QUEENSLAND ENGINEERING CONSTRUCTION OUTLOOK REPORT

(BIS Shrapnel-Queensland Major Contractors-Construction Skills Queensland).

This morning Wednesday the 20th of February, I attended the release of the 5th “Queensland Major Projects Report” concentrating primarily on engineering construction.  The Queensland Major Contractors Association in conjunction with the Australian Industry Group hosted the event which was attended by over 300 people.  A 45 page report was provided and I have summarized the findings below for the benefit of Turf Queensland members.  The report covered the period 2012 through to 2017 of both funded an unfunded projects above $100 million, that have been approved.  The report found that Queensland now faces a series of challenges and opportunities some familiar and some new that are driven by virtually unprecedented uncertainty, and structural adjustments driven by global macro-economic forces.  Throughout the presentation the focus was on uncertainty and cost control.

It is clear that uncertainty on funding, cost cutting, skilled employment demand, productivity improvements and efficiencies are all playing its part in the future five years.  Uncertainty surrounds us and issues such as post GFC, imports, exchange-rate, exports, commodity pricing, fiscal policies, reduction in operating costs, risk management, natural disasters and general employment issues will cause problems and must be managed professionally.  You will have noticed that the all ordinaries index has risen as a result of most public companies reporting profit increases.  This has occurred as a result of cost control, innovation and productivity improvements.  Shareholders are happy as their returns and share price  have increased.  It also shows that there will be a focus on cost control, productivity and efficiencies.

Minerals related investment boom was the key driver in recent years and is now nearing its peak.  It is expected to hold that for the next year or so before trending gradually lower.  Other industries such as building and construction, manufacturing and tourism need to take up the slack.  Household increases in savings suggests that households are in a comfortable position financially and happy to spend in line with growing incomes.  Population increases, wages growth and solid household income will continue to support the household expenditure.  An extended recovery in dwelling buildings will create jobs in the building industry and create significant spill out of the benefits for other related industries that are tied to building.  Even with the forecast recovery in dwelling construction this population growth forecast will result in a sizable dwelling shortage and ensuring that the recovery in dwelling buildings is maintained over the medium term.

Public-sector spending is expected to largely track sideways for the next few years as all levels of government are trying to restrain spending and improve their fiscal position.

Fortunately Turf Queensland has positioned itself in such a manner to assist its member base with the development of the Turf Cost Calculator, Benchmarking Development and the associations Turf Accreditation Program to position the Queensland industry correctly to support sustainability through these uncertain times.

Queensland faces a period of unprecedented uncertainty in major project work with the reliance on unfunded projects (public and private) required to sustain activity at current levels.

• It is about funding availability.  There are heaps of projects approved and planned but lack public or private commitment of funding to proceed.
• Weighing heavily on public spending activity is the state governments reining in spending in order to shore up their finances within the public service.
• It is absolutely critical that businesses manage factors affecting costs and competitiveness which shape sustainability and the economic outlook.
• In 2011-12 major project work in Queensland increased by 133% reaching a record $17.6 billion in work done.
• In 2011-12 engineering construction work grew by 45% obviously driven by massive investments in our resources and the building of related infrastructure.
• While Queensland is nearing its peak in engineering construction, it is definitely not the end of the boom.
• NB: These figures do not include the billions of dollars spent on reconstruction projects following the 2010-11 floods estimated to be more than $6 billion.
• Additional emergency federal and state government spending particularly in 2013-14
• Major project activity is now timed to peak in 2012-13 (at record levels) at $18 billion with the major project work force required to rise to 23,500 people.
• Again LNG and call projects play a substantial role in driving activity in Queensland to this level.  This is supported by other major projects for railways, harbours, water, sewerage, electricity, pipelines and telecommunications.
• The regional nature of major resources continues to drive disparities between regional and metropolitan work with Gladstone, Bowen/Galilee Basin, Surat and North Queensland outstripping Southeast Queensland.  Most work being done outside of SEQ.
• The peak in major project work is now likely to come through earlier than anticipated.  It must be remembered that any reduction is off record levels.
• Costs of construction and operations, as well as the level of public investment in Queensland, are critical to the outlook and become more important for major projects further into the future.
• Queensland is in great shape compared to other states (not including WA).
• Making the beginning of a building recovery, it is forecast that new residential work in Queensland will finally return to growth in 2012-13.
• Due to the highly uncertain nature of the construction outlook, industry must remember that these figures are subject to risks and revisions as new information and funding becomes available.
• Wages in Queensland up 4.2% via the national average.
• All major projects remain on the books although some had been delayed or postponed but not lost and will return.
• Where possible do not allow costs to rise and invest in efficiency due to the general high cost of doing business in Australia. (labour and equipment cost efficiency).
• Queensland leads population growth along with Western Australia at 1.5% per annum.
• Optimism is felt on economic conditions in the USA, China and Asia generally are improving (our main trading partners) presenting opportunities for Queensland.  The big question mark remains on Europe.
• Over the next few years, the biggest global risk relates to the potential of the current European economic recession and any potential renewed weakness in China, Japan or India which would have a larger than forecast negative impact on the demand and prices for commodities.
• Many professional businesses have invested in productivity improvement (labour, innovation and equipment) but the time lag has not yet seen the benefit.
• Accounting for more than 50% of the economy, continued solid growth in household expenditure is a critical growth driver.

If you wish to purchase a copy of the 45 page “2013 Major Project Report” it can be done at a cost of $99 through the QMCA website: www.qmcq.com.au