The Cocoon Economy

The most isolated capital city in the world is not a bad place to sit out a global pandemic.

As of April11, Western Australia has recorded just 506 confirmed COVID-19 cases, the vast majority of which are overseas travellers or cruise ship passengers.  At this stage at least, community transmission is very low and should continue to remain so under the social distancing provisions that have been applied.

The Labor state government is doing an excellent job in preventing the spread of the virus, locking down the state border and prohibiting all but essential intrastate travel.

So the odds are that we in Western Australia could have this Coronavirus fully beaten – as in eliminated – well before any other state in Australia, let alone the other countries of the world.

But what happens then?

How do we maintain our virus-free, hermetically-sealed corner of the world while we wait for the vaccine to be developed so the rest of the world can catch up?

Sadly, our international and interstate tourism industry will be shot.  Few people will want to spend fourteen days in mandatory quarantine before starting their WA holiday, so until there is an absolutely foolproof virus test that can be administered before people board a plane to WA we will simply have to keep them out. The impact of losing interstate / international tourism represents 2.1% of state GDP.  Damaging, but probably not catastrophic.

On the flip side, WA is probably very well placed to operate a ‘Cocoon Economy’ – a largely self-contained economy funded primarily by exports and that operates with minimal reliance on the spending of visitors.

We have traditionally enjoyed the wealth of our mineral and agricultural exports.  That will continue, particularly if our major trading partner, China, restores its own manufacturing economy.

Intrastate and local tourism should come back rapidly once the virus has been reliably eliminated and locals can be encouraged to get out and spend on dining out, shows, events and holidaying within the state. Total intrastate spending already equates to 52% of total tourism demand and in this regard we are much better placed than New Zealand, which is also isolating extremely well but is more economically vulnerable to that isolation.

(As an aside, and whilst it would be a federal not state intervention, the government should consider relaxing or abolishing Fringe Benefits Tax on entertainment in order to drive additional custom back to the hospitality industry.)

In sport, while the AFL will be held back until more states catch up, the WAFL could resume – perhaps with our Eagles and Dockers players distributed throughout. And in virus-free WA there would be no need to restrict spectator attendances. The resurgence of the WAFL?

If totally eliminating the virus in other countries proves as difficult as it currently seems (and we are yet to see the ‘second waves’ as restrictions are eased), a virus-free WA could increasingly be seen as a ‘safe haven’. Those with the opportunity to work remotely (and there are an increasing number of those), and the financial backing to relocate, may choose to move to WA either on a temporary or permanent basis. The two week quarantine won’t be an issue for long term visitors and this incoming migration will boost property values and the local economy.

There’s no doubt that pain will continue to be felt in WA. But we may well be the best place in the world right now.