News Wrap

IN THIS morning’s wrap: resources boom to the rescue; local project costs 40% above the US, says Business Council of Australia; Albanese considers selling infrastructure to pay for more; and mining's big divide – profit and falling shares.
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Lou Caruana

Resources boom to the rescue

The resources boom has propelled Australia’s economy to the fastest pace in almost five years but the two largest states are lagging, hit by high costs, the strong dollar and cautious consumers, the Australian Financial Review reports.

The volume of goods and services produced surged 1.3% in the first three months of 2012 and grew 4.3% from a year earlier, making Australia one of the fastest-growing developed economies and possibly prompting the Reserve Bank of Australia to slow the pace of rate cuts.

But the national accounts highlight how the economic debate has been driven by sectors such as manufacturing that have been squeezed by the resources boom’s strong dollar.

In NSW, final demand expanded at a modest 1.9% in the year ended March 31, the slowest growth rate apart from Tasmania, which shrank 0.8%. In Victoria, where manufacturing has been hit by the rise of the dollar, demand rose 2.7%.

Local project costs 40% above the US, says Business Council of Australia

Australia has become such a high-cost and low-productivity nation that resources projects are now 40% more expensive to deliver here than in the US, jeopardising an investment boom that is crucial to propping up the national economy, The Australian reports.

Landmark research to be released today finds that, compared with the US, airports are 90% more expensive to deliver, hospitals 62%, shopping centres 43% and schools 26%.

The Business Council of Australia study finds iron ore and coal projects cost 38% more compared with those on the US Gulf Coast, while offshore oil and gas platforms cost 200% more – making the projects among the most expensive in the world and more than three times the cost of offshore oil projects in Thailand or the Gulf of Mexico.

Moreover, productivity is so poor work that takes one hour in the US takes 1.35 hours in Australia – meaning labour is 35% less productive.

Albanese considers selling infrastructure to pay for more

A blueprint under consideration by federal Infrastructure and Transport Minister Anthony Albanese recommends the sale of national ports, water and roads to raise cash for investment in new infrastructure, according to the Australian Financial Review.

The Gillard government’s Infrastructure Finance Working Group, which includes Treasury officials and experts from ANZ, KPMG, Royal Bank of Scotland, Alinta Energy and industry associations, has recommended that the federal and state governments begin “recycling capital” by selling assets to superannuation funds and using the proceeds for new roads, rail and ports.

The plan is seen as more politically palatable than straight privatisations to retire public debt. It would also provide local investment opportunities for Australian superannuation funds, which like low-risk infrastructure assets and would mostly prefer to invest locally rather than overseas.

Albanese plans to publish the panel’s strategy within weeks. The report is expected to support NSW Premier Barry O’Farrell’s plans to privatise the state’s power stations to pay for new infrastructure. The report is not expected to support the approach of former Queensland premier Anna Bligh to sell off state assets to retire debt and regain a AAA credit rating.

Profit and falling shares: mining's big divide

Equity markets picked well ahead of time the storm of falling demand and commodity prices, sending the value of the world's top 40 miners down by 25% last year despite their record profitability, The Australian reports.

The fact record profits amounted to little for the value of the big miners last year has been summarised as the "growing disconnect" by global accountancy firm PricewaterhouseCoopers in its ninth annual review of global mining.

PwC said last year was the year of the great divide for the industry.

The firm's energy, utilities and mining leader Jock O'Callaghan said on the one hand there was extraordinary bottom-line growth and record shareholder returns, yet market values shrank.

"A lack of confidence in the sector's growth prospects saw market values plunge 25% to about $US1.2 trillion ($A1.22 trillion), indicating the growing disconnect between big miners and investors," O'Callaghan said.