\n\tBy Chris Shaw<\/p>\n
\n\tAccording to ANZ Banking Group senior economist Shane Lee, Australia needs to spend around $600 billion over the next six years to bring its infrastructure up to an acceptable standard. The need for such spending reflects insufficient and at times poorly directed government investment over the past 40 years in Lee's view.<\/p>\n
\n\tWhat will make achieving this target more difficult according to Lee will be a lack of skilled labour in the engineering and construction sectors, as this will hinder government action despite balance sheets being in relatively good shape and capital markets functioning well.<\/p>\n
\n\tAs an example of what is occurring in Australia, Lee points out Australia's mineral wealth and the uplift in commodity demand from Asia is seeing the Australian mining sector invest heavily. But this investment is pressuring the capacity of both rail and port infrastructure, with the coal sector a prime example of this trend.<\/p>\n
\n\tBreaking down where the money needs to be invested, Lee suggests around 1% of Australian GDP annually needs to be invested in the road network, while for electricity the requirement stands at around 0.8% of GDP annually for the next few years and around 0.5% longer-term.<\/p>\n
\n\tTelecommunications has a similar requirement of around 0.5% of GDP long-term, though the National Broadband Network (NBN) will see this level exceeded for the next few years according to Lee. Rail also needs higher short-term spending at around 0.3% to 0.4% of GDP, before settling at around 0.2% of GDP on Lee's numbers.<\/p>\n
\n\tIf Australia was to invest $600 billion in infrastructure over the next six years this would equate to around 8% of GDP over the period, something Lee suggests will be a major challenge to both State and Federal government balance sheets.<\/p>\n
\n\tBut fortunately the Federal Government at least has its finances in relatively good order, Lee noting debt is currently only around 6% of GDP. This gives the capacity to fund such investment requirements. State Governments, with the possible exceptions of Western Australia and the Northern Territory, are also reasonably well placed to provide funding for projects in Lee's view.<\/p>\n
\n\tAs well, Lee sees other sources of finance playing a growing role in infrastructure markets, with both the private sector and unlisted equity expected to become increasingly important sources of funds in the future.<\/p>\n
\n\tGiven difficulties in assessing just how much spending is being planned on infrastructure projects ANZ has developed a database of major projects, as these large projects typically account for around 50% of total construction work done.<\/p>\n
\n\tUsing such a model Lee suggests the outlook for investment in road infrastructure in Australia shows a fall in spending to A$3.5 billion in 2013 before a rise to $5.2 billion in 2015. This rise implies some underlying strength to the current cycle in Lee's view.<\/p>\n
\n\tIn electricity the pipeline of projects has dipped markedly from expectations of a few years ago, something Lee sees as a concern given recent industry projections of insufficient longer-term electricity generation capacity.<\/p>\n
\n\tSpending on water infrastructure also appears to be trending down after strong investment in both 2007 and 2008, while Lee notes in rail the planned level of spending in Australia continues to rise. This is thanks to both mining and energy related projects and track upgrades to passenger networks and light rail projects in a number of states.<\/p>\n
\n\tTelecommunications spending is expected to strengthen significantly in coming years thanks to the NBN, though Lee suggests there is some risk to this expectation given opposition to the project and the narrow majority enjoyed by the current Federal Government.<\/p>\n
\n\tLooking internationally, Lee estimates governments in Asia will need to invest around US$13 trillion in infrastructure over the next 10 years, but this reflects a different challenge to the one in Australia. In Asia it is rapid urbanisation and not poor decisions or insufficient previous investment that means spending such sums is now required. The United Nations is forecasting Asia's urban population will increase to more than 3.0 billion over the next 40 years, up from an estimated 1.4 billion this year.<\/p>\n
\n\tWhat will assist this spending in Asia is the fact public finances are generally solid, though Lee suggests project finance and planning within government needs some streamlining. Expectations with respect to the level or urbanisation in Asian economies suggests India and China will have the largest infrastructure burdens, while Lee expects the likes of Indonesia, Pakistan and Bangladesh will also need invest heavily in infrastructure as a proportion of their economy.<\/p>\n
\n\tThis is important, as in Asia especially good quality infrastructure can provide economic benefits by lowering the cost of trade with other nations. Lee points out the Asian Development Bank estimates a reduction in the cost of trade by 25% thanks to improved infrastructure would add 0.8% to Chinese GDP. This equates to around US$13 billion.<\/p>\n
\n\tFor investors Lee notes there are a number of Australian companies offering exposure to the infrastructure sector. As examples, service companies operating in the sector include Leighton Holdings ((LEI)), Cardno ((CDD)), Coffey International ((COF)), United Group ((UGL)), Transfield Services ((TSE)), Downer EDI ((DOW)) and Asciano ((AIO)). Other service companies include WorleyParsons ((WOR)), Spark Infrastructure ((SKI)), SP Ausnet ((SPN)), Connect East ((CEU)) and Transurban Group ((TCL)).<\/p>\n
\n\tCompanies that supply materials to infrastructure projects include Boral ((BLD)), Adelaide Brighton ((ABC)), Crane Group ((CRG)) and OneSteel ((OST)). Companies that finance infrastructure projects include Macquarie Group ((MQG)), the big four Banks in ANZ ((ANZ)), Commonwealth Bank ((CBA)), National Australia Bank ((NAB)) and Westpac ((WBC)), along with Hastings Diversified Utilities Fund ((HDF)), Hastings High Yield Fund ((HHY)) and Challenger Infrastructure Group ((CIF)). <\/p>\n","protected":false},"excerpt":{"rendered":"
ANZ Bank estimates Australia needs invest $600 billion in infrastructure over the next six years, while in Asia the estimate is US$13 trillion over the next decade.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[90,27,91,31],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/57319"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=57319"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/57319\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=57319"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=57319"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=57319"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}