Major local contracts can have lasting impacts, both positive and negative: economic expert

Councillors will on Tuesday, April 11 decide which way they will go when asked whether to buy local or go national.

Municipal officers have recommended the Greater Shepparton City Council award a long-term waste and recycling contract worth millions of dollars to ASX-listed Cleanaway ahead of local company Foott Waste.

That decision has been questioned by critics, given Cleanaway has had difficulty collecting the rubbish for Melbourne council Hobsons Bay due to a lack of drivers, has ongoing industrial disputes with its workers and was last year fined $600,000 for environmental offences in NSW.

David McKenzie is a director with Opteon in Shepparton, with a specialised knowledge of property valuation, including supply chain assets, manufacturing, logistics and support services.

He was also chair of the state regional development minister’s advisory board for six years and chair of the Goulburn Regional Partnership.

All that experience gives him a special perspective of the regional economy and the multiplier effect in a local context.

He says, as a principle, going local is normally best.

“Where are the profits repatriated to, where do the profits finish up?” he said.

Mr McKenzie said it was easy for people evaluating a tender to understand the money component of the process, but beyond costs, it was more difficult to understand the social benefits of choosing a local company over an externally owned and managed firm.

“Most of the work has been done on understanding the economic multiplier, so that's the money trail stuff,” he said.

“Of course, service is paramount, money really matters, but this stuff (the social impacts) is actually the other half of the pie that’s invisible. It’s not measured. It’s not detected, and it’s what sustains regional communities.”

Mr McKenzie said it was not just a question of where the profits were distributed, it was also a question of where senior management lived, a question of whether they contributed as volunteers with local groups, and through their skills and expertise, added value to the region, saying externally owned companies were far less present in the fabric of the community.

“They (management) come up and work during the week, they go home on the weekend,” he said.

“So not only are they taking the economic value of their local pay packet out of the region on the weekend, they’re not sustaining an ecosystem of capacity in the region as well.”

Mr McKenzie said there were numerous examples of this “hollowing out” effect in regional areas across Australia when the layer of senior capacity in the region had disappeared.

“We’re lucky that Shepparton has got such a strong economy and got such scale we have businesses like this in our ecosystem,” he said.

“A lot of the sub-regional areas, and I won’t name them, but all the towns out there of less than 10,000 people, they’ve seen this hollowing out happen.

“So we know how this works and Shepparton, for argument’s sake, is not immune to this.”

Mr McKenzie said in his experience, the size of the council waste contract made it one of the biggest economic opportunities for the local economy to benefit from the multiplier effect.

“I’m not aware of anything else of this scale; we’re talking about, apparently, a $75 million contract over two terms, so over 15 years,” he said.

“A substantial sum of money, and very rarely does a regional organisation get the chance to award contracts of that magnitude and scale, and very rarely do regional businesses get the chance to tender on opportunities like this.”

He said if such contracts were not maximised for the benefit of the community, they could have a converse impact, describing it as the “Bunnings effect”, which smothers competition and directs profits outside the area.

“It’s just an export model. All the profits are exported out of the region,” he said.

“The senior layers of the highly capable management are all out of the region. We’ve got good local managers in the store and things like that, but there’s a whole ecosystem supporting a Bunnings store that is not here.

“I think it’s potentially insidious and potentially further contributing to the hollowing out of regional economic capacity.”