From the quarterly Deloitte Access Economics Investment Monitor out today:
Holding pattern
As the Australian economy continues its transition away from growth led by investment in the resources sector, there are signs that investment in other sectors may lift over the coming year. Data from Deloitte Access Economics’ Investment Monitor database shows that the value of major projects is currently in a holding pattern.
The total value of all projects has barely budged since June 2013, predominately due to the relatively static value of resources projects under construction. The resources sector share of the value of projects under construction slipped above 50% at the end of 2011 and, on current trends, could be back below 50% within the next year.
Non-resources projects will carry a larger burden of the investment agenda going forward, including work funded by the public sector. Indeed, public sector transport projects are shaping as a key driver of future investment activity. The value of transport projects under consideration increased by more than $16 billion in the June quarter, mainly due to State government investment plans.
State Budgets which have been released in recent months contained notable capital expenditure plans, particularly in New South Wales, which has announced infrastructure spending of more than $61 billion over the next four years. In total across State governments, capital expenditure of around $40 billion per annum is expected over the next four years. Some 81 new projects announced in the recent State Budgets have been added to Investment Monitor in the last quarter, contributing more than $21 billion to the total value of projects in the database.
The June 2014 issue of Investment Monitor saw the value of projects in the database fall to $875.4 billion, representing a 0.4% decrease from the March quarter of 2014, and a smaller 0.2% fall below the level recorded a year earlier.
The value of definite projects in the database (those under construction or committed) decreased by almost $13.5 billion over the June quarter of 2014 to be more than $39 billion lower over the last year.
The decrease in the value of definite projects in the quarter was driven by falls in the value of projects both under construction and committed.
The value of planned projects in the database (those under consideration or possible) continues to increase, rising by a further $10 billion in the June quarter. The value of planned projects is now more than $37.5 billion higher than in the June quarter of 2013. A $16 billion increase in the value of projects under consideration was partly offset by a $6.7 billion fall in the value of projects classified as possible.
The size of the infrastructure spend in New South Wales has been bolstered by its policy of ‘capital recycling’ in recent years. While capital recycling can be a useful mechanism for funding new infrastructure in a constrained fiscal environment, consideration of the cost and demand risks for new projects is critical. Indeed, it is important that appropriate cost-benefit analysis is undertaken for all major investment projects, and that analysis is arguably even more important when projects are funded by the public sector. The importance of cost-benefit analysis was highlighted recently by the Productivity Commission in its report into public infrastructure.
I agree with a material infrastructure spend to boost productivity and mitigate the private capex cliff. The right infrastructure could make a big contribution to solving Australia fundamental problem of blasted competitiveness.
The problem is, very few of these projects are being assessed in cost/benefit terms. They’re being rushed through to offset the mining capex cliff that is still outpacing their best efforts to waste tax-payers money on pork. The wrong infrastructure will just kick the growth can but make the debt-load worse for when the reckoning comes.
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I ask you, how hard is it to consult the lists available at Productivity Commission and Infrastructure Australia?
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
