Small business productivity in SA lowest on mainland Australia

Stronger-than-average job growth and monthly sales growth in line with the rest of the country meant South Australia had the lowest small business labor productivity of all mainland Australian states and territories.

Tasmania has seen lower productivity than SA, with the Apple Isle reporting sales of $89 per hour worked compared to $97.20 in sales per hour worked in SA, according to a new report from accounting software company Xero.

The national average was $100.30 per hour, with Western Australia recording the highest productivity rate in the country at $102.50 per hour. This was followed by Victoria at $101.90/hour and New South Wales at $101.10/hour.

Xero’s “Small Business Productivity: Industry and Regional Trends” report looked at small businesses with annual sales of less than $50 million and revealed disparities in small business labor productivity across industries and regions.

Australia’s most productive industry was wholesale ($214.20/hour), while hospitality was the worst performer, generating just $40.20/hour.

According to Xero, productivity declines occurred across all industries, although all regional industries also saw productivity declines compared to 2022.

I am talking with in EverydayXero economist Louise Southall stated that labor productivity has two components: sales and hours worked.

“South Australian small businesses saw average monthly sales growth in 2023 of 8.3% year-on-year, which coincidentally was exactly the same across Australia,” Mr Southall said.

“The combination of average sales growth and stronger than average job growth likely explains why, overall, South Australia’s labor productivity in 2023 was below the national average.

“Greater than average job growth may seem contradictory when sales remain only in line with the national average, but it likely reflects a reluctance by South Australian businesses to shed workers despite weaker sales performance in 2023 compared to 2022.”

Southall said companies could increase profits, pay higher wages and lower prices if productivity improved.

“As the economy reopened after the pandemic, small businesses have struggled to find staff, and many would also invest in staff training in recent years. This means they may be reluctant to reduce staff even when sales growth slows,” she said.

“Companies in regions with below-average productivity may have difficulty increasing profits, offering competitive wages or lower prices compared to companies in regions with above-average productivity.

“Similarly, at the economic level, increasing productivity reduces inflation while minimizing the impact on overall economic growth. It may be more difficult for a region with lower-than-average productivity to cope with inflation without harming economic growth.”

Xero’s report shows that industries that have embraced technology and invested in skills have benefited from high productivity.

Agriculture and construction were the two most productive industries in Australia between 2017 and 2023, according to the report, which found that agriculture innovated to achieve a productivity rate of $126.60 per hour, while construction companies prioritized skills development to become the fourth most productive industry at $117 per hour .

On the other hand, the hospitality industry has some of the lowest productivity levels at $40.20 per hour, but Xero said the data suggests the industry is using technology to increase productivity in response to ongoing staff shortages.

“The hospitality industry has been able to increase its productivity post-pandemic and it is promising that some operators will turn to other solutions to increase efficiency, such as QR codes or online ordering,” Southall said.