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SA construction value falls as investment dries up

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The value of engineering construction work in South Australia in the past year has fallen for the first time since 2016, according to a Deloitte Access Economics report released today.

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The quarterly Investment Monitor report found investment in South Australia fell by 8.2 per cent in the three months to June 30 to $39.4 billion compared with the same period last year.

However, the June figure was a 5.9 per cent increase on investment in South Australia in the March quarter when $37.2 billion was reported.

The June quarter 2020 investment in South Australia represented just 5.4 per cent of total Australian investment for the quarter.

The Deloitte Access Economics report said the decline was led by a fall in the utilities, telecommunications and mining industries, which more than offset gains in the transport industry.

“And this looks set to continue with the value of work commenced only partly recovering from earlier falls in the latest data,” it reported.

“Construction is now complete at the $480 million Lincoln Gap wind farm near Port Augusta, while the $755 million North-South Corridor Darlington Upgrade is set to open to traffic in the coming months.

“Elsewhere, the pipeline was boosted by plans for a $650 million hybrid gas firming station near Tepko, while a final investment decision on the $3.7 billion Brownfield Expansion of BHP’s Olympic Dam mine is now expected in 2021 instead of 2020.”

The report found that activity in South Australia’s commercial construction industry slowed alongside engineering activity in 2019, but had improved somewhat of late.

Looking ahead, the value of building approvals grew by almost one quarter over the past year in South Australia.

Construction is due to commence on the $200 million Westin Hotel on King William Street in 2020, while the pipeline was boosted by plans for a $300 million office tower at 82 Pirie Street.

All up there are $4 billion worth of projects listed as under construction in the state, with a further $6 billion across the various planning stages.

However, the report cited concerns about project delays and cancellations due to COVID-19 such as the delay to the $131 million Burnside Village shopping centre expansion delayed.

Nationally, the report said the value of projects in the database rose fell by $41.5 billion to $727.4 billion – a 5.4 per cent decrease from the previous quarter. It said the majority of this decline was due to the completion of the $51 billion rollout of the NBN.

The value of projects under construction or committed decreased by $54.1 billion over the quarter. A total of $250 billion worth of definite projects nationally are currently included in the Investment Monitor database – the lowest level since mid-2009.

Deloitte Access Economics partner and report lead author Stephen Smith said COVID-19 had led to a collapse in demand and business confidence nation-wide with many businesses consolidating their operations to make savings.

He said private business investment was forecast to fall by 15 per cent in 2020, reaching its lowest point as a share of the economy in almost two decades.

“When the recovery starts, business investment will certainly play an important role – investment drives growth in the economy, and without growth fewer jobs are created,” Smith said.

“But the timing of the recovery remains highly uncertain, as does the question of whether conditions will get worse before they get better.

“Commercial construction may experience a particularly slow recovery due to the increased adoption of work-from-home arrangements and a smaller need for retail space because of the growth of e-commerce.

“More importantly still, this sector is increasingly working through the existing pipeline of work, without that pipeline being added to at a matching pace.

“Mining investment is likely to perform relatively well amid strong demand from China. Yet there’s an important caveat. Energy prices – including gas prices – have fallen sharply through 2020.”

According to Smith, there are $155 billion worth of infrastructure investment projects underway across Australia, and a further $65 billion worth of projects are scheduled to begin construction in 2020.

He said governments were focusing on projects considered “shovel-ready” and fast-tracking other projects.

“The fast tracking of approvals may mean that more of these projects progress through to construction – and sooner – than would otherwise be the case,” Smith said.

“Adding to this, there is also the potential for new project announcements in coming months that would add to the existing pipeline of work.

“With interest rates at record lows and the unemployment rate at the highest level in decades, the costs of infrastructure are lower than they were, and the benefits are higher.

“That doesn’t say governments should spend frivolously, but it does say the cut-off for projects considered ‘worthwhile doing’ has shifted sharply.”

The Master Builders Association put the value of building and construction in South Australia was $11.96 billion in 2018/19. Of this, about half was civil construction, 28 per cent residential and 22 per cent commercial.

It said the state’s industry employed 70,000 people in March, with the figure falling to about 67,500 in May and moving back above 68,000 last month.

The State Government announced on Friday that works had officially started on the South Eastern Freeway Managed Motorway Measures Project – converting the existing emergency lane into a third full-time travel lane

Other road infrastructure projects planned or underway include the $354 million Regency to Pym Street project, the $322 million Port Wakefield and Joy Baluch upgrade projects, the $98 million Portrush/Magill Intersection upgrade, and the $13 million Main North/McIntyre/Kings Road upgrade.

Premier Steven Marshall said the Freeway works was among dozens of important projects to be delivered as part of a record $12.9 billion infrastructure spend and will support around 35 jobs during construction.

“We are investing billions of dollars across the state into projects that will create thousands of jobs and help support the South Australian economy as we navigate our way through the COVID-19 pandemic,” he said.

The State Opposition last month launched its ‘infrastructure scorecard’ accusing the Marshall Government of stalling or abandoning several construction projects including the new Women’s and Children’s Hospital, an Aboriginal Arts & Culture Gallery and an inner-city stadium.

It also accused the government of not having a final design or construction timeline for the completion of the North-South corridor.

SA Labor leader Peter Malinauskas said construction work had declined by $300 million since the March 2018 election, contributing to the state having the worst unemployment rate in Australia.

“Experts have predicted there will be an economic disaster when JobKeeper ends, so it is vital we get started on big infrastructure projects that will employ thousands of South Australians,” he said.

 

 

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