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Creation Date: Mon, 17 Jan 2011 GMT

Flood disaster worsens skills crisis

THE $20 billion task of rebuilding Brisbane and southeast Queensland could exacerbate the national skills crisis and labour shortages.
Premier Anna Bligh said the state would require a "post-war" recovery effort after the worst floods in more than three decades had demolished some of Queensland's most vital business and social infrastructure networks.

Adding to growing concerns over a worsening skills crisis, the national unemployment rate last month fell to a two-year low of 5 per cent, figures released yesterday show.

More companies yesterday also reported disruptions to business, including miner Rio Tinto, which declared force majeure on deliveries of aluminium from its Boyne smelter.

In Queensland, the unemployment rate is 6 per cent. The state has one of the largest workforces in the nation.

Resources Minister Martin Ferguson yesterday admitted that the Queensland recovery effort would further tighten a labour market already under strain because of the mining boom.

The issue would "have to be discussed in detail at a government level once we get through the immediate challenges on the flood front", Mr Ferguson said.

"The shortage of labour in Australia and the potential impact on wages" already presented a challenge, Mr Ferguson said. "We are aware of those matters" and the difficulties in Queensland added to those challenges, he said.

TD Securities economist Roland Randall said Queensland faced the dual pressure of having to rebuild the state at a time when the economy was already facing significant capacity constraints.

The recovery is expected to cost up to $20bn. And even before the floods, a 21 per cent increase in non-residential construction had been predicted.

The skilled labour force, particularly in construction and related sectors, was "already stretched because of the massive mining investment ramping up in Western Australia and Queensland", Mr Randall said.

"The flood reconstruction will add to an already capacity-constrained sector.

"The public sector can reallocate resources from planned projects to flood recovery and manage the strain on resources," Mr Randall said.

However, the private sector would be unable to do so without the help of market price signals.

Macquarie senior economist Brian Redican said the negative economic consequences of inflation and a wages breakout would be minimised by a recovery effort conducted at a measured pace.

"I think in terms of the broader rebuilding of infrastructure, the key question" was how quickly it was done, Mr Redican said.

"If it was spaced out over two to three years, then that is different to 12 months.

"But there is going to be pressure to get people back on their feet quickly, and that will create a lot of upward pressure."

Property Council of Australia's Queensland executive director, Kathy MacDermott, said the state's business groups were keen to ensure the recovery did not create a skills and labour bottleneck.

"There will also be increased demand for construction workers throughout the state," Ms MacDermott said. "We will be working with our members and the Queensland government to look at how we can mobilise work teams from other states, as well as employ local subcontractors in the affected regions."

The flood crisis recovery will prove beneficial for some Australian corporates. The infrastructure remediation work will provide an opportunity for contractors, especially as repair and rebuilding work begins on roads, bridges, telecommunications networks, rail, and non-residential housing.

Leighton Holdings, which will have suffered in its contract mining business because of the closure of coalmines, is likely to pick up some work from its building and construction division as Queensland moves into a rebuilding phase. Contractors such as UGL, Transfield Services, Downer EDI and Valemus are also expected to find extra work.

But JPMorgan analyst Alistair Reid cautioned against overexuberance on the remediation opportunity for large contractors.

Mr Reid noted that repair work on roads in Queensland was still largely handled by the state's Department of Main Roads and local councils, and that it was thus more likely that smaller, private subcontractors would perform the work.

Also, the urgency of the work might give government departments too little time to aggregate parcels of work into a tender, which is typically how large contractors bid for projects.

Scott Murdoch and Tracy Lee, 'The Australian', 14 January 2011