Your Business Resource for Columbia and The Midlands

The U.S. economy may still be limping along in a sluggish march toward recovery four years after the 2008 economic crisis, but South Carolina as a whole, and the Midlands region in particular, appears to be on the upswing.

While economists from the Darla Moore School of Business at the University of South Carolina sounded a cautiously optimistic note about 2012’s prospects at the 31st Economic Outlook Conference in December, many in the region are beginning to feel a lot more bullish about the future.

“The rate of activity and the number of site visits we’ve been asked to make by serious prospects has been strong,” says Gregg Robinson, executive director of the Orangeburg County Development Commission, who closed three deals on a total of 350,000 square feet of commercial space in the last quarter of 2011 alone.

The three newcomers to Orangeburg County are GKN Aerospace, Innovative Composites International and Universal Trade Solutions, Inc.

Of these, the headliner is GKN, which is not only investing $38 million in the county’s 151,000-square-foot speculative building in the Orangeburg County/City Industrial Park on U.S. 301 – and creating nearly 300 new jobs in the process – but also represents a noteworthy strengthening of the state’s burgeoning aerospace cluster.

The company, headquartered in the United Kingdom, will manufacture a lightweight composite for the Honda Aircraft Company, which is building its next-generation business jet in Greensboro, North Carolina.

“This is one of the best companies in the aerospace industry,” Robinson says, adding, “You know, as bad as we’ve been hearing the economy is, we really are seeing more and more quality prospects coming through.

“Now, I still think we’re going to slowly get back to where we were before the financial crisis – we’re not just suddenly going to see activity spike by any means – but these things are a very strong indication of where the region is heading,” he says. “I have to be honest, I feel very strongly that we’re going to see a robust 2012 to 2014.”

THE BROADER VIEW
About 200 business and government leaders gathered in Columbia on December 7 to hear the Moore School’s Douglas Woodward and Joey Von Nessen deliver their economic forecast for 2012.

Their consensus view was one of stability, with the state’s economy growing by a modest two percent, with an accompanying modest gain in jobs and personal income levels.

Ok, but not great, says Woodward, who suggests a healthy growth rate in an economic recovery should be closer to four or five percent.

“But that said, it is an improvement over last year, when the growth of the economy was closer to one percent,” he adds.

Both men predict that South Carolina will continue to enjoy what Commerce Secretary Robert “Bobby” Hitt likes to describe as the state’s “manufacturing renaissance,” with companies that make durable goods enjoying the biggest employment gains.

“That said,” Von Nessen cautions, “uncertainty is still high, and any abrupt change in the market could easily rock the boat.”

Prior to their joint presentation, Woodward offered a more granular view.

“It’s a recovery. We are not in a recession. It’s just that the recovery has stretched across four years,” he says. “But the bottom line is, we’re healing. Last year [2010] at the last Economic Outlook Conference, we predicted that the state economy would expand, at a very modest pace, and that’s exactly what’s turned out to be the case.

“Now the reality is we are growing jobs in the Midlands – particularly in Lexington County, which is definitely one of our hotspots. We had some major economic development announcements in 2011 that bode well for the future,” he continues. “Lexington County, in particular, has done very well.”

As an example, Woodward points to Nephron Pharmaceuticals Corp.’s October announcement that they will invest $313 million in a new manufacturing facility in Lexington County that is expected to generate more than 700 new jobs over the next few years.

And months before Nephron Pharmaceuticals, Interstate Container committed to spending $13 million here to build a manufacturing plant that is expected to create 60 new jobs, and Michelin announced that it would spend $200 million to expand its existing Lexington facility, creating 270 new jobs by early 2013.

But that’s not to suggest that the economic development story that set the stage for growth in 2012 and beyond has all been about manufacturing.

One of the highest profile developments in that past year was Amazon’s decision to locate a massive order fulfilment center near Cayce, a facility that could create as many as 2,000 new jobs in the area.

The project became a hot-button in the region and throughout the state after Gov. Nikki Haley opposed a proposal to exempt the company from collecting South Carolina’s sales tax in exchange for job creation commitments. The exemption ultimately became law without her signature, and the company received more than 9,000 job applications when it began advertising positions last fall, Lexington County officials said.

In Richland County, meanwhile, Sensor Electronic Technology, Inc., a maker of ultraviolet light-emitting diodes has unveiled a $20 million expansion plan that promises to create 150 new jobs, while AQT Solar announced plans to build its second manufacturing facility in the US in the county, promising to create up to 1,000 jobs over the next four years.

In an entirely different sector, Aflac Group Insurance expanded its operations in Columbia, leasing 13,000 square feet of additional space to accommodate the creation of 140 new jobs.

Similar activity was firing up all over the state. For instance, in September, Otis Elevator Company announced that it will open a new manufacturing facility in Florence that will consolidate much of its North American operations and bring more than 360 jobs to the Pee Dee.

Earlier in 2011, Johnson Control Battery Recycling Facility broke ground on a new $150 million facility expected to create 250 direct jobs and as many as 1,000 indirect jobs in the Pee Dee in 2012 and 2013.

In Clarendon County, Alucoil America Corp., a European manufacturer of high-quality composite materials, purchased Intrabond USA, investing more than $5 million in the community.

“So there’s been growth, albeit somewhat uneven growth across the state, but the Midlands is holding up pretty well,” Woodward says.

One has to wonder though, as thankful as South Carolina and residents are to have this activity occurring, whether the state is still luring the kind of companies it had hoped for prior to the global economic crisis.

“That’s a good question, because the announcements we’ve seen have been pretty diverse in terms of the industries and activities involved,” Woodward says.

“Now, we’ve examined the kinds of companies that create jobs, and guess what, it’s no surprise – it’s the companies that have seen a rapid increase in their sales. So what we’re seeing is growth where the growth is – in manufacturing, in distribution, in services and in healthcare.”

RICHLAND COUNTY PREPARES FOR THE FUTURE
Among the sure signs that local officials are banking on a brighter future in 2012 than they experienced in 2010 or 2011 is in Richland County, which hired Nelson Lindsay away from Kershaw County last summer to serve as its first-ever economic development director.

“Obviously, I came to this position expecting there to be a bump in activity as compared to Kershaw County, but I have to say I’ve been pleasantly surprised by just how many companies are considering the Midlands as a site for a new facility, and how many of our existing business are looking to grow,” Lindsay says.

“There’s no question the last quarter of 2011 was very strong, activity-wise and that companies that may have been struggling in the past and may have been standing pay are now starting to look at spending money again and bringing people back on their payroll,” he says.

Lindsay goes to say that there appears to be a shift underway in terms of what commercial prospects are looking for in the Midlands.

“In the past, I think many of these companies were primarily interested in looking at existing buildings,” he explains. “Now, I’m talking to more and more people who want a ‘green field’ site and want to build to suit their needs.

“Now, I don’t know what’s driving that apparent change in philosophy, so I can’t say whether this is a short- or long-term trend, but it certainly is promising,” Lindsay continues. “I’m very positive about 2012.

“A lot of companies have come looking in the second half of 2011, and I expect that will result in a good amount of activity in the first half of 2012, at least,” he says. “Of course, it may slow down somewhat in the second half of the year, as people await the outcome of the presidential election, but overall I think we’ll see a very definite upward trend in activity.

“After all,” Lindsay adds, “our attributes are not going away: We’re a central location with strong transportation interconnectivity and ready access to the Port of Charleston, Columbia Metropolitan Airport and Charlotte Douglas International Airport.

“We also have a regional workforce that, thanks to the University of South Carolina and other educational institutions, is young and educated, and that’s the kind of workforce companies look for when planning for their long-term future,” he says.

DOWNSIZING OF GOVERNMENT A CHALLENGE
But for all the positive good feelings for the year ahead and all the attributes South Carolina has going for it, the state and particularly the Midlands have experienced their share of hardships that they are still getting out from under.

One that’s been particularly tough here has been the dramatic downsizing that has occurred in the government.

“The government sector has always been a stable base of employment in the Midlands, and as a result, we bore the brunt of state cutbacks in the past year,” Woodward says. “While these reductions seem to be in line with the general mood of the country, they’ve nevertheless been a huge drag on the local economy.

“Hopefully, that contraction is now behind us, but it’s created a fundamental shift in the Midlands economy… our future will now depend on private sector activity and growth,” he says.

Another and perhaps far more intractable challenge is the continuing sluggishness in the interrelated real estate and construction sectors.

“Unfortunately, that’s been a big drag on the economy – both nationally and here in South Carolina – and it appears that while real estate has stabilized to some degree, it’s still going to be a drag on the economy for some time to come,” Woodward says.

“That hurts because construction was a huge job generator five or six years ago, and that’s just gone right now,” he continues. “The problem is there’s still a huge oversupply of housing relative to current demand, so it is going to take some years to work through.

“And that’s why we’re forecasting the economy only growing two percent next year, not only here, but across the country; we’re flying without one of our engines. There’s a whole segment of our economy that’s just not there.”

While some have expressed concern about how ongoing economic problems in Europe might impact South Carolina (European exports making up 4.1 percent of the state’s economy, according to an analysis by the Wall Street Journal), Woodward doesn’t share those concerns.

“If Europe is all you have to worry about, then you shouldn’t worry too much,” he says. “It’s not that Europe is not a problem – especially in terms of the potential contagion effect on major banks – but in light of some of the coordinated actions we’ve seen in recent weeks, I think we’re far less likely to see a relapse into the disorder of 2007 and 2008.

“The other thing is, looked at another way, the difficulties in Europe may help further drive international investment to the states,” he continues. “After all, the European turmoil makes the U.S. look even more stable, and people with an ability to invest will likely be looking to us for ripe growth opportunities.”

OPPORTUNITIES
Anyone looking for a catalyst for future growth in 2012 would do well to look to the energy sector, and particularly to the burgeoning nuclear sector.
Woodward, and a recent Greater Columbia Business Monthly report on Midlands Technical College’s leading role in an effort to create a regional program to train future nuclear plant workers, agree that the Midlands are “well-positioned in nuclear.”

“While I can’t offer any specifics, it’s clear that we are in the right spot to be part of, and to benefit from, the creation of a nuclear cluster,” he says. “It could lead to some expansion of capital investment above and beyond what we know about.”

Another energy sector that has potential for growth is renewable energy, although the outlines of what that industry will look like here are still somewhat fuzzy.

“I have some students looking at that right now, and so we should know pretty shortly what the industry profile actually looks like,” Woodward says. “What I can tell you is that it is slowly emerging as a force.

“Energy is going to be one of those transformative industries in the next decade, and I think we are well-positioned in that in a number of sectors,” he says. “That said, I think the greatest potential is in nuclear, in terms of both good jobs and the industry’s having a strong multiplier effect.”

Talk of multiplier effects brings to mind the potential ripple effects of the Boeing Corp.’s decision to open its second assembly line for the 787 Dreamliner in North Charleston.

Already, a few suppliers have opened up shop in the Lowcountry and the Midlands, but Woodward says we won’t really know how big a multiplier Boeing will have until production of the new passenger jets ratchets up in mid-to-late 2012.

“We’ve gotten some suppliers already, but remember, it took a while for BMW to really inspire the creation of an automotive cluster here, and that’s still paying dividends,” he explains.

“As far as Boeing is concerned, I think you have to be prepared to wait and see,” he adds. “Frankly, I think what we’re talking about here is probably a 20-year timeline in which a real cluster of suppliers will make its presence known throughout the whole of South Carolina, including the Midlands.

“We’re seeing some of that already, but it’s a bit too early to call Boeing’s presence here a huge, long-term economic success; these things take time,” he says.

Woodward expresses a similar attitude about the impact of initiatives at the university level across the state, including the endowed chairs partnership between USC, Clemson and the Medical University of South Carolina.

“When people talk about things like the endowed chairs program, they often point to Clemson and I-CAR as an example of how the program has borne fruit,” Woodward says. “But I think we’re starting to see things happen with Innovista as well.

“When Innovista was conceived, there was a huge technology boom going on in the U.S. that did not persist, but when it does, I think we are well-positioned to reap its benefits thanks to what the universities have done and continue to do. Now, that’s a long-term proposition, but as in the case of Boeing, you’ve got to be patient as you wait for these things to come to fruition.”

Of course, any mention of Boeing and BMW brings with it the reality that the Midlands doesn’t yet have a marquee company on the par with either of those international giants.

“I wish I could say Amazon is one, but given that that’s a distribution center without a lot of multiplier, it really doesn’t compare with Boeing or BMW,” he says. “So we don’t have that now, but it certainly could happen.

“The reality is, the opportunities are here before us,” he continues. “We’ve spoken of some of the businesses that have announced new facilities or expansions, and they run the gamut from healthcare to pharmaceuticals to insurance to technological cluster, so there’s a lot of potential and, who knows, there could be a some surprises.

“The thing is, to have the future we want, we have to be more aggressive,” Woodward says. “Again, the biggest challenge in the Midlands has been the contraction in the state government, and basically, that’s put us in a situation that’s analogous to what Charleston went through when the Navy base closed.

“There was a lot of pessimism out there when that happened, but the region came back stronger than ever,” he says. “Looking ahead to 2012, I think this is the time when the Midlands have really got to step back and become more competitive in attracting investment and generating more entrepreneurial activity, not just relative to the state, but with communities across the country.

“And I think that is going to happen,” Woodward says. “I really do. We haven’t yet reached the level of economic activities we were at before the Great Recession. I think this is the year where we break through that barrier – even if our predictions of modest growth come to pass.”