Australia’s ability to meet future demands for infrastructure will have a defining impact on growth potential across a range of sectors, from capital raising to transport logistics. Yet boards sometimes take its influence for granted. Sector leaders explain why this is a policy issue that should always be front of mind.
Many economies are facing a demand for infrastructure that is outstripping supply. The consequences for business and society can include economic deficit, unemployment and poverty. As the World Bank highlights, the quality and quantity of infrastructure directly increases a nation’s economic outcomes and levels of inequality, which can, in turn, impact political stability.
“Infrastructure affects growth potential and efficiency across a range of sectors,” says Adam Copp GAICD, CEO of Infrastructure Australia, the government’s independent adviser on nationally significant infrastructure investment planning. “Whether it’s moving people, goods, energy, water or data, infrastructure is the network that connects almost everything we do in the economy and society. It’s not just a policy issue companies can ignore.”
However, all too often, it is not given the requisite space on board agendas.
“If you’re on a public sector board, it’s obvious that infrastructure should be front of mind, as building infrastructure is the job itself,” says Raj Aseervatham GAICD, national president and board chair of Engineers Australia. “In my experience, infrastructure is taken for granted by private boards. Often, the focus is on the moneymaker, the mine. But the mine would not exist without all of that connectivity. The connectivity adds a substantial front-end cost.”
Aseervatham’s observation is backed up by AICD’s latest Director Sentiment Index (H2 2024). Infrastructure was ranked 16th out of 20 priorities directors believed the government should address.
However, as the previous (H1 2024) index noted, “As infrastructure is linked to numerous higher-ranking issues such as housing affordability, productivity, skills shortages, energy policy and other sector-based priorities such as education, health and Australia’s ageing population, its importance cannot be understated.”
Of course, not all boards need to be thinking about issues concerning infrastructure, whether that be the deficit, or the inefficiency and ineffectiveness of existing facilities.
“If I have a chain of coffee shops in urban areas within Melbourne and Sydney, I probably won’t be that concerned about infrastructure. But in other cases, I would be. It’s a strategic issue for company directors. It should be included in your risk register. The first thing to ask is, to what extent does your business rely on infrastructure, and can its needs be met in the longer term?” says Aseervatham.
The process of obtaining necessary approvals and a social licence to operate are also often highly underestimated by boards and management.
Ask the questions
“Boards need to ask a range of questions,” says Aseervatham. “Have we thought about this sufficiently? Have we assumed it’s a rubber stamp process? Can this railway go through here? Even small manufacturing hubs in a regional centre are highly dependent on water, energy and so on.”
He believes infrastructure should be at the centre of requisite thinking on a private board’s agenda. The private sector is driven by forces such as access to capital and customers, both of which are typically time-dependent. A window of opportunity will pass if it cannot be seized within a certain timeframe.
“Let’s look at some of a board’s biggest challenges,” says Aseervatham. “Do we or don’t we do a thing? Do we commission $500m worth of infrastructure spend to enable the thing we want to do? Should we work with government to get this infrastructure enabled? How do we approach this?”
When a board is considering whether to enable infrastructure to go into a market, managing risks are critical. There are risks around the effectiveness of the piece of infrastructure, the timeliness of its completion and the broader infrastructure surrounding it.
“What is the enabler?” asks Aseervatham. “You will need gas pipelines to get to port. You will need a port to get it on the ship. You will need the ship to get it out of there.”
Skills shortfall
The acute shortage of professionals to build the infrastructure is a global issue from which Australia is not immune. However, the country has a unique infrastructure paradigm, which creates an extra set of challenges of which boards should be aware. “We’ve got a very large country with a small population,” says Aseervatham. “If you look at the US, which has more than 10 times the population in an area not much bigger than Australia, the dynamics are quite different. We have a scale problem unique to us. It means we can’t template something from elsewhere. When Australia does infrastructure, it tends to be big — hundreds, not tens of kilometres — and it tends to span states.”
Despite these challenges and the massive upfront costs, Aseervatham says Australia has historically invested adequate sums into infrastructure, which is reflected in our high quality-of-life indices.
Since the mid-1990s, public sector investment in infrastructure has been in decline as a proportion of GDP, from just under 2.5 per cent to just over 1.8 per cent. However, a 2019 Treasury report notes that reduction in public sector investment has been offset by private sector investment. Australia’s total fixed capital investment as a proportion of GDP was slightly higher than the OECD average over the period 1990–2004 — significantly higher than in the US.
“Australia stacks up really well in terms of our infrastructure today,” says Aseervatham. “But the issue is not about scoring us today, it’s about looking forward and asking how we retain the enviable quality of life.”
According to Infrastructure Australia, there is a shortfall of about 229,000 public infrastructure workers. Professions most in demand are engineers, skilled trades and labourers. “We are currently in a supply-demand disconnect,” says Aseervatham. “When we want to build something — let’s say a large freeway or port — we’re always struggling to move things around and to fit people into projects.”
Copp believes that there is more work to be done in attracting and retaining a more diverse workforce.
“There are some fairly dire statistics around female representation in the construction sector,” says Copp. “Only two per cent of workers on construction sites are female and that rises to about 14 per cent of the industry more broadly.”
Furthermore, productivity rates in the construction sector have not improved in 30 years. Overall, Australia sits at 16th in the OECD for productivity, which is the country’s lowest ranking in 60 years.
Being able to deliver more with less will be critical to Australia narrowing the gap in its infrastructure deficit. Utilising modern methods of construction such as prefabrication, off-site manufacturing and modular dwellings will simplify the construction process.
“It will allow you to deliver more infrastructure and housing, at greater speed,” says Copp. “Similarly, we could be relying more on digital interventions — including digital twins, 3D printing, digital rehearsals and AI — to reduce delays on site during the construction period.”
Infrastructure pipeline and renewables
Infrastructure Australia’s Infrastructure Market Capacity Report provides a comprehensive view of the nation’s five-year infrastructure pipeline. The 2024 report shows it has a total value of over $1 trillion, around a quarter of which is publicly funded infrastructure.
“The greatest amount of growth we are seeing in demand is in clean energy infrastructure projects — we’re projecting a more than 400 per cent increase over the next five years,” says Copp.
The research shows that a material recalibration of investment is underway. Over the past decade, there has been an historic boom in transport infrastructure investment.
A lot of those projects have already been delivered, for example, the Sydney Metro, the Gympie bypass in Queensland, and the Morley- Ellenbrook line and Yanchep rail extension from the METRONET program in WA.
“The shift we are seeing occur now is more towards renewable energy, social infrastructure and housing,” says Copp.
Australia has some catching up to do in building its renewable energy capabilities. The country currently ranks 26th of the 38 OECD nations for the share of its electricity generation produced from renewable sources, according to a 2023 HSBC report. Outside of this renewables growth area, companies are less willing to invest in expanding their capacity because of the subdued outlook for the economy, according to the latest research from Deloitte Access Economics Investment Monitor.
This is not to suggest that Australia is entering the doldrums. For the September quarter, the total value of projects in the database remains unchanged, at $1.12 trillion, from the previous quarter.
Furthermore, the value of the Investment Monitor database remains almost 20 per cent higher over the year, and the value of planned projects has risen to a record high of $617b. “This is an increase of $107b over the year, more than 90 per cent of which is due to new wind, solar, battery storage and hydrogen projects critical to Australia’s transition to net zero,” states the report.
Director Q&A
Gabrielle Trainor AO FAICD chairs the Construction Industry Culture Taskforce and BuildSkills Australia, and is a director at Built Group Holdings. She recently retired as interim chief commissioner and chair of Infrastructure Australia.
Should improving infrastructure be a national priority?
Good infrastructure delivery drives productivity, quality of life and prosperity. The imperative to improve infrastructure across sectors is unending and a core job of governments. It’s a perennial priority.
Despite major investments, plans for transport infrastructure remain at record levels. We have just seen the delivery of city-transforming projects like the Sydney Metro, with other metro, rail and light rail projects well advanced. The need for new roads and bridges, not to mention maintenance and upgrades, is constant.
Energy transition is one of the newer major frontiers for infrastructure investment, and geopolitical megatrends are also driving massive expenditure in defence infrastructure.
Water infrastructure has always been a priority for Australia, probably more than ever, given the impacts of climate change on our systems. The need to continuously enhance communications infrastructure is also relentless as our world becomes more and more digital-reliant.
It should not come last in any list, but continuing investments in social infrastructure — schools, hospitals and cultural and recreation facilities — are critical for an educated, caring, healthy and ambitious Australia.
With all these priorities, the big questions for governments are when and how they can be delivered most efficiently and effectively, balancing fiscal reality with community needs and expectations.
What are your reflections on infrastructure as 2024 draws to a close?
Housing is the mammoth challenge facing all of us, whether we are in industry, government, communities or our families. Building housing at the scale we need and tackling affordability is the predominant national conversation.
Governments are understandably fixated on identifying and implementing the mix of policy responses and improvements to increase supply. It will never happen fast enough and needs to be accompanied by considered infrastructure planning so that new developments and suburbs deliver the quality of life we expect. But I’m optimistic that we are making progress as we enter 2025.
What are the long-term benefits of improving Australia’s infrastructure?
Well-planned and executed infrastructure is a hallmark of ambitious, thriving nations. In Australia’s case, it enhances our many natural advantages and makes us a desirable place to live, to create great communities and to invest.
With our small population in global terms, attracting investment and nurturing talent is critical to our future, so our kids and their kids will have the opportunities we hope for them.
Investment attraction creates a virtuous circle. The more attractive we are through good infrastructure, community cohesion and well- educated people, the more attractive and successful Australia will continue to be.
This article first appeared under the headline ‘Built To Last’ in the December 2024/January 2025 issue of Company Director magazine.
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