More than 80 per cent of company directors believe the current level of government spending on infrastructure is too low, according to an Australian Institute of Company Directors survey.
Roads, water supply, telecommunications networks, ports and nuclear power were nominated as the five most important infrastructure priorities in the AICD Director Sentiment Index.
There is no shortage of projects that need to be undertaken.
The federal government adviser, Infrastructure Australia, last year nominated a list of projects to help clear the country's $700 billion infrastructure backlog.
The federal budget committed $36 billion in investment in roads, rail and ports; widened Infrastructure Australia's role; established special tax provisions to encourage more private-sector investment in nationally significant projects; and announced changes to improve the transparency of project evaluation.
This momentum should create more long-term opportunities for large institutional investors seeking to invest in higher-quality infrastructure projects capable of offering equity-like returns with bond-like risk.
But, short term, the infrastructure sector risks being partly "crowded out" by the resource-sector investment boom, with a record $130 billion in mining or energy projects on the drawing board.
Demand in the resource sector is putting pressure on wages and reducing the pool of skilled labour available for infrastructure projects, which have tight margins and deadlines. Wages pressure could lead to more industrial disputes in the next 12 months.
Adding to the labour pressure is ongoing rebuilding work from natural disasters.
Queensland Premier Anna Bligh said earlier this year the damage bill for state-owned assets is expected to top $5.8 billion for thousands of kilometres of roads and railways, and hundreds of schools and bridges.
In the first week of June, the estimate was raised to $6.8 billion. This means even greater demand for tradespeople who might otherwise have been available for infrastructure projects.
The massive reconstruction required in Japan after its earthquake and tsunami could also draw on the pool of skilled Australian workers, as will the rollout of the National Broadband Network.
The threat for infrastructure investors is twofold. First, some projects that require private investment may be delayed or shelved because of skills shortages, especially if the unemployment rate heads towards 4.5 per cent, from 4.9 per cent now, over the next 12 to18 months.
The prominent forecaster, Deloitte Access Economics, expects an unemployment rate near 4 per cent 2012-13.
Second, the price of completing projects could rise to account for higher wages and material costs, thus making them marginally less attractive to private investors.
The other big unknown is how the high Australian dollar will affect the infrastructure investment intentions of the largest superannuation funds. Investing in offshore infrastructure projects, such as transport or utilities, could look more attractive.
There is clearly an appetite for quality infrastructure investments among institutional investors; some superannuation funds have done well from investing in airports, for example.
And there is obvious merit in super funds investing more of their members' funds in assets that benefit the community.
But institutional investors should know that the infrastructure sector faces a renewed set of threats, not the least of which is the seemingly insatiable demand for skilled workers from a resource sector that shows no signs of slowing.
Tony Featherstone is a former managing editor of BRW and Shares magazines.
He writes a monthly column for the AICD's Company Director magazine and has facilitated presentations on the Director Sentiment Index.
He has also written for Future Building, the magazine from Infrastructure Partnerships Australia. The views expressed here are his alone.
