15/07/2010 - 00:00

Playing catch-up on infrastructure

15/07/2010 - 00:00

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Western Australia’s economic outlook is positive but there are serious gaps that need attention.

Playing catch-up on infrastructure

ECONOMIC forecasts released this week by the Chamber of Commerce and Industry WA paint a glowing picture of the state’s prospects.

CCI chief economist John Nicolau says the economy is tipped to fire on all cylinders, following a stronger-than-expected finish to the 2009-10 financial year.

The CCI expects growth will rise from 3.5 per cent last year to 4.5 per cent in the current financial year, before reaching 6.25 per cent in 2012-13.

Increased business investment, surging exports, rising household spending and strong population growth are seen as the key drivers of growth.

In the interim, some sectors of the economy are struggling.

As reported in this edition of WA Business News (page 4), the retail sector is one of those. Retail spending in Western Australia actually fell in the month of May, adding to a steadily worsening position during 2010.

Ironically, the state with the largest growth in May was NSW, which is generally characterised as being the economic basket case of Australia, a bit like Victoria was in the 1990s.

Let’s be thankful, then, that one month’s data does not tell the full story.

Nonetheless, rising costs, including wages, and falling consumer confidence have created some pain for many retailers in WA. The never ending ‘for sale’ signs are clear evidence that times are tough.

Hospitality is another sector that is battling, as many people take advantage of the relatively strong Australian dollar and cheap air travel to holiday overseas.

The prospect of stronger economic growth will create many commercial opportunities in WA, but it also adds to a number of challenges.

Boom conditions push up costs – wages, land, rents, interest rates, you name it. We saw this during the last boom, which peaked in early 2008, and at the time there was a big push to free up supply-side constraints.

The progress on that front has been modest.

Many industries are already being hurt by the tight labour market, including building and construction.

Yet the ability of businesses to bring in workers from overseas remains heavily constrained (see page 19). The proposed state migration strategy holds out hope that constructive reform will occur in this field, but to date there is little to report.

The housing sector is also adversely affected by chronic delays in the planning and environmental review process. It’s a long-known problem, the industry has put forward solutions, but progress is modest, in part because the issue involves multiple agencies and multiple tiers of government.

The supply of land ties into a wider issue of infrastructure planning.

Infrastructure Australia, a federal government advisory body chaired by business luminary Sir Rod Eddington, has shed some light on this issue with a report titled: ‘Getting the fundamentals right for Australia’s infrastructure priorities’.

It concludes that: “Addressing transport congestion presents the greatest opportunity to improve national productivity”.

While the report has an east coast slant, reflecting the weight of population, its advice seems equally applicable to WA, especially when we think about the success of the Mandurah rail line and the continuing congestion problems around Perth airport and Fremantle Harbour.

From a WA perspective, the report’s listing of infrastructure priorities is largely on the money, though its ranking of project readiness is debatable.

Of five projects nationally judged ‘ready to proceed’ none is in WA.

Of six projects on the threshold of being ready, one is from WA, and that is the project Premier Colin Barnett has described as his top priority – the $4 billion Oakajee port.

WA projects judged to have ‘real potential’ include the upgrade of power infrastructure to the Mid West ($795 million), upgrades to road and freight links around Perth airport ($600 million) and an upgrade of the eastern goldfields freight railway ($75 million).

The dollars get even larger when ‘early stage’ projects are listed, including capacity expansions at Port Hedland harbour ($3.4 billion) and the Pilbara Cities program ($2.9 billion).

The big problem that Infrastructure Australia and the state government have not resolved is the long-term future of Fremantle harbour.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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