SYDNEY, Australia – For several years, China's voracious demand for raw materials has fired up Australia's economy, which is rich in natural resource. The financial largess and sheer number of new projects has electrified the country's engineering sector.
But the situation has also fed the Aussies' severe skilled labor shortage. Many experts fear this weak point could wipe out the gains and put a damper on the entire economy.
The 2007 Construction Outlook survey, released in December by the Australian Industry Group and the Australian Constructors Association, found that Australia's leading construction companies are expecting continued growth in engineering and non-residential construction through at least 2009. Gains will accrue at a more moderate pace than in recent years, the report stated.
It estimated the total value of Australian construction by the private sector, (excluding overseas construction work) at $82 billion in 2008-09, which is more than double the level of 2003-04.
"Following a rise of 12.1% in 2006-07, the total value of engineering and commercial construction work is forecast to increase by a further 10.8% in 2007-08, followed by a more moderate lift of 7.4% in 2008-09," the report found.
Leading the charge is Australia's largest construction company, Leighton Holdings, who fielded a 20 percent rate of growth over the past year and are currently sitting on a $24.5-billion pipeline of work. The company's stock is up more than 200 percent for 2007.
The dark cloud for the silver lining? The lack of qualified workers.
"Right now, the skills shortage in our industry is extreme," John Holland group managing director David Steward told the Australian Financial Review earlier this year.
That's a key concern for the construction giant as it looks to expand its 4,000 person staff to meet the more than $7.2 billion in projects both currently underway and in the tender pipeline. And they certainly aren't the only ones looking.
Bloomberg news service estimates the number of positions created in Australia this year has reached 218,000. Last year, the economy added more than 305,000 jobs last year, the most since 1989. The demand is expected to cause an increase in wages, increase project costs and fuel the country's inflation rate.
In Sydney, cost concerns based on labor shortage accelerated construction of a $1.2-billion desalination plant this year. Several competing desalination projects around the country pushed the government to act.
New South Wales Water Utilities Minister Nathan Rees said the situation isn't restricted to any single sector – it's a nationwide problem that will require difficult decisions to resolve.
"It's just a supply and demand of labor issue straight and simple," he said. "You either slow down your construction and expenditure timelines or increase the amount of skilled labor you've got or do neither of those and pay more."
The Australia Road Forum recently announced that more than 80 percent of the organization's members felt the skills shortage would limit the industry's ability to deliver road programs over the next three to six years. That is a significant concern in light of the new federal government's pledge to invest a $5 billion in road upgrades and construction.
Nowhere is the situation starker than in Western Australia, the center of the country's resource boom. The Australian Bureau of Agricultural and Resource Economics estimates more than $57.9 billion in mineral and energy projects are currently under way – a 66 percent increase from a year prior.
A full 73 percent of capital expenditures were slated for Western Australia alone. That is fueling projection models that predict an additional 400,000 skilled workers will be needed in Western Australia over the next decade – a surge of 30 percent over current levels.
In a recent essay printed in the Australian Financial Review, John Langoulant, Chief executive of the Chamber of Commerce and Industry in Western Australia described the situation as a perfect storm of growing demand, aging population and increasing retirement rates.
"Don't expect for it to get better soon," he wrote.
The boom in opportunities has prompted more interest in engineering among students – as much as 11 percent this year � but not nearly enough to meet demand. Currently, Australian universities are producing only about 5,500 domestic engineering graduates each year, according to the Australian Technology Network.
The new federal government has promised an aggressive effort to help bolster those statistics with a $2.5 billion plan to create trade training centers in all of the country's secondary schools.
Yet, even a substantial uptick in the number of graduates will be muted due to the global demand for skilled workers that drains the already highly-sought after candidates. At the University of Technology Sydney Engineering Dean Archie Johnson says that up to 95 percent of engineering students that graduate from the institution go to work outside of the country.
"From an industry perspective, companies like to have Australian students and graduates because Australians will travel overseas," he said.
Yet, for the short term at least, the expansion of the construction market is expected to continue. According to the Construction Outlook, key sectors that will continue to bolster the industry will be transport infrastructure, mining and heavy industry.
As the economic ripples from the US housing market spread globally, Australia is bracing for a similar slowdown in residential home building. A prospect that should slow the pace of construction but not reverse the growth trend, the survey reported. In all, non-residential building (commercial construction) is estimated to reach $30 billion of work in 2008/09.
"The strength of the infrastructure market will be underpinned by continued solid growth in revenue from road (15.4%) and rail projects (22.2%). Other key infrastructure growth areas include water supply projects (24.8%); electricity generation and supply (19.3%); telecommunications (15.1%); and "other" civil projects (13.3%)," according to the report."
Beyond next year, growth is expected due to the expansion of in oil and gas projects as well as other resource based industrial plants.
A good example of a smaller company dealing with the outlook scenarios is Fletcher building Ltd. which is plans to keep busy with its existing construction backlog and looks to diversify in order to weather any storms.
At the company's shareholder meeting in Auckland last month, Chairman Roderick Deane said that upcoming infrastructure work would help defray any slowdown in residential building – the company's current mainstay.
"Infrastructure markets are expected to remain relatively steady with public infrastructure investment being a key driver," he said.