Review of Regional Blueprints
In May 2014, the Minister for Regional Development requested the Western Australian
Regional Development Trust (Trust) review the draft Regional Blueprints (Blueprints). The
Trust engaged ACIL Allen Consulting to undertake a review of the nine draft Blueprints to
strengthen and improve their consistency and robustness and prepare a collective review of
the Blueprints. The collective review was to take into account the common themes that
emerged on review of all nine Blueprints and the implications of those themes on the design of
an evidence-based Regional Development Strategy for Western Australia.
On review of the Blueprint exercise and the strategic advice received from ACIL Allen, the
Trust has formulated five headline recommendations as a means to guide the State
Government’s approach to regional development:
1. WA's Royalties for Regions program has delivered real benefits to WA's regional
communities and for the State as a whole. For those reasons, the Trust recommends
that the program continue.
2. The prime objective for the expenditure of the Royalties for Regions funds should be to
enable regional growth and economic development; and consequently the creation of
regional employment opportunities. Government investment in the regions must be
tailored to the economic profiles and needs of each of the regions.
3. Comparative and competitive analyses provide valuable tools by which to ascertain the
relative strengths of the regions and identify Government investment opportunities.
The development of a more comprehensive understanding of the comparative and
competitive positions of our regions should be a priority objective for the Department of
Regional Development (DRD).
4. In conjunction with the above work, DRD should develop a rigorous evaluation
framework to monitor the effectiveness of Royalties for Regions investment in the
regions. This evaluation framework needs to tie in with specific outcomes-based
objectives that are determined prior to the investment decisions being made.
5. The information in the Blueprints provides the Government with a comprehensive
platform from which to engage in targeted regional development activities. To do this
effectively, a collaborative and portfolio-based model whereby the Commissions and
DRD share resources, expertise and networks for the benefit of the regions as a
whole, and collaborate strongly with government agencies across regional boundaries,
will provide the most effective means to achieve the objectives.
ACIL Allen’s evidence, findings and conclusions are provided in their report attached. The
report is intended to encourage a dialogue on the learnings from the Blueprint development
process, possible approaches for undertaking cross-regional analysis and future priorities for
regional development.
The Trust acknowledges that the report has been produced using the data that was available
and that this has limitations. Similarly, it should be noted that the comparative analysis
methodologies utilised in the report are preliminary in nature and will require further
development. Care should be exercised in applying the findings of the report to assess
individual projects in the regions.
The review was conducted in the 2014-15 financial year and advice provided to the Minister
on 19 November 2015.
A C I L
A L L E N
C O N S U L T I N G
FINAL REPORT TO
REGIONAL DEVELOPMENT TRUST
JUNE 2015
COLLECTIVE REVIEW
OF REGIONAL
BLUEPRINTS
AND IMPLICATIONS FOR A
REGIONAL DEVELOPMENT
STRATEGY
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ACIL ALLEN CONSULTING
C o n t e n t s
1
Introduction and overview
3
1.1
The regional blueprints
3
1.2
This report
3
PART ONE
5
2
Viewing the blueprints in aggregate
6
2.1
Global megatrends
6
2.2
Comparative advantages
7
2.3
Growth aspirations
9
2.4
Transformational opportunities
10
2.5
Identification of synergies across blueprints
12
Drawing on the positives of the blueprint exercise
17
3.1
Engagement with stakeholders
17
3.2
Understanding of the regions
17
3.3
Planning for the future
18
3.4
Formulation of strategy and identification of transformational opportunities
18
3.5
Target setting and accountability
18
3
4
Being mindful of shortcomings of the blueprint exercise
19
4.1
Approaches to a blueprint
19
4.2
Royalties for regions objectives
19
4.3
Resilience and downturns
20
4.4
Global competition
21
4.5
Regional data
21
PART TWO
22
5
Directions for a regional development strategy
23
5.1
Development of a regional strategy document
23
5.2
Understanding the regions
24
5.2.1 Regions are dependent on natural resources
25
5.2.2 Regions have low population densities
28
5.2.3 Regions are remote
30
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5.3
The why: rationales for investing in regional development
32
5.4
The where: identifying the areas to invest in
35
5.4.1 Revealed comparative advantage
36
5.4.2 Growth potential
39
5.4.3 Putting comparative advantage and growth potential together
39
5.4.4 Observations
43
5.5
The what: considering the types of investment
48
5.6
Conclusions: taking the above into account but with an eye to the future
49
List of figures
Figure 1
Timing of the blueprint commencement, with per capita regional
output and commodity prices
20
Figure 2
Gross regional product per capita, 2012-13
24
Figure 3
Development regions: contribution of mining to regional output
and per capita GRP, 2012-13
25
Development regions: contribution of agriculture to regional
output and per capita GRP, 2012-13
26
Change in shares of mining and agriculture in regional economic
output, 2001-02 to 2012-13
26
Figure 6
Share of agriculture in regional output (2001-02 to 2012-13)
27
Figure 7
Average annual population growth (2003 to 2013) by regional
LGAs
29
Figure 8
Regional prices and distance from Perth
31
Figure 9
Regional price index and number of businesses per 100
population by local government area (LGA)
32
Figure 10
Revealed comparative advantages by region
38
Figure 11
Revealed comparative advantage and industry growth: Gascoyne,
Goldfields-Esperance and Great Southern
40
Revealed comparative advantage and industry growth: Kimberley,
Mid West and Peel
41
Revealed comparative advantage and industry growth: Pilbara,
South West and Wheatbelt
42
Figure 14
Focussing on education, health and accommodation
45
Figure 15
Focussing on retail trade, manufacturing and arts
46
Figure 4
Figure 5
Figure 12
Figure 13
List of tables
Table 1
Global megatrends by region as identified in the blueprints
6
Table 2
Comparative advantages by region as identified in the blueprints
8
Table 3
Population targets by region as identified in the blueprints
10
Table 4
Pillars of growth and future industry drivers as identified in the
blueprints
11
Table 5
Examples of regional data included in blueprints
17
Table 6
Examples of regional accountability measures
18
Table 7
Population growth by region, 2003 to 2013
29
Table 8
Population and average income by local government area (LGA)
30
Table 9
Ratio of regional per capita output to Western Australian average
34
Table 10
Summary of analysis by region
47
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1
Introduction and overview
1.1
The regional blueprints
In July 2011, the Minister for Regional Development requested each of the State’s nine
regional development commissions to prepare a regional blueprint document. In
commissioning the exercise, it was intended that the regional blueprints would serve to
outline aspirational growth and development strategies for the State’s nine regions.
Specifically:
The purpose of a blueprint is to facilitate the economic potential of a region and to position it to
attain sustainable growth and development goals.1
From the outset of the blueprint preparation exercise, the intent has been that blueprints are
to provide a locally-informed evidence base for investment and resourcing decisions to
support regional economic development.
The blueprint exercise has been a major policy undertaking. In preparing the blueprints, the
regional development commissions consulted extensively with government and nongovernment stakeholders within and external to their regional communities. The exercise
has promoted informed debate and discussion about the futures of Western Australia’s
regions, and for perhaps the first time in recent history, the blueprint documents have
enabled policy makers at all levels of government to see and compare regional perspectives
across each of the State’s regions on a similar basis.
The blueprints provide an extensive and robust platform on which regional development
policy in the State can now be formulated. Strategic gaps and areas for further work do exist
but they can now be more easily identified. Consideration of the focal areas for the regions
and their development can now be undertaken in an informed manner.
As part of the blueprint preparation process, ACIL Allen was engaged by the Regional
Development Trust to undertake detailed reviews of each of the draft blueprints. The
objective of this review process was to provide advice on how the draft versions of the
blueprints could be strengthened so as to ensure the final documents are as internally
consistent and robust as possible. At the time of writing this report, these reviews had
largely been completed and the review findings had been well-accepted by the development
commissions.
ACIL Allen has also been requested by the Regional Development Trust to prepare this
collective review of the blueprints taking into account the themes that emerge on review of
all of the nine blueprints and the implications of those themes for the preparation of regional
development strategy and policy in Western Australia.
1.2
This report
This report is made up of two parts. Part 1 contains a collective overview of the regional
blueprints. It draws out the key themes have emerged from the blueprints, and provides
comment on the implications for government.
1
Department of Regional Development and Regional Development Trust.
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Part 1 also contains descriptions of the positive outcomes that have emerged as a result of
the undertaking of the blueprint exercise, and also points to some potential shortcomings in
the process. These positive outcomes and potential shortcomings emerged during the
review of the individual blueprints. Comment on the capacity for the blueprints to guide
Royalties for Regions decision making is also contained in this section of the report.
Part 2 of the report provides possible directions to take into account for the formation of a
regional development strategy for Western Australia. It takes into account the content of the
blueprints and the learnings from the blueprint review process, along with some basic
empirical and theoretical findings on regional development. The information presented
provides a selection of frameworks for thinking about matters such as:
 the rationales for investing in regional development;
 the use of comparative advantage to identify areas to invest in; and
 the types of government investment that are likely to yield the most success by
supporting but not encroaching on private sector activity.
The concluding section of Part 2, ACIL Allen has attempted to synthesise all the learned
information obtained from the blueprints and the blueprint review process to provide a
headline summary of possible future directions for each of the State’s nine regions.
COLLECTIVE REVIEW OF REGIONAL BLUEPRINTS AND IMPLICATIONS FOR A REGIONAL DEVELOPMENT STRATEGY
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Pa rt On e
REVIEW OF
BLUEPRINTS
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2
Viewing the blueprints in aggregate
This chapter presents the key themes that emerge from the blueprints when they are viewed
in aggregate. Implications for government are also discussed.
2.1
Global megatrends
As part of the blueprint preparation process, development commissions were advised to
explore global megatrends that were expected to have an impact on their regions.
Megatrends identified in the blueprints are depicted in Table 1.
Table 1
Global megatrends by region as identified in the blueprints
Region
Identified global megatrends
Gascoyne
 Affordability and cost of living
 National defence
 Asian population growth
 Global food demand
 Mineral and resource energy
investment
GoldfieldsEsperance
 Digital age
 Environmental change
 Global good consumption
 Urbanisation
 Population ageing
Great Southern
 The Asian century
 Global food consumption
 Mineral and resource energy
investment




Kimberley




 Digital communication and
economy
 Increased emphasis on services
and experience
 Ageing population
Mid West
 Globalisation
 Digital age and changing
expectations
 Ageing populations
 Depleting natural resources
Peel




Demographics
Rise of the individual
Enabling technology
Economic connectedness




Economic power shift
Urbanisation
Climate change
Resource stress
Pilbara




Urbanisation
Rising middle class
Global food consumption
Climate change and water security




Low carbon future
Shift in economic and military power
Digital connectivity
Automation
South West
 Asian century
 Fiscal uncertainty
 Ageing population
 Digital age
 Environment, climate and water
 Urbanisation
Wheatbelt





 Urbanisation
 Climate change and water
 Environmental impact of economic
development
 Alternative energy
The Asian century
Urbanisation
Environmental change
Demand, scarcity and efficiency
Globalisation and the growth of Asia
Feeding the world
Knowledge-based economic growth
Global population growth
Ageing population
Climate change
International tourism
Ageing population
Broadband and the digital age
Source: Regional blueprints.
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Generally, global megatrends were well-identified. Many similarities are evident in the
megatrends identified across each of the regions. Common global megatrends included:
 The (economic and population) growth of Asia with implications for food consumption,
travel demand and urbanisation: Most development commissions identified the growth in
Asia as a potentially substantial source of demand for regional products such as food,
travel, services and resources.
 The ageing of the Australian (and local regional) population: This matter was noted as
both an issue of concern due to the drainage of the labour force brought about the
retirement of large cohorts of regional populations and also an opportunity to pursue
economic activities associated with services such as health care and retirement living.
 Climate change, environmental awareness and the demand for renewably energy: Most
development commissions identified regional environmental attributes as assets that
warranted protection; and also emphasised the potential for regions to produce energy
from renewable sources.
 Ongoing advances in technology and communications: Development commissions
identified the need to ensure that regions were ‘well-connected’ to the digital world as
business opportunities are expected to become increasingly dependent on digital
communications and electronic service delivery.
Implications
For each region, the megatrends assessment identified relatively similar themes. Much
opportunity is expected to come from Asia in the form of demand for agricultural, food,
commodity and tourism exports. Renewable energy generation appears as something of
interest to many regions. The ageing of local populations and the need to stay digitally
connected are seen perhaps more as challenges (rather than opportunities) for the regions.
2.2
Comparative advantages
The identification of comparative advantages was one of the central elements of the
guidance material on blueprint methodology that was provided by the Department of
Regional Development to the regional development commissions:
Comparative advantage is an area of relative strength or specialisation. Efforts to develop
regional economies are most successful when they focus on building on such strengths.
Businesses can also use a region’s comparative advantage to build a competitive advantage,
which is also developed through the combination of factors such as knowledge, resources,
skills and the ability to innovate.2
It was relatively common for development commissions to identify between three and six
comparative advantages for their region. Table 2 provides a summary of the comparative
advantages that were identified in each region.
2
Department of Regional Development, 2013, Summary / Structure of the Key Elements of the Regional Blueprint for
Integrated Regional Growth and Development, May.
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Table 2
Comparative advantages by region as identified in the blueprints
Region
Identified comparative advantages
Gascoyne
 Food production
 Domestic and international tourism
 Resource project support
 Lifestyle and natural
amenity
GoldfieldsEsperance
 Primary industry innovation
 Isolation
 Natural resources and assets
 Culture and heritage
 Strategic location
 Logistics infrastructure and
market access
Great Southern
 Lifestyle and natural amenity
 Primary production
 Tourism
 Tertiary education
Kimberley
 Minerals and energy
 Agriculture and food
 Tourism
 Rangeland industries
Mid West
 Natural resources
 Physical infrastructure
 Digital and communications
infrastructure
 Highly desirable
communities
Peel
 Proximity to Perth
 Strategic position in the future Perth to
South West development corridor
 Existing and proposed major
economic sectors
Pilbara
 Geographic proximity to Asia
 Natural environment and resources
 Location of major industrial activity
 Aboriginal culture and
heritage
 Export infrastructure
 Political stability
South West
 Concentration of high quality natural
resources
 High quality natural environment
 Mediterranean climate
 Established reputation for ‘clean green’
agriculture
 Large labour pool
 Available land for strategic and general
industry
 Lifestyle opportunities and high standard of
living
 Established port with connect road and rail
network
 Developed accessible energy infrastructure
 Edith Cowan University
Campus and South West
Institute of Technology
 Shared time zone with Asia
 Established business and
education links with Asia
 Relative proximity to Asia
 Margaret River brand as a
driver for tourism and
manufacturing
 Community infrastructure
 Convenient access to the
State’s capital city
Wheatbelt
 Primary production in the agricultural and
mining sectors
 A natural environment abundant with
renewable energy sources and tourism
options
 Considerable social
infrastructure
 Close connection to Perth
Source: Regional blueprints.
Through the course of the individual reviews of the blueprints, the following themes emerged
in relation to the identification of comparative advantages. These themes are intended to
serve as observations on the outcomes as evident in the blueprints and not criticisms:3
 Absence of rigorous cross region analysis: For the most part, the blueprints contain
relatively little supporting analysis or commentary about how regional comparative
advantages had been identified. It is assumed therefore that comparative advantages
were predominantly identified by taking into account local knowledge about each of the
regions and consideration of regional strengths. In many instances, advantages were not
identified in the context of advantages that are relative to other regions in Western
Australia (or Australia). This resulted in the identification of comparative advantages that
were not truly comparative, and in many cases could be said to apply to all regions of
3
Themes have been derived following consideration of all blueprints and are general in nature. It is not the case that each
theme applies to each blueprint.
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Western Australia, such as: proximity to Asia; good climate and sunshine; the existence
of coastal land; and the existence of community infrastructure.4
 Focus on geographical and man-made features rather than activities: The concept of
comparative advantage typically relates to the notion of activities for which economies or
regions do particularly well.5 In many instances, the blueprints identified geographical or
man-made features as comparative advantages, such as: proximity to Perth; established
port; social infrastructure; natural environment and export infrastructure. Many of these
could be described as attractive features of regions but of more interest than the
existence of the features themselves is how these features can be used to foster
economic activity.
 Advantages generally high level rather than detailed: In instances where activities were
identified as comparative advantages, the nature of the activity was generally identified
at a high level. Rather than focussing on say the production of particular types of
agricultural or resource commodities, it was common to report advantages such as
primary production; minerals and energy; and agriculture and food.
 Tourism, agriculture, resources and lifestyle were commonly identified as comparative
advantages: Looking across each of the blueprints, these four items tend to feature
prominently and are probably accurate depictions of the State’s regions.
Implications
The main implication to arise out of the review of identified comparative advantages is that
there would be value in an evidence-based and truly comparative (i.e. cross-regional)
assessment of the comparative advantages in terms of the economic activities of each of
the State’s regions. This is important because by concentrating regional development
policies on economic activities where regions have a comparative advantage will, all else
equal, provide the best chance of fostering growth and prosperity. Directions as to how this
could be done are contained in Part 2 of this report.
2.3
Growth aspirations
Guidance provided by the Department of Regional Development to the regional
development commissions suggested that blueprints were to provide for realistic yet
aspirational visions for the future of the regions. As part of the communication of these
realistic yet aspirational visions, the regional development commissions provided population
targets in their blueprints.
The majority of the blueprints contained population projections to the year 2050, though one
blueprint had a population projection up to 2036 and another to 2040.
The stated population projections tended to be relatively high: populations of between two
and three times existing levels were commonly projected. Projections tended to be built on
existing projections data, such as that produced by the Western Australian Planning
Commission, and then adding additional growth potential.
In aggregate, and by taking a conservative view by assuming that each of the regional
projections were for the year 2050 (rather than earlier as is the case in some instances), the
blueprint projections amount to a regional population in 2050 of approximately 2.6 times the
4
Part 2 of this report provides directions on how to identify regional comparative advantages using a truly comparative and
evidence -based approach.
5
Comparative advantage could be described as what one region does, relatively well, relative what other regions do relatively
well.
COLLECTIVE REVIEW OF REGIONAL BLUEPRINTS AND IMPLICATIONS FOR A REGIONAL DEVELOPMENT STRATEGY
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existing regional population (Table 3). In comparison, the Australian Bureau of Statistics
projects that Western Australia’s population will be approximately 2.2 times larger than
current levels by 2050.6
Table 3
Population targets by region as identified in the blueprints
Current population
(approx.)
Population target
(approx.)
Projected population
as a multiple of current
population
Gascoyne
10,000
23,000 by 2050
2.3
Goldfields-Esperance
61,000
87,000 by 2050
1.4
Great Southern
59,000
100,000 by 2040
1.7
Kimberley
38,000
92,000 by 2036
2.4
Mid West
58,000
190,000 by 2050
3.3
Peel
124,000
300,000 by 2050
2.4
South West
164,000
500,000 by 2050
3.0
Wheatbelt
74,000
180,000 by 2050
2.4
Pilbara
65,000
200,000 by 2050
3.1
Total
653,000
1,672,000
2.6
Region
Source: Regional blueprints.
Implications
Viewed as a whole, the aggregated regional population projection is not entirely
unreasonable when it is considered that development commissions were asked to set
aspirational visions.
It is worth noting though that projections do tend to be high relative to existing projections
such as those produced by the Western Australian Planning Commission and Australian
Bureau of Statistics. This may make the task of getting stakeholder endorsement for the
blueprints difficult in some instances (particularly in the case of state government
departments). At an individual regional level, projections in some instances are notably high.
During the course of the reviews of the individual blueprints, it was generally found that the
population projections were not built on solid analytical underpinnings, and that the
blueprints tended not to fully identify the sources of job creation that would be required to
support the stated population projections.
2.4
Transformational opportunities
Looking across each of the blueprints and identifying the main areas of focus for
transformational opportunities enables the formation of a holistic view of the future strategic
directions of the regions as seen by the development commissions.
In Table 4 on the following page, ACIL Allen has attempted to capture the key strategic
themes as contained in the blueprints. The table should not be considered as the ultimate
summary of each of the blueprints but rather ACIL Allen’s interpretations of the strategic
elements that stood out most on reading each of the blueprints. The exercise was not
straight forward as the structure and terminology used in the blueprints varies across each
of the documents.
In presenting the blueprints, the development commissions tended to identify what are
sometimes referred to as ‘pillars of growth’. These pillars could perhaps also be thought of
6
ABS, Population Projections Australia, series B, cat. no. 3222.0.
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as broad focus areas that are seen as important in underpinning future regional growth and
development. There tended to be fair amount of similarities across the regions in terms of
the identification of these pillars. Commonly identified items included:
 Communities and natural amenity: Development commissions see healthy and diverse
communities and high levels of regional amenity as important in attracting and retaining
regional populations.
 People, education and knowledge: Through the blueprints, the development
commissions stressed the benefits of human capital and the importance of education,
training and knowledge dissemination.
 Industry: A prosperous industry sector was commonly identified as an important element
of regional growth and development.
 Infrastructure: Most commissions emphasised the importance of, and need for
additional, infrastructure to facilitate industry and enhance communities.
Table 4
Pillars of growth and future industry drivers as identified in the
blueprints
Region
Pillars of growth and development
Future industry drivers
Gascoyne
 Industries & markets; Regional
accessibility; Human capacity &
knowledge; Innovation; Aboriginal
and small business economic
capacity; Health & lifestyle.





GoldfieldsEsperance
 Enabling infrastructure & services
 Primary industry development &
value add
 Industry diversification
 Market access infrastructure &
services
 Population services & facilities
 Mining knowledge & services
 Food production & agriculture
services
 Tourism & visitation
 Energy & industrial technology
Great
Southern
 Economic growth & diversity;
Infrastructure & services; Knowledge
& innovation; Community &
environment.
 Agriculture & food
 Tourism
 Tertiary education
Kimberley
 Regional leadership; Services sector;
Aboriginal advancement; Industry &
resources development; Regional
centres; Infrastructure.




Minerals & energy
Agriculture & food
Tourism
Rangeland industries
Mid West
 Physical infrastructure; Digital &
communications; Economic
development; Highly desirable
communities; Knowledge & learning.




Tourism
Agriculture & food
Resources
Renewable energy
Peel
 Thriving industry; Agriculture & food
innovation; Capable people; Strong &
resilient communities.
 Agriculture & food
 Light industry
 Tourism
Pilbara
 Infrastructure & land access;
Education & training; Health &
wellbeing; Marine, resource
engineering & supply chains;
Innovation and technology; Small to
medium business; Agriculture and
aquaculture; Energy; Tourism.




Resource engineering
Agriculture & aquaculture
Energy
Tourism
South West
 Infrastructure; Industry & business;
People and place; Community.




Agriculture & food
Tourism
Education
Digital media & technology
Wheatbelt
 Vibrant economy; Clever people;
Liveable communities; Valued natural
amenity.
 Agriculture
 Tourism
 Alternative energy
Tourism
Pastoral
Fishing & aquaculture
Horticulture
Resources
Source: Regional blueprints.
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The second column in the table identifies the main industries that were identified in the
blueprints as being drivers of regional growth and development into the future. It is notable
that:
 Agriculture was identified by every development commission as a future driver for the
region: This tied in with observations that growing wealth in Asia will lead to increased
demand for food products, particularly high-value or high-protein products, and that
regional Western Australia was well-placed to satisfy this growing demand.
 Similarly, tourism was identified by every development commission as a future driver for
the region: Again being derived from expectations of growing wealth in Asia and a shift
in market preference toward ‘experience and nature-based tourism’ to which the regions
were assessed as being well-placed to respond to.
 Resources and resource-related activity feature prominently but not to the same extent
as agriculture and tourism: This may indicate that the development commissions see the
importance of the resource sector to regional Western Australia as declining over time.
 Emerging industries include education and renewable energy generation: Regional
natural amenity is seen by development commissions in the Great Southern and South
West as potentially being able to entice tertiary students (and in particular foreign
students) to study in a regional environment. This may prove to be the case as both
regions are reasonably close to Perth, have high levels of natural amenity, and contain
large population centres: the latter factor being particularly important in the facilitation of
learning and the exchange of ideas. Renewable energy generation is also seen by some
development commissions as potential driver of growth due to natural environmental
characteristics (including sunlight, wind, and geology that is suited to geothermal energy
production) and expectations of increasing demand over time for cleaner energy.
Implications
Agriculture, including food production and fishing, and tourism definitely lead the way in
terms of future regional drivers in the collective view of development commissions.
Resource-related activity is seen as less important but still features fairly prominently. Future
emerging industries of note for some regions include renewable energy production and
tertiary education with a focus on the attraction of foreign students.
2.5
Identification of synergies across blueprints
The majority, if not all, of the blueprint content is focussed on the individual regions to which
each document relates. This outcome is not surprising given the nature of the task that was
allocated to the development commissions. And a result of this outcome is that, viewed
directly, the blueprints do not provide much clarity as to the possibilities of potential crossregional or collaborative type projects.
It is clear, however, that agriculture and tourism emerge from a collective review of the
blueprints as two industries that have been unanimously identified as future drivers of
growth and development. If a view is held that the blueprints are right to single out
agriculture and tourism then there are roles for State Government to play in the design of
regional development policy to take account of, and leverage off, these synergies.
Agriculture
Agriculture entails different commodities and different production methods in different
regions but the one commonality is the production of agricultural produce for export, and in
particular, for export to Asia. There are roles for the State Government:
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 A push to export greater volumes must be supported by the existence of suitable export
infrastructure: A cursory review of port export facilities in the State’s north (where much
of the expected agricultural activity is expected to take place) shows that currently there
is relatively limited capacity to export large volumes of agricultural produce. In the case
of agricultural exports, ports are likely to be true multi-user facilities, for which there
would be a clear role for Government provision.
 A unified Western Australian approach and brand may prove to be valuable: A common
theme within the agricultural commentary in the blueprints is the need to build on a
reputation of Western Australian agriculture being ‘clean and green’. A State
Government led approach to branding and marketing would be the most effective means
to communicate a unified message to actual and potential customers with the aim of
building the reputation of the local agricultural industry.
In pursuing agricultural opportunities as a key source of future regional growth, it should be
kept in mind that historically it has been difficult to point to agriculture as a growth driver:
Historically, it has been difficult to make the case for agriculture as an engine of economic
development in rural regions. The broad sweep of evidence has tended to point in the opposite
direction – the rising value of labour in the new industrial and post-industrial economy has
tended to draw workers to urban centres, and in doing so depopulate rural regions. To the
extent that the rural population has proven relatively immobile, spatial inequalities in income,
wealth, and opportunity have persisted to the detriment of rural regions.7
Theories of regional growth have tended to point towards agglomeration efficiencies (those
that come from having large, diverse and relatively complex economic structures) and the
deepening of labour markets (concentrations of diversified yet skilled workers) as key
determinants. Agriculture, with its relatively small and geographically dispersed labour force
requirements, is not conducive to either of these factors.
Tourism
While each region has identified tourism as a future driver of growth, there is a clear role for
the State Government to centralise an approach to the promotion of regional tourism rather
than an approach that has each region working on its own accord to grow its own tourism
industry:
 Tourism attraction initiatives aimed at the local tourism market must seek to increase the
size of the market rather than substitute travel from one regional area to another:
Tourism markets in Western Australia’s regions are largely comprised of local Western
Australians visiting the regions. If individual regions were to engage in efforts to market
to and attract greater numbers of local tourists then the likely impact at a State level is
that there would be no net gain: the local tourist market would likely substitute among
regional destinations and in doing so, would benefit some regions at the expense of
others.
 Implication: There is probably very little benefit to the State that can come from
competitive efforts undertaken at the regional level to market to the local market,
unless efforts are carefully managed to increase the size of the local market that
actively travels in the State’s regions. This type of approach might be best led at a
State level rather than at an individual regional level.
 On their own, regions are unlikely to have enough ‘pulling power’ to attract international
visitors: A prevalent theme in the blueprints is the focus on international visitors as it is
this market, that while relatively small currently, that has been identified as having the
7
A. Randall, 2010, ‘Multifunctional Agriculture: An Engine of Regional Economic Growth’, Economic Papers, vol. 4, pp. 7-8.
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most growth potential. Tourism industries tend to benefit from clustering whereby there
are areas with a large number of potential tourist attractions, and/or accommodation and
service facilities. This is generally because, it is difficult for an isolated tourist attraction
or accommodation facility to have the power to draw in tourists on its own accord
whereas a large number of attractions or facilities, when packaged together, will be more
effective in generating the required pulling power to attract tourists. At a whole of State
level, this translates to a view that regions, working in isolation, would likely find it difficult
to establish the draw of international tourists that are needed to sustain vibrant regional
tourism industries.
 Implication: Efforts to attract the international market are more likely to be
successful if they sell a tourism package that has many offerings, or many regional
experiences. As above, this type of approach would be best led at a State level
rather than at an individual regional level.
 As identified by the blueprints, natural amenity is important: Tourism may be a potential
driver of growth but it is not likely to be one that can be successfully pursued across the
board. Like the case with natural amenity, there is scope for regional attractions to drive
growth, particularly if coupled with appropriate policies to enhance amenity, but only in
those areas in which the initial endowment of amenity is relatively high.
 Implication: Growth may be able to be driven to some extent by tourism, and also
natural amenity, but governments must carefully select the regions in which tourism
or amenity-driven policies are to be implemented. As put more colloquially by one
author, ‘amenity-oriented policies are likely to be more effective in stimulating
economic growth in the “silk purse” locations than in the “sow’s ears”’.8
Combining agriculture, tourism and natural amenity
While not specifically elaborated on in the blueprints, an emerging literature is pointing
toward the growth potential of strategies that seek to combine agriculture and tourism and
build on regional natural amenity. Theories on what is referred to as ‘multifunctional
agriculture’ point to beneficial outcomes from agriculture such as the production of artisanal
food products; traditional production techniques; the preservation of historic production
facilities and regionally-branded outputs.
These themes, it is argued can be combined with tourism strategies to provide regionally
attractive packages that result in sustainable agricultural activities. These agricultural
activities may export globally but also locally, and are able to capture the benefits that come
from drawing a sizeable tourism market. The draw of tourists also benefits other industries
within the relevant region. The growth in the State’s wine production industry in the South
West and Great Southern is a standing example of the potential successes that can come
from this type of approach.
Such approaches to growth and development may be best suited to agricultural areas that
are within close proximity to Perth, and in areas that already have a high-level of natural
amenity.
Resources
As is shown in Part 2 of this report, resources sector activity makes up for a significant
portion of the economies of Western Australia’s regions. The resources sector is particularly
pronounced in regions such as the Pilbara and Mid West but also features prominently in
8
A. Randall, 2010, ‘Multifunctional Agriculture: An Engine of Regional Economic Growth’, Economic Papers, vol. 4, p. 14.
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the economies of regions such as the Gascoyne and Kimberley: each of the regions has
identified resources sector activity as a source of future growth. The recent experience of
the Pilbara shows that the resources sector can serve as a driver of growth in regional
economies. Following a theoretical and empirical review of the role of the resources sector,
versus other potential sectors, in driving regional growth in Canada, it was concluded that:
The principal policy finding of the case study is that regions with a natural resource endowment
should concentrate their efforts on realizing the comparative advantage offered by staples
relative to other economic activities. Staple development poses challenges, but the net benefit
equation favours staples over other economic options, which also pose challenges without the
offset of resources rent.9
The above finding equates to support for what is sometimes referred to the ‘staple theory of
regional development’. The staple theory is closely aligned with the theory of dependency
on comparative advantage, and has a long history of support in the economic literature
(Box 1).
Box 1
The staple theory of regional development
In its simple form, the staple theory of regional development sets out a path to self-sustaining
growth for regional economies rich in natural resources:
1. Regional economies undertake natural resource extraction, requiring little in the way of
processing prior to export to industrial countries.
2. Growth is stimulated by direct investment in the extraction of the staple and by ‘spread
effects’:
a) Forward linkages: processing of the staple prior to export.
b) Backward linkages: the production of inputs such as machinery and transportation
infrastructure required to extract the staple, as is done well in the Goldfields-Esperance
economy with its active mining services industry.
c) Final demand linkages: the production of consumer goods and services to meet the
regional needs of those employed in the staple industry.
d) Fiscal linkages: the expenditure of rents and profits generated by resource production,
for example the spending of Royalties for Regions funds generated by the resources
sector to stimulate growth.
3. In the case of staple-led economies, demand, capital and entrepreneurship can be provided
by external export markets rather than being restricted by the regional availability of
consumption.
4. The regional economy expands through the above ‘spread effects’ to achieve economies of
scale necessary to diversify through import substitution and other non-staple related growth.
5. Over time, the regional economy can become decreasingly dependent on a narrow staple
export base and growth can become self-sustaining.
Source: T. Gunton, 2003, ‘Natural Resources and Regional Development: An Assessment of
Dependency and Comparative Advantage Paradigms’, Economic Geography, vol. 79 (1), pp. 68-69.
A focus on natural resource led growth in the regions has a number implications for State
Government:
 The four linkages outlined in the box above provide a framework for potential areas of
focus: Importantly, the staple theory emphasises playing to regional strengths but also
leveraging off those strengths by seeking to encourage diversification of activity around
existing regional strengths.
 Implication: Western Australia has many well-run private resource companies and
the case for direct government intervention may not be clear but government could
9
T. Gunton, 2003, ‘Natural Resources and Regional Development: An Assessment of Dependency and Comparative
Advantage Paradigms’, Economic Geography, vol. 79 (1), p. 89. In this context, ‘rent’ is defined as the surplus income
earned in natural resource development after compensating for all other factors of production.
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seek to look at the economic linkages as outlined above a means to indirectly assist
industry and promote regional development.
 Commodity prices and activity is cyclical and expenditure needs to be carefully
assessed: There is a strong tendency for staple regions to overestimate demand and
build excess capacity. This is commonly said to be the result of bullish expectations and
long lead times, which require decisions on capacity expansion to be made ahead of
when they are perceived to be needed.
 Implication: Government investment should be risk averse. Economies of scale,
natural monopolies and the creation of external benefits may amount to a good case
for government investment but it needs to be decided upon after rigorous review that
demonstrates the generation of long term net benefits.
 A key element of resource led growth is the recycling of rents back to the region from
which they have been collected: Governments must be careful not to excessively extract
royalty revenue from successful regions and profitable industry and recycle it into less
successful regions or unprofitable industry.
 Implication: The allocation of Royalties for Regions funds across the State’s regions
should bear some resemblance to the regional sources of those funds. This need not
be exact as Government has numerous objectives (such as equality of opportunity) it
is trying to achieve, but all else equal, those regions that create the wealth are
probably those that are likely to benefit most from its allocation. Infrastructure needs
are likely to be higher in those regions of high activity and growth potential is also
likely to be higher.
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3
Drawing on the positives of the
blueprint exercise
There have been many positive outcomes as a result of the blueprint exercise. A selection
of these positive outcomes is identified in this chapter.
3.1
Engagement with stakeholders
The blueprint process has facilitated an extensive amount of stakeholder consultation in the
regions. Consultation approaches have been diverse and included state and local
government organisations; the non-government sector, the private sector and local
communities. It has not been uncommon for development commissions to have consulted
with over 200 stakeholders as part of the preparation of their blueprint.
Development commissions have indicated that the stakeholder processes have facilitated
high levels of positive regional engagement and triggered beneficial discussion and debate
about the future of the regions.
3.2
Understanding of the regions
Each blueprint contains extensive economic and social profiling of its region and it is likely
that this information will be absorbed over time by stakeholders, and will facilitate an
enhanced understanding of the regions.
The approaches to profiling have been broadly the same but, in detail, slightly different
across each of the regions. This diversity of analysis may prove to provide for a valuable
resource that can be interrogated to build on existing regional profiles that have already
been produced by the Department of Regional Development.
The blueprints also demonstrate the types of regional statistics that are possible to derive; a
snapshot of which is provided in Table 5.
Table 5
Examples of regional data included in blueprints
Regional data descriptions
Literacy and numeracy results for regional
students
House tenure arrangements
Levels of educational attainment by local area
Numbers of job seekers
Sub-regional economic profiles
Rates of imprisonment
Major regional trading partners
Sources and types of tourists
Share of FIFO and permanent jobs
Business counts by industry
Source: Regional blueprints.
Working with the regions, the Department of Regional Development could use the existing
blueprint basis to assist in the creation of a central database of regional statistics if such a
database were desired.
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3.3
Planning for the future
An important element of the blueprint exercise was always the setting of future strategic
directions for the State’s regions. It is certainly the case that much critical thought and
careful analysis has been given to the future, and also toward the identification of means to
push regions above outcomes that would be expected under business as usual scenarios.
In developing strategic directions for the future, development commissions have made
efforts to identify regional strengths and advantages, and also actual and potential
constraining factors. This in itself has been a useful exercise.
3.4
Formulation of strategy and identification of
transformational opportunities
While government may not accept or endorse all of the strategies and transformational
opportunities that have been identified, the blueprint process has resulted in the publication
of strategies and transformational opportunities that can now be considered for
implementation. As the blueprints are public documents, consideration and debate about the
implementation of strategies can take place both within government, and within the public
arena. In this way, the blueprints will foster openness and transparency in the formulation of
regional development policy.
3.5
Target setting and accountability
The blueprints exercise has encouraged development commissions to publish clear
performance targets so that progress towards regional objectives can be monitored over
time. Stated targets cover a raft of measures of regional development, and include both
economic and social objectives. Examples of accountability measures included in the
blueprints are presented in Table 6.
Table 6
Examples of regional accountability measures
Regional accountability descriptions
Tourism visitor spend targets
Life expectancy targets
Aboriginal employment targets
Education attainment targets
New house construction targets
Local port tonnage targets
Targets for rates of volunteering
Socio-economic index targets
Source: Regional blueprints.
The public documentation of measures of performance offers a degree of accountability that
arguably was not as present prior to the commencement of the blueprint process. The
blueprints, when viewed collectively, also provide the opportunity to draw on the different
regional approaches to accountability and seek to aggregate the core elements of each so
as to produce a centralised framework of accountability measures, should such a framework
be desired.
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Being mindful of shortcomings of
the blueprint exercise
4
The blueprint exercise has been a complex and significant undertaking and very few
processes are perfect from start to finish. Shortcomings have been identified through the
blueprint review process and are documented in this chapter.
4.1
Approaches to a blueprint
At the commencement of the blueprint exercise, there was some absence of a clearly
articulated outline or template of how a blueprint was to be prepared and what it was to
contain. The overriding view from the development commissions is that this absence of
guidance did make blueprint formulation a difficult task, at least initially.
The outcome has been a collection of blueprints that are similar in overall substance but
also markedly different in their details. On the one hand, this has resulted in blueprint
documents that are unique and proudly-owned and endorsed by each of the commissions.
On the other hand, the outcome has been a set of documents that can be very difficult to
compare across on a like-for-like basis.
Common elements like comparative advantages have been identified differently and to
different degrees of detail, as have regional capacities for growth and transformational
opportunities. Also of note is that blueprint structures do not necessarily align easily with
government portfolios and this may add to the challenge of embedding the blueprints into
government structures and decision making processes.
4.2
Royalties for regions objectives
The blueprints set high level strategic directions for the regions but they do not necessarily
assist with the task of determining how to allocate Royalties for Regions funding projects so
as to be consistent with the program’s purposes, these being:
a) to provide infrastructure and services in regional Western Australia;
b) to develop and broaden the economic base of regional Western Australia;
c) to maximise job creation and improve career opportunities in regional Western
Australia.10
For the most part, the blueprints did not provide commentary on specific projects and for this
reason, there was not the need to comment on Royalties for Regions purposes and how
these purposes are to be met.
This matter has been included here because, prior to the completion of the blueprints, there
were some expectations that the blueprints would improve the rigour and transparency of
decisions having to do with the allocation of Royalties for Regions funds.11 By setting highlevel agendas, arguably the blueprints do provide a first step in this process but they do not
10
Royalties for Regions Act 2009, section 9(1).
11
For example, see ERA 2014, Inquiry into Microeconomic Reform in Western Australia, Final Report, p. 87.
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contain evidence as to why projects meet Royalties for Regions assessment criteria (and
probably appropriately so).
4.3
Resilience and downturns
Governments have an obligation to drive economic development in the common good but it has
to be driven by reality. It has to survive a rigorous cost benefit analysis. It has to be sustainable,
economically, environmentally, socially and culturally, and must provide long term secure
employment and an economic return in the form of GDP for the jurisdiction.12
Development commissions were first asked to prepare regional blueprints in 2011. At the
time, the Western Australian resource sector was expanding rapidly in response to high
commodity prices. Regional economies, with their reliance on the resources sector, were
also experiencing strong growth (Figure 1).
Figure 1
Timing of the blueprint commencement, with per capita regional
output and commodity prices
*
Data for 2014-15 are for July 2014 to March 2015.
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot; and Reserve Bank of Australia, 2015, Non-Rural Commodity Price Index.
Within this external scenario, development commissions were asked to be aspirational in
their thinking on, and planning for, regional growth over time.
The result has been that the blueprints present relatively favourable scenarios of regional
growth and development over coming decades. Strategies have been formulated and
opportunities identified firmly with the concept of growth in mind and a focus on regional
strengths, rather than regional weaknesses.
This point is not made with intent to be critical of the blueprints13 but simply because it is
important to note that they generally do not contemplate prospects of regional decline and
nor the formulation of strategies to do with the management of potential downturns or the
12
B. Gosford quoting Syd Stirling, 2014, Good Money after Bad. The NT Government and the Ord River Irrigation Scheme,
http://blogs.crikey.com.au/northern/2014/02/13/good-money-after-bad-the-nt-government-and-the-ord-river-irrigationscheme/, accessed 15 May 2015.
13
The sections above have tried to convey that the blueprints are the result of the guidance provided to the commissions and
the economic conditions that prevailed at the time.
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promotion of economic resilience in the regions. The blueprint commentary tends to be more
positive than balanced, and this may serve as point of critique for some.
4.4
Global competition
The export of commodities was identified as a fundamental aspect of the current and future
economies of most, if not all, regions. In forming views about the future prospectivity of
export markets, development commissions identified growing sources of foreign demand for
Western Australian commodities and produce.
What is not so apparent from the blueprints, is whether serious consideration has been
given to potential global supply responses, and the competitive positioning of the State’s
regions among other international producers of similar commodities. Blueprint analysis
tended to be largely internal to each region, with less emphasis on other external global
supply capacity.
Again, this commentary is not intended as a criticism of the blueprints but rather an
observation on the outcomes of the blueprint exercise, and as a flag for some potentially
valuable work that could build on the blueprint analyses so as to firm up the robustness of
the identified regional strategies.
Writing on this in the context of regional industries, the OECD states that:
…regional governments should be aware that while the demand for these sectors might be
sizeable in the near future, the supply from other regions could be significant as well.
Competition is therefore fierce…14
4.5
Regional data
One of the criteria that was assessed as part of the blueprint review process was the
accuracy of quantitative inputs used in the preparation of the blueprints. The review found
that there was, in most cases, significant scope to improve the accuracy of the inputs used,
particularly when it came to the use of economic statistics. It was also noted that it was
relatively common for different commissions to use different sources of data.
While it is encouraging that development commissions are seeking their own sources of
data so that they can better understand their region, the downside to this is that it can be
difficult to compare blueprint statistics from one region to another, as the data sources used
are often different. Another downside is the inefficiencies associated with individual
development commissions each using their own resources to find and analyse data.
The blueprint exercise has demonstrated the value that could be derived from a single and
central point of data for all regions. Such a database could facilitate easy access to regional
information, and also enhance the ability to undertake unbiased statistical comparisons
across the different regions using a standardised set of data.
14
OECD, 2008, A Review of Local Economic and Employment Development Policy Approaches in OECD Countries, p. 200.
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Pa rt T w o
DIRECTIONS ON A
REGIONAL
DEVELOPMENT
STRATEGY
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5
Directions for a regional
development strategy
This chapter contains guidance that has been developed following consideration of the
regional blueprints, and also of regional economic data and regional development theory.
The contents of the chapter may be of value in future deliberations on the preparation of a
regional development strategy for Western Australia.
5.1
Development of a regional strategy document
The nine regional blueprints are relatively broad, high-level and aspirational documents.
They provide a solid basis from which to start thinking about policy formulation for regional
development in Western Australia. The formulation of robust regional development strategy
is something that the Department of Regional Development is (rightly) contemplating.
A regional development strategy should clearly and specifically outline the basis for the
making of decisions surrounding regional development policy and also the reasons for which
the Government is actively seeking to promote regional development.
In short, work is needed to provide some bounds or indicators on the focus areas for the
formulation of regional development policy in Western Australia. An overarching finding from
the blueprint exercise is that the delivered products are broad rather than specific:
Sometimes, strategy frameworks are overly comprehensive documents that try to cover most of
the topics at the core of the development debate and achieve too many, sometimes conflicting,
goals. However, the prime objective of a strategy should be to set a clear vision about the
future development of the region and to address the community of local stakeholders on what
the development priorities are and where public funding will be accordingly available. This is
more likely to happen by narrowing down priorities and objectives and by setting up a clear and
transparent system of public policy funding.15
The objective of this chapter is to provide some concepts and directions for the development
of a targeted and coherent regional development strategy for Western Australia. It contains
the following sections:
 Understanding the regions: An overview of the underlying economic and social
structures of the regions and draws conclusions about important regional growth drivers.
 The why: rationales for investing in regional development: A summary of the rationales
for regional development, as being put forward in academic literature and by
organisations such as the OECD.
 The where: identifying the areas to invest in: A cross-regional analysis of comparative
advantages and economic growth provides indicators of potential focus areas of
investment for each of the State’s regions.
 The what: considering the types of investment: A framework for the types of government
investment that are likely to yield the most success by supporting but not encroaching on
private sector activity.
 Conclusions: A snapshot of potential future directions for each of the State’s regions,
having regard to the content of the blueprints and the findings in Part 2 of this report.
15
OECD, 2008, A Review of Local Economic and Employment Development Policy Approaches in OECD Countries, p. 197.
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5.2
Understanding the regions
Western Australia’s regions contribute significantly to the State’s economic and social
profile. Approximately 24 per cent of the State’s population resides in its regional areas.16 In
economic terms, the regions generate approximately 31 per cent of Western Australia’s total
economic output. Similarly, approximately 30 per cent of the Western Australia’s economic
growth between 2001-02 and 2012-13 took place in the regions.17
In aggregate sense, per capita output in regional Western Australia ($111,931) is actually
greater than that in the Perth metropolitan area ($90,749).18 However, there are marked
differences in economic outcomes across each of the State’s nine regional areas.
As at 2012-13, per capita gross regional product was highest in the State’s two most miningintensive regions, these being the Pilbara and Goldfields-Esperance:
 approximately 76 per cent of the output of the Pilbara is attributable to mining and per
capita output in 2012-13 was 2.7 times that of the Western Australian average; and
 approximately 63 per cent of the output of the Goldfields-Esperance is attributable to
mining and per capita output in 2012-13 was 1.7 times that of the Western Australian
average (Figure 2).
Figure 2
Gross regional product per capita, 2012-13
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot.
Per capita output in the Mid West, South West, Peel and Gascoyne is in all cases broadly
consistent (plus or minus 10 per cent) with the Western Australian average. While per capita
output in the Wheatbelt is 89 per cent of that of the Western Australian average; for the
Kimberley, the ratio is 82 per cent; and for the Great Southern, 74 per cent.
16
ABS, Regional Population Growth Australia, cat. no. 3218.0.
17
Department of Regional Development statistics, 2014, Estimated Gross Regional Product: Regional Snapshot.
18
Department of Regional Development statistics, 2014, Estimated Gross Regional Product: Regional Snapshot.
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5.2.1
Regions are dependent on natural resources
The economies of Western Australia’s regions depend predominantly on mineral and
agricultural resources. Over the past decade or so, there has been a clear demarcation in
the economic performance of the State’s regions: those regions with a stronger minerals
sector have outperformed those regions with a greater agricultural focus.
Figure 3 plots, for each region, the relative share of each regional economy attributable to
mining activities on the x-axis (the more mining intensive the economy, the further right the
region sits in the chart); and the ratio of each region’s per capita output to the Western
Australian average on the y-axis (the higher the per capita output relative to Western
Australia, the higher the region sits in the chart). Also included is a linear trendline that has
been fitted to the data. The figure shows that those regions with higher relative shares of
mining activity in their economic profile demonstrate higher per capita output.
Figure 3
Development regions: contribution of mining to regional output
and per capita GRP, 2012-13
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot.
Along the same lines, Figure 4 plots, for each region, the relative share of regional economy
attributable to agricultural activities on the x-axis (the more agriculture intensive the
economy, the further right the region sits in the chart); and the ratio of each region’s per
capita output to the Western Australian average on the y-axis (the higher the per capita
output relative to Western Australia, the higher the region sits in the chart). The figure shows
that those regions with higher relative shares of agricultural activity in their economic profile
demonstrate lower per capita output.
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Figure 4
Development regions: contribution of agriculture to regional
output and per capita GRP, 2012-13
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot.
Over the 12 years to 2012-13, each of the State’s nine regions has undergone an economic
shift towards greater mining output and less agricultural output. As demonstrated in Figure
5, the relative importance of mining in regional economic output in all of the State’s nine
regions has increased, while the relative importance of agriculture in regional economic
output has decreased. For each region, the figure shows the difference in the share of
mining and agriculture in the regional economy between 2001-02 and 2012-13.
Figure 5
Change in shares of mining and agriculture in regional economic
output, 2001-02 to 2012-13
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot.
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The positive black bars in the figure above show that for each region, the importance of
mining in the regional economy has increased over the period (i.e. the 2012-13 contribution
of mining is greater than the 2001-02 contribution). The negative grey bars show that for
each region, the importance of agriculture in the regional economy has decreased over the
period (i.e. the 2012-13 contribution of agriculture is less than the 2001-02 contribution).
This trend away from agriculture is not solely the result of the high rates of growth observed
in mineral commodity prices in recent years. In an absolute sense, the value of regional
output attributable to agriculture has declined in every region over the period 2001-02 to
2012-1319 and this is despite rural commodity prices increasing by almost 15 per cent over
the same period.20
In 2001-02, agriculture accounted for 15.3 per cent of regional economic output. By 201213, the share of agriculture in regional economic output was 3.7 per cent (Figure 6).21
Figure 6
Share of agriculture in regional output (2001-02 to 2012-13)
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot.
Agricultural employment has also declined. In the late 1980s, the agriculture sector
employed over 40,000 Western Australians. In the year to February 2015, average
employment in agriculture was approximately 21,700. In contrast, the mining sector directly
employed an average of 93,900 people over this same period.22
19
Department of Regional Development statistics, 2014, Estimated Gross Regional Product: Regional Snapshot.
20
Reserve Bank of Australia, 2015, Commodity Price Statistics, http://www.rba.gov.au/statistics/frequency/commodityprices/2015/icp-0315.html.
21
Department of Regional Development statistics, 2014, Estimated Gross Regional Product: Regional Snapshot.
22
ABS, 2015, Labour Force Australia, Detailed Quarterly, cat. no. 6291.0.55.003.
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Finding 1
In Western Australia, the mining sector creates over four times as many jobs as the agriculture
sector. Since the mid 1980s, the number of mining jobs in the Western Australian economy has
trended up while the number of agricultural jobs has trended down.
Implication: All else equal, investment in mining-related activities is likely to create more jobs
than investment in traditional agriculture-related activities.
5.2.2
Regions have low population densities
This shift away from agricultural activities is not unique to Western Australia. Nationally and
internationally there are marked trends towards lower levels of agricultural employment,
particularly in developed economies.23 Much of the economic literature on regional
development has at its core the objective of addressing regional decline that in large part
has been brought on by the diminishing significance of economic and employment
outcomes attributable to agriculture. As noted by Randall in 2010:
Labour simply matters very much less than it used to, in the production of food and fibre
commodities.24
In aggregate, regional population in Western Australia is growing but at a slower rate than
that of Perth. Hence the regional population share has declined steadily since 2003 from
25.2 per cent of the State’s population to 23.9 per cent in 2013.25 Within this regional
aggregate trend has been a shift in population away from small inland (and predominantly
agricultural settlements) toward larger coastal settlements.
Figure 7 shows the average annual rate of population growth for Western Australia’s
regional local government areas after separating them into five percentiles based on 2003
populations. The Figure shows negative rates of population growth have been experienced
in smaller local government areas and that larger areas have had significantly higher rates
of population growth over the period.
23
International Labour Office, 2011, Global Employment Trends, p. 68 (and elsewhere) and ABS, 2015, Labour Force
Australia, Detailed Quarterly, cat. no. 6291.0.55.003.
24
A. Randall, 2010, ‘Multifunctional Agriculture: An Engine of Regional Economic Growth’, Economic Papers, vol. 4, pp. 7-8.
25
ABS, 2014, Regional Population Growth Australia, cat. no. 3218.0.
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Figure 7
Average annual population growth (2003 to 2013) by regional LGAs
Source: ABS, 2014, Regional Population Growth Australia, cat. no. 3218.0.
Over the period 2003 to 2013, 48 of the State’s 109 regional local government areas
experienced negative average annual rates of population growth. Of these 48 local
government areas:
 46 had a 2003 population of less than 5,000 people;
 41 were inland local government areas; and
 28 were Wheatbelt local government areas; 9 were Mid West local government areas;
and 7 were Great Southern local government areas.
Also over the period, the average annual rate of population growth in coastal local
government areas (2.68 per cent) was nearly double that of inland local government areas
(1.35 per cent). Table 7 depicts population growth statistics by development region.26
Table 7
Population growth by region, 2003 to 2013
Estimated residential
population (No.)
Average annual rate
of population growth
(%)
No. of LGAs with
negative average
population growth
(No.)
2013
2003 to 2013
2003 to 2013
Gascoyne
9,899
-0.22
2 of 4
Goldfields-Esperance
61,926
1.13
1 of 9
Great Southern
59,234
0.86
7 of 11
Kimberley
39,890
1.89
0 of 4
Mid West
57,901
1.35
9 of 17
Peel
124,463
4.36
0 of 5
Pilbara
66,298
4.29
0 of 4
South West
169,682
2.51
1 of 12
Wheatbelt
75,009
0.34
28 of 43
Total
583,619
1.96
48 of 109
Region
Source: ABS, Regional Population Growth Australia, cat. no. 3218.0.
26
ABS, 2014, Regional Population Growth Australia, cat. no. 3218.0.
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A distinguishing feature of larger, as opposed to smaller, regional centres is that populations
in larger regional centres tend to earn higher incomes than those in smaller regional centres.
This is likely the result of factors such as critical mass and agglomeration effects that tend to
create greater economic opportunities for people that live in larger, rather than smaller,
population centres (Table 8).
Table 8
Population and average income by local government area (LGA)
Average
income of
LGAs
Minimum
average
income of
LGAs
Population
No. of LGAs
Total pop.
% of total
regional pop.
0 to 5,000
81
123,028
18.5
$43,279
$31,420
5,001 to
15,000
14
142,738
21.5
$51,020
$39,798
15,001 +
14
398,536
60.0
$60,674
$43,023
Total
109
664,302
100.0
$46,419
$31,420
Note: Average income is defined by the ABS as “average wage and salary income”.
Source: ABS, Regional Population Growth Australia, cat. no. 3218.0 and ABS, National Regional
Profile, Local Government Area Data.
Finding 2
Generally, small inland (and predominantly agricultural) areas are enduring population decline at
the expense of larger coastal centres. Populations in larger centres tend to earn higher incomes
than those in smaller centres.
Implication: It would likely be difficult for government investment to counteract this population
trend. All else equal, investment in larger coastal centres is likely to deliver more economic
growth impetus than investment in small inland areas. Though there may be a case to be made
for investment in small inland areas on social grounds.
5.2.3
Regions are remote
Regions, by definition, are far from major population centres and hence labour markets and
city infrastructure. Distances are critical for regions; and distance, whether it be for the
purposes of securing necessary inputs to production or enabling end products to be
delivered to market, is costly to traverse.
Figure 8 plots the premium of prices in Western Australia’s regional local government areas
relative to Perth against the distance of each local government area from Perth. In the
figure, each dot represents a regional local government area (for which price data are
available). On the x-axis, each local government area is plotted according to far from Perth it
is (the further to the right, the further away the local government area is from Perth). On the
y-axis, each local government area is plotted according to its level of prices relative to Perth
expressed as a percentage (i.e. a figure of 5 on the y-axis indicates that prices in the local
government area are five per cent higher than in Perth). The point is not to observe where
each local government area sits bur rather to observe the overall trend and this is shown by
the upward sloping trend line that is fitted to the data: there is a clear positive relationship
between distance from Perth and prices in the regions.
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Figure 8
Regional prices and distance from Perth
Source: Department of Regional Development, 2013, Regional Price Index and Google Maps.
This is important because prices are critical for business viability. From a business
perspective, high prices mean high input costs (wages; energy; raw materials and rents for
example). To earn profits, a business with high input costs has to sell its outputs at a higher
price than does a business with low input costs. In most markets, output prices are a given
and cannot be influenced by an individual or group of businesses. All else equal, a high
price environment is likely to be less conducive to business viability than a low price
environment; and importantly from a regional development perspective, fewer businesses
mean fewer jobs.
Figure 9 provides support for this concept. It demonstrates a negative relationship between
prices and the number of businesses per 100 people in regional local government areas. In
other words: higher prices result in less business activity per head of population.
In the figure, each dot represents a regional local government area (for which price data are
available). On the x-axis, each local government area is plotted according to its level of
prices relative to Perth expressed as a percentage. On the y-axis, each local government
area is plotted according to how many businesses it has per 100 people. As above, the
point is not to observe where each local government area sits bur rather to observe the
overall trend and this is shown by the downward sloping trend line that is fitted to the data:
there is a clear negative relationship between prices and the measure of per capita business
activity in the regions.
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Figure 9
Regional price index and number of businesses per 100
population by local government area (LGA)
Source: Department of Regional Development, 2013, Regional Price Index and ABS, National Regional
Profile, Local Government Area Data.
Finding 3
High prices detract from business viability and prices in Western Australia’s regions tend to
increase with distances from Perth.
Implication: Government investment that is focussed on reducing prices in regional areas by
targeting factors such as transport, telecommunications, property and energy are likely to
encourage business growth and development and in turn, create jobs.
5.3
The why: rationales for investing in regional
development
The act of implementing policy for the purpose of ‘regional development’ is something that
has, in recent years, attracted a relatively vocal group of critics. In 2014, the Economic
Regulation Authority recommended, in its Draft Report on Microeconomic Reform in
Western Australia, that Royalties for Regions legislation be repealed and that regional
projects should compete for Government funding on the same basis as all other projects
(i.e. metropolitan projects).27
In March 2015, the Chamber of Commerce and Industry in Western Australia put forward a
similar view:
The R4R program should be reviewed to examine its relative merits in light of the fiscal
challenges facing WA. Regional infrastructure projects should be considered as part of a
broader state infrastructure plan, and should undergo the same transparent cost benefit
analyses as any other infrastructure projects.28
27
Economic Regulation Authority, 2014, Inquiry into Microeconomic Reform in Western Australia, Draft Report, p. 68.
28
Chamber of Commerce and Industry Western Australia, 2015, The Future of Infrastructure: A Vision for WA, p. 79.
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It is relatively common, in the academic and policy arena, to encounter views as to the
merits of population concentration, or agglomeration. Cities have deep pools of labour and
environments that facilitate the exchange of ideas and innovation and it is these features
that led the Grattan Institute to refer to cities as the ‘engines of prosperity’ in its 2014 report:
The intense economic contribution of CBDs occurs partly because of the concentration of jobs
in these areas. But CBD businesses are also much more productive on average than those in
other areas. Inner city areas and secondary commercial hubs, such as those around large
cities’ airports, also tend to be more productive than other locations.29
Government policy action should always be motivated by clear and coherent rationale and
objectives. This may be even more important given the existing fiscal environment in
Western Australia, and the views of some policy commentators.
The following sections provide an outline of some of the commonly cited rationale for
government investment in regional development.
Addressing underutilised potential
The pursuit of regional development does not discount the importance of well-formulated
state-wide policies (sometimes called ‘spatially blind policies’) but rather is simply an
acknowledgement that regions are different to metropolitan areas and among themselves,
regions are different to each other. Different environments, economies, stocks of
infrastructure and population sizes and distributions require different approaches to policy.30
In addition to the above, a commonly cited regional difference is the distance that different
regions are from their potential level of output. As seen in Figure 2 above, there is a marked
difference in per capita output of Western Australia’s regions: at the extremes, the ratio of
regional per capita output in the Pilbara to the Western Australian average is 2.7, while for
the Great Southern, the ratio is 0.74.
For policymakers, this may suggest that there is much underutilised economic potential, and
possibly constraints that are limiting growth and development in a region such as the Great
Southern. It must be noted that a focus that seeks to address underutilised potential is not at
all a trivial pursuit. In 2012-13, there were six regions with per capita output that was less
than the Western Australian average. Collectively, these six regions accounted for nearly
53 per cent of regional economic growth over the period 2001-02 to 2012-13.31 In a view put
forward by the OECD, and applicable to the situation in Western Australia, ‘policies that fail
to address underperformance in lagging regions overlook their actual and potential
contributions to aggregate growth’.32
A further reason that the relative position of regions to their potential is important is in the
design of policy approaches. Research undertaken by the OECD has found that
underperforming regions tend to benefit most from capital deepening and infrastructure
investment. Regions that are below indicative averages yet above underperforming regions
also benefit from infrastructure investment but also policies aimed at labour force activation.
High-performing regions typically perform well in terms of infrastructure availability and
29
Grattan Institute, 2014, Mapping Australia’s Economy: Cities as Engines of Prosperity, p. 1.
30
Another way to put this is to note that policymakers will confront very different challenges in providing the same services in
compact urban areas than are faced in sparsely settled remote rural regions.
31
Department of Regional Development statistics, 2014, Estimated Gross Regional Product: Regional Snapshot.
32
J. Enrique Garcilazo, 2010, ‘Why Policies Need to Place-Based in order to be People Centred’, OECD Policy Portal.
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labour force activation but tend to benefit most from innovation-related policies that seek to
leverage off an already strong economic base.33
For the purposes of demonstration, Western Australia’s nine regions were segregated into
three percentiles based on their ratios of regional per capita output to Western Australian
average per capita output. Implications for policy focus areas, taking into account the OECD
findings above, are indicated in Table 9.
Table 9
Ratio of regional per capita output to Western Australian average
Region
Ratio of regional per capita
output to Western Australian
average per capita output
Implications: potential focus areas
Lowest third
-Great Southern
73.6
-Kimberley
82.2
-Wheatbelt
89.1
 Infrastructure investment
Mid third
-Gascoyne
91.2
-Peel
92.3
-South West
93.3
 Infrastructure investment
 Labour force activation
Top third
-Mid West
107.6
-Goldfields-Esperance
169.6
-Pilbara
270.2
 Innovation-related policies
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot; J. Enrique Garcilazo, 2010, ‘Why Policies Need to Place-Based in order to be
People Centred’, OECD Policy Portal; and ACIL Allen Consulting, 2015.
In considering an approach to policy development that takes into account regional economic
performance and potential, there is a need to move beyond a typical approach of using
fiscal transfers to ‘prop up’ lagging regions. Instead, endogenous factors that may prevent a
region from approaching its production possibility frontier must be identified and overcome.
The intent must not be to pursue a zero sum game of taxing high wealth areas to subsidise
activities in lower wealth areas but to realise a positive sum game by encouraging internally
derived growth in the underperforming regions. In other words, the focus should be growth
enhancement, not compensation.
Additional rationale
In some cases, regional areas may be prone to particular types of market or government
failures: situations in which private sector markets or government actions do not deliver
outcomes that are efficient or optimal when considered from a whole of society perspective.
In these instances, there may be a considered case for government intervention as a means
to address region-specific matters, such as:
 Regions being out of popular sight and difficulties in obtaining information: In its recently
released Vision for WA report, the Chamber of Commerce and Industry recognised ‘the
need to invest in the regions after years of underinvestment by successive
governments.’34 The report did not go into detail about the causes and magnitude of this
underinvestment but a commonly encountered issue is simply that regions are
geographically far from, and in some sense, out of the immediate sight of, central
33
J. Enrique Garcilazo, 2010, ‘Why Policies Need to Place-Based in order to be People Centred’, OECD Policy Portal.
34
Chamber of Commerce and Industry Western Australia, 2015, The Future of Infrastructure: A Vision for WA, p. 78.
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government decision-making processes. This is not just a matter for the government
sector: studies have found that small regional firms with similar risk profiles to
metropolitan counterparts tend to have more difficulties accessing finance from private
providers than do metropolitan firms.
Firms that are smaller, newer, minority-owned and located in remote locations are likely be that
much more inaccessible to financial institutions. For the latter, the costs and time involved in
assembling information on these businesses can be prohibitive. This information shortfall
contributes to their risk profile and to their limited ability to gain access to conventional sources
of credit.35
There is scope for government policy to address these matters by allocating resources
specifically toward regional development and toward enhancing the availability of
information on regional economies and firms; and even perhaps the facilitation of access
to finance in regional areas.
 Regional populations having limited mobility: Labour markets work effectively when
people are mobile and able to move to where employment opportunities are. In the case
of large cities, this is not usually a problem as the majority of jobs are confined to
relatively small geographic areas and hence they are relatively easy for people to
access. In regional areas, jobs may be geographically diverse, and populations may
have more of a tendency to have strong ties to particular areas and hence can be
relatively immobile. It follows that a critical element of regional development policy is
about facilitating job creation in areas where there are local populations, or identifying
means by which local populations can easily travel to employment opportunities.
 High per capita costs of service provision: The per capita costs of service provision in
small regional centres tend to be relatively high. Residents that remain in centres
experiencing population decline are effectively put at a disadvantage: per capita costs of
service provision rise as people leave and so too does the likelihood that certain
services will not be provided due to perceptions that they are uneconomic. If there is a
view that people across the State should be entitled to an equality of basic living
standards and opportunity then a government focus on regional development can be
warranted to ensure basic services are provided to regional areas.
5.4
The where: identifying the areas to invest in
A focus on regional growth and development lends itself naturally to an approach that has
an emphasis on investing in regional comparative advantages, or investing for
transformational or growth potential. Both themes featured prominently in the blueprints and
in the advice provided to the development commissions ahead of the preparation of the
blueprints.
In a simple sense, comparative advantage refers to economic activities that are performed
well or efficiently in one region relative to other regions. In layman’s terms:
Comparative advantage is what one region does, relatively well, relative to what other regions
do relatively well.36
All else equal, an economic development strategy that focuses on building on and
leveraging off comparative advantages will provide for the best chance of economic
success.
35
D. Felsenstein, A. Fleischer and A. Sidi, 1998, ‘Market Failure and the Estimation of Subsidy Size in Regional
Entrepreneurship Programme’, Entrepreneurship & Regional Development, vol. 10, p. 152.
36
ACIL Allen Consulting, 2014. A more technical definition involves the estimation of full production costs of economic outputs
and the identification of regions and activities in which these production costs are the lowest.
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The unique aspects of a locality and the ability to create and strengthen a comparative
advantage are at the heart of economic development and success.37
The concept of growth potential is about taking into account past and estimated future
growth trends and enabling regional economies to adapt, either through expansion or
managed decline, to changing economic circumstances.
Optimal policy design should, as best possible, take account of both comparative advantage
and growth potential.
As noted in Part 1 of this report, the development commissions have identified perceived
comparative advantages and growth opportunities in their blueprints. It was also noted,
however, that the identification of these elements was done without a full cross-regional
consideration of each region’s strengths relative to other regions in the State, or in Australia.
There is no simple way to identify the comparative advantages and areas of growth potential
in regions, particularly as regional economic data is relatively scarce. However, an approach
developed by ACIL Allen in collaboration with the Regional Development Trust is outlined
below.
5.4.1
Revealed comparative advantage
A revealed comparative index is derived on the assumption that the existing economic
performance of a region can serve as a good indicator of the industries in which that region
has a comparative advantage. The strength of a revealed comparative advantage approach
is that it enables the identification of significant industries in each region while using a
relatively simple and consistent methodology. In other words, with revealed comparative
advantage, the results are truly comparative across regions because, for each region, the
results are derived in a consistent way.
Revealed comparative measures the relative significance of different industries in a regional
economy. Those industries that are relatively significant are likely to be industries for which
a regional economy has comparative advantage in. Relative significance is measured by the
combination of two elements:
 The first element is the contribution of an industry to the total regional economy. This is
simply the share that the industry has in the total regional economy. All else equal, the
larger the share of an industry in the regional economy, the more significant it is to that
economy. This aspect of the calculation is captured by the numerator of the revealed
comparative advantage formula contained on the following page.
 The second element takes into account the relative share that the same industry has in
the national economy. The intent behind the inclusion of this element is to enable the
identification of truly significant (or specialist) industries in a regional economy as it is
these industries that are likely to be the comparative advantage industries. This aspect
of the calculation is captured by the denominator of the revealed comparative advantage
formula contained on the following page.
A hypothetical example is provided in the box below so as to demonstrate the concept of
regional comparative advantage.
37
F. Barca, P. McCann and A. Rodriguez-Pose, 2012, ‘The Case for Regional Development Intervention: Place-based versus
Place-Neutral Approaches’, Journal of Regional Science, vol. 52(1), p136.
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Box 2
Revealed comparative advantage
The first element: industry share
Consider Region X that has an economy that produces $100 worth of output. Of this total output,
the manufacturing sector produces $10. The relative share of the manufacturing sector in
Region X is 10 per cent. On the face of it, the manufacturing sector may appear relatively
significant to the regional economy but is it a real comparative advantage industry? Does
Region X do manufacturing better than other areas? To answer these questions, we need to take
into account the second element of the equation.
The second element: industry share relative to national economy
Region X is part of a national economy that produces $1,000 worth of output. Within this national
economy, the national manufacturing sector produces $200. At a national level, the relative share
of the manufacturing sector is 20 per cent.
The results
Taking both elements into account, we can now see that in relative terms, the manufacturing
sector in Region X is not overly significant compared to the national outcome: in fact,
manufacturing is only half as significant to the economy of Region X than it is to the national
economy. Region X does not appear to be a region that has any particular reliance on, or
specialisation in, manufacturing.
The conclusions
Manufacturing is unlikely to be a comparative advantage industry for Region X because the
relative significance of manufacturing in its economy is less than the relative significance of
manufacturing in the national economy.
If it was found that at a national level, the manufacturing sector accounted for 5 per cent of
national output, then it could be argued that Region X has a comparative advantage in
manufacturing. In this case, the relative significance of manufacturing in Region X is greater than
the relative significance of manufacturing in the national economy.
Source: ACIL Allen Consulting.
Formula for revealed comparative advantage
In short, for each region, the index compares the share that an industry has in a regional
economy relative to the share that the same industry has in the Australian economy.
The revealed comparative advantage formula is expressed below:38
RCA =
𝑂𝑢𝑡𝑝𝑢𝑡𝑖𝑟 ⁄ 𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡𝑟
−1
𝑂𝑢𝑡𝑝𝑢𝑡𝑖𝑎 ⁄ 𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡𝑎
Where:
 RCA = revealed comparative advantage;
 Output ir = Output of industry i in region j;
 Total output r = Total output of region j;
 Output ia = Output of industry i in Australia;
 Total output a = Total output of Australia.39
A revealed comparative advantage index that is greater than zero for industry i means that
industry i is more important in region j’s economy than it is in the country as a whole; thus
38
D. Clark, W. Sawyer and R. Sprinkle, 2005, ‘Revealed Comparative Advantage Indexes for Regions of the United States,
Global Economy Journal, vol. 5(1).
39
The analysis is typically done by comparing regional export shares to national export shares but in this instance, industry
output was used as data on regional exports were unavailable.
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implying a comparative advantage. The larger the comparative advantage index number,
the stronger is the comparative advantage.
A revealed comparative advantage index that is less than zero for industry i means that
industry i is less important in region j’s economy than it is in the country as a whole; thus
implying a comparative disadvantage. The smaller (more negative) the comparative
advantage index number, the stronger is the comparative disadvantage.
Revealed comparative advantage: headline results
The top three revealed comparative advantage industries in Western Australia’s regions are
presented in Figure 10 below. In the figure, mining is depicted by purple bars; agriculture by
grey bars; transport by yellow bars; construction by black bars; and manufacturing (which
only appears once) by an orange bar.
Figure 10 Revealed comparative advantages by region
Note: Indexes were calculated using data over a five year period (2008-09 to 2012-13) to provide a
robust basis for measurement and avoid the effects of single outlier years.
Source: Department of Regional Development statistics, 2014, Estimated Gross Regional Product:
Regional Snapshot and ABS, Australian National Accounts, cat. no. 5220.0.
The analysis provides for some indicative conclusions:
 Regions are resource-based economies: Mining emerges as the comparative advantage
industry for seven of the State’s nine regions and for the two remaining regions, the
leading comparative advantage industry is agriculture.
 Construction and transport feature prominently: The majority of construction is likely to
be mining-related and transport is naturally important given distances that need to be
traversed to source imports and reach points of export.
 Four of the State’s nine regions are highly specialised: These are the Pilbara and
Goldfields-Esperance in mining and the Wheatbelt and Great Southern in agriculture.
 The Mid West, Gascoyne and South West demonstrate a relative amount of diversity:
For these regions, comparative advantages are evident in fairly equal proportions across
their top three industries.
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5.4.2
Growth potential
Rates of industry growth in the regions was used for the purposes of providing a framework
for an empirical and cross-regional assessment of growth potential. Analysis of rates of
growth can provide insight into:
 industries that have grown rapidly over the past decade, and hence could be expected to
continue to grow thus bringing economic opportunities; and
 industries that have declined over the past decade and hence may warrant policy
consideration on matters such as the management of decline or the overcoming of
constraints to growth.
5.4.3
Putting comparative advantage and growth potential together
ACIL Allen has developed a set of matrices that, for each region, provides a useful snapshot
of comparative advantage and growth industries. The matrices have been developed using
available data, as produced by the Department of Regional Development, on the industry
components of economic output (or gross regional product) by region. The matrices
(depicted on the following pages in Figures 11 to 13) have four quadrants:
 Top right, comparative advantage and growth: These are the industry sectors that
should be looked upon as most likely to drive regional growth and development. They
are sectors for which a region has comparative advantage in, and for which have
experienced growth over the past decade. Government policy should seek to facilitate
growth in these already successful sectors, and to leverage off them by focussing on the
economic linkages discussed in chapter two.
 Bottom right, comparative advantage with no growth: These are the industry sectors for
which a region has a comparative advantage in but for which have been in decline over
the past decade. Government policy should seek to identify and overcome
constraints to growth.
 Top left, growth but not yet comparative advantage: These are the industry sectors that
have experienced growth over the past decade but for which a region does not have
comparative advantage. Government policy should look at this quadrant as identifying
potential emerging industries for which start up assistance could be provided to assist
the region capture transformational opportunities.
 Bottom left, no growth and no comparative advantage: These are the industry sectors for
which there is no comparative advantage or growth. Government policy might be
warranted here to manage decline or assist regions transition out of these industries.
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Figure 11 Revealed comparative advantage and industry growth: Gascoyne,
Goldfields-Esperance and Great Southern
Source: Department of Regional Development statistics and ACIL Allen Consulting, 2015.
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Figure 12 Revealed comparative advantage and industry growth: Kimberley,
Mid West and Peel
Source: Department of Regional Development statistics and ACIL Allen Consulting, 2015.
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Figure 13 Revealed comparative advantage and industry growth: Pilbara,
South West and Wheatbelt
Source: Department of Regional Development statistics and ACIL Allen Consulting, 2015.
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5.4.4
Observations
The matrices above have been prepared primarily to demonstrate a framework that could be
applied to shape thinking on possible approaches to regional development policy and to
assist with the formulation of an evidence-based targeted approach toward industry
investment. Box 3 below provides some further explanation about how the quadrants might
be used to shape thinking on the government approach to industry investment.
Box 3
Implications of the quadrant framework
The quadrants are underpinned by the premise that government is seeking to drive growth and
development in the State’s regions. This is not the sole objective of government attention on
regional development but for the blueprint exercise and the spending of Royalties for Regions
funds, it is an important objective held by government.* To achieve growth and development,
government investment is likely to be most effective if it is targeted towards growing industries in
which regions have a comparative advantage in: these are industries that are in the top right
quadrants in the figures below.
This is not to say that government investment must only focus on industries in the top right
quadrants to the exclusion of all others. To the contrary, there is still cause for investment in
industries in other quadrants. The quadrant framework is useful also in that it can provide insight
into the likely best approach to investment in industries that are not in the top right quadrants. For
example:
 Industries in the bottom right quadrants are still comparative advantage industries but they
are not growth industries, so government investment could seek to enable these industries to
grow. Perhaps there is a role to identify and overcome barriers to growth for these industries.
 Industries in the top left quadrant show promising growth but are not comparative advantage
industries. Government investment could seek to attempt to promote expertise in these industries
so that they become comparative advantage industries. It must be kept in mind however, that this
strategy may be relatively hard to execute successfully as regions do not demonstrate natural
comparative advantages or ability to do well in industries in this quadrant.
 Industries in the bottom left quadrant show neither growth nor comparative advantage
potential but government investment in these industries may seek to assist workers in developing
skills so that they can transition to other industries. Alternatively, these industries could be viewed
as those that have potential for a truly transformative change for the better. Again though, it must
be kept in mind that this type of strategy is probably going to be riskier than one which focused on
strong comparative advantage or strong growth industries.
* Two of the three criteria in the Royalties for Regions Act 2009 regarding the spending of Royalties for
Regions funds relate directly to the objective of enhancing regional growth and development. These are
section 9(1)(b) to develop and broaden the economic base of regional Western Australia; and section
9(1)(c) to maximise job creation and improve career opportunities in regional Western Australia. The
third criteria, section 9(1)(a) is about the provision of infrastructure, which is also critical to the
achievement of regional growth and development.
Source: ACIL Allen Consulting.
Some observations on the outcomes of the exercise are listed below:
 Mining and construction are significant regional drivers: For almost every region, mining
and construction emerge as strong comparative advantage industries and also strong
growth sectors.
 Agriculture is also significant but not growing: Agriculture is a comparative advantage
sector for many regions but in each region, the sector has been in decline over the past
decade.
 Transport is of fundamental importance to regions: Transport emerges as a critical
sector for most regions likely due to remoteness and the reliance that natural resource
industries have on transporting produce.
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 Tourism (estimated by the accommodation sector) is relatively insignificant when
compared to the natural resource industries: No region shows a compelling comparative
advantage in the accommodation sector, and for most, growth in this sector has been
relatively modest.
 Retail trade is a possible emerging industry in the State’s southern regions: The Peel,
South West and Great Southern regions have growing retail trade sectors which is likely
a reflection of the large population centres in these regions and also possibly the high
regional amenity values that may serve to attract shoppers seeking regional produce
(within relatively proximity to Perth).
 Manufacturing is a commonly underestimated industry of note in the Peel and South
West: While not major comparative advantage industry, both regions have strengths and
have experienced growth in manufacturing.
The dominance of the mining, construction, agriculture and transport industries in the
region’s economies is a notable conclusion in itself and should be taken into consideration
in policy deliberations. It is also possible however that the significance of these industries
may tend to overshadow other potential industries of focus. For the purpose of shining a
light on other potential industries of focus and as a means to demonstrate the potential
flexibility of the approach, ACIL Allen performed the same analysis but excluded the four
dominant industries from the regional and country data. The results, this time depicted on an
industry by industry basis, are depicted in Figures 14 and 15 on the following pages.
Following the charts is a table that summarises the findings from the two sets of
comparative advantage analysis (Table 10).
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Figure 14 Focussing on education, health and accommodation
Source: Department of Regional Development statistics and ACIL Allen Consulting, 2015.
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Figure 15 Focussing on retail trade, manufacturing and arts
Source: Department of Regional Development statistics and ACIL Allen Consulting, 2015.
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Table 10
Summary of analysis by region
Region
Observations
Gascoyne
 Mining, construction and transport are important industries to focus on.
 Agriculture is a strong comparative advantage but investigation is needed as
to why the industry in not growing.
 The above major industries overshadow an emerging comparative
advantage industry in tourism (accommodation and food services).
 Investment in infrastructure and labour force activation may be important for
this region.
GoldfieldsEsperance
 The region is a real mining and mining services specialist and policy could
focus on fostering the linkages to and from the mining sector.
 Retail trade and manufacturing may be emerging comparative advantage
industries of note.
 Innovation-related policies may be important for this region.
Great Southern
 Has a strong comparative advantage in agriculture but investigation is
needed as to why the industry in not growing.
 The region has a strong health sector, perhaps a result of its elderly
population.
 Retail trade is a high growth and potential comparative advantage industry.
 Investment in infrastructure may be important for this region.
Kimberley
 Mining, construction and transport are important industries to focus on.
 Education and health feature prominently as important industries that
overshadowed by the above major industries. This is possibly a reflection of
the costs of health and educations service delivery to this remote region and
offer potential focus areas to try to achieve more efficient outcomes for both
the region and the State Government.
 Investment in infrastructure may be important for this region.
Mid West
 Mining, construction and transport are important industries to focus on.
 The region has a fair comparative advantage in agriculture but investigation
is needed as to why the industry in not growing.
 The region is diverse, with underlying strengths in education, health and
retail trade.
 Innovation-related policies may be important for this region.
Peel
 Mining and construction are important industries to focus on but unlike many
other regions, transport is not so significant, probably reflecting the region’s
proximity to Perth and to points of export.
 Agriculture is not a comparative advantage industry and is not growing.
 The major industries overshadow manufacturing as a potential comparative
advantage and growth industry.
 Retail trade is prominent as a potential emerging industry.
 Investment in infrastructure and labour force activation may be important for
this region.
Pilbara
 The Pilbara is a mining specialist and policy could focus on fostering the
linkages to and from the mining sector.
 Accommodation and food services is also a significant and growing industry.
This is probably mining-related and highlights the importance of ensuring
that sub-industries that service headline industries are operating as
effectively as possible.
 Innovation-related policies may be important for this region.
South West
 Mining and construction are important industries to focus on but unlike many
other regions, transport is not so significant, probably reflecting the region’s
proximity to Perth and to points of export.
 Utilities is a significant industry in the South West, which is a probably a
reflection of the energy generation facilities in the region.
 The major industries overshadow manufacturing as a potential comparative
advantage and growth industry.
 Retail trade is also prominent as a potential emerging industry.
 Investment in infrastructure and labour force activation may be important for
this region.
Wheatbelt
 The Wheatbelt is an agriculture specialist and policy could focus on
identifying and overcoming constraints to industry growth.
 Mining, construction and transport are also significant and growing
industries.
 The major industries overshadow education as a potential comparative
advantage and growth industry.
 Investment in infrastructure may be important for this region.
Source: ACIL Allen Consulting, 2015.
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5.5
The what: considering the types of investment
Once potential industries of focus have been identified, consideration must be given to the
types of investment that could reasonably and effectively be undertaken by Government so
as to promote growth and development.
In the regions, as in metropolitan areas, government investment is best suited to those types
of investment that the private sector would not otherwise provide. Rather than replace
private investment, government investment should seek to encourage and stimulate private
investment. This is best done by seeking to invest in:
 Public goods: Goods (and services) that once produced can be enjoyed by all. People
cannot be excluded from using public goods and hence public goods are typically underprovided by the private sector (because it is not practical to charge people for use).
Examples include the protection or enhancement of environmental assets that benefit all
and may stimulate tourism or improve agricultural productivity.
 Goods that have positive externalities: Goods (and services) for which the benefits of
consumption flow beyond the immediate consumer and for which the producer of the
goods or services is not directly compensated for. Examples include the provision of
education services, which creates benefits for the student receiving the services but also
produces wider benefits for society that come from having an educated population.
 Natural monopoly infrastructure: Multi-user infrastructure facilities with high costs of
establishment that preclude or dissuade single private parties from investment.
Examples include multi-user ports or airports.
 Means to overcome information asymmetries: In some instances, markets do not
function as effectively as they could due to the absence of information or due to one
party having more information than another party. Examples of potential investments to
overcome information asymmetries is the public provision of information on the potential
prospects of mining tenements (drilling results) or the public provision of weather
information and grain productivity outlooks.
 The establishment of network effects: As more firms in related fields of business cluster
together, their costs of production may decline significantly. Grouped firms can exert
competitive pressures on suppliers; learn from each other; attract more customers than
they could do alone; or have greater capacity to specialise by selling off unwanted
elements of production to neighbouring firms. An example in the context of regional
Western Australia is the cluster of wine, restaurant and function centres in the South
West. Together, this cluster can attract more customers than would be the case if the
firms were geographically isolated.
Examples of these principles being successfully implemented in practice are provided in
Box 2.
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Box 4
Lessons from regional development case studies
In 2008, the OECD undertook an extensive case study review of the effectiveness of five regional
development strategies from different countries. The conclusions drawn on commonly used and
effective regional development strategies included:
1. The use of cluster development programs: to encourage business networks so as to
generate efficiencies and economies of scale (the relevant principle from the list above is
‘network effects’).
2. The use of technology upgrading programs: to support the shift of local producers from
broad unspecified markets to market niches through higher quality production (the relevant
principles from the list above is ‘positive externalities’ and ‘natural monopoly infrastructure’ as
technology can be costly to develop but once in place can be used by multiple parties).
3. The use of workforce development programs: as a means to increase industrial
productivity by upgrading worker skills (the relevant principle from the list above is ‘positive
externalities’ as education and training benefit both the recipient and others).
4. The focus on innovation and knowledge transfer programs: best implemented when
governments provide support not only to a few knowledge-intensive companies but also to
expand the base of local innovative firms so as to encourage information dissemination (the
relevant principle from the list above is ‘information asymmetries’).
Other commonly cited regional development strategies (and their relevant principles) include:
amenity driven growth (‘public goods’); infrastructure development (‘natural monopoly’) and
labour market programs to try to match available labour skills with industry needs (‘information
asymmetries’).
Source: OECD, 2008, A Review of Local Economic and Employment Development Policy Approaches
in OECD Countries; A. Randall, 2010, ‘Multifunctional Agriculture: An Engine of Regional Economic
Growth’, Economic Papers, vol. 4; and J. Enrique Garcilazo, 2010, ‘Why Policies may need to be Placebased in order to be People Centred’, OECD Policy Portal.
5.6
Conclusions: taking the above into account but
with an eye to the future
The preparation regional blueprints has been an enormous policy undertaking. Western
Australia now has a set of nine regional documents that are built on regional expertise,
community consultation and informed analysis. These documents provide the basis for the
formulation of approaches to regional development on both a State-wide, and regionspecific level. This intent behind the preparation of this document has been to summarise
the core themes contained in the blueprints, and to also offer some further insight (building
off the content of the blueprints and the lessons learned during the blueprint review process)
into potential future directions in the advancement of a regional development strategy.
In the paragraphs below, ACIL Allen has taken the findings of this report into consideration
along with its knowledge of the blueprint contents to offer a view of potential areas of focus
for each of the State’s nine regions.
There are, of course, a multitude of elements to take into account when considering future
prospects for each region. The objective here has been to prepare, for each region, a
headline direction for the future. The results are intended as ‘food for thought’ and are not
necessarily definitive: it is acknowledged that there is an element of (informed) subjectivity
involved. The results, provided below, have been formed after taking into account factors
such as: the identified global megatrends; regional comparative advantages; economic
linkages; historic trends in the regions; and the rationales presented in this chapter on why,
where and what to consider when considering regional development:
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 Amenity driven growth (South West and Great Southern): Both regions have high
levels of natural amenity and have already had success in leveraging off this amenity
through the development of a reputable (i.e. well branded) cluster of an agriculture and
food-based hospitality and tourism sector. Global megatrends suggest that the
production of high-value food products for the Australian and international markets could
continue to be pursued and linked also to tourism opportunities. Population growth could
continue to come from retirees and people seeking a change in lifestyle, while
maintaining some proximity to Perth. To do this effectively, the cost of living would have
to be appropriately contained40 and there may be scope for Government policy on this
front. Staple industries of mining and agriculture should be maintained and facilitated
possibly through infrastructure investment but potential detriment to natural amenity
should be carefully managed.
 Urban growth and the release of pressure on Perth (Peel): The Peel is arguably
closer to metropolitan Perth than it is to regional Western Australia. Development policy
based on the growth of cities, and the management of city-type problems
(unemployment and social and economic disconnectedness) is perhaps just as
important as typical regional development type matters. As increasing land values in
Perth push industry and residents outwards, the Peel should be looked upon as a means
to cater to these urban activities. Residential accommodation, retail trade, hospitality and
light industrial activities currently located on the outskirts of Perth could be successfully
absorbed by the region.
 Productive land and proximity to Perth (Wheatbelt): The Wheatbelt is a specialist
agricultural region and should continue to play to its strengths. Reasons as to why the
agricultural sector in the region has not been growing (constraints to growth, particularly
infrastructure constraints) should be identified, as well as prospects involving greater
processing and value adding to agricultural produce. With proximity to markets in Perth
and geographical features that are conducive to renewable energy production, the
Wheatbelt is already an established provider of wind energy and growth prospects in
renewable energy could be further pursued. The production of biofuels presents a
possible opportunity to pursue over time. Proximity to Perth may also facilitate
agricultural and boutique food based tourism opportunities so as to leverage off what
may be a declining traditional agriculture base.
 The mining specialists (Goldfields-Esperance and Pilbara): Both regions contain
world-class expertise in mining and mining services. With amenity prospects arguably
relatively limited, theories of growth point to a focus on leveraging off the staple resource
sectors by investigating prospects for growth and innovation in forward linkages
(processing of raw commodities); backward linkages (inputs into mining activities); and
final demand linkages (accommodating the needs of workers in the commodity sectors).
 The pursuit of a truly diversified regional economy (Mid West): The Mid West has
the basic ingredients in place to be a truly diversified and hence economically stable
region. The region has strengths in agriculture and mining; a well-functioning port; and a
geographic location that makes it well-suited to playing the role of a hub or stopover
destination. Geraldton has the characteristics of a large regional city, within which
education and retail trade are prominent (as they are in most cities). Development efforts
should focus on the building of agglomeration and networks so that growth may become
self-sustaining. The facilitation of innovation and deep pools of skilled labour is possible
and would support the viability of industry in the region.
40
As retirees typically have fixed incomes.
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 Northern Australian agriculture and proximity to Asia (Gascoyne and Kimberley):
The Federal Government announced its commitment to Northern Australia in the
recently released 2015-16 Budget. State-based regional development policy must work
with the direction being taken nationally. Development in these regions should be about
the provision of economic infrastructure to assist with the delivery of bulk commodities to
nearby trading partners in Asia, and then the recycling of earned revenues back into
struggling communities. The facilitation of greater economic linkages between the
regions in the north (both within and external to Western Australia), rather than the
maintenance of costly linkages between the northern regions and Perth, may assist
businesses and consumers by lowering prices.
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