The Economic Statement delivered on 12 May was a grim commentary on the impact of COVID19 on the Australian economy, with a $10B turnaround in monthly economic growth needed in the second half of the year to help offset the largest 3-month decline in economic activity on record. We await the Government’s proposed Stimulus strategy to kick start this economic recovery, and look to historical signposts for guidance.
In response to the financial and economic crisis of 2008-09, most major economies embarked on an unprecedented level of fiscal expansion in the form of stimulus packages. Among the G20 countries alone, the size of fiscal stimulus amounted to $2 trillion – roughly 1.4 per cent of the world GDP. European Commission (EC) and the International Labour Organization (ILO) evaluation of country efforts reveals that countries that showed relatively better GDP and employment recovery also implemented bigger stimulus packages as a percent of GDP.
Having survived the GFC a decade ago and evaluating what worked and what didn’t work, these insights may provide a pathway for Australia to addressing the current COVID19 economic impacts.
Australia’s stimulus response during the GFC was praised around the world. The OECD said the stimulus was “among the most effective” in the developed world; it “helped to avoid a recession” and also “had a pivotal role in boosting overall confidence” in the world economy.
Back then the Australian Government stimulus invested more than $90 billion over five years, with over almost half of this value attributed to construction works.
The reason for this was simple, nearly one in ten Australians work in the construction industry. Many more are employed locally in the production of building products and the supply chain networks that support construction.
Both construction and building product manufacturing provide jobs for people with varying levels of skill, including people who are unskilled. For this reason, the construction sector needs to be at the forefront of any stimulus strategy.
For buildings up to three storeys, over 50% of the total project cost relates to on site labour. Of the remaining project budget, the vast majority of materials are Australian-made. Hence, programs such as housing have been proven to be a very effective way to create jobs, both directly and throughout the wider economy through extended supply chains.
A review of global fiscal stimulus carried out by the European Commission (EC) and the International Labour Organization (ILO) identified the benefits to economies of small to medium construction programs of work across multiple sites and geographic locations. A well-considered economic strategy utilising the construction sector to stimulate the economy would, and should, incorporate large programs of works delivering multiple small to medium construction projects.
What areas of construction?
If structured appropriately, the stimulus can ultimately benefit all Australians over the long term by addressing existing, known social infrastructure deficiencies. With this in mind, and recognising the benefits of small to medium programs of work, there is ongoing speculation that the future stimulus package will include works to some or all sectors below:
- Social, Community and Affordable Housing
- Public Schools and Early Learning Centres (ELC’s)
- Removal and Replacement of Flammable Cladding
- Remote Indigenous Housing – Closing the Gap
Announcing these programs as soon as possible and providing guidance on the scale and duration of the planned spending will help prevent further declines in economic activity.
Lessons Learnt - Building the Education Revolution (BER)
The Rudd Government’s $16.2 billion school modernisation, incorporating the Building Education Revolution (BER) was a cornerstone initiative of the response to the GFC. It is reported that this program supported around 120,000 jobs.
The GFC stimulus response provides a helpful guide to what does and doesn’t work. The initiatives that failed did so because of a lack of proper planning. Getting it right is crucial. Oversight of a fast paced, large volume program of works will only be successful if robust program management process and procedures are implemented.
Program Management role in Stimulus
APP’s dedicated Program Management division delivers works across Australia and New Zealand for clients including Goodstart Early Learning, ALDI, Westpac and InvoCare. Together with our involvement in the BER a decade ago, where we delivered programs of school upgrades across QLD, NSW, WA and a $640M package in VIC, our experience offers a unique insight into the role of Program Management.
A well-structured program management strategy to deliver upcoming stimulus will directly benefit from the unique opportunities that volume based multiple site projects can achieve. These opportunities include:
- Employment – The ability to tailor strategies to support and maximise local, regional and remote employment and training. (Including Indigenous);
- Local Industry Participation - Bundling works in regions, locations or by work types to support local industry capacity. Tailoring works packages to support local communities’ capabilities maximises and extends the economic benefits to each community in which the work takes place.
- Economies of Scale - Programs may benefit from economies of scale through “bundling” to obtain volume buying power. Bundling can be tailored to various tranches of small, medium and large packages to suit the program objectives, while the overall program size can benefit from economies of scale buying power for services and materials.
- System Support – Skilled Program Managers can provide support to smaller contractors and suppliers increasing the depth of industry participation.
- Standardisation – Creating design standards, selecting appropriate materials and fixtures and improving overall quality of the project outcome.
- R&M Management – Integrating BIM and R&M systems, procedures and strategies early into the project planning may reduce ongoing maintenance throughout the life of the asset.
- Visibility, Probity and Reporting - Application of real-time data reporting and data analysis.
- Bulk Procurement - Opportunities to establish a bulk procurement and supply chain strategy, which reduces supply delays and achieves economies of scale price benefits.
Program management looks at projects holistically. The size, volume and complexity of programs often justifies the application of innovation and efficiencies to achieve both cost and non-cost project objectives.
APP, like all consultants within Australia, eagerly awaits future Federal Government announcements confirming the proposed Stimulus strategy.