Why disruption hits regional businesses differently

New research commissioned by QBE and conducted by Oxford Economics Australia found that major disruptions can continue to influence local business communities for years after the initial event, creating a 'recovery gap' between where a communtiy ends up and where it otherwise would have been without the disaster. 

Recovery can take longer than expected 

The research examined seven significant bushfires, floods and cyclones that occurred across Australia between 2018 and 2023. By comparing affected communities with similar areas that did not experience a major disruption, researchers were able to estimate how local business communities changed over time. 

One of the key findings was that the greatest impact was not always felt immediately. 

In the year a major disruption occurred, affected communities were estimated to have around 3% fewer small and medium-sized enterprises (SMEs) than they otherwise would have had. After one year, that gap widened to 4%. The largest impact emerged after two years, when business numbers were estimated to be 9% below expected levels, representing around $43 million in annual economic activity that is never realised. While the 'recovery gap' begins to stabilise in the third year, affected communities remain below their expected growth trajectory, with 7% fewer businesses than expected and an associated $36 million gap in annual economic activity. This suggest major disruptions may leave permanent 'economic scarring.' 

Rather than reflecting a sudden loss of businesses, the findings point to slower growth, fewer new business openings and a longer recovery journey for affected communities. 

Why regional communities can face greater challenges 

The research found that regional communities often experience larger and more persistent impacts than capital cities following a major disruption. 

Two years after a major disruption, regional SME numbers were estimated to be around 9% below expected levels, compared with less than 4% in capital cities. In practical terms, regional communities experienced more than twice the decline in business numbers seen in metropolitan areas. 

While every community is different, the report notes that many regional economies are more dependent on a smaller number of industries, transport routes and local supply networks1.2 When a major disruption affects these connections, the impacts can extend across the broader local economy3.4 

For regional business owners, this reinforces the importance of understanding not only the risks facing an individual business, but also the broader community and infrastructure networks that support day-to-day operations. 

Small businesses can be particularly vulnerable 

The report also found that the impacts of disruption are not always shared equally across all businesses. 

Businesses employing between one and 19 people experienced some of the largest and most persistent effects. One year after a major disruption, business numbers in this group were estimated to be around 5% below expected levels. Three years later, that gap had widened to 12%. 

For many smaller businesses, periods of disruption can place pressure on cash flow, staffing, supplier relationships and customer demand, particularly when recovery extends beyond the immediate aftermath of an event. 

While the research did not examine individual business performance, the findings highlight how prolonged disruptions can shape the broader business environment in which small businesses operate. 

The role of resilience 

While the findings highlight the challenges that can follow major disruptions, they also point to an important factor that can influence recovery outcomes: resilience. 

According to the research, communities with higher levels of disaster resilience experienced significantly smaller impacts than communities with lower resilience. Areas with stronger resilience capacity were largely unaffected by major disruptions, while lower-resilience communities experienced sustained declines in business numbers over several years. 

The report identifies factors such as disaster preparedness, reliable infrastructure, access to essential services, strong local business activity and community connections as contributors to community resilience.5 

For regional businesses, resilience may look different depending on location, industry and size. However, understanding potential vulnerabilities, reviewing continuity arrangements and considering how disruption could affect customers, suppliers and operations can all form part of broader preparedness efforts. 

Looking beyond the immediate impact 

For regional Australia, recovery is often about more than rebuilding damaged infrastructure or reopening doors. It can involve restoring business confidence, attracting investment, supporting local employment and rebuilding growth trajectories that may have been disrupted. 

The research suggests that some impacts can continue to be felt for years after a major event. Understanding those longer-term effects can help businesses, communities and industry take a more informed approach to preparedness and recovery. 

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