Will 2017 be the ?crunch? year for construction activity?

Welcome to 2017! The optimism of a new year is underpinned by the prevailing economic conditions.

My impression is that 2017 is a “crunch” year for the private and government sectors to deliver – it will either be a boom time for the quarry sector or “business as usual”. The latter isn’t a bad thing (there will always be aggregate demand) but it denies the industry an overdue boost.

There have been forecasts in the past two years that 2017 would be “the year” construction activity takes off in Australia. Boral CEO and managing director Mike Kane talked 12 months ago of a “pick-up from major road and infrastructure projects, such as the multi-year NorthConnex project in Sydney”. Similarly, the Ai Group and the Australian Constructors Association are optimistic that, after a period of declining commercial construction, building activity will grow in 2017-18 as major rail and road projects lift demand.

The Federal Government still talks today of a $125 billion pipeline of infrastructure investment by Commonwealth and state governments to 2020 (mooted in the 2014 Federal Budget). With 2020 three years away, how many of those projects are bottlenecked?

There are encouraging signs. Preliminary work on big ticket projects like the 1700km Melbourne to Brisbane Inland Rail and Melbourne Metro (as presented at last October’s CMIC16) are gathering momentum, along with NorthConnex, Brisbane’s Queens Wharf and Adelaide’s Northern Connector. However, there is still doubt about the sustainability of Australia’s public investment in roads, rail, maritime, aviation and water infrastructure (representing 1.6 per cent of GDP). There is debate about whether we should be following the UK’s lead with “value capture” models that recover some of the profits that public infrastructure generates for private developers. Indeed at CMIC16, Projects Victoria director David Saxelby remarked that an alignment of political and corporate interests on large-scale infrastructure was desirable. Despite the merits of “value capture”, if governments are to build economic confidence, they must take a lead in infrastructure investment.

These challenges aren’t confined to Australia. The Trump Administration in the USA is deflecting criticism that its infrastructure plans aren’t an infusion of new funding but merely promote revenue-neutral tax incentives for construction businesses to leverage off $1 trillion worth of public/private partnerships and private investments. The Australian Government has also toyed with this concept but found that the private sector is risk-averse to non-government infrastructure investment. Fortunately, record low interest rates in Australia make government stimulus in infrastructure possible (even though most state governments are averse to borrowing). Daniel Mulino, the parliamentary secretary to the Victorian Treasurer, remarked at CMIC16 that the Victorian Government could borrow for further infrastructure work without impacting Victoria’s AAA credit rating – provided it had a productive asset to support.

Regardless of the long-term challenges and funding models, it’s time for all stakeholders – governments, rail and road authorities, and not least civil construction companies and construction materials operators – to stop dilly-dallying and hop aboard the infrastructure steam train. 2017 should be a year of decisiveness!

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