What’s over the horizon for the Northern Territory?
Let’s be clear – bad stuff can happen. But fear of the future is corrosive. The answer to rising uncertainty doesn’t lie in pretending the future won’t be disrupted. Chances are it will. Rather, the answer lies in shedding as much light as we can on the darkness cast by uncertainty.
Don’t be scared. Be prepared
‘China stumbles’ is just one of the three potential scenarios detailed in Deloitte’s latest Building the Lucky Country series report. What’s over the horizon? Recognising opportunity in uncertainty urges us to be less fearful in the face of uncertainty and to actively scan possible paths for the future.
As Cindy Hook, Deloitte Australia CEO noted: “Taking the time to scan the horizon is among the most valuable investments that businesses, governments and families can make. As business leaders and as a nation, we owe it to ourselves to think through plausible ‘what ifs’ and weigh up what they might mean.”
Hendri Mentz, Deloitte Northern Territory Managing Partner added: “The Territory economy has magnificent growth potential for the long haul, but our small size makes us more volatile. Thinking about business cycles and the impact of uncertainty is arguably more important to do here than in any other part of Australia.”
Deloitte Chief Strategy Officer and report author John Meacock said: “What’s over the Horizon? will help business leaders shine a light on uncertainty and turn it to their advantage. Understanding the impact of ‘what ifs’ on their industry and business is essential. What’s over the Horizon? provides an opportunity to scenario plan using better information and tools to prepare for the future.”
What’s over the horizon? uses the new Deloitte Horizon model to explore three plausible paths for Australia’s future:
- What would happen if troubles in China sent Australia lurching into recession?
- What would Australia look like if we successfully slipstream Asia’s new booms?
- Or what would Australia look like if we get better at being ‘cyber smart’?
To be clear, none of these three scenarios is the ‘most likely’ outcome for Australia. But they’re all plausible. And unless decision-makers in Australia and around the world start to be better at assessing risks and opportunities, it is likely that our future will underperform its potential.
Scenario 1: What if China tips Australia into a recession – hitting our housing?
Australia’s gains from our relationship with China have been huge, but equally our dependence on China is also huge, and our vulnerability on that front has risen significantly over the past decade.
Report author and Deloitte Access Economics partner, Chris Richardson said: “Australia doesn’t have the defences we had back in 2008 and 2009 – we lack firepower in interest rates and the Budget. And unlike what happened in the GFC, China would be part of the problem rather than part of the solution. So this scenario would bring recession here, and hit housing too.”
By 2019-20 that would leave Australia with half a million fewer jobs, and the better part of a trillion dollars wiped off our wealth as housing prices fell 9% and the share market dropped 17%. Business profits would drop by 19% and sales by 8%, while the $A would drop 15 cents against the $US.
But where would that leave The Northern Territory? Slightly worse off than the average
The Northern Territory isn’t quite as exposed to the global economy as Western Australia or Queensland, and doesn’t have the vital servicing roles of Victoria.
That leaves us better placed than those states were China’s growth to stumble. But we’d still be in the firing line, with resource and energy exports pressured, and with the construction sector – a big driver of Territory cycles – left on the back foot for a time.
As Mentz noted: “The Northern Territory economy would be less exposed than some other parts of Australia to the risks raised in a China slowdown, but we’d still feel some of the pain in key industries.”
Scenario 2: What if Australia successfully surfs Asia’s third wave?
The best and brightest future for Australia is essentially ’more of the same’ as we ride Asia’s boom to a better future, and as we have the courage to adopt much needed economic reforms.
“In many ways this scenario is simply history on steroids,” said Richardson. “The siren call of the populists currently dominating the global electoral landscape would have to be defeated. Politicians would have to act with courage and determination to deliver reforms, both in Asia and here at home. But, if achieved, the maturing boom in Asia would see the region’s rising middle class consumers power a new set of opportunities for our nation, generating a range of potential growth sectors.”
The Northern Territory would benefit from renewed booms in Asia and reforms here at home
The rise of Asia is underpinning a matching rise in the Northern Territory’s own economy, drawing on the Top End’s considerable strengths in farming and tourism. And reforms here at home in Australia would also generate jobs and boost wages, providing a further handy boost for the Territory’s economy.
As Mentz noted: “Some of the biggest benefits would go to service sectors – such as finance – where the Northern Territory is less strong than other states, yet this is still a scenario which would deliver more than an extra $10 billion in income generation in the Northern Territory over the next two decades.”
Scenario 3: What if Australia goes cyber smart – and invests with confidence?
Digital opportunities and cyber risk go hand in hand. We live in an increasingly digitised world, but the enormous benefits generated by that also bring cyber risks. This means the very technologies with the greatest potential to turbocharge our future prosperity are those that we are often less willing to pursue.
Richardson said: “Cyber risk – and our responses to it – epitomise the point we’re making in this report. Uncertainty generates corrosive costs, but this scenario sees Australian businesses, organisations and families better address cyber risk, thereby freeing themselves up to invest with greater confidence.”
This scenario is one that would free up investment in valuable technologies in this nation, lifting business investment by 5.5%, and adding 60,000 net new jobs to the economy over the next two decades.
This is a plausible future for Australia and is one in which the Northern Territory would be ranked in the middle on the list of state winners.
As Mentz pointed out: “The previous scenario was one of general success, whereas this is one where the success is much more service sector-specific. That doesn’t play as much to the Territory’s strengths, but it is a timely reminder of the advantages of diversifying our industry base over time.”
It is only by understanding how risks and opportunities will affect the economy that businesses and policymakers can properly prepare for the inevitable uncertainty that the future will bring.
About Deloitte Horizon
Horizon marks a first – Deloitte has ‘industrialised’ strategic scenario analysis, providing a range of scenarios for the future, covering economic, technological and regulatory outcomes, and flowing those through to detailed views across each of 56 industries and eight states and territories.
About Building the Lucky Country
Deloitte’s Building the Lucky Country series was launched in 2011 and has been developed to prompt debate and conversations across business and government on issues facing the Australian economy. The five previous reports are:
- The purpose of place: reconsidered (2015)
As Australia transitions to a knowledge-based service economy, and looks to deliver a prosperous future for its people, unlocking the potential of the nation’s places needs to be reconsidered.
- Get out of your own way: Unleashing productivity (2014)
Australia is a lucky country, with a bright future. But we have a problem – and its colour is red. Red tape, that is.
- Positioning for prosperity? Catching the next wave (2013)
Where will Australia’s future growth come from? How can business and government leaders make the right decisions to position for prosperity?
- Digital disruption: Short fuse, big bang (2012)
Australia’s business and government leaders don’t need to look far into the future to see the new wave of digital disruption headed towards them. It is already here.
- Where is your next worker (2011)
Australia's problem in coming years won’t be a lack of jobs – it will be a lack of workers...
Find out more and register now to receive your copy of the latest Building the Lucky Country series report, What’s over the horizon? Recognising opportunity in uncertainty.