13 minute read
Shemara Wikramanayake, Managing Director
Shemara Wikramanayake, Managing Director and Chief Executive Officer, Macquarie Group
Key points:
• Private investment can play a key role in supporting governments’ stimulus efforts through innovation, financing capacity and human resources. • Despite the short-term health crisis of COVID-19, medium-term structural trends, such as decarbonisation and growing investment in renewables, will continue, while other trends like growth in internet traffic and decentralisation are likely to drive new investment. • What constitutes resilient infrastructure has expanded beyond managing the risks of climate change to include aspects like health resilience and the capacity to repurpose existing infrastructure to meet changing needs in times of emergency.
Adrian Dwyer (AD): Thanks very much for sitting down with me again. I thought it would be a good opportunity to think about what has happened in the last 12 months, and cast forward to what that means for the coming 12 months and beyond for the infrastructure sector. I think there have been some fairly profound changes over that time, but when I look back at our discussion from last year, some of the themes we spoke about – things like digitisation, renewables and decarbonisation, among others – seem quite robust to the world we are in now. Do you think those trends that were present pre-COVID will persist post-COVID and, if not, what will change?
Shemara Wikramanayake (SW): Well, first of all, I wanted to acknowledge that a lot has changed since we spoke a year ago. But it is important to recognise that what has changed is as a result of a short-term health crisis, not because of a mediumterm underlying structural change to the world economy. So, I think that means a few things for the trends going forward.
I think that, first of all, as you say, those medium-term structural trends will continue – things like decarbonisation and the need for investment in renewable energy, and the infrastructure to support that.
The second thing is that some of the structural themes have actually accelerated. Internet traffic here in Australia grew one and a half times between December 2019 and June 2020. More infrastructure is required to support that – such as data centres. We have advised on and invested in the AirTrunk hyperscale data centre. Another area is supply chains, with more people now working from home, but also shopping from home and learning from home. So, there will be a need for investment in logistics infrastructure.
A third trend is that new areas have developed from our experience in this pandemic. Resilient infrastructure has expanded beyond climate change resilience to include aspects like health resilience. For example, in Israel, they have a car park now that can be converted within 72 hours to a 2000-bed hospital. We have been transitioning carparks into COVID testing centres.
The fourth trend coming out of this is that we are questioning urbanisation – how much will that trend continue, or will people want to move to smaller urban areas? If that does happen, there will be a need for new infrastructure to support those areas. In the bigger cities, after a long period of transport investment, we may be able to divert funding to areas like education, health and housing. Population growth in Australia is now forecast to be just 0.9 per cent, given lower immigration, meaning there will be less demand for those urban centres.
AD: There is a strong theme there of digitisation having been accelerated by the pandemic, particularly in areas like telehealth. Do you think we will see a rebalancing away from the use of physical infrastructure towards more digital infrastructure, or is this a fundamental shift?
SW: I think we will need a lot more support in terms of digital infrastructure. The volumes of data that people will need to access are growing by a lot, so we will have to invest in that. But we will still need physical infrastructure. People will still use transport infrastructure. They will need physical hospitals. They will need education centres, both in terms of online access and physical spaces to meet. I guess we will need to see over the medium term how these trends play out – it is still early stages, but I think we will still need investment across the spectrum, digital and physical.
AD: The Reserve Bank has called on state governments to ramp up their investment in infrastructure – particularly in high-velocity, quick-to-market projects – over the next couple of years. What additional investments do you think governments should be looking at in the post-COVID world, as opposed to in this immediate response phase?
SW: I think we first should acknowledge that governments have done a great job in their immediate response, because they have kept projects going so that jobs can keep being delivered. They have done a great job in terms of keeping construction going, including on the Martin Place Metro development, where we have 2500 people on site working safely and social distancing.
AD: We have to give credit to governments, having been able to keep construction open during a global pandemic.
SW: It is amazing, and the cases of COVID transmission on construction sites are just not happening because we are operating so safely on site. So, that is an important short-term response.
The other important short-term response from governments is in keeping projects going. At the Federal Government level, that is Inland Rail, Marinus Link, the Olympic Dam extension, and road and rail projects for iron ore in Western Australia. At the state level, they are accelerating planning. In addition to the $185 billion of projects they had already committed to, there is another $15.8 billion of new projects going ahead. The immediate response has been very good in terms of keeping the economy going in this pandemic.
I think as we come out of this, there is going to be even more need for the Government to bring capital to infrastructure projects, to keep driving jobs and stimulating the economy. Governments are going to emerge from this with much greater fiscal debt at all levels, so they are going to need more privatesector money coming in for things like the ongoing transition to renewables. In 2012, renewables were providing around 10 per cent of our capacity. By 2019, it was 22 per cent. Now, at times, we are relying on 50 per cent renewables. This sort of transition is going to need further support.
There are other areas where the Government is focusing additional spending, such as defence, health and digital. In defence, over the next 10 years, the Government plans to spend around $270 billion. There is a lot of scope for the private sector to come and help by providing the supporting infrastructure. In health, $2.4 billion has been spent in this pandemic, but this has shown that we have the capacity to deliver more digital and physical infrastructure. I think governments appreciate that as we emerge from this pandemic, health is going to be an area they will need to focus on.
AD: What opportunities do you see for private expertise and private capital to support some delivery in those areas of defence, health and others that you mentioned?
SW: All of the things that the private sector has been able to bring through PPP models will continue. The first, obviously, is funding and capital, which can support governments all over the world as they come out of this pandemic with a huge level of fiscal debt. We had a big monetary response to the global financial crisis. This time, we have needed a fiscal response with equivalent measures of JobKeeper and JobSeeker all around the world. Governments will need private capital to help fund public projects. But the private sector can also bring skills in terms of managing construction, operations and project management, and driving outcomes, like the creation of jobs, and doing that on a scalable basis. Also, public resources – not just financial, but human resources – are going to be more stretched in dealing with the pandemic. So, private headcount could be a useful resource that can be brought in.
Greater innovation is also one of the potential outcomes for governments from the private sector, by getting them to come and pitch ideas. For example, the Martin Place Metro was an unsolicited proposal from us to the Government.
It is going to be important, then, to ensure that there is transparency so the private sector can be held accountable for delivering on what the Government needs, and hence reinforcing in the community the value of having the private sector come in and work as a partner with the Government to deliver these important public projects.
AD: If we cast forward 18 months to state and Federal Government balance sheets that will have borrowed heavily to support the economy through this crisis, that means constrained balance sheets, and perhaps fiscal positions with lower revenue. What are the sorts of roles you see privatesector capital and the expertise that comes with it being able to fill for governments that they cannot do themselves?
SW: In addition to the new projects, there is the asset recycling programme, in which Australia has been a leader. The Government could look at moving assets off its balance sheet, and there are many more still left on the public balance sheets in energy. There are also housing and defence assets that will be conducive to the sort of assets that the private sector savings and pension funds want to access, which are defensive, capitalprotected, yielding assets. But in terms of new projects, there is investment across the whole spectrum. If people move to smaller urban areas, there will be transport investment needed there. Public transport probably needs greater investment now as we come out of this pandemic and reconfigure what we offer. And then all forms of social infrastructure will come to the fore, including a lot more hospitals, schools and housing, as well as areas like defence.
AD: So, you see those enduring trends we spoke about earlier around digitisation, the move to telehealth, renewables and decarbonisation as sweet spots for private capital to help governments deliver?
SW: Definitely. There are areas where the private sector has been building a lot of expertise and pushing innovation. Government typically sets the framework, then the private sector steps in and invests. All the structural global trends, such as mounting private sector savings, ageing populations that need to fund their retirement and so need capital protected yielding investments, and the public sector purse being constrained, are areas where the private sector skill set can be brought together with the public sector to drive community outcomes. Also,
urbanisation, decarbonisation, more online telehealth and the need for investment – all of those things come together to drive the need for private investment in public infrastructure.
AD: Now, as you know, the themes of this year’s Partnerships conference are reform and resilience. One refrain that we have heard a lot this year is that we should never waste a crisis. What are the opportunities for reform and for resilience? How can we draw on the lessons of COVID-19 to make our infrastructure more resilient to future pandemics, climate change and other volatile events?
SW: I said at the beginning that this is a short-term, healthdriven issue, but you should never waste a crisis. We should make our infrastructure and our communities more resilient to potential future pandemics through improvements to the health system or investing in resilience. The need to ensure resilience to climate change is going to continue and grow.
Over the last few years, one of the ways we have done this is by putting powerlines underground in cold places like Finland. And here in Australia, we are clearing trees in a very targeted way around powerlines to make them more resilient without clearing excess forestry. Precision agriculture is helping to reduce chemicals on our farms. We are also putting in place measures to manage rising sea levels, including in the United States, where we have lifted the Goethals Bridge a bit higher, and built flood defences at our Long Beach container terminal. We have set up geo-hazard warnings for our assets in the Philippines. As investors in infrastructure, I think we are going to have to accept these sorts of things, and we need to be thinking about making our assets much more resilient to a whole range of exposures, be they health pandemics or climatic change.
Geopolitical issues are another factor we are going to have to take into account. That may mean more domestic sourcing of inputs through supply chains. There are a whole lot of exogenous factors to which we need to make our infrastructure more resilient. Each crisis gives us an opportunity to learn about new areas of resilience.
AD: I think that is a great thing to finish on – how we can use this crisis for positive change, and look at reform and resilience, to emerge with a much stronger infrastructure sector and hopefully a stronger economy. Shemara, thank you very much for taking the time to have a chat with me today.
National engineering registration scheme the way forward for safer future building
By Dawson Wilkie, Chair, The Board of Professional Engineers of Queensland
2020 marks 90 years since the creation of Queensland’s nation-leading registration scheme for engineers, referred to as the registered professional engineer of Queensland (RPEQ) scheme, which is what the New South Wales and Victorian governments base their respective schemes on.
The RPEQ scheme was established under the Professional Engineers Act 2002, and is designed to protect the public and set engineering standards. In Queensland, not just anyone can be an engineer – they must first demonstrate that they are qualified and competent to practise engineering, and then register as an RPEQ. The scheme provides public safeguards, and ensures that engineering products and services are carried out to a certain standard.
RPEQ is a legally protected title (unlike the title of engineer) so that the public and industry can easily distinguish qualified and competent professional engineers from the ‘pretend-gineers’.
Engineers are going to be critical in the post-COVID-19 economic recovery, and governments of all stripes are investing heavily in infrastructure and construction projects. Engineering standards must not be compromised during this time of unprecedented investment.
The Board of Professional Engineers of Queensland (BPEQ) manages the RPEQ scheme, and is also responsible for ensuring compliance with the legislation. This is achieved by: 1. registering engineers to practise 2. disciplining RPEQs for unsatisfactory professional conduct in the carrying out of an engineering service 3. prosecuting non-engineers for carrying out an engineering service.
The Act was recently amended to widen BPEQ’s compliance powers. From 1 March 2021, BPEQ will be able to enter and search places, seize evidence, and require the production of a broader range of potential evidence and conduct compliance audits, which will allow BPEQ to proactively investigate and determine compliance with the Act.
While other states are only now understanding the critical role of engineers in the building process and turning their attention to setting professional standards, Queensland is continuing to lead the way with common sense and proportionate amendments to protect the public and uphold standards.
Rather than a piecemeal state-bystate and territory-by-territory approach, there should be agreed standards and coordination between the states and territories to create a national engineering registration scheme.
The RPEQ system provides the template, and will result in safer and better-quality building in Australia. ♦
Dawson Wilkie
Dawson Wilkie is BPEQ’s chair and regional representative.
BPEQ is Queensland’s engineering regulator. BPEQ is an independent statutory body, has administered the Professional Engineers Act and the RPEQ system since 1930.
For more information on BPEQ, the RPEQ system or the Professional Engineers Act, visit www.bpeq.qld.gov.au.
