Opportunity for infrastructure investment

John Miller, Chief Executive Officer (National) – Civil Contractors Federation

John Miller provides an industry perspectives from the across the Tasman.

AUSTRALIA IS IN THE MIDST of an evolution in its economy as the country seeks to transition from what has been a heavy reliance on our mining sector. There was a lot written about this and the impact it had on the civil construction industry throughout 2015.

Once phenomenal, Australia’s mining activity continues to abate in terms of new infrastructure and the shipping of raw materials. Over here, we are seeing holes punched in our economy on two fronts in relation to mining – the mentioned slowdown in demand for infrastructure to augment the actual mining process, and an erosion in the demand for raw materials.

There is no question this downturn in activity has caused major issues for federal, state and territory governments and the many businesses involved in infrastructure development. With Australian economic growth forecasts being wound back, certainly over the short term, what is it going to take for Australia to boost productivity and begin to emerge from the slump in activity?

On reflection the civil construction industry in Australia faced similar issues in 2015, if not the same issues, that have been at the forefront of debates for a number of years. There has simply not been enough work to sustain everyone in our industry and there is the continued propensity of governments of all persuasions, shapes and sizes to be wedded to the motto, “bigger is better” when it comes to project contracts.

My predecessor, Robert Row, discussed the issue of unbundling large projects in his perspective last year. I won’t cover what he said again, but what Rob articulated so very well last year remains an issue. Although, it can at least be argued that the debate is resonating within some procurement agencies, many smaller operators who are unable to compete would rightly suggest unbundling is not happening quickly enough to save them.

As a result of the downturn in the mining sector, there is capacity within industry to get to work and deliver some of the infrastructure deficit governments across the country acknowledge as being a real issue. There is a backlog of infrastructure needed for the country to realise its potential.

There is no time like the present to begin to remedy that problem. Australian governments are in a position to borrow, as interest rates aren’t going to get any cheaper, and we have the industry people and resources to get things moving.

Population growth in Australia, whilst experiencing a slight slowdown against earlier strong growth rates, still sits at around 1.4 percent per annum nationally. We have a total population verging on 24 million and heading toward the 30 million plus number expected within the next 20 years or so (remember former Australian Treasurer Peter Costello’s urging to have an extra child for the country?). These extra numbers cannot be accommodated without infrastructure needs and expectations.

Turmoil in the Middle East may indeed hasten our need to deliver infrastructure to cope with both our normal migration and our humanitarian programmes.

Economic transformation won’t come without improved support infrastructure in the form of transportation and communications services.

The building of this critical infrastructure should comfort the civil construction industry with a very solid pipeline of work for years to come.

The bigger challenges for 2016 will be to find ways for those with their hands on the levers to ignite this opportunity.

Putting a dent in our infrastructure backlog could be tied up in the looming debate on taxation reform in Australia. There is strong appetite for such reform that could see significant changes over the next few years, which would provide the impetus for greater spending on infrastructure.

However, as noted earlier, we should not have to wait for tax reform before we begin the job of investing in critical infrastructure. The capacity of governments in Australia to borrow for the purposes of building their economies already exists, and this should be one of our most oft-repeated mantras throughout 2016 and beyond.

In summary, 2015 proved another year of uncertainty for many in our industry – although it should not be misconstrued that everyone is struggling to find work.

Forecasts vary across the states and territories over infrastructure activity levels this year, but it is up to us to encourage governments now to make their investments and spend for the sake of our industry, and economy at large.

Meanwhile, myself and the association wish all of you across ‘the ditch’ a very successful 2016.