Western Australia
People often talk about a two-speed economy when comparing Western Australia and Queensland to the other states, but even within WA there are incredible disparities.
| Companies in the mining, oil and gas industry are performing very well. Industries that are exposed to the mining boom, such as professional services, are riding the wave. However, the trickle-down effect has been slow in reaching other sectors such as retail and property development. Retailers are being forced to discount to maintain sales, which reduces their profit margins. After the frenzy of property development before the global financial crisis, there is now a glut of property on the market and prices are stagnant or falling. This is having a heavy impact on developers that borrowed heavily to finance construction projects. |  |
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Business growthSales growth strong, discounts affecting profitsPrivate businesses across Western Australia experienced strong sales growth of nine per cent, which was ahead of the national average. By contrast, profits only grew five per cent. PwC believes this profit growth figure reflects a high level of discounting by businesses across the state, particularly those in retail, which in turn squeezes margins. | |
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A two-speed economyWhen comparing their financial performance against set revenue targets, Western Australian private businesses had mixed results. Since the last PwC Private Business Barometer, the number of businesses exceeding their targets grew from 28 per cent to 33 per cent. At the same time, the number of businesses that undershottheir targets also grew from 44 per cent to 48 per cent. This disparity appears to be a symptom of the state’s two-speed economy: mining companies and those exposed to the mining boom have performed exceptionally well, while businesses in sectors such as property and retail have struggled. | |
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Ambitious growth targets, but not for allBusinesses in Western Australia have set themselves the nation’s most ambitious growth targets for the short term: 17 per cent sales growth and a 21 per cent increase in profits over the next year. By contrast, their medium-term outlook is much more in line with businesses in other states. While most other states are cautiously optimistic about the year ahead, businesses exposed to the resources sector in Western Australia expect a boom year. More than their counterparts in other states, Western Australian businesses are pinning their hopes on organic growth. Fifty-three per cent of respondents in Western Australia said they expected to grow their business organically in the short term and 54 per cent expected medium-term organic growth. PwC believes this is a perfectly reasonable expectation for businesses involved in or exposed to the minerals boom, but companies in other sectors may not achieve these targets. More than one-quarter (28 per cent) of Western Australian businesses favour acquisition as a growth strategy for the medium term. Anecdotally, PwC is witnessing an upswing in merger and acquisition and private equity transactions, as well as an influx of investors from Asia looking to acquire businesses and property in the state. | |
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PeopleHiring intentions and constraintsMore than those in most states, businesses in Western Australia are suffering from a shortage of suitable candidates. High-paying jobs and favourable working conditions in the mining sector are luring unskilled labourers away from Perth and the more populated areas of the state. PwC has also witnessed natural resources companies paying large premiums to attract staff from legal, accounting and engineering services firms, increasing the pressure on those companies to recruit and retain staff. | |
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FundingInvestment plans and fundingMore than one-third (38 per cent) of Western Australian businesses surveyed told us they were planning to make major investments in the coming year. This was a relatively high result compared to most other states and was most likely due to the resources boom. The availability of funding for this investment is not evenly distributed. Property development firms have told PwC about the difficulties they have faced finding funds for new projects, although there is some evidence banks have recently become more willing to lend. | ||
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Business operationsChallenges and impediments to growthGiven the difficulties facing Western Australian businesses in recruiting and retaining staff, it is no surprise that many nominated people issues as their greatest challenge (71 per cent of WA respondents said this was a problem). PwC expects further difficulties with recruitment and wage costs in the year ahead. To address this challenge, many Western Australian businesses are examining equity incentivisation schemes as a staff retention strategy. They are also looking at performance bonus schemes and becoming more environmentally and socially conscious as ways of retaining valuable staff. | ||
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