Hart on civil construction outlook

At the Civil Contractors Federation event, BIS Shrapnel’s Senior Manager – Infrastructure & Mining, Adrian Hart, gave a promising economic outlook for the civil construction industry in Australia.

Mr Hart started his presentation by joking that Australian has changed its focus from mining to infrastructure; saying this was nowhere more evident than the department he worked in, which was formerly named ‘Mining & Infrastructure’, and now is titled ‘Infrastructure & Mining’. This global shift in focus was a key theme of his presentation, in which he said that while the construction industry may feel the crunch now in an interim change period, there is a strong forecast for growth in infrastructure in Australia by 2017. Australia’s economy is growing, but struggling to rise above the 2 per cent GDP per annum we are currently in. The fact we are still experiencing growth, Mr Hart says, is attributed to the resources sector – mining, oil, and gas – but it is not going to be a long term saviour for our economy and the federal and state government need to start shifting the focus of public investment. The bust of the mining industry Mr Hart predicts the ‘mining bust’ still has two to three years to run, saying “we have not hit rock bottom yet”. Because of the declining mining and minerals industries, which have primarily boomed in Queensland and Western Australia, it is not surprising the forecast for investment across the states of Australia show definite winners and losers over the next two to three years. Predictably, Queensland and Western Australia will be hit hardest for growth and investment, with New South Wales and Victoria in a much stronger position due to upcoming infrastructure projects in road and rail. Mr Hart gave advice to those involved providing infrastructure contracting to plan and prepare for what will be a tumultuous time for the industry over the next 3-5 years by looking state by state and by sector in planning future investments. He advised to assess the opportunities and risks involved, and to strike now and lock in low level costs on projects over a long period of time if the opportunities arise. For infrastructure providers, he recommended looking at the best time to deliver long term projects to avoid ‘busts and booms’ that give increasing cost risks along the way. “Booms come through and you get higher costs of delivering infrastructure,” he said. Looking globally “Globally, economic conditions are very volatile,” advises Mr Hart. “We have a slow moving global economy at the moment. First came the financial crisis, then the stimulus money followed after that. It’s improving gradually but not dramatically so.” For China growth is slowing. However, while its growth rate is slowing, the amount they are adding to their economy each year isn’t, due to the size China grows per annum. This seems positive in representing future economic opportunities for Australia, whose trade bolsters our economy. However, the problem for Australia is that the Chinese economy is shifting; it’s no longer being driven by infrastructure investment that demands the minerals and raw materials that Australia has been supplying. Investment in infrastructure According to Mr Hart, Australia has just passed its peak in oil and gas investment. The former $40 billion dollar investment in oil and gas is falling, and Australia needs new drivers for growth. Public investment, he says, is vital to this. Public investment in infrastructure has been falling since 2010. For the past two years, the country has also had declining investment in mining, in addition to the declining investment in infrastructure. “No wonder you’ve been feeling pain, two big drivers working against you,” he said – a sentiment that would reign true for many in the civil construction industry. However, Mr Hart states that public investment is picking up from here, and that NSW is going to surge – especially in road and rail, key industries where trenchless relocation of services are required. Things still look tough for the infrastructure sectors until this shift in focus happens. “Over the next few years we will feel the squeeze from the mining investment downturn,” said Mr Hart. “After this year we expect to see housing stabilising – most states reaching a balance in the housing market. Only Sydney will still be over supplied in housing. “Engineering construction will be picking up later this decade. Currently we’re in a downturn in engineering construction that’s being driven by the mining bust, and we’ve also reached a trough in publicly funded works. However, things should start picking up again.” Mr Hart said the major question on his mind was how to package the predicted investment in infrastructure so that it effectively sustains the construction industry, not just the bigger players who can bid for billion dollar investment work. How do we involve the whole industry? What industries will see investment? Water: The key area Mr Hart pegged overdue for water infrastructure investment was in regional areas, and said we should start to see funding come through for this over the next few years. The over-investment in desalination plants and dam infrastructure would see somewhat of a general downturn for water investment. Electricity: Australia still needs to invest a significant amount of infrastructure to meet its renewable energy target. This will result in building more wind farms and potentially a solar tank to meet this energy target. Telecoms: The National Broadband Network continues to drive civil construction work in this sector. Oil and gas: Mr Hart says the bust in this industry is due to last another few years yet, but advises the construction industry to not pin any hopes on a mining recovery. Ending his presentation, Mr Hart emphasised the need for far-thinking vision, giving the Sydney Harbour Bridge as the example par excellent. Even though it was built in 1930, when very few cars were on the road, they gave the bridge eight lanes. They foresaw the population’s the future needs. While the civil construction industry will feel the downturn of the mining and resources industry, as Australia turns its focus to investment in infrastructure,

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