Australia today faces a potential infrastructure crisis and there are concerns that Australia's infrastructure services, a key determinant of growth, may not meet future economic challenges. These concerns stem from:
1.Australia's unique social context,
2.The nature and types of investments in Australia's public infrastructure,
3.The expectations of our private sector as a key partner.
Australia’s Social Context
Australia’s population is expected to grow 27% from 24 million in 2015 to 30.5 million in 2031 mainly in urban areas of Sydney, Melbourne, and Brisbane. This significant growth of 6.5 million will trigger a high demand for infrastructure services including energy, water, transportation and technology infrastructure. These are at the core of Australia’s success in industry and trade, and may not sustain or keep pace with new demands.
Currently, the gap between the quality of service expected from local infrastructure, the cost of service levels, and the willingness to pay and source of payment are not adequately analyzed. That is to say, Australia's infrastructure and logistic networks will not meet future expectations if nothing further is done at the government and private sector levels.
Through strategic interests and trade, Australia has been building strong and enduring ties with many countries. These ties are illustrated through the many regional and international organizations it is involved in. In addition to being a founding member of the United Nations, Australia is also an active member of the World Trade Organization, the Association of Southeast Asian Nations (ASEAN), the Asia–Pacific Economic Cooperation (APEC), the Commonwealth Organization for Economic Co-operation and Development (OECD). Among its major trade partners in the ASEAN, are China being Australia’s most important trade partner, Japan and the Republic of Korea. The 2014 World Economic Forum ranked Australia no. 20 in terms of infrastructure quality. This suggests that Australia's infrastructure must reach the same level of standard of its partner countries.
The Nature of Infrastructure Investment
Infrastructure with its planning, construction and operation phases is a special type of investment opportunity and its financing is delicate. The general perception is that there aren't appropriately designed projects that deserve private investments. The private sector expects contracts, equity and loan financing in order to be attracted into infrastructure projects. These elements are the exception rather than the norm.
Private Sector Expectations
The safety net in any infrastructure investment is a sound legal system to support governance of infrastructure.
The primary requirement to attract private sector investments into public infrastructure is an appropriate policy framework. I think that governments and their administrations have a crucial role in the creation of the policy and institutional environment that stimulate private sector investments in public infrastructure.
Policy regimes with the expected clarity, transparency, stability, predictability and long-term visibility are more likely to attract the private sector. More specifically, a sound and strong legal system should act as platform for the governance and ownership of the proposed infrastructure. The main role of government in leveraging private sector finance is to provide the assurance of a trustworthy environment by reducing or mitigating the risks related to projects.
Government can also help facilitate a number of important reforms or changes that will help assist promote a more sustainable pipeline of infrastructure investment, including:
Governance and Policy Reform
There is the desperate need for integrated infrastructure and sound policy planning process and better connecting the priorities at both state and a national level.
A decision-making process within government requires some essential elements such as:
Best practice principles for infrastructure planning, procurement, delivery and operation;
Infrastructure project appraisal and project selection;
Improved framework related to demography, technology, economy, environment;
Community engagement in the decision-making process.
A Better Funding Model
There is currently insufficient government funding to meet expectations for continuously improved infrastructure assets. This gap needs to be filled by the private sector and more than likely investors from Australia’s key trading partners, most likely from China.
Infrastructure Australia pointed out in its June 2011 report to the Council of Australian Governments, that there is a 'profound disconnect' in communities' willingness to pay for and their expectations in quality infrastructure they want to use. Although institutional market reforms have improved the energy and telecommunications sectors, there is still not sufficient funding for the essential transport sector among others. Priority should be given to funding in infrastructure in transport, ports, technology and telecommunications.
Better Co-operation between Government, Industry and Communities
Whilst the Australian government remains a key player in infrastructure investment, it is important to appreciate the contribution of the private sector in infrastructure creation is necessary. The private sector's engagement in public infrastructure operations is likely to improve efficiency through improved risk allocation, better accountability, cost effectiveness and financial discipline. For example, airports and ports appear to be among the best return on investment (ROI) opportunities for the private sector.
In summary, the clock is ticking as Australia falls behind its trading partners in infrastructure investment and risks constraining the rate of future economic growth. Australia only has a short time to catch-up and must focus on its key trade relationships in order to remain relevant.
Mr Shaun Bonétt is an Australian businessman and philanthropist, of Maltese, Italian and French heritage. Mr Bonétt is the CEO and Managing Director of the Precision Group of Companies, as well a Director of a number of other ASX listed and unlisted businesses and charities.
Mr Bonétt was awarded the Knight of the Sovereign Military Order of Malta on 14 April 2010 and is a Fellow of the Australian Institute of Company Directors. Mr Bonétt holds a B.A. (Jurisprudence), L.L.B, and a Graduate Diploma in Legal Practice. Mr Bonétt is also a member of Australia’s BRW Rich 200 List with a net worth estimated at $478 million.
This is an edited extract from a speech Mr Bonétt gave to the Commonwealth Heads of Government Meeting (CHOGM) held in Malta in Nov 2015.