CIF proposes a radical change in how infrastructure is delivered in Ireland

A CIF commissioned report, carried out by DKM Economic Consultants, has proposed an urgent and radical overhaul to how infrastructure is delivered in Ireland.

The report warned that Ireland’s historically low levels of investment in infrastructure threatens Ireland’s economic recovery and could undermine growth in other sectors, such as technology, financial services, pharmaceutical, whilst also leading to social inequality arising from housing shortages and imbalanced regional development.

The report, entitled ‘Enhancing Ireland’s Infrastructure’ shows how Ireland’s capacity to deliver infrastructure projects is negatively affected by political decision-making and proposes the establishment of a National Infrastructure Commission to support objective decision making in Government on selecting projects.  The report also warned that significantly more investment was required to meet the needs of Ireland’s population, the fastest growing in the EU, and its economy, the second fastest growing in the EU27.  Currently, Ireland is last in the EU27 for direct Government investment in infrastructure.

Director General, Tom Parlon said: “The infrastructure deficit has the potential to undermine the economic recovery.  So, firstly, significantly more investment in infrastructure is required. However, we must improve how we invest in infrastructure and how we evaluate projects and their benefits to all society. Infrastructure investment needs to be made with a 10-15 year time horizon in mind – we should build infrastructure for the next generation. However, our political system works against this type of long-term thinking. We’re proposing that an infrastructure commission is established to take a long-term view, to critically evaluate projects and ultimately direct successive Governments’ investment on infrastructure.  We’re asking the Government to adopt approaches similar to those used by Canada, Australia and the UK where the delivery of critical infrastructure is less politicised, more cost-effective and ultimately more beneficial for society.

DKM’s analysis shows that there is only €350million per year up to 2021 to invest in new infrastructure projects. Whilst the figures quoted in the Public Capital Programme are vast, the proportion that is spent on new productive infrastructure, for example, roads, rail, broadband, schools, hospitals is reducing each year.  DKM’s estimates of the amount of additional funding available (€350m per year up to 2021) could be absorbed by just one of the critical strategic projects that needs to be undertaken.”

Amongst the recommendations made in the report, the CIF calls on the government to ensure that public capital projects are prioritised with reference to rigorous cost/benefit analyses and with greater cognisance of social, environmental and economic needs.

Tom Parlon said: “An increasing amount of the Public Capital Programme is spent on maintenance of significantly depreciated stock and 40% of the ‘capital’ is not being spent on productive or social infrastructure ie. roads, rail, schools.

Increasing infrastructure investment is imperative for the sustainable and balanced development of Ireland’s economy and society. The Irish population has grown by 30% in one generation and our economy was the fastest-growing in the EU for the last four years. However, capital investment has reached a long-term average low of around 2 per cent GDP since 2008; down from 5 per cent throughout the early 2000s. Ireland is now the bottom-ranking EU country in terms of capital investment, and successive EU Commission reports have highlighted infrastructural deficiencies as a threat to Ireland’s long-term growth.”

The Enhancing Ireland’s Infrastructure report calls on the government to increase infrastructure investment through:

  • Securing a relaxation on the fiscal constraints imposed by the EU.
  • Using PPPs more effectively and securing other sources of finance such as the EIB.
  • Improving the procurement processes to deliver better value for money for the state.
  • Increasing the transparency of public sector infrastructure spending and upcoming projects.
  • The Construction Industry Federation is calling on the government to increase establish a national infrastructure commission, similar in set-up to the Irish Fiscal Advisory Council, whose role would be to advise on strategic infrastructure and improve delivery and prioritisation of projects, ensuring that every project undergoes a serious cost-benefit analysis.

 

Ireland’s economy and population are among the fastest-growing in the EU. The underlying general government deficit has fallen from a peak of 11.5 per cent in 2009, to a projected 0.4 per cent in 2017. GDP growth in 2016 was 5.2 per cent: the highest rate in the European Union. GDP is projected to grow by 4.3 per cent in 2017. However, a decade of underinvestment has resulted in shortages of accommodation and inadequate infrastructure.

Ireland’s current capital expenditure ratio is about 10:1 – in other words, we spend 10 times as much on day-today spending as we do on investment.

Each billion euro invested in infrastructure yields almost 12,000 construction jobs, and generates around €1 billion in the domestic economy. These figures are calculated before improved connectivity, quality of life and attractiveness to foreign direct investment is taken into account.

International Approaches to Infrastructure Planning

The OECD has identified global best practice in strategic infrastructure planning, which provides useful insights into how one might develop the approach to long-term infrastructure investment planning in Ireland. The common thread in a number of jurisdictions, most notably in Britain, and Australia, is the move to depoliticise the process by establishing independent statutory bodies with a mandate to progress and prioritise national infrastructure. These bodies also deal with the reforms needed to address infrastructure gaps.

Case Study 1- Australia:

Australia established Infrastructure Australia in July 2008 to provide advice to the Australian Government under the Infrastructure Act 2008. In 2014 the legislation was amended to create an independent board with responsibility for strategically auditing Australia’s nationally significant infrastructure and developing 15-year rolling infrastructure plans that specify national and State level priorities. The Act specifically states that the Minister must not give directions about the content of any audit, list, evaluation plan or advice provided by the independent board. This ensures greater transparency in the process of project selection and prioritisation. It further removes any short-term focus dictated by the political cycle. The long-term infrastructure investment planning process followed by Infrastructure Australia involves taking a strategic approach to ascertaining infrastructure requirements.

Infrastructure Australia publishes a list of projects that are under construction, ensuring progress on all projects on the Priority List is tracked through to completion. Initiatives are proposals that have been identified as having potential to address a nationally significant problem, but which require further development and rigorous assessment to determine if they are the most appropriate solution.

Since the establishment of Infrastructure Australia, a number of State-based infrastructure advisory bodies have been established including, for example, Infrastructure NSW and Infrastructure Tasmania. These bodies were established to assist the Government in each State to identify and prioritise the delivery of critical public infrastructure. One of the main tasks of each body is to publish a 20-year State Infrastructure Strategy (SIS) which is a prioritised and costed long-term strategy for consideration by government. The SIS is implemented through an annual Five-Year Infrastructure Plan, which identifies specific major infrastructure projects to be undertaken as a priority. We understand each State works closely with Infrastructure Australia to identify priority infrastructure projects.

Infrastructure Australia was created to address an inconsistent approach to planning infrastructure and its necessary investment. Previous to the establishment of Infrastructure Australia, attention was focussed at the level of individual projects, without an adequate assessment of need or defining infrastructural problems from a national perspective. Amongst other challenges, infrastructure investments were sometimes announced in the absence of an appropriate business case and underpinning economic assessment.

Infrastructure Australia’s Assessment Framework methodology involves a rigorous evidence-based process to inform better infrastructure decision-making.  The Audit is intended to define the problem that needs to be addressed, following which a range of early project development studies and consultations are undertaken to ensure that the right infrastructure solution is selected, and that community benefits are maximised.

Case Study 2-The UK:

In the UK, there is a National Infrastructure Commission (NIC) which provides the government with impartial, expert advice on major long-term infrastructure challenges. The Commission has been operating in interim form since October 2015 and was established permanently as an Executive Agency of HM Treasury on 24 January 2017. It describes itself as ‘forward-thinking’ as it takes a strategic approach, linking “long-term priorities with short-term action and considers infrastructure as a system, not as a collection of silos.”

There are two stages involves in developing the UK’s long-term infrastructural needs: Firstly, the NIC will determine a ‘vision’ of the UK up to 2050 to identify long-term needs and highlight priority areas for action in the medium-term.  This report will be published in summer 2017.  The NIC will publish a National Infrastructure Assessment in 2018 which will contain its final conclusions and recommendations on the UK’s infrastructure needs and priorities to 2050. The Government will be required to respond to the recommendations made.

As with Infrastructure Australia, the British NIC’s focus is on productive infrastructure only and long-term social infrastructure needs are outside the scope of its remit. The NIC’s remit, however, does include consideration of the demand and supply of infrastructure services and assets, and approaches to demand management that enables more effective use of existing and new assets. This includes the adoption of new technologies to track performance and reduce cost.