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Construction: Big engineering projects mean big bucks

10 June, 2010

The Construction sector in Australia is worth $172 billion, and a significant share of this revenue comes from engineering and infrastructure construction particularly for mining, water and power projects.

Apart from its size, the engineering and infrastructure construction industry in Australia is notable for its cyclical nature, increasing level of private investment and ties to the meteoric rise of mining investment. During 2000-01, the engineering infrastructure market contracted for the first time in eight years.

Hot on the heels of this brief slowdown the current commodities boom arrived. From the end of 2000-01 to 2008-09, investment in non-dwelling construction increased by more than any other cycle on record going back to 1959-60.

Now the industry has paused again, but it is no more than a temporary trough with growth expected to resume in 2011-12.

In the five years to 2009-10 the value of work done on engineering projects and infrastructure construction is expected to grow by an unprecedented 15.3% a year on average. One of the biggest drivers of this rise is the boom-inspired investment in mineral and energy resource development (rising by 23.2% a year).

Water infrastructure investment has also been particularly strong. As the value of construction has grown, so too has the revenue generated by firms engaged in joining the nuts and bolts. Within the Heavy Industry Construction industry revenue is expected to reach $50.8 billion in 2009-10, double that of five years ago.
A key feature of the engineering infrastructure market over the past two decades has been the swing in funding from the public to the private sector. This has been in large part due to the surge of investment into resource development projects, the corporatisation and privatisation of public agencies and the advent of public-private partnerships. The share of private sector work done in the engineering construction market has risen to around 83% of the total value in 2009-10 well above that of around 45% to 60% during the 1990s.

With commodity prices again accelerating and new government spending announced, the infrastructure construction industry is poised to ascend the next cycle. Difficulties that may be encountered include capital and capacity constraints.

Spurring investment will be the government's planned $700 million annual infrastructure fund aimed at the resource sector and announced as part of the tax reform package. Starting in 2012-13, this fund will be on top of an additional already-budgeted $2.4 billion in government spending on roads, rail and ports for that year. The size of spending in this next cycle certainly seems increasingly secure.

Source: IBISWorld

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