and reforms and is now China’s 3 rd largest provincial economy.  Shandong is a widely recognised and respected cultural centre in China. In recognition of this, Adelaide’s 2014 OzAsia Festival will be dedicated to Shandong 

11. South Australia’s manufacturing industry  South Australia is the nation’s leading manufacturing state as a proportion of Gross State Product (9.27% of GSP).  Employs 74,400 people (9.10% of the labour force) and is the biggest spender of applied research and innovation.  However, manufacturing is changing:  - Over the past decade, more than 100,000 jobs have been lost around the nation and most of this has occurred since the GFC.  - Australia could lose a further 85,000+ manufacturing jobs over the next 5 years as a result of structural adjustments.  - This could amount to 6,700 job losses in South Australia over the 5 ‑ year period  With a strong $A and high production costs, our industries can no longer compete on price and scale in an increasingly global economy.  Our manufacturing industry will continue ‘to struggle’ unless the industry strategically and innovatively transitions – we must compete on flexibility, innovation, services and the creation of value.

12. EDB actions  The Board is developing structures to support businesses to move up or exploit the chain, starting with the four pilot industries:  1.Unconventional Gas  2.Cellulose Fibre  3.Tertiary Education  4.Agriculture.  The ultimate goal is for business, ranging from SMEs to big companies, to understand the significance of the value chain – from sourcing raw materials to end customers – and to be able to leverage this understanding to exploit opportunities across the value chain.

13. Thank you Economic Development Board Level 9, 121 King William Street ADELAIDE SOUTH AUSTRALIA 5000 (08) 8303 2496