Increasing investment

25 April 2008

Most developed countries have at least one or two contractors which are well known in other foreign markets but New Zealand is an exception. Very few New Zealand based contractors venture overseas and logistics mean that very few overseas contractors actively seek work in New Zealand.

“Lack of government investment in infrastructure In New Zealand over the last 20 years has meant that growth in the construction industry has been fairly slow,” said New Zealand Contractors Federation chief executive Richard Michael. “The overall economy in New Zealand is slowing down but over the last few years the government started to increase its investment, which has helped to bolster the construction industry.”

The New Zealand government has just launched a NZ$ 10 billion (US$ 6.9 billion) 10 year rolling roads programme. The results of the renewed commitment to investment of the last few years are also beginning to be seen on the ground with three or four major road schemes already on site or about to get underway. One of the biggest is a NZ$ 329 million (US$ 226 million) extension of the Alpurt Motorway just north of Auckland.

“Most of the new road schemes will be paid for through tolls which are not very popular,” said Mr Michael. “But most people understand that without tolls there would be no new roads and it is estimated that congestion in Auckland alone costs NZ$ 1 billion (US$ 0.69 billion) each year. New Zealand law was adjusted five or six years ago to allow for PPPs (Public Private Partnerships) but so far no projects have been procured this way.”

New Zealand's construction industry generates around NZ$ 20 billion (US$ 13.7 billion) of revenue each year. Mr Michael is not expecting work levels in New Zealand to grow significantly over the next few years. But what growth there is will benefit the home economy as overseas contractors do not have a strong presence in New Zealand.

“Projects in New Zealand tend to be smaller in value in comparison with infrastructure projects in other countries, so there is little incentive for overseas contractors to bid for work here, especially when there is plenty of work in other regions,” explains Mr Michael. Distance is another issue which has helped create an insular construction industry in New Zealand – Australia is the country's nearest neighbour but is still more than 2250 km away.

“Australia's Multiplex and Leighton are the main overseas players here but home grown contractors such as Fulton Hogan, Works Infrastructure, the Fletcher Group and McConnell Gale hold a significant market share and have the capacity and expertise to take on most major projects,” said Mr Michael.

According to Mr Michael, energy and water projects are also helping to boost work levels in New Zealand's construction industry. “There is a real shortage of power generation in New Zealand and there are a lot of large energy schemes in the pipeline to help address this problem,” he said. “Most of the schemes are for wind power but there is also a plan being developed to build a new gas fired power station to the north of Auckland.”

New drinking water regulations which are more stringent than current standards are also being introduced in New Zealand which Mr Michael believes will lead to upgrading work at water treatment sites and renewal of water mains.

While prospects for infrastructure investment look promising, work in the housing market has started to tail off. “Residential construction has been strong for the last five years,” said Mr Michael. “Most New Zealand contractors have a residential division so have benefited from this boom but the market is cooling following interest rate rises to tackle inflation.”

Investment in schools and hospitals in New Zealand is also increasing but commercial construction is fairly static. “There was a lot of office building in the 1980s which resulted in supply outstripping demand,” explains Mr Michael. “The overcapacity is steadily being used up but I don't expect much growth in the commercial sector.”

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