Size and growth of the City of Adelaide's economy

28 Pages·2015·0.58 MB·English

City of Adelaide Economic Development

The size, structure and growth of the City of Adelaide’s
economy: 2011 Census update

A report commissioned by the City of Adelaide

Richard Blandy
AustralAsia*Economics Pty Ltd

Adelaide
May 2013
Table of Contents
Introduction 1
Size and growth of the City of Adelaide’s economy 1
Structure of the City of Adelaide’s economy 2
Production (value added) by industry in the City of Adelaide 2
Employment by industry in the City of Adelaide 4
Labour productivity (value added per person employed) by industry
in the City of Adelaide 7
Appendix 1: Table Sources 13
Appendix 2: Commuting origins of workers in the City of Adelaide by
industry, 2006 and 2011. 15
Appendix 3: Commuting origins of workers in the City of Adelaide by
educational qualifications, 2006 and 2011. 22
Appendix 4: Concordance between the ABS industry classification
used in this report and the latest ABS industry classification 24
Appendix 5: Differences between the industry figures in this report
and previous reports 25

i
Introduction
In October 2008, I completed a report for the City of Adelaide’s Economic
Development Department on the size, structure and growth of the City of Adelaide’s
economy together with prospects and strategic options for the future.1 That report was
based on Census data from 1991 to 2006.

The present report is an update of parts of that report using Census data for 2006 and
2011 (as well as State-wide economic data). The present report also looks at the
geographic origins of workers in the City in order to explore commuting patterns.

The present report differs from the previous report, however, by using chain volume
measures (constant prices) as the measure of industry output rather than total factor
income in current prices. The reason for the switch in measures is that the City was
more interested on this occasion in the real rates of growth of each industry,
abstracting from growth contributed by price movements. The differences in the two
measures of industry output are very largely accounted for by industry price
movements rather than differences in the estimation methods. The difference in
industry output measures between the two reports is discussed in Appendix 5, below.

The Australian Bureau of Statistics changed its industry classification system recently
as well as the base for its chain volume (‘real”) measures of value-added by industry.
The classification system used in my previous report has been retained, and the recent
data has been reclassified to conform with the classification used in my previous
report to the City of Adelaide. Unfortunately, a consistent set of data for 1991 could
not be put together, so 1991 has been excluded from this report. A table of
“concordance”, showing how data in the new classification system has been translated
into the old classification system, is presented in Appendix 4, below.

Size and growth of the City of Adelaide’s economy
The City of Adelaide’s Gross Regional Product (GRP) is estimated to have increased
to $13.6 billion in fiscal year 2011/12 (called 2011, hereafter). This represents 14.9
per cent of South Australia’s Gross State Product (GSP). In employment terms, the
City’s employment is estimated to have reached 109,403 persons in August 2011 –
13.3 per cent of South Australia’s employment.

Over the whole period 1996-2011, the City’s GRP grew at the rate of 2.8 per cent p.a.
while South Australia’s GSP grew by 2.7 per cent p.a. Over the past five years, the
growth rate of the City’s GRP increased to 3.0 per cent p.a., while South Australia’s
GSP growth rate slowed marginally to 2.6 per cent p.a.

Similarly, over the whole period 1996-2011, the City’s employment grew by 1.5 per
cent p.a., while the State’s employment grew at the same rate. The rate of job growth
in the City increased significantly over the past five years to 2.1 per cent p.a., while in
the State as a whole it continued to grow at 1.5 per cent p.a.

The City of Adelaide’s economy has strengthened relatively to the State’s economy
over the past five years, therefore. Where this strength has come from is a key focus
of this report.

1 Richard Blandy, Alison Davies and Paul Davies, The size, structure and growth of the City of
Adelaide’s economy together with prospects and strategic options for the future, City of Adelaide
Economic Development, Adelaide, October 2008.
1
The estimated size and growth of the City of Adelaide’s economy and of the South
Australian economy from 1991 to 2009 are presented in Table 1, below.

Table 1: South Australia's Gross State Product ($m, real), City of Adelaide’s Gross
Regional Product ($m, real), South Australia's Total Employment ('000), and City of
Adelaide’s Total Employment ('000), 1996, 2001, 2006 and 2011.

Year ended June 1996 2001 2006 2011

SA GSP (real $m, Chain Volume
Measures) 61150 71500 80199 91217
Index SA Real GSP (1996 = 100.0) 100.0 116.9 131.2 149.2

Adelaide GRP (real $m, Chain Volume
Measures) 9096 10773 11702 13590
Index Adelaide Real GRP (1996 = 100.0) 100.0 118.4 128.6 149.4

SA Employment ('000 persons) 657.2 675.1 759.7 819.6
Index SA Employment (June 1996 =
100.0) 100.0 102.7 115.6 124.7

Adelaide Employment (persons) 88136 95191 98681 109403
Index Adelaide Employment (June 1996 =
100.0) 100.0 108.0 112.0 124.1

Sources: See Appendix 1 and text.

Structure of the City of Adelaide’s economy
Using Australian Bureau of Statistics’ (ABS) data on the City of Adelaide from the
Census years of 1996, 2001, 2006 and 2011 estimates of three dimensions of the
industrial structure of the City of Adelaide’s economy are presented in Tables 2, 3, 4,
5, 6 and 7, below:
 the industry structure of production (value added),
 the industry structure of employment, and
 the industry structure of productivity.

These estimates enable views to be formed of the size, growth, prospects and
problems/challenges of the various industrial sectors comprising the City of
Adelaide’s economy over this recent 20-year period. These views are useful as part of
the process of identifying the City of Adelaide’s economic strengths and weaknesses
and in informing consideration of economic development options and opportunities
for the City of Adelaide’s future.

Production (value added) by industry in the City of Adelaide
Data estimating the value added produced by each industry in the City of Adelaide
from 1996 to 2011 are presented in Tables 2 and 3, below. The estimates result from
multiplying Census employment in each industry in the City by value added per
employee (productivity) figures for each industry (at each date) in the State as a
whole. These estimates probably understate production in the City because State
productivity figures are probably too low for the City, where many of the State’s head
offices and senior professionals are located. The size of the City of Adelaide’s
economy is likely to be larger than we have estimated, but by how much it is difficult
to say.

2
Table 2: The City of Adelaide’s Industry Structure, 1996 – 2011:
Value Added by Industry ($m chain volume measures)
Year
1996 2001 2006 2011 1996-2011
Industry $m $m $m $m % p.a.
Agriculture, Forestry and Fishing 7 18 16 19 6.9
Mining 145 614 623 644 10.5
Manufacturing 285 354 227 124 -5.4
Electricity, Gas and Water Supply 194 257 328 547 7.2
Construction 106 164 235 211 4.7
Wholesale Trade 150 144 201 241 4.6
Retail Trade 378 415 441 352 3.2

Accommodation, Cafes and Restaurants 245 298 326 344 2.3
Transport and Storage 231 248 245 258 0.7
Communication Services 385 560 718 1032 6.8
Finance and Insurance 1787 1967 2607 3394 4.4
Property and Business Services 1481 1768 1648 2070 2.3

Government Administration and Defence 856 1089 1396 1916 5.5
Education 573 488 523 648 0.8
Health and Community Services 700 806 887 1055 2.8
Cultural and Recreational Services 209 263 280 181 -0.1
Personal and Other Services 257 258 273 130 -4.4
Non-classifiable economic units n.a. n.a. n.a. n.a. n.a.
Not stated n.a. n.a. n.a. n.a. n.a.
Total industry value added 7521 9028 10973 13166 3.8

Sources: See Appendix 1 and text.

3
Table 3: The City of Adelaide’s Industry Structure, 1996 - 2011
Value Added by Industry (per cent of total value added)

Year
1996 2001 2006 2011
Industry % % % %
Agriculture, Forestry and Fishing 0.1 0.2 0.1 0.2
Mining 1.9 6.3 5.7 5.6
Manufacturing 3.8 3.9 2.1 1.1
Electricity, Gas and Water Supply 2.6 2.8 3.0 4.7
Construction 1.4 2.1 2.1 1.8
Wholesale Trade 2.0 1.8 1.8 2.1
Retail Trade 5.0 5.2 4.0 3.0
Accommodation, Cafes and Restaurants 3.3 3.7 3.0 3.0
Transport and Storage 3.1 2.9 2.2 2.2
Communication Services 5.1 6.7 6.5 8.9
Finance and Insurance 23.8 25.0 23.8 29.4
Property and Business Services 19.7 20.4 15.1 18.5
Government Administration and Defence 11.4 13.3 12.7 16.6
Education 7.6 5.6 4.8 5.6
Health and Community Services 9.3 9.7 8.1 9.1
Cultural and Recreational Services 2.8 3.1 2.5 1.6
Personal and Other Services 3.4 3.0 2.5 1.1
Non-classifiable economic units n.a. n.a. n.a. n.a.
Not stated n.a. n.a. n.a. n.a.
Total 100.0 100.0 100.0 100.0

Source: Table 2, above.

The dominating economic sectors in the City of Adelaide are finance and insurance,
property and business services and government administration and defence, together
comprising 65 per cent of the City’s economy. The City’s economy is increasingly
dependent on these three sectors. The finance and insurance sector and government
administration and defence have grown much more rapidly than property and business
services over the past 18 years. It is these two sectors (together with electricity, gas
and water supply, and communication services) that have given the City its economic
acceleration over the past five years. The important health and community services
and education sectors have grown more slowly than the City’s economy as a whole. It
is also notable that retail trade is now a relatively small and declining part of the
City’s economy.

The Herfindahl Index of Diversification2 for the City of Adelaide’s economic
structure, measured by the value added created by each industry, is 0.16, which
indicates a moderately diversified economic structure, notwithstanding the large share
of finance and insurance, property and business services and government
administration and defence in the City’s economy. The City’s economy is now less
diversified than it was in 1996 (H = 0.13). This may be something of a danger sign
1996
for the City’s economy, notwithstanding its recent faster rate of growth.

2 The Herfindahl index, H=Σs2 where s is the share of industry i in City's GRP. Values of H<0.1
i I the
indicate a highly diversified industrial structure, values of H between 0.1and 0.18 indicate a moderate
lack of diversification, and values of H greater than 0.18 indicate a major lack of diversification in the
industrial structure.
4
Sectors that are not essentially driven by local demand, and that have a large share of
the City’s economy or that have a medium share and are growing at least as fast as the
average for the City are:
 finance and insurance (29 per cent share, growing rapidly),
 property and business services (19 per cent share, declining slowly),
 government administration and defence (17 per cent share, growing rapidly),
 communication services (9 per cent share, growing rapidly), and
 health and community services (9 per cent share, declining slowly).

These sectors are the City’s main economic drivers. They comprise 83 percent of the
City’s economy. It is important for the City that the relative decline in activity in
property and business services, and in health and community services, be arrested,
and turned around, if possible. The State Government’s plan to build a new hospital is
consistent with a rejuvenation of the health sector. Why property and business
services is losing its share of the City’s economy deserves greater examination,
because property and business services is a fast-growing sector in the State, nationally
and internationally.

Government administration and defence is always likely to play an important role in
the City of Adelaide’s economy, since the City is the seat of the State Government
and where much of the Public Service is located. Growth in this sector in the City has
been exceptionally strong over the past five years. Dependence on the State
Government’s growth and location decisions may expose the City’s economy to risk,
however. Ensuring that the City continues to be an efficient and effective location for
the State Government is important for the City.

The shares of retail trade, manufacturing and education have all declined over the past
20 years in their economic contribution to the City. These declines reflect
demographic and social trends (shopping activity relocating into the suburbs together
with slow growth of higher education budgets administered by the Commonwealth
Government) together with fundamental economic and technological changes shifting
medium and small scale manufacturing into less expensive suburban and country
town locations (including into people’s homes). It is not easy to see how these former
driver sectors can be restored as economic locomotives of the City, although higher
education may be important in supporting the growth of other sectors in the City.

Several of the remaining sectors show promise as potential economic drivers. The
electricity, gas and water supply sector has shown exceptional growth and could
become an important driver for the City, not only in business and administrative
functions but in product and service innovation for this increasingly key set of
economic activities. Mining is being driven by the location of mining company
offices in the City and the services required by them from the increase in exploration
and mining activity in the State over the past 20 years. The decision by BHP Billiton
not to proceed with the expansion of the Olympic Dam mine is already being reflected
in a slowdown in the rate of increase of mining’s share of the City’s economy.
Accommodation, cafes and restaurants, while small, has increased its share of the
City’s economy over the past 20 years. These sectors cater to tourism and leisure
activities that are correlated with increasing affluence and education. The City should
consider an economic future that is based in part on its cultural, recreational and
leisure assets. Liveability is a very important ingredient in the economic prospects of
all first world cities.
5
Employment by industry in the City of Adelaide
Data describing the number of persons employed by each industry in the City of
Adelaide from 1996 to 2011 are presented in Tables 4 and 5, below. The estimates for
1996, 2001, 2006 and 2011 are Census employment data for the City.

Table 4: The City of Adelaide’s Industry Structure, 1996 - 2011
Employment by Industry (persons)

Year
1996 2001 2006 2011 1996-2011
Industry % p.a.
Agriculture, Forestry and Fishing 106 238 167 107 0.1
Mining 192 716 1129 1424 14.3
Manufacturing 2855 3236 2232 1155 -5.9
Electricity, Gas and Water Supply 676 869 1068 2281 8.4
Construction 1077 1863 2187 1973 4.1
Wholesale Trade 2312 1719 1669 1568 -2.6
Retail Trade 8923 9523 8770 6543 -2.0
Accommodation, Cafes and Restaurants 5532 6450 6167 7555 2.1
Transport and Storage 2181 2143 1918 1845 -1.1
Communication Services 3443 3936 3371 4488 1.8
Finance and Insurance 8960 9367 9516 9819 1.2
Property and Business Services 13534 17536 16825 20092 2.7
Government Administration and Defence 8988 10256 14056 19857 5.4
Education 7654 6335 7009 9005 1.1
Health and Community Services 12853 13621 14893 17046 1.9
Cultural and Recreational Services 3706 3210 3084 2332 -3.0
Personal and Other Services 4576 4169 4622 2314 -4.4
Non-classifiable economic units n.a. n.a. n.a. n.a. n.a.
Not stated n.a. n.a. n.a. n.a. n.a.
Total 88136 95191 98681 109403 1.4

Sources: See Appendix 1 and text.

6
Table 5: The City of Adelaide’s Industry Structure, 1996 - 2011
Employment by Industry (per cent of total employment)

Year
1996 2001 2006 2011
Industry % % % %
Agriculture, Forestry and Fishing 0.1 0.3 0.2 0.1
Mining 0.2 0.8 1.1 1.3
Manufacturing 3.2 3.4 2.3 1.1
Electricity, Gas and Water Supply 0.8 0.9 1.1 2.1
Construction 1.2 2.0 2.2 1.8
Wholesale Trade 2.6 1.8 1.7 1.4
Retail Trade 10.1 10.0 8.9 6.0
Accommodation, Cafes and Restaurants 6.3 6.8 6.2 6.9
Transport and Storage 2.5 2.3 1.9 1.7
Communication Services 3.9 4.1 3.4 4.1
Finance and Insurance 10.2 9.8 9.6 9.0
Property and Business Services 15.4 18.4 17.0 18.4
Government Administration and Defence 10.2 10.8 14.2 18.2
Education 8.7 6.7 7.1 8.2
Health and Community Services 14.6 14.3 15.1 15.6
Cultural and Recreational Services 4.2 3.4 3.1 2.1
Personal and Other Services 5.2 4.4 4.7 2.1
Non-classifiable economic units n.a. n.a. n.a. n.a.
Not stated n.a. n.a. n.a. n.a.
Total 100.0 100.0 100.0 100.0

Source: Table 4, above.

The dominating employment sectors in the City of Adelaide are property and business
services and government administration and defence (each providing18 per cent of the
City’s jobs), and health and community services (16 per cent) – all economic drivers.
The City’s five economic driver sectors (the preceding three sectors plus finance and
insurance and communication services) provide nearly two thirds (65 per cent) of the
City’s employment, emphasising the significance of these sectors in the City’s
economy.

The fastest-growing job sectors are electricity, gas and water supply, accommodation,
cafes and restaurants, government administration and defence, communication
services and mining. Employment in manufacturing, transport and storage, wholesale
trade and retail trade has fallen significantly over the past 15 years. These changes
reflect the economic restructuring that has occurred in the City.

Labour productivity (value added per person employed) by industry in
the City of Adelaide

Data describing labour productivity (value added per person employed) in each
industry in the City of Adelaide from 1996 to 2011 are presented in Tables 6 and 7,
below. These productivity estimates are the production figures for each industry in
Table 2 divided by the corresponding employment figures for each industry in Table
4. It should be noted that these productivity estimates are “real” (chain volume)
measures, and do not directly capture price changes.

7
Table 6: The City of Adelaide’s Industry Structure, 1996 - 2011
Productivity (Value added per person) by Industry,
$’000, chain volume measures

Year
1996 2001 2006 2011 1996-2011
Industry $ $ $ $ % p.a.
Agriculture, Forestry and Fishing 68 84 93 178 6.6
Mining 755 761 552 452 -3.4
Manufacturing 100 105 102 107 0.5
Electricity, Gas and Water Supply 287 280 307 240 -1.2
Construction 98 98 107 107 0.6
Wholesale Trade 65 89 120 154 5.9
Retail Trade 42 48 50 54 1.6
Accommodation, Cafes and Restaurants 44 49 53 46 0.2
Transport and Storage 106 116 128 140 1.9
Communication Services 112 147 213 230 4.9
Finance and Insurance 199 231 274 346 3.7
Property and Business Services 109 101 98 103 -0.4
Government Administration and Defence 95 113 99 96 0.1
Education 75 77 75 72 -0.3
Health and Community Services 54 62 60 62 0.9
Cultural and Recreational Services 56 83 91 78 2.2
Personal and Other Services 56 62 59 58 0.2
Non-classifiable economic units n.a. n.a. n.a. n.a. n.a.
Not stated n.a. n.a. n.a. n.a. n.a.
All Industries 85 95 98 106 1.4

Sources: See Appendix 1 and text.

8