Articles
Australia’s Bushfire Crisis: Its impact on Economy, Sectors and Industries
By ACE Investors / 03 February 2020

Bushfires, often referred as “Wildfires” is not something which is new to Australia. The country, its people are well aware of this natural phenomenon, which has only increased by leaps and bounds post last 3 years of prolonged drought and extreme temperatures. The current bushfire crisis, which made global headlines last month, is way bigger in terms of area covered, but, not as fatal as, “Black Saturday” bushfires in state of Victoria in the year, 2009, which claimed 173 lives. The inferno, so far has claimed 29 human lives across the country.

The ongoing bushfire started in the first week of September, 2019, has been destroying flora and fauna, killing livestock’s, burning forest and vegetation in south eastern Australia. The bushfires have burnt around 18 million hectares of land (1,85,000 sq. Km) so far, killing more than 800 million to 1 billion animals by one estimate, destroyed more than 6000 buildings, of which 2900 were homes and even sending some of the endangered species on verge of extinction. As per one estimates, 30% of the naturally available habitat of koalas, have been burnt. Some of the most impacted regions remain News South Wales, Victoria and Queensland and as per latest account, the government has declared, “Emergency” and expects fire to keep raging till March.

The fire at some places is so big that it has given rise to its own weather, leading to dry thunderstorms and fire clouds. The actual scale of impact from ecological, social and economic perspective are still to be assessed in detail as bushfire continues to rage and bring new areas under its flames, burning more forests, along the eastern coast line of Australia.

Let us now dive a little deeper to assess and evaluate the economical impact it has on the Australian economy and the sectors which may be impacted by this. As per one estimate by Westpac, the bushfires and its after-effects would impact the GDP growth by 0.2 to 0.5%, negatively. Moody’s has changed its earlier forecast for growth from 2.8% earlier to 2.1% now. Some of the sectors and the industries which might get impacted are Insurance, Infrastructure, Agriculture, Tourism and Hospitality, Logistics and Supply chain and Education Sectors. As per S&P’s global ratings, the bushfire crisis pose no risk on the credit rating of Australia, which is ‘AAA’ stable. The bushfires pose no threat of any rating downgrades for the states of NSW, Victoria and Queensland as their ‘AAA’ ratings are still intact, backed by strong balance sheet and ability to absorb the short to mid-term credit impact, both by the Federal as well as the states.

The Insurance sector, remains at forefront and is directly impacted, as claims keeps mounting. Westpac estimates the total losses to be around $5 billion. As per Insurance Australia Group, the largest insurer in Australia, more than 2800 fire related claims have been received since September, 2019, with an estimated value of $400 million. Westpac claims to have received more than 10,000 insurance claims so far, with an insured value amounting to $939 million. The after-effects of ongoing bushfires will be felt by insurance companies and might impact their bottom-line, but full extent of impact and damages is still unassessed as fire continues to bring more areas under its blaze. Suncorp Group has received 1500 claims so far.

Another sector which is being impacted by the ongoing natural crisis, would be Agriculture and Logistics. Large number of livestock have been killed and damage to farms, corps and farmers, raged power lines, are going to impact availability of fresh vegetables, increased transit time and consequently the price, which might have some impact on consumer confidence. According to Shaun Lindhe, spokesperson, Ausveg, an industry body, lot of highways and in-roads have been closed which hinders the movement of goods making it difficult for produce to reach consumers, leading to logistical issues. Major highways leading to Victorian border and road along the borders have been closed, preventing trucks from entering into New South Wales. Though, the industry is robust, impact may be felt by cultivators of perishable produce such as Cauliflower, lettuce, broccoli, etc.

The Red meat industry, Australia being one of the largest exporters, may have short term instability as lot of livestock have been killed, but any major impact would be negated given the large size and scale of the red meat industry. Newly established, the National Bushfire Recovery Agency is focused on rebuilding farms with grant of $75,000 given by federal government per farm, leading to increased spending and economic activities in and around farms once rebuilding efforts begin. Timber companies are also the ones feeling the heat.

In Southern Australia, Kangaroo Inland Plantation Timber (ASX: KPT), was impacted by fire, with significant damages, total of 1850 hectares of plantations have been burnt, out of its total of 25,000 hectares of plantation. Shares were down 12.9% post company’s announcement of the news. Bega Cheese (ASX: BGA) is another dairy giant which is feeling the pinch. Chief executive officer Paul Van Heerwaardeen said that company’s milk supplies, logistics and employees have been affected by fire in Bega and Cobargo region in NSW.

Tourism and Hospitality sector are also set to feel the impact. As per one of the consultancy firms, SGS Economics and Planning, the cost to Sydney’s economy is as much as $50 million per day. Cities on the eastern and southern coast such as Sydney, Melbourne, Canberra and Brisbane are covered with toxic haze, as smoke from the fires envelops more and more areas with it, which can act as deterrent, in short to medium terms for international tourists, diluting the brand and reputation that Australia has enjoyed as a safe tourism destination. The global headlines, images and videos of raging inferno and flames rising up to the height of 35 metres at some places, may have dampened the spirit of visitors. Tourism sector is important, given the amount of international tourist and foreign exchange it attracts. The number of tourists per bus have dropped from an average of 15-20 per busload to 4, as per Stacey Reynolds, a receptionist of one of the backpacker hostels, near world heritage site at Blue Mountains, NSW. From restaurants to motels, everyone is feeling the dent.

Aspen Group (ASX: APZ), a provider of value for money accommodation, has evacuated its properties and tourist parks at Tokamin, on the south coast of NSW, turning away tourists. The group said that it estimates the loses to the tune of $500,000 in rentals. Some tour operators claim cancellations request running till April, 2020.

More than 3000 firefighter and 31 specialist strike team at places across NSW, alongside military has been assisting the fire fighting efforts.

Widespread criticism of Prime Minister for turning blind eye to highlighted concern by veteran firefighters and climate scientist about the looming danger of a massive bushfire outbreak has led him to announce an additional spending of $2 billion (US$ 1.38 billion), over the period of next two years in rebuilding homes, communities and other public infrastructures. These massive rebuilding efforts by the government and communities are likely to have positive impact on construction and infrastructure sector in coming years. With increase in government spending into the sector, companies operating in this space are likely to benefit from increased money flow and sales.

Australian analyst and academicians, both have been debating about the long-term impact of one of the biggest and most raging fire Australia has seen in memory. Many universities have closed their campuses and could dent Australia’s lucrative international education industry, but all is not gloomy, and there are positive off shoots of the ongoing crisis too.

Professor Frank Jotzo, director of the Centre for Climate and Energy Policy at the Australian National University’s Crawford School of Public Policy, said that images of devastating fire may dent Australia’s attractiveness towards students, but can make for, “extremely interesting destination” for climate changes and studies.

Given the resilient and robust economy, spirit and ability of people to overcome such situations, we believe that short to medium term impact would be there, but long-term impact would be not as grave. We believe that going forward, federal government would remain more cautious of the term, “Climate Change” and treat it as priority and life threating. Next time, we expect Canberra to be more prepared and listen to what climate change experts have to say. Widespread rains in NSW have helped, but still threat persists as summers are here to stay till April. For states such as Victoria, Tasmania and South Australia, worst is still not over and full-scale impact could only be assessed once fire dozes off.