Driven by the resources boom, annual civil construction activity will continue to dominate the infrastructure delivery pipeline through 2014/15, after which non-mining infrastructure investment will pick up again.
BIS Shrapnel’s latest civil construction report – Engineering Construction in Australia 2011/12 – says the short to medium term will continue along current trends, with a shift in growth drivers expected within three to five years.
Total civil work will jump around 27 percent over 2011/12 alone – equivalent to $23 billion – on the back of mining and LNG projects, plus flood reconstruction activity in Queensland.
Growth will slow to 16 percent over 2012/13 and 2013/14 before peaking in 2014/15, then declining in 2015/16 and continuing to drop over the remainder of the decade.
BIS says the boost to civil construction from the mining boom is masking weakness in non-mining sectors and regions.
“Right now it’s a monster resources battle between Queensland and Western Australia,” says Adrian Hart, senior manager of BIS Shrapnel’s infrastructure and mining unit.
“Both states are expected to see civil construction activity surge around 40 percent in 2011/12 alone, led mainly by LNG and bulk commodities infrastructure. They will soon be joined by the Northern Territory and South Australia, with activity in those regions centred around the Ichthys and Olympic Dam expansion projects, respectively.”
NSW, however, is forecast to see near zero growth in civil work over the next three years, while Victorian civil work will decline sharply, with BIS forecasting civil work in the southern state to decline by 20 percent over the three years to 2013/14. BIS says recent investment in public infrastructure in these states has been completed or is winding down.
State and federal governments are in cost-containment mode, and won’t contribute to a boost in civil work until 2014 or 2015, BIS says.
However, its report indicates mining-related infrastructure investment will peak as early as 2013/14 as commodity prices gradually weaken, delaying the next tranche of investment and leading to a rise in urban infrastructure projects centred on roads, railways and utilities.
“Assuming all existing resources projects continue as planned, there will be a substantial decline in work through the middle of this decade as many projects move to completion,” Hart says.
“Unless work on some of the more massive projects is delayed until the second half of this decade – or we can find another commodity to rival the growth of LNG, iron ore and coal over the next five years – it is highly likely that mining investment will be significantly lower in the subsequent five years to 2020.”
Hart argues the current focus on feeding the mining boom is distracting investment needed in other infrastructure.
“By focusing exclusively on cost savings and efficiencies, Australia effectively underinvested across a range of infrastructure through the 1980s and 1990s.
“It was only when we started running into capacity constraints – and governments and the private sector had the appetite and wherewithal to finance infrastructure development – that we started to catch up in the 2000s.
“But we have not really caught up. There is still much investment required across transport and utilities infrastructure, particularly in our urban centres.”
“It will be more difficult and costly, and will be limited by public and private sector finance. But it will become the key driver of growth in civil construction work after the current mining cycle has peaked.”
Infrastructure investment: the view from ACIF
The Australian Construction Industry Forum acknowledges the resources boom will continue to drive infrastructure investment over the short to medium term.
But in its latest Forecasts series, ACIF sees potential for growth in non-mining infrastructure development based on Federal Government initiatives.
It says carbon pricing mechanisms will bring about clean energy initiatives, creating work over the next four to five years, including the $1 billion Solar Dawn project in south western Queensland and wind farms in NSW and Queensland.
The National Broadband Network will also double in value to more than $9 billion a year by 2022.
Predictions from the latest ACIF forecasts include:
Non-residential construction is unlikely to recover to pre-GFC levels for several years
Major cities, with the exception of Brisbane and Perth, show little signs of short-term recovery for non-residential construction work
Residential construction is forecast to regain momentum over the medium term as it moves to fill the backlog of housing demand, estimated at more than 210,000 dwellings. However, activity in this sector will remain low and patchy in the short term.
For more forecast information from ACIF go to: www.acif.com.au