The multi-billion dollar infrastructure-building industry is looking to the new government to end “instability” in the projects pipeline, as a new report says more planning certainty could push up investment in the under-funded sector by up to $33 billion in coming years.
The report by Infometrics was commissioned by sector advocate Infrastructure New Zealand, which said under-investment in infrastructure was one of the country’s biggest economic longer-term challenges.
Chief executive Nick Leggett said the country had around $100b worth of projects planned and in its pipeline of upcoming work but this needed to more than double over the next 30 years to meet the infrastructure deficit.
“Our infrastructure pipeline suffers from uncertainty over project timing, funding and outcomes, driven by a range of factors, including changes in government policy, delays due to inefficient legislation and limited decision-making and infrastructure procurement capability within government,” he said.
“We know that the uncertainty around the infrastructure pipeline creates confusion for industry, limits their ability to invest in labour and capital and limits the number of potential suppliers for projects.”
The Infometrics report “Estimating the costs of an uncertain infrastructure pipeline” said the pipeline was more certain for water, waste, and environment spending, but “highly uncertain” for energy and communications. The pipeline for transport spending, the largest spending category, was “moderately uncertain”.
Leggett said the uncertainty also “sends the wrong signals to important international markets that New Zealand is not open for business as a place to fund or establish business”.
He said the new government had a unique chance to end the instability and save money by committing to a longer-term plan to build what the country needed to grow and prosper.
The report showed that streamlining delivery by the government committing to a more certain pipeline could result in productivity and savings gains of 13 per cent to 26.5 per cent on future infrastructure projects, Leggett said.
“If applied, these savings could increase the amount spent on infrastructure delivery by between $2.3b and $4.7b per year over the 2025-2031 period.
“The end result is a massive increase of $16b to $33b in infrastructure investment through to 2031.
“New Zealand badly needs to drive its infrastructure build, but we also need to be prudent in what we spend in a period of fiscal restraint, so this would be a real game changer.”
Leggett said research showed 70 per cent of Kiwis wanted more infrastructure investment.
“They will expect their new government to deliver that and to begin addressing the country’s $200b infrastructure deficit.”
Infometrics’ analysis examined progress on New Zealand’s “prototype” infrastructure pipeline, announced in 2019 by then sector minister Shane Jones. The pipeline was first developed by the Treasury and then, by the Infrastructure Commission.
At launch, the pipeline focused on major projects for the next five years, with the intention to expand coverage over a longer period. The pipeline is updated quarterly. At the start of this year, it had 66 contributing organisations, up from 20 at launch.
The report concluded the sector was financially less efficient than other major industries, with a lower return on equity, return on total assets and surplus per employee than the wider construction sector.
It found the current Infrastructure Commission’s pipeline, an important element in the country’s ability to plan and deliver infrastructure, did not have full coverage of the industry, and contained nearly half of expected infrastructure short-term investment, ”but this certainty rapidly falls away in three years’ time”.
A considerable amount of expected work in the pipeline was not easily profiled and with certainty falling away early in the outlook, the sector’s ability to have investment confidence in secure work levels was limited.
“A clear, certain and deliverable pipeline” was essential for New Zealand’s wellbeing, the report said.
“The infrastructure sector needs better clarity of when projects will be brought to market and confidence that timeframes and priorities will be predictable.”
Among policy recommendations, the report urged the Government in its first term to identify priority projects and plan significant projects more effectively. It said the commission should be empowered to provide independent advice on the priority list to build consensus, and that project planning and prioritisation within government should follow robust “right-sized” business case processes.
These processes should consider a broad range of benefits including around climate resilience “to ensure we are investing in the right projects”.
The Government should partner with the industry to ensure it can gear up to deliver on the pipeline.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.