Download BIS Shrapnel - Queensland Major Contractors Association

2016 Major Projects Report
Adrian Hart, BIS Shrapnel
QMCA Major Projects Report - 2016
Presentation Outline
• Key findings of the 2016 Report
• The economic environment
• The investment challenge
• Recommendations
QMCA Major Projects Report - 2016
Key Findings
• Queensland major project work fell 25% in 2014/15
• A further 50% fall in major project work is forecast over
2015/16, with the bottom expected in 2016/17
• Next upswing depends on public infrastructure investment …
• … requiring sustainable processes and funding mechanisms
• Implications for industry contractors and suppliers
Key Findings
Major Project activity continues to contract. Funded work forecast to decline.
Major Projects Work Done & Workforce Demand
All Segments
$ Billions
20
Thousands
30
Forecast
25
15
20
10
15
10
5
5
0
0
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
Total Funded (LHS)
Total Not Funded (LHS)
Total Labour Demand (RHS)
Total Funded Labour Demand (RHS)
Key Findings
Much weaker outlook compared to the 2015 Report
Total Work Done Forecast
2015/16 Forecasts vs 2014/15 Forecasts
$ Million
$ Million
20000
20000
Forecast
17500
17500
15000
15000
12500
12500
10000
10000
7500
7500
5000
5000
2500
2500
0
0
12/13 12/13
Current Previous
13/14 13/14
Current Previous
Total Not Funded -Prior
14/15 14/15
Current previous
15/16 15/16
Current Previous
Total Funded - Prior
16/17 16/17
Current Previous
17/18 17/18
Current Previous
Total Not Funded (Update)
18/19 18/19
Current Previous
Total Funded
19/20 19/20
Current Previous
Key Findings
Falling mining and heavy industry Major Projects the key driver…
$ Billions
15
Major Mining and Heavy Industry
Projects Work Done & Workforce Demand Forecast
Thousands
15
Forecast
10
10
5
5
0
0
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Total Funded (LHS)
Total Labour Demand (RHS)
Total Not Funded (LHS)
Total Funded Labour Demand (RHS)
Key Findings
… but falling public investment has magnified the downturn
Public Investment and Publicly Funded Engineering Construction, Queensland
25
Percent
$Billion
10%
9%
20
8%
7%
15
6%
5%
10
4%
3%
5
2%
1%
Other public investment excluding asset sales
Publicly funded engineering construction
Public engineering construction per 10 million persons
Total public investment as a % of Queensland GSP (RHS)
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
0%
1975
0
Public investment as a
share of economy (or per
capita) falling back towards
historical lows
Key Findings
Non mining major project work expected to improve from 2016/17 . . .
Billions
Major Project Work Done by Sector (Excluding Mining & Heavy Industry)
Major Project Work Done by Sector (Excluding Mining & Heavy Industry)
6
Forecast
5
4
3
2
1
0
2010/11
2011/12
Roads and Bridges
2012/13
2013/14
Rail & Harbours
2014/15
2015/16
Water & Sewerage
2016/17
2017/18
2018/19
Electricity, Pipeline & Telecoms
2019/20
Key Findings
. . . shifting the regional location of work
Major Projects Work Done - All Segments by Region
(Share LHS, $Billions )
100%
90%
0.2
1.2
80%
70%
1.5
0.7
1.8
3.4
0.6
2.2
0.3
0.2
3.0
2.1
0.3
0.4
1.0
1.2
1.4
1.4
1.5
1.4
0.2
0.1
0.3
0.1
0.6
0.1
1.9
2.3
2.6
2.4
2016/17
2017/18
2018/19
2019/20
1.1
3.4
0.7
2.3
0.4
1.4
60%
50%
40%
2.1
9.2
10.3
30%
2.0
6.4
7.7
20%
10%
2.2
2.2
0%
2010/11
2011/12
1.0
1.5
1.0
1.1
2012/13
2013/14
2014/15
South East Queensland
Gladstone
0.8
0.1
2015/16
Bowen
Surat
Northern Queensland
Key Findings
Roads activity forecast to recover strongly from here – but need funding certainty
$ Billions
3.0
Major Roads and Bridges
Projects Work Done & Workforce Demand Forecast
Thousands
6
Forecast
2.5
5
2.0
4
1.5
3
1.0
2
0.5
1
0.0
0
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Total Funded (LHS)
Total Labour Demand (RHS)
Total Not Funded (LHS)
Total Funded Labour Demand (RHS)
Key Findings
But railways and harbours major project work will fall further yet
$ Billions
3.0
Major Railways and Harbours
Projects Work Done & Workforce Demand Forecast
Thousands
6
Forecast
5
2.0
4
3
1.0
2
1
0.0
0
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Total Funded (LHS)
Total Labour Demand (RHS)
Total Not Funded (LHS)
Total Funded Labour Demand (RHS)
Key Findings
No funded major water and sewerage projects beyond 2016/17
$ Millions
1600
Major Water and Sewerage
Projects Work Done & Workforce Demand Forecast
Hundreds
14
Forecast
1400
12
1200
10
1000
8
800
6
600
4
400
2
200
0
0
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Total Funded (LHS)
Total Labour Demand (RHS)
Total Not Funded (LHS)
Total Funded Labour Demand (RHS)
Key Findings
Only the NBN and North East Gas Interconnector funded in utilities major works
$ Billions
2.0
Major Electricity, Pipeline and Telecom
Projects Work Done & Workforce Demand Forecast
Thousands
4.0
Forecast
1.8
3.5
1.5
3.0
1.3
2.5
1.0
2.0
0.8
1.5
0.5
1.0
0.3
0.5
0.0
0.0
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Total Funded (LHS)
Total Labour Demand (RHS)
Total Not Funded (LHS)
Total Funded Labour Demand (RHS)
Economy
Global economic growth is struggling to get momentum
Economic Growth, Annual Percent Change
6%
Annual growth in Real GDP
4%
2%
0%
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
-2%
World
OECD
Australia
-4%
Year ended December
Source: BIS Shrapnel, OECD, Consensus
Economy
As China’s growth slows and other economies struggle
15%
Annual percent growth in Real GDP
15%
12%
12%
9%
9%
6%
6%
3%
3%
0%
0%
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
-3%
-6%
-9%
China
Japan
Other Asia Pacific
New Zealand
Year ended December
Annual percent growth in Real GDP
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
-3%
-6%
-9%
United States
Germany
Euro Area
United Kingdom
Source: BIS Shrapnel, OECD, Consensus
Economy
14%
Percent
20
12%
16
10%
12
8%
6%
4%
8
Annual GDP
growth (%)
$ Trillion, Real GDP (in constant PPP, $US 2008)
20
+ 1.0
Size of Australian economy in 2015
+ 1.0
(in constant PPP, $US 2008)
+ 1.0
+ 0.9
16
+ 1.0
Annual change in
+ 0.9
Real GDP ($T)
+ 0.9
+ 1.0
12
+ 1.0
+ 0.7
+ 0.7
+ 1.0
+ 0.8
+ 0.6
+ 0.5
+ 0.5
+
0.4
+ 0.3
8
4
2%
$4.4 trillion
economy in 2000
0%
00
05
10
Year ended December
4
0
15 18
$18.7 trillion
economy in 2017
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: BIS Shrapnel, OECD, Consensus
Thousands
Yet China still represents a huge opportunity for Queensland . . .
Economy
. . . though services (and agriculture) may be the sectors which benefit . . .
Millions (Moving Annual Total)
10
$b (constant, 2013/14 prices)
30
9
Tourism
Debits (RHS)
8
27
24
7
Short Term
Arrivals (LHS)
Tourism Credits
(RHS)
6
21
18
5
15
Education
Credits (RHS)
Short Term
Departures (LHS)
4
12
3
9
2
6
1
97
99
Year Ended June
01
03
05
07
09
3
11
13
15
Source: BIS Shrapnel, ABS data
Economy
. . . as commodity prices will be too weak to underwrite new resources wave
640
Quarterly Average Prices (Log Scale)
Forecast
Coal, Oil and Iron Ore Prices, A$
320
Coking Coal
(A$/t)
160
Thermal Coal
(A$/t)
80
40
Iron Ore
(A$/t)
20
Crude Oil (Brent)
(A$/bbl)
10
1994 1996
As at June
1998
2000
2002
2004
2006
2008
2010
2012 2014 2016 2018
Source: BIS Shrapnel, BREE data
Economy
Queensland is effectively in a “demand recession” as investment slumps
10%
Forecast
8%
6%
4%
2%
0%
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
-2%
-4%
Queensland State Final Demand
Australia Gross National Expenditure
16
18
QMCA Major Projects Report - 2016
Key messages
• Major Project work has fallen 40% since 2012/13 peak
– Another 50% decline coming through in 2015/16 alone
• Stabilisation, then uptick, in work requires new funding
– Governments need to commit to a long term infrastructure plan
• Features of good infrastructure planning and delivery
–
–
–
–
Based on sound project selection (Building Queensland a good step)
Builds ahead of demand and targets biggest infrastructure gaps
Is flagged to industry well in advance, and is adhered to
Funded sustainably, and impervious to the economic cycle
QMCA Major Projects Report - 2016
Key messages
•
•
•
•
Infrastructure gaps still exist – Infrastructure Australia
Challenge now is funding infrastructure requirements
Political debate threatens to stall investment rollout
All funding alternatives should be on the table
–
–
–
–
–
Capital recycling
Debt financing
User pays (e.g. road pricing)
Beneficiary pays (value capture)
Budget reforms (get back to balance / separation of capex and opex)
QMCA Major Projects Report - 2016
Debunking the myths: Debt financing
0-20% of GDP
20-40% of GDP
40-75% of GDP
75%+ of GDP
Rank / Country
1 Japan
3 Greece
5 Italy
7 Portugal
9 Ireland
11 Singapore
15 Spain
16 France
20 Canada
24 United Kingdom
35 Germany
39 United States
67 India
112 New Zealand
113 Switzerland
114 Australia
129 Norway
133 Indonesia
137 China
144 Chile
159 Kuwait
163 Libya
164 Saudi Arabia
Net Debt as
Share of GDP
227.70
227.7
174.50
174.5
134.10
134.1
131.00
131.0
118.90
118.9
106.7
106.70
97.60
97.6
95.50
95.5
92.60
92.6
86.686.60
74.7
74.70
71.2
71.20
51.30
51.3
35.335.30
34.7
34.70
34.50
34.5
29.6
29.60
23.9
23.90
22.40
22.4
16.50
16.5
6.80
6.8
2.90
2.9
1.6
1.60
Source: IMF Data Mapper, CIA World Factbook, CCF WA Infrastructure Report 2015
“Increasing public investment (financed
by more borrowing rather than offsetting
measures) would support aggregate
demand and ensure against downside
risks. It would also employ resources
released by the mining sector, catalyse
private investment, boost productivity,
take advantage of record-low borrowing
rates, and maintain the government’s net
worth. Indeed, IMF research suggests
that economies like Australia—with an
output gap, accommodative monetary
policy, and fiscal space—benefit most
from debt-financed infrastructure
investment, with the growth boost
largely containing the impact on the
(low) debt-to-GDP ratio.” – IMF (2015)
QMCA Major Projects Report - 2016
Debunking the myths: User pays
Road Use versus Fuel Excise Revenue
Source: Productivity Commission (2014), BITRE (2014), Infrastructure Australia (2016)
QMCA Major Projects Report - 2016
Implications
• For Governments: an opportunity to implement “best
practice” long term planning, funding and procuring for
infrastructure investment
• For industry: a tougher environment remains but
opportunities will emerge in market segments and
regions. Keep investing in skills, lock in lower costs where
possible, and understand the changes coming through.
QMCA Major Projects Report - 2016
Recommendations
1. Expand scope of productive infrastructure investment in
2016-17 State and Federal Budgets
2. Promptly release of a financially sustainable long run
infrastructure plan to provide industry confidence
3. Develop skills strategies to sustain the Queensland
construction industry in face of changing demands
4. Ensure rigorous economic analysis is undertaken (and
made available) in selecting infrastructure projects
QMCA Major Projects Report - 2016
Recommendations
5. Governments to follow through with reforms to
procurement processes as outlined by PC2014
6. Move towards a uniform contractual frameworks with
consistent contract risk allocation
7. Continue to tackle risks to productivity growth in the
construction industry
8. Budget reforms to eliminate structural deficits and
separate reporting of capex and opex items