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Australia seeks Asian investment in infrastructure

Asia / 17-05-17 / by
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Australia infrastructure construction

Asian investors have been encouraged to invest in Australia’s infrastructure programme, which will cost A$80bn (about US$60bn) over the next 15 years.

Analysts from National Australia Bank (NAB) briefed the press in Hong Kong today on their home government’s ambitious plans, which will include A$50bn of transport infrastructure, as well as billions more for water, telecoms and social infrastructure projects.

“Asia has a long history of infrastructure investment in Australia. There will be large amounts of funding and Asia is very well-placed to participate in the debt, equity and services, such as construction and engineering, elements,” said John Barry, head of capital financing for Asia at the bank.

With improvement in transport infrastructure, trade will be an obvious winner. But there will be significant investment in private sector infrastructure projects too – many of which will be specifically geared towards exports to the Asian market.

The Northern Australia Infrastructure Facility (NAIF) has been established to invest A$5bn into projects north of the Tropic of Capricorn. GTR understands that among the private sector initiatives it will be supporting include the construction or upgrade of existing abattoirs to better service the needs of Asian consumers of Australian beef.

These are the sorts of opportunity the NAB economists implied are ripe for investment from Asian institutions. While governments from other parts of Asia Pacific are courting investment in their own, often more primitive, infrastructure grids, few can match the political stability and low risk of Australia.

Banks are likely to be involved in those projects with predictable revenue streams. This typically means further down the line, in infrastructure terms, although Barry says that Australian banks have a long tradition of supporting greenfield projects in their homeland.

Economic stimulus

The push to boost Australia’s infrastructure is an attempt by the government to stimulate an economy that still looks jaded from the commodities downturn post-2010. While prices of Australia’s key commodity exports such as iron ore and coal recovered strongly last year, they have subsequently plateaued (perhaps at a more realistic level).

Counter to the last wave of infrastructure investment, much of which was built to support mines and energy excavation sites, the latest drive looks more to the real economy. It will still benefit the resources sector, but will – hopefully at any rate – result in fewer white elephants.

Parts of Queensland are rife with roads to mines that are no longer operational, paid for in part by levies on concessions and annual rates payments from miners. In some cases, the mine operators are still paying for the roads, even after the mines have closed. Attracting external investment is arguably a less risky way to fund transport projects and Australia is an attractive proposition for investment hungry Asians, while the Fed rate remains low.

A survey of Asian investors conducted by NAB this year showed that 55% want more access to infrastructure projects in Australia. This is up from 23% the year before. Much of this money will come from China, but also Japan, South Korea and Singapore, all of which have free trade agreements with Australia.

Christy Tan, head of Asia Pacific research at the bank, thinks that capital controls in China will not be a deterrent to Chinese investors in the A$80bn programme. “China’s policy stance is about encouraging outbound investment on medium to long-term assets, with no speculation. This dovetails nicely with Australia’s infrastructure plans,” she says.

The Australian trade minister Steve Ciobo was in Beijing last weekend for the Belt and Road Forum and his presence suggested that the Australian government is considering a shift in policy when it comes to the world’s biggest infrastructure project.

The government has refused to connect its Northern Australia Project (funded by NAIF, as mentioned above) to Belt and Road, but Ciobo’s stance appears to have softened.

Speaking to press in Beijing, Ciobo said: “We see much merit in the Belt and Road initiative, we see opportunities for collaboration, but we take decisions about initiatives in Australia on the basis of what is Australia’s national interest. Although the northern Australia initiative is separate to the Belt and Road initiative, there are clearly complementarities there so we can share knowledge and we can share experience for the benefit of both nations.”

Earlier this year, the Australian government divided its infrastructure projects into verticals, sorted by priority. Those marked as “high priority” were the M4 motorway upgrade in Sydney, Sydney’s WestConnex motorway construction, expansion of Melbourne’s metro capacity, an upgrade of the M80 ring road in Melbourne, the completion of a stretch of rail in South Brisbane, the construction of Western Sydney Airport, and the Perth Freight Link project.

As well as acting as economic stimulus, the grand plans are designed to help cater for a population that is growing by 1.5% a year. This, on paper, means Australia is “adding a Canberra” to its population every 12 months, or a new Sydney every decade.

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