Infrastructure a silver bullet?
Infrastructure investment and procurement has been described by many as the silver bullet for Australia’s economic recovery. The Federal Government has committed $110 billion to a transport infrastructure program and State governments have also committed significant funding for infrastructure. Clearly, moving quickly to build assets which improve productivity and the economy while creating jobs is a priority for governments.
Private investment will also be a key factor in Australia’s ability to fast-track projects and Neal sees private investors, such as IFM, having a responsibility to be a part of this conversation and part of the solution:
“The sorts of projects that you can move the fastest are those in existing assets and where there are many reinvestment and further investment opportunities. IFM, industry super funds and other long-term investors, have been deploying substantial capital in these assets over the years.”
David Neal
“There are opportunities for new terminals and new runways which will be required for our growing population and obviously it's difficult for a lot of the CAPEX has been deferred as cash flows have dried up and the focus is elsewhere. But if we can get people moving around through airports again and we can get the cash flow moving then that type of investment can move very quickly,” he added.
Neal wants to see governments determine the critical pieces of infrastructure required for economic recovery: “What are they going to prioritise and therefore, what's the pipeline of projects? Then we can start doing our work on what is of interest to us and how we might want to be a part of those projects and those solutions.”
Planning into uncertainty
No one ever knows with any certainty what the future holds, and in the time of COVID-19 predicting the future is burdened by ambiguity.
David Neal believes Australia has at least three years before the economy returns to 2019 levels. He is concerned that in the rush to grow the economy that the structure may further entrench existing inequities: “We've talked about helping the recovery through construction but we have this so called ‘pink recession’ where women and a lot of lower skilled people in industries such as hospitality have suffered through Covid-19. Creating construction jobs will help the economy in aggregate, but it does probably deepen some inequities. So that feature of the shape of the economy going forward is something we need to think pretty hard about addressing.”
The uncertainties in the future economy are local and global. “This huge force of the health crisis and the economic crisis that it is spawning, is pushing against this huge and quite unusual stimulus response and it's very hard to know how the balance of those two incredibly strong forces will play out. It's easy to paint the story that we'll have a sort of depressionary, deflationary sort of environment but you could also say, ‘we’re going to drive out of this so hard, given this strong stimulus that we're going to have, and before you know it we have an inflationary problem’. You can actually paint both of those stories and so I think, trying to predict too much is hard, said Neal.”
This is Season 2, Episode 3 of our podcast series, Transforming Business with MinterEllison: ideas and challenges that are shaping our future.
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