VISITORS: Tourism is on the up again and contributes almost 10 per cent of the district's gross domestic product. PHOTO/FILE
Two independent reports regarding Rotorua's economic future were released recently suggesting a bright future for the district. Rotorua Daily Post senior journalist Matthew Martin takes a closer look at what the future holds for the city.
Infometrics December 2014 Quarterly Economic Monitor
Rotorua's economy grew at a healthy rate throughout 2014.
Infometrics' provisional estimates show that Rotorua's economy grew 2.9 per cent in the December 2014 year and is now 15 per cent larger than its post-Global Financial Crisis trough from the March 2010 year.
Retail trade in Rotorua is growing at a robust rate, with the value of retail sales on electronic cards rising by 4.8 per cent in the December 2014 quarter from a year earlier, according to data from Marketview.
Tourism is a key part of Rotorua's economy, with Infometrics' estimates showing the sector represents 9.8 per cent of Rotorua's GDP, compared with tourism's 3.8 per cent share of GDP nationally. Furthermore, tourism activity in Rotorua has grown quickly over recent months. Data from MBIE's Regional Tourism indicators suggest that international visitor spending during each month in the December 2014 quarter was on average 26 per cent higher than a year earlier, while spending by domestic visitors was up a healthy 8.3 per cent over the same period. A key driver of this rapid growth in international visitor spending has been a sharp uplift in arrivals from China, Australia, the United States, Japan, and Germany.
Although forestry export prices in New Zealand dollar terms in the December 2014 quarter were 2.8 per cent below their level from a year earlier, prices have recovered 8.4 per cent since their September 2014 quarter trough. Further stabilisation to export prices could be affected by concerns regarding demand in China. In contrast, sales of sawn timber domestically should find support from rising building activity nationwide.
Against a backdrop of moderate economic growth, conditions in Rotorua's labour market have improved. Infometrics estimates that Rotorua's unemployment rate in 2014 averaged 7.4 per cent during 2014, down from 8.7 per cent a year earlier. Better job prospects encouraged a positive net migration inflow into Rotorua of 443 people in 2014, compared with a net outflow of 79 people in 2013.
Deputy mayor and Rotorua Lakes Council Economic Growth Portfolio leader Dave Donaldson
We are starting to see an independent view of change which can give Rotorua some real confidence for the future.
The picture is far from complete but it does show things are moving in the right direction which is a positive change given the challenging environment we've endured during the last few years.
The reports confirm retail sales are up. International visitor spends have gone through the roof. And people are returning home from overseas in growing numbers because they see better job prospects here.
On top of that forestry export prices are recovering and unemployment is trending down. These are strong indicators of change which I'm sure will be well received by business leaders.
The report identifies 4.8 per cent growth in sales on electronic cards in the retail sector over the Christmas period, reinforcing anecdotal evidence of an upturn in retail trading patterns.
BERL has developed three alternative population projections specifically for the Rotorua district. In all three cases, the population of Rotorua is projected to continue increasing.
The three models are a relatively conservative Business-As-Usual scenario, a middle-of-the-road Reality Check model, and the third more optimistic Strategy Stretch projection.
Rotorua Lakes Council is using the middle-of-the-road Reality Check projections for its work in developing the district's Smart Futures spatial plan which will set out a blueprint for accommodating future growth of Rotorua district.
Red Stag Timber group chief executive Marty Verry
There is good news for the forestry sector, but it's not going to grow across the board, there are big differences.
The sector is in something of a transformation.
Some mills are going out of business, like Mamaku, due to a shortage of pruned logs which makes it hard for companies to compete.
While pulp and paper is big here, it needs to get larger on a world wide scale.
There is good growth coming up with all of the 1990s plantings now coming on stream and with dairy [farming] losing its star status there will be less conversion of forests into farms.
A lot of the positivity up until 2020 at least is the housing shortage in Auckland and the Christchurch rebuild, but after that the future is not so clear and could be a bit tricky.
Rotorua Chamber of Commerce chief executive Darrin Walsh
I would agree, all the stats are backing up what we are seeing, feeling and touching in local business right now.
Business confidence is trending up, people are growing their businesses and looking to employ and people are coming back to Rotorua.
And being proactive, like the council going to Australia to a work expo to promote the city does work and I hear we did attract some people to come and live here.
This is all contributing to those stats showing positive trends.
But, Rotorua is quite diverse, we know tourism is a major player, as is forestry, but we do have a strong dairy industry and retail which in the past few months have shown good positive growth.
Some can stumble like dairy and forestry have recently, but when the others are contributing, those little stutters don't have the impact they did in the past.
In recent decades, Rotorua has tended to experience net outward migration because the district's economy has struggled for a number of reasons.
Conventional population projections for the district implicitly assume that the future will be much like the past and, consequently, they indicate that the number of people in the district will start to fall. The fall starts to happen in 10-15 years' time because people of child-bearing age are expected to leave the district, causing the number of births to fall, while the number of deaths eventually increases as the population ages.
BERL's projections explicitly relate future population levels to the performance of the economy. More specifically, our projections assume that a growing economy will generate increased employment. This will slow outward migration.
At the same time, unemployment will fall and participation will increase. However, unemployment cannot fall below a certain level, and participation cannot increase above a certain level. Ultimately, net outward migration will cease and there will need to be net inward migration to sustain the growth of the economy.
We have developed three alternative population projections for the district, based on the work that was completed for the Bay of Connections strategy, to which Grow Rotorua was a contributor. In all three cases, the population of the district is projected to continue increasing. However, population increase should not be taken as a given. If, for any reason, the economy fails to grow in the way expected, employment opportunities will fail to eventuate and young adults will leave the district, as they have in the past. This would cause the population to decline in the longer term.
BERL has developed three scenarios to determine the changes in employment in the situational analysis work completed in 2014 for the Bay of Connections. These scenarios were modelled out to 2022. For this report BERL has extended the three scenarios out to 2036.
The three scenarios that BERL has modelled were:
Scenario 1: Business as Usual. Scenario one is "Business as Usual" and the majority of the assumptions were based on well recognised data and forecasting sets.
Scenario 2: Reality check. - taking into consideration international and national externalities Scenario 2 is based on exogenous factors that will have an influence on the economic growth potential of the region.
Scenario 3: Strategy stretch - realising the Bay of Connections Strategy. Scenario three is based on the sector growth strategies as identified through the Bay of Connections growth strategy.
In order to measure the effect of the different scenarios, BERL used the baseline or "business as usual" benchmark scenario. This scenario was our comparator and was the outcome against which we compared the results of the other two scenarios.
Business as Usual:
Under this scenario, Rotorua is projected to have a slow growing workforce. The business as usual scenario will see:
- total employment rise from 28,545 in 2013 to 36,731 in 2036 (meaning a total increase over this period of 1.3 per cent per annum, or 8186 jobs in total over the period);
- this rise in employment will lead to a population increase of just over 5000 people between 2013 and 2036.
Reality Check:
Under this scenario, Rotorua is projected to have a growing workforce especially on the back of a recovery in the tourism sector.
The scenario will see:
- total employment rise from 28,545 in 2013 to 42,110 in 2036 (meaning a total increase over this period of 1.5 per cent per annum, or 13,565 jobs in total over the period);
- this rise in employment will lead to a population increase of nearly 14,000 between 2013 and 2036.
Strategy Stretch:
Under this scenario, Rotorua is projected to have a steady growing workforce with employment created in especially tourism, transport and logistics and forestry.
The scenario will see:
- total employment rise from 28,545 in 2013 to 45,663 in 2036 (meaning a total increase over this period of 1.6 percent per annum, or 17,118 jobs in total over the period);
- this rise in employment will lead to a population increase of just over 20,000 between 2013 and 2036.
The tourism sector is well on its way to recover to pre-global financial crisis levels. MBIE forecasts show that visitor numbers will grow between now and 2020 with increases from established destinations such as Australia and increased numbers from markets such as China. Out to 2020, 80 per cent of the extra visitors will come from Australia (385,000) and China (280,000).
Rotorua is an established tourism destination and will benefit from these increased tourism numbers through increased GDP and employment opportunities.
The forestry and wood processing sector is one of the largest employment sectors in Rotorua and an important income generator for the district's local economy. The forestry sector is set to continue to grow over the forecasted period, creating new jobs.
The Asia Pacific Forestry Commission forecast demand for industrial round wood to increase from 317m m3 in 2005 to 550 m m3 in 2020, with East Asia, especially China, accounting for most of this consumption. Similar analysis has shown that growth in construction is expected to be strong in China, the United States and India, with a 70 per cent increase in construction output to $15 trillion worldwide by 2025, including the need for 270 million new homes in China and India by 2015 (Global Construction Perspectives and Oxford Economics 2013).
The forestry industry is well established in Rotorua and has extensive transportation infrastructure and support services surrounding the industry. These transport and logistical services will expand along with the forestry industry to support increased demand for the region's wood.
Even if the region continues on its current growth path, or expands beyond the current growth path, employment will increase over the forecasted period, with more people needed to enter into the labour market either through increased participation in the labour force, or from the unemployed or increased migration.
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