Road construction projects in Australia are forecast to recover from their GFC-induced slump and surge ahead as the strongest segment of the engineering and construction industries, a senior economist says.
A report on the future of road construction projects released by forecaster BIS Shrapnel indicates a raft of big-budget road projects are breathing life back into the sector. Senior Manager, Infrastructure and Mining Adrian Hart describes the anticipated trend as a “bright spark” in an otherwise challenging landscape, as projects connected to mining operations continue to decline.
“We see that roads, along with telecommunications with the rollout of the NBN plus some parts of rail, will offer the strongest growth in the engineering and construction market,” Hart says. “Of those, roads will probably have the strongest growth. What we’re going to see over the next few years is roads reassert itself as once again as the largest segment of the engineering/ construction market, and the one that probably offers the best growth.”
A strong economy saw a boom in road construction and maintenance projects between 2000–2010, Hart says. “The Commonwealth Government is always highly interested in the road network – they see it as their ‘knitting’, so to speak – so when times were good, they actually became a bit more pro-cyclical and started to invest in the road network a lot more, along with the state governments,” he explains.
“We actually saw a near-doubling in terms of road construction and maintenance activity through the 2000s compared to previous decades, but that all stopped around 2010 with the GFC.”
Although governments largely kept their promises in regards to existing road projects, the GFC had a chilling effect on the planning of future projects, Hart continues. “As projects finished, we essentially didn’t have new projects coming up, so we had about a 20% drop in road construction activity over the past few years.”
Now, a swathe of big-budget road construction projects are either underway or on the horizon. “Essentially, what we’ve got is the start of another five-year program of investment from the Commonwealth Government,” Hart says.
“We’ve got these big projects starting to fire up again. The last section of the Pacific Highway upgrade – the Woolgoolga to Ballina section – is over $4 billion worth of construction that has to take place over three to four years.
Hart also points to Bruce Highway upgrades in Queensland and upgrades along the national network of roads.
“On top of that, we’ve got the NSW state government chipping in. They’ve been recycling assets, selling ports and electricity assets and now at the state where the funds that have generated from those sales is going into construction work.
“This financial year sees the start of big WestConnex project in NSW, we’ve also got the NorthConnex project, a privately-funded project in North Sydney. We’ve got the Western Sydney infrastructure program, which is building roads to service the new airport at Badgerys Creek.
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“We see very strong growth in urban highway and arterials works in and around our capital cities. We estimate about $4.5 billion in such work in 2014–2015, but that’ll rise to $7.9 billion by 2017–2018,” Hart says.
The private sector is also ramping up its investment. “In 2014–2015, we only had $100 million on private toll road projects, major highways and arterials tolled and financed by the private sector. That will grow from $115 million in 2014–2015 to $1.8 billion worth of road construction work by 2018–2019.”
The story is not quite so peachy for the road maintenance sector however, which is coming down from a frenetic post-flood schedule of work in Queensland.
“Road maintenance hasn't grown a lot in trend terms for much of the past decade,” Hart says. “We’re returning back to pre-flood trend levels of activity. Maintenance tends to be one of those slow-growing areas, but it’s usually a consistent growth over a period of time.”
Prior to the floods Queensland was doing $1.3–1.4 billion worth of maintenance work a year on its road network. By 2013, which was the peak of flood recovery works, road maintenance projects were worth about $3.9 billion.
“What we’re seeing now is that activity in Queensland is returning back to that trend,” Hart explains. “We estimated it as about $1.9 billion in 2014–2015 as we finished off a lot of those projects and we’ll probably go lower over the next few years, but only back to about $1.5 billion. It’s returning to that trend growth line over a long period of time.”
An additional trend Hart has observed is the responsibility for road maintenance shifting.
“Over much of the past five to 10 years, we’ve noticed the burden of maintaining roads shifting onto councils,” Hart says. “Councils are often fairly revenue-constrained and a there's a lot of other things they have to maintain as well.”