Franza: A balanced ‘portfolio’ will ensure Augusta’s economic success

At the end of this month, I will celebrate nine months as dean of the James M. Hull College of Business at Augusta University, and five months of contributing columns such as this one for the Business section of The Augusta Chronicle every other Sunday.

 

I have been told by many readers that they enjoy the optimism reflected in many of the columns, but that optimism is not unwarranted. The longer I am here and the more I learn about Augusta and the surrounding area, the more bullish I am about the future.

My esteemed colleague in the Hull College, Dr. Simon Medcalfe, wrote an interesting column on this page Oct. 22. His column highlighted a new index of economic well-being that he has published, which shows a significant improvement in such well-being for the Augusta area from 2007 to 2012.

While Dr. Medcalfe’s index focuses on a number of a factors, which indicate and impact economic well-being, I have reached a similar conclusion about continued improvement in the future by looking at the Augusta economy using a portfolio approach.

When assembling a portfolio, successful investors value a diversity of investments. Putting too much of one’s assets into a single type of investment or firms of a single industry exposes the investor to significant risk. Therefore, astute investors usually construct a portfolio with a mix of different types of investments — ranging from safe, capital preservation, and income-generation investments to more high-risk/high-return growth investments. They also invest in various firms and industries to reduce overall portfolio risk.

When I look at the economy of the Augusta area, I see a portfolio that is analogous to that of the astute investor: able to withstand downturns while being poised to take advantage of growth.

In the Augusta-area economy, we are fortunate to have a number of entities that can be compared to the safer investments in a portfolio. These parts of our economy are more “recession-resistant” and allow the local economy to better deal with downturns. There are at least three areas that fit this description in the Augusta area, while most metropolitan areas of our size would be fortunate to have one of these.

First, the federal government presence at Fort Gordon (Department of Defense) and Savannah River Site (Department of Energy) provide a combined annual economic impact of approximately $4.5 billion on the area. While the government is not immune to the impact of economic downturns, the criticality of the missions at these two sites limit the negative impact of such downturns.

Second, the Augusta region has one of the largest concentrations of medical care in the Southeast. Ten regional hospitals provide excellent medical care. The Augusta University Health System alone contributes $1.4 billion in annual economic impact to the area.

Finally, higher education is another of these entities and having one of the University System of Georgia’s four research institutions, Augusta University, contributes an additional $1.4 billion in annual economic impact. While government, health care, and higher education are not high-growth economic domains, they provide a bedrock for the Augusta economy.

Many communities of Augusta’s size would be satisfied with such bedrock industries comprising their economy, but Augusta has much more than that.

As I have noted in previous articles, manufacturing is providing an engine of growth in the area. Firms such as Textron Specialized Vehicles (more than just golf carts), John Deere and Club Car, to name a few, have been joined by the growing presence of Starbucks, which soon will be joined by EdenCrete in the Augusta Corporate Park.

However, like a good portfolio, Augusta balances its manufacturing with a strong service sector led by ADP and a vibrant hospitality and tourism industry, highlighted by the $125 million annual impact provided by the Masters Tournament.

While the Augusta economy has its safe and solid components of government, health care and higher education — and its growth components of manufacturing and service industries — every portfolio needs its “high flyer” that provides extraordinary growth.

In Augusta, our opportunity for rapid and high growth comes from cybersecurity.

The investments made by the federal and state governments has poised Augusta to become the nation’s hub for cybersecurity. While cyber emanates from our foundational areas of federal government and higher education, the prospect for private sector growth in cyber is substantial. We should see a substantial growth of existing companies establishing a presence in Augusta while new companies are also created to participate in the “cyber tsunami.”

As an investor, I would be a buyer of Augusta. The area is poised for extraordinary growth while also cushioned for economic downturns. However, we need to continue to invest in our community to reap these potential returns. Investment in K-12 and higher education will develop the workforce to support this economy.

Investment in infrastructure and making Augusta a more attractive place to live will attract the businesses and talent to make our potential a reality.

Invest in Augusta — it has a winning portfolio of business!

The writer is dean of Augusta University’s James M. Hull College of Business. Reach him at rfranza@augusta.edu.

 

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