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Mick Lilley, Division Director , Macquarie Bank Limited – September 2006

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.

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Mick Lilley, Division Director , Macquarie Bank Limited – September 2006

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  1. Economies and Investment in Rural and Regional Australia Regional Perspectives 2006 Regions are Big Business Mick Lilley, Division Director , Macquarie Bank Limited – September 2006

  2. 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.

  3. The global business cycle is remarkably strong at present US South East Asia Australia UK Eastern Europe Euro area China NZ India Korea Japan Recession Up-swing Mid-cycle acceleration Peak Slowdown Source: Macquarie Research, July 2006

  4. …reinforcing the importance of industrialisation phases for resources Source: IRESS, July 2006

  5. The economy has undergone a marked shift in the drivers of growth Composition of Australian Growth Forecasts Source: ABS, Macquarie Research, July 2006

  6. Australian growth has been propelled by surging business investment Index Investment by Sector Index Quarterly Source: ABS, July 2006

  7. Business confidence is particularly high in WA Sensis Business Confidence Net Balance Net Balance Quarterly Source: Sensis, July 2006

  8. The east-west housing divide is testament to the diverging fortunes Number Number Monthly Source: ABS, July 2006

  9. 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 Source: ABS, September 2006

  10. Diverging regional economic performance has become entrenched Gross State Product % Chg on Prev Yr Source: ABS, July 2006

  11. Jobs growth strong over the past year Employment over the past year* 000’s 000’s Australia 155.9k Source: ABS, July 2006

  12. Employment in mining and construction sectors has helped Source: ABS, July 2006

  13. 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.

  14. Main Points • Between 2000 and 2005 overall population growth in regional Australia has been roughly the same as in the major capital cities. • major cities grew by 6% • large 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%).

  15. 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.

  16. 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.

  17. Macquarie Bank

  18. AFRICA AUSTRALIA NEW ZEALAND SOUTH AMERICA 24 staff 5,860 staff 104 staff 25 staff Staff - over 8,600 staff in 24 countries EUROPE ASIA NORTH AMERICA MIDDLE EAST 18 staff 1,247 staff 696 staff 669 staff Dublin Amsterdam Frankfurt Winnipeg London Vancouver Munich Montreal Paris Seattle Vienna Zurich Geneva Toronto Milan Boston Chicago Beijing San Francisco Rome New York Seoul San Jose Memphis Tokyo Tianjin Los Angeles Charleston Shanghai San Diego Jacksonville Houston Jupiter Taipei Miami Abu Dhabi Hong Kong Hsinchu Mumbai Manila Bangkok Labuan Kuala Lumpur Singapore Jakarta Sao Paulo Johannesburg Cape Town Auckland Wellington Christchurch Staff numbers at 30 June 2006

  19. Macquarie in Regional Australia • Offices in • Moree NSW • Newcastle NSW • Gold Coast QLD • Sunshine Coast QLD • Robinvale Vic

  20. Macquarie in Regional Australia • Financial Services/Wealth Management Services • Rural Property Trust (still in capital raising phase) • Managed Investment Schemes • Gippsland (Forestry) • Ballarat (Forestry) • Hamilton (Forestry) • Robinvale (Almonds)

  21. 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.

  22. Macquarie in Regional Australia • Macquarie CountryWide Property Trust • Over 50 shopping centres located in regional Australia (Value approx $800 million)

  23. 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

  24. 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. 

  25. Macquarie in Regional Australia Residential Developments • Busselton, WA • Gold Coast, Sunshine Coast, Palm Cove, QLD • Newcastle, Hunter Valley, NSW

  26. Macquarie in Regional Australia • Utilities - DUET (jointly managed by Macquarie and AMP Capital) Dampier Bunbury Pipeline - 87.6% interest AlintaGas Networks - 25.9% interest

  27. NEW SOUTH WALES •Broadcast Australia •Macquarie Regional Radioworks •Macquarie CountryWide** •Macquarie Leisure** • Retirement Care Australia QUEENSLAND •Broadcast Australia •Macquarie Regional Radioworks •Macquarie CountryWide • Retirement Care Australia NORTHERN TERRITORY •Broadcast Australia WESTERN AUSTRALIA •Broadcast Australia •Macquarie Regional Radioworks • AlintaGas Networks • Dampier-Bunbury •Macquarie CountryWide •Macquarie Leisure VICTORIA •Broadcast Australia •Macquarie Regional Radioworks • United Energy Distribution •Macquarie CountryWide •Macquarie Leisure SOUTH AUSTRALIA •Broadcast Australia •Macquarie Regional Radioworks •Macquarie CountryWide TASMANIA •Broadcast Australia •Macquarie Regional Radioworks •Macquarie CountryWide Managing important regional assets in Australia Property Communications Utilities In some cases, Macquarie or Macquarie managed fund has partial interest in asset Other

  28. Future investment in Regional Australia

  29. 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

  30. Meeting the Infrastructure Challenge

  31. 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

  32. 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.

  33. History of PPPs in Australia 2001-2002 Pre 1990s-1993 1994 - 1997 1998 - 2000 2003-2006 Prisons Power Sea Ports Water Tollroads Hospitals Water Defence Prisons Hospitals Airports Toll Roads Sea Ports Schools Airports Rail Power Water 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

  34. General Government Outlays on 18 Investments 16 14 12 % of General Government 10 Outlays 8 6 4 2 0 1970 1980 1990 1997 2000 United Kingdom United States Germany Canada Australia The Debate on Financing Governments are running out of money…. … and have had many delivery failures.

  35. Financing PPPs

  36. 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.

  37. 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).

  38. 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.

  39. Questions

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