Economies and
Investment in Rural
and Regional Australia
Regional Perspectives 2006
Regions are Big Business
Mick Lilley, Division Director , Macquarie Bank Limited – September 2006
The Australian Economy

The Australian economy has enjoyed an extended period of
healthy growth over the last 15 years.

Corporate profits as a share of GDP have risen from 20% to
24%.

The unemployment rate has fallen from 11% in the early
1990s to 5% now.

The level of net public debt has fallen from $95 billion in
1995 to zero now.

The market capitalisation of listed companies has increased
by 260% over the last decade.
2
The global business cycle is
remarkably strong at present
US
South East
Asia
Economic Growth Rate, %
Australia
UK
Eastern Europe
Euro area
China
NZ
India
Korea
Japan
Recession
Up-swing
1
2
Mid-cycle
acceleration
3
Phase
Peak
4
Slowdown
5
Source: Macquarie Research, July 2006
3
…reinforcing the importance of
industrialisation phases for resources
The Ebb and flow of Resource performance
All Mining Index 1936 to Current
Returns on log scale
10000
The rise
of China?
87 crash
1000
OPEC 2
Industrialisation of Japan
OPEC 1
100
10
1
36
39
43 46 49
52
55 58 62
65
68 71 74
77 81 84 87
90 93 96 00
03 06
Source: IRESS, July 2006
4
The economy has undergone a marked
shift in the drivers of growth
Composition of Australian Growth
% Pts Cont to GDP Growth
% Chg on Prev Yr
10
10
Consumption (LHS)
Business Investment (LHS)
Housing (LHS)
Net Exports (LHS)
8
8
Other (LHS)
GDP (RHS)
Forecasts
6
6
4
4
2
2
0
0
-2
-2
-4
-4
2002
2003
2004
2005
2006
2007
Source: ABS, Macquarie Research, July 2006
5
Australian growth has been propelled by
surging business investment
Investment by Sector
Index
Index
230
230
Manufacturing
Mining
Other Industries
210
190
210
190
170
170
150
150
130
130
110
110
90
90
70
70
50
Mar-88
50
Mar-91
Mar-94
Mar-97
Mar-00
Mar-03
Mar-06
Quarterly
Source: ABS, July 2006
6
Business confidence is particularly high
in WA
Sensis Business Confidence
Net Balance
Net Balance
90
80
90
NSW
VIC
QLD
WA
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
May 96
May 98
May 00
May 02
May 04
May 06
Quarterly
Source: Sensis, July 2006
7
The east-west housing divide is testament
to the diverging fortunes
Number
Number
12000
2100
NSW, Vic & Qld House Approvals
WA House Approvals
11000
10000
1900
1700
9000
1500
8000
1300
7000
1100
6000
900
5000
4000
Feb-86
Jan-89
Dec-91
Nov-94
Oct-97
Sep-00
700
Aug-03 May-06
Monthly
Source: ABS, July 2006
8
Economics of Regions
In
recent years it has been the resource-rich States that
have enjoyed most of the gains.
Growth Rates by State – June 2005 to 2006
% Chg in Jun qtr
16
14
State Final Demand
12
10
8
6
4
2
0
NSW
Vic
Qld
SA
WA
Tas
NT
ACT
Source: ABS, September 2006
9
Diverging regional economic performance
has become entrenched
Gross State Product
% Chg on Prev Yr
10
10
Qld, WA & NT
Balance of States & ACT
8
8
6
6
4
4
2
2
0
0
-2
-2
Sep 01
Jun 02
Mar 03
Dec 03
Sep 04
Jun 05
Mar 06
Quarterly
Source: ABS, July 2006
10
Jobs growth strong over the past year
Employment over the past year*
000’s
000’s
50
50
Australia
155.9k
41.7
40
40
34.3
30
28.3
30
26.4
20
20
10
6.5
6.1
0
10
0
NSW
Source: ABS, July 2006
VIC
QLD
SA
WA
Tas
* Average level Apr-Jun 2006 less Apr-Jun 2005
11
Employment in mining and
construction sectors has helped
Personal
Recreational Services
Health and community services
Education
Gvt admin & defence
Property and business services
Finance and insurance
Communication services
Transport and storage
Accommodation, cafes and
Retail trade
Wholesale trade
Construction
Electricity, gas and water
Manufacturing
Mining
Agriculture, forestry, and fishing
-60
-40
-20
0
20
40
60
80
100
Employment Growth in Yr to May 06 - 000's
Source: ABS, July 2006
12
Macquarie Research
Macquarie
Research Economics has looked at the
economic data for 3 main types of regional centres.
First,
there are the larger regional centres such as
Tamworth, Wodonga, Noosa and Bunbury.
Second,
the smaller regional centres such as Cairns,
Gunnedah, Swan Hill and Whyalla.
Third,
there are the remote centres, such as Mount
Isa, Esperance, Coober Pedy and Kununurra.
13
Main Points
 Between
2000 and 2005 overall population growth
in regional Australia has been roughly the same
as in the major capital cities.
major
large
cities grew by 6%
regional centres grew by 9%
smaller
regional centres, grew by 3%
remote
areas population declined by 3%.
 The
industrial base of the larger regional towns is
actually quite diverse.
agriculture
and mining 8% of total employment.
Manufacturing (12%), infrastructure (14%) health and
education (19%).

14
Main Points
 The
current mining boom is not the only reason
that many regions have been doing well
 This
quick overview of our unpublished research
on the performance of regional Australia has
highlighted that some locations offer tremendously
exciting growth opportunities.
 There
are also significant difficulties and
challenges faced by some communities, such as
poor communications infrastructure,
environmental problems and lower standards of
education.
15
Overall Impression
 Our
view is that regional Australia represents a
significant part of the Australian economy, with a
highly diverse range of industries and what could
be some of the fastest growing markets in the
economy.
 With
rapid population growth, comes a range of
business opportunities and challenges.
16
Macquarie Bank
Staff - over 8,600 staff in 24
countries
EUROPE
MIDDLE EAST
18 staff
669 staff
Dublin Amsterdam
Frankfurt
London Munich
Paris
Vienna
Zurich
Geneva
Milan
Rome
ASIA
NORTH AMERICA
1,247 staff
696 staff
Vancouver
Seattle
Beijing
Tianjin
Shanghai
Abu Dhabi
Hong Kong
Mumbai Bangkok
Kuala Lumpur
Seoul
Winnipeg
Montreal
Toronto
Boston
Chicago
San Francisco
New York
San Jose
Memphis
Los Angeles
Charleston
San Diego Houston
Jacksonville
Jupiter
Miami
Tokyo
Taipei
Hsinchu
Manila
Labuan
Singapore
Jakarta
Sao Paulo
Johannesburg
Cape Town
Auckland
Wellington
Christchurch
AFRICA
AUSTRALIA
NEW ZEALAND
SOUTH AMERICA
24 staff
5,860 staff
104 staff
25 staff
Staff numbers at 30 June 2006
18
Macquarie in Regional Australia
 Offices
in
Moree
NSW
Newcastle
Gold
NSW
Coast QLD
Sunshine
Coast QLD
Robinvale
Vic
19
Macquarie in Regional Australia
 Financial
 Rural
Services/Wealth Management Services
Property Trust (still in capital raising phase)
 Managed
Investment Schemes
Gippsland
Ballarat
(Forestry)
(Forestry)
Hamilton
(Forestry)
Robinvale
(Almonds)
20
Macquarie in Regional Australia
Communications

Macquarie Regional Radioworks is the owner and operator
of 85 commercial radio licences in regional Australia
providing coverage to approximately 60% of Australia’s
population outside the mainland capital cities
(approximately 4.6 million people).

Broadcast Australia provides the most extensive TV and
radio transmission services in Australia, reaching 99% of
the population.
21
Macquarie in Regional Australia
 Macquarie
CountryWide Property Trust
Over
50 shopping centres located in regional Australia
(Value approx $800 million)
22
Macquarie in Regional Australia
Cotton Trading

Purchased approx 240,000 bales Australian cotton in
2005/06 (Represents 9% of Australian crop)

Exports to China, Indonesia, Pakistan, Thailand, Japan
(Gross export sales revenue US$75)

Local representation across Queensland and NSW cotton
regions – Moree, Narrabri, Dubbo, Toowoomba

Value adding in regional communities via trading activities
23
Macquarie in Regional Australia
Commodity Markets

In addition to the Cotton Merchant Business "Macquarie Cotton", The
Commodity Markets Division provides over-the-counter agricultural price
risk management solutions and unique financing structures to the
agricultural industry in Australia with a particular emphasis on the sugar
industry.
24
Macquarie in Regional Australia
Residential
Developments

Busselton, WA

Gold Coast, Sunshine Coast,
Palm Cove, QLD

Newcastle, Hunter Valley,
NSW
25
Macquarie in Regional Australia
 Utilities
- DUET (jointly managed by Macquarie
and AMP Capital)
Dampier Bunbury Pipeline - 87.6% interest
AlintaGas Networks - 25.9% interest
26
Managing important regional assets in Australia
WESTERN AUSTRALIA
• Broadcast Australia
• Macquarie Regional Radioworks
 AlintaGas Networks
 Dampier-Bunbury
• Macquarie CountryWide
• Macquarie Leisure
NORTHERN TERRITORY
• Broadcast Australia
SOUTH AUSTRALIA
• Broadcast Australia
• Macquarie Regional Radioworks
• Macquarie CountryWide
TASMANIA
• Broadcast Australia
• Macquarie Regional Radioworks
• Macquarie CountryWide
QUEENSLAND
• Broadcast Australia
• Macquarie Regional Radioworks
• Macquarie CountryWide
 Retirement Care Australia
NEW SOUTH WALES
• Broadcast Australia
• Macquarie Regional Radioworks
• Macquarie CountryWide**
• Macquarie Leisure**
 Retirement Care Australia
VICTORIA
• Broadcast Australia
• Macquarie Regional Radioworks
 United Energy Distribution
• Macquarie CountryWide
• Macquarie Leisure
Property
Communications
In some cases,
Macquarie or Macquarie
managed fund has
partial
interest in asset
Utilities
Other
27
Future investment in Regional
Australia
The Challenge
A key issue for growth is provision of Infrastructure.
Australia’s infrastructure requirements for the next 20 years*:
Estimated
shortfall of approx $50 billion for new road,
rail & water assets;
$40
billion investment required for electricity
generation & distribution; and
A potential
water shortage equal to Sydney’s current
annual water use.
These
are issues for Regional Australia as well as
Capital Cities
Regional Australia
will be competing with Cities for
infrastructure investment by Public Sector
Business Council of Australia, 2005
29
Meeting the Infrastructure
Challenge
PPPs can make a Valuable
Contribution

Providing additional funding for infrastructure

Shifting risks to the private sector

Certainty of delivery

Can be a solution for Infrastructure in Regional Australia
31
The PPP Solution
 UK
leading the Development of PPP schemes
 700
projects since 1997.
 Total
capital value of PPPs to date is £46bn.
 Intention
is that PPP schemes will contribute between 10
and 15 per cent of total public sector investment each year.
 Australia
 About
20 PPPs commissioned over the past five years.
 About
20 in the pipeline.
A
total worth estimated at some $20 billion.
32
History of PPPs in Australia
Pre 1990s-1993
 Tollroads
 Hospitals
 Water
1994 - 1997




Prisons
Power
Sea Ports
Water




2001-2002
1998 - 2000
Airports
Rail
Power
Water







Defence
Prisons
Hospitals
Airports
Toll Roads
Sea Ports
Schools
2003-2006


















Defence
Hospitals
Schools
Convention
Centres
Courts
Toll Roads
Water
Waste
TAFE College
Housing
Ports
Rolling Stock
Cruise Terminal
Sports
Complex
Broadband
Public
Transport
Aged Care
Research
Facilities
33
The Debate on Financing
% of General Government
Outlays
Governments are running out of money….
General Government Outlays on
Investments
18
16
14
12
10
8
6
4
2
0
1970
1980
United States
Canada
1990
1997
United Kingdom
2000
Germany
Australia
… and have had many delivery failures.
34
Financing PPPs
Equity Investors
 Superannuation
funds have grown very rapidly in
Australia in recent years, from $95 billion in June
1988 to $730 billion in December 2005;
 Superannuation
funds will continue to be strong
cash flow positive until beyond 2020;
 New
investment opportunities outside of existing
capital markets are highly attractive; and
 Australia
now has the fourth largest managed
investment pool in the world.
36
Equity Investors


Investment in PPPs well suited for Super/Pension equity
funds:

Long term;

Low risk;

Good credit;

Predictable / stable returns; and

Infrastructure seen as “recession proof” investment.
Several infrastructure funds and now sector specific funds
Many funds publicly listed:

Macquarie leading the way in Australia (e.g. MIG, MAG,
MCIG).
37
Summary
 Regional
Australia represents a significant part of
the Australian economy and presents many
investment opportunities.
 Large
corporations are large investors in Regional
Australia – Regions are big business!
 Infrastructure
investment is important factor in
continued economic growth.
 Privatisation
and PPPs are an important part of
the mix for meeting our infrastructure needs into
the future and should be considered as part of the
solution in Regional Australia.
38
Questions
39
40