Major investment projects to be delayed by skills shortages: Access Economics

The value of investment projects either underway or in planning increased by $6.8 billion in the final quarter of 2010 to reach $776.6 billion, according to the latest Access Economics investment monitor – but a skills shortage means that figure is lower than it otherwise would be.

Access director David Rumbens says the huge number of projects underway or in planning, especially in the resources sector in Western Australia, may not be fulfilled due to the lack of skilled labour.

“The skill shortage is more pertinent with the flood reconstruction happening, and that hadn’t occurred yet when we finalised the report. That reconstruction there is going to exacerbate a problem that’s growing already.”

The investment monitor shows that the value of definite projects, which is classed as those projects under construction or committed to begin soon, is now at $290.6 billion, representing an increase of $21.7 billion from the September quarter.

These projects are mostly found in the resources sector, with projects including BG Group’s $15 billion Curtis LNG project, set to begin this year, along with others such as the Hancock Prospecting $7.2 billion Roy Hill iron ore project.

Strong commodity prices will help boost that investment over the year, and “make new investment projects irresistible”.

But the main problem is the implications these new projects have for the labour market. Tighter immigration laws will provide fewer workers in Western Australia, and Rumbens warns this could push back projects and drive up wages.

“Western Australia is home to most of the resources projects, and I imagine the flood reconstruction will be using a lot of the workforce. What may happen is that wages increase, and there could be delays.”

“What we will see is that as we may not have as many projects as we would have otherwise. They may still go ahead, but could just be delayed.”

The report itself states that trades occupations are seeing a pick-up in demand, with about 100,000 or one quarter of job gains in the past year being in the trade and technician occupations.

“Skilled vacancies remain below that seen during the peak of the last resources boom, but are expected to become more widespread as the current resources boom continues.”

It also points out that while migration can deliver benefits to the economy as a whole, “a cyclical profile can make migration more difficult to handle for urban planners”, and thus exacerbate costs.

And while the resources sector is booming, other areas of investment aren’t enjoying the same amount of strength. Spending in non-residential building projects will remain flat this year, according to the Investment Monitor, and “spending on education and health facilities have largely come and gone”.

A huge amount of road works are set to come on board this year, including the $2 billion Cunningham Arterial bypass project in Brisbane, and rail investment, while less than roads, has some major projects coming including Project Iron Boomerang.

However, investment interest in office buildings, non-residential buildings and tourist accommodation remains flat, especially as the dollar continues to climb.

The investment monitor also points out higher interest rates will keep businesses from making further investment, “and particularly have an effect on investors in the housing sector”.

“The high Australian dollar is also not good for future economic growth, hampering Australia’s international competitiveness,” the report states, but also reminds the market that “resources are far and away the main focus of business investment”.

“High commodity prices are delivering a river of gold from rising profits – raising the capacity for overall investment by far more than higher interest rate are dampening the ability to take out extra loans in commercial construction.

Western Australia and Queensland remain the main areas for investment “for now and the foreseeable future” although output in Queensland will be damaged because of the floods.

In other states, investment remains modest. South Australia has the Olympic Dam expansion coming, but the project itself hasn’t arrived, and activity in New South Wales is still largely dependent on public sector projects.

Victoria is enjoying some solid construction and engineering work, especially with the $5.7 billion desalination plant in Wonthaggi and the $1.4 billion M1 upgrade – although non-residential building plans are weak.

Meanwhile, Tasmania is enjoying some work from the $565 million redevelopment of the Royal Hobart Hospital, while spending in Northern Tasmania is essentially flat.

Overall, Rumbens says that while there are some delays in projects, along with weakness in non-residential building, a period of stable interest rates will keep investment flowing.

“High interest rates are certainly not helping, nor is the high Australian dollar when it comes to tourism… But both of these effects will eventually fade and the strength of recent job gains and income growth will spill over into stronger demand for all sorts of facilities (just perhaps not over the next year).”