Infrastructure Priorities: What to Invest in and Where?

Though the media attention is now largely focussed on what is in Budget 2017 and how it affects individuals, an interesting conference on investment in Ireland’s infrastructure took place on 27th September. Infrastructure Ireland, organised by Eolas, convened a range of speakers with expertise across various Government departments as well as industry bodies and funding agencies.

There were three broad themes emerging from the speakers;

  • the extent to which infrastructure investment should be spatially or geographically targeted,
  • how large infrastructure investments can be funded,
  • and the sectoral delivery of infrastructure investment and its impacts.

Overview and Context

Mr. Robert Watt, Secretary General, Department of Public Expenditure and Reform, outlined the current planned priorities for infrastructure investment and how it is spread across different sectors. He noted that there needs to be a debate about what are the key priorities for future investment. There are recognised deficiencies in some areas such as water infrastructure and education. The findings from Census 2016 should also help inform where investment is needed. Mr. Watt argued that capital investment is an enabler of sustainable long-term growth and should not be seen as a driver, in terms of construction industry investment for example. Finally Mr. Watt noted the potential importance of the new National Planning Framework in guiding investment. There is to be a mid-term review of the Capital Plan in 2017 and there should be more long-term strategic infrastructure planning.

Danny McCoy, Chief Executive of Ibec discussed the importance of infrastructure investment as a key driver of sustainable economic growth. He argued that the potential growth rate is actually greater than generally considered but that infrastructural deficits will impede or constrain this potential. He also argued that there is a false narrative that as a country we have no money to invest. Our debt to GDP ratio has been dramatically reduced and there are plenty of institutional funding agencies willing to invest in projects (Some examples were outlined by other speakers, see below).

Mr.McCoy argued that Ireland is in danger of becoming a society of ‘private affluence and public squalor’, a phrase coined by the economist JK Galbraith. Our public infrastructure stock is being diminished while private wealthy in increasing. For an economy to function well it needs good public infrastructure.

Mr. McCoy argued that greater investment is needed in the road infrastructure and not on the radial routes to and from Dublin. Growth is skewed too much towards Dublin with it accounting for 40% of national output. London is seen as an outlier with 22% of the UK’s output, most European capitals account for less than 20% of their national output. The other urban centres in Ireland need to be supported in their growth.

He also noted that infrastructure such as further development of our road network, is also a social benefit and the social use of infrastructure should also be valued and highlighted.

Addressing Ireland’s infrastructure gap, Tom Parlon, Director General, Construction Industry Federation, also took up the theme of the concentration of economic activity in the Dublin region, agreeing that it is unhealthy for the national economy for so much to be concentrated in Dublin. A key infrastructure project that should have proceeded is the Cork-Limerick motorway, with benefits outweighing costs by a factor of 2:1.

Mr. Parlon suggested there should be consideration of an Infrastructure Commission which could properly evaluate the infrastructure needs over the longer-term. Mr. Parlon also suggested that the new National Planning Framework should actively support the development of the urban centres of Galway, Limerick and Cork among others so as to distribute economic activity across the state.

Funding Mechanisms

There were a series of presentations on the various funding mechanisms which can be considered.

Brian Murphy, Chief Executive of the National Development Finance Agency, discussed the future outlook for the PPP (public private partnership) market in Ireland. He outlined the recent successes of this model in funding a range of infrastructure investments including much of Ireland’s motorway network, 23 schools, the Dublin Convention centre as well as development of the courts and primary care health centres. He noted that there is a lot of interest by funders and the outlook for more PPPs in Ireland is good.

The Ireland Strategic Investment Fund (ISIF) is another source of funds for Irish infrastructure. Donal Murphy, Head of Infrastructure and Credit Investments, explained the criteria that the ISIF use when deciding to invest; it must make a commercial return, have an economic impact and not displace other funds. A key sector they are interested in is fibre optic deployment, though they invest in a range of sectors including energy and transport infrastructure, housing and care centres.

A European perspective on funding models for strategic infrastructure projects was provided by Tanguy Desrousseaux, from the European Investment Bank. The EIB funds projects across the EU and beyond across various sectors. From an Irish perspective they have provided finance for Dublin Port development, primary care centres, flood protection and educational investments in Trinity College and UCD. Further investments in Irish infrastructure are planned.

Sectoral Investments and Impacts

The detailed sectoral impacts of some of these funding mechanisms were outlined in a series of presentations.

Jim Curran, from the Health Service Executive, outlined the plans for investing in healthcare for better services, focusing on the delivery of primary care centres as well as investments in hospital facilities.

Larry McEvoy, Technical Manager at the Department of Education and Skills, outlined some of the key education infrastructure projects that have been delivered and are in planning. Education is one of the largest recipients of capital funding with an allocation of €3.82bn planned between 2016 and 2021. Schools (both primary and secondary) account for nearly 80% of the funding and this in turn is in response to demographics, with projected enrolment at primary and secondary level continuing to increase up to 2025 at least. For example in 2011 enrolment at primary level was 510,000 children and this will increase to over 570,000 by 2018. Mr. McEvoy outlined the various milestones in the delivery of schools and noted that the building projects beyond 2016 would be announced by the Minister in November.

Peter Walsh, Director for Capital Programmes, at Transport Infrastructure Ireland, discussed the importance of transport infrastructure and outlined the investment planned. Mr.Walsh identified the positive impacts of the development of the motorway network, in terms of journey time savings, better access to employment as well as a reduction in road casualties.  He outlined the need for better public transport infrastructure around Dublin and some ideas on how to manage congestion on the M50. Current and planned roads projects were outlined. Transport Infrastructure Ireland have also been heavily involved in helping to devise regional transport strategies such as the Galway Transport Strategy.

Bob Hanna, the Chief Technical Officer from the Department of Communications, Climate Action and Environment, outlined the importance of our energy networks to both the residential and commercial sector. He discussed National Energy Policy and in particular the New Energy White Paper published last December (2015). This White paper highlights the need to decarbonise our energy supply as well as ensuring security of supply and cost effective delivery.

Details on the plan to upgrade Ireland’s water infrastructure was outlined by Elizabeth Arnett, Head of Corporate Affairs & Environmental Regulation, Irish Water. There is a seven year business plan (2014-2021) with key milestones and deliverables set out, including nobody on boil water notices, nobody to be at risk of water contamination as well as the ending of discharges of raw sewage into the sea. There was also an outline of proposed capital investment projects by county between 2007-2021. Within the Western Region, a spend of €356 million is envisaged over the period.

Conclusions

Now that as a country we have emerged from recession, there can be consideration of what capital investment is required and what should be prioritised. The conference highlighted the different perspectives, the sectoral needs as well as funding mechanisms. Above all however, recognising the need to agree a National Planning Framework or Strategy to identify and direct where growth needs to be supported so as to optimise the country’s development is critical.

The most recent plan for capital investment Building on Recovery: Infrastructure and Capital Investment 2016-2021 was published in September 2015. A mid-term review is planned next year. Work on the new regional economic and spatial strategies and the National Planning Framework is underway. A key theme from the conference is that the mid-term review and other decisions on capital spending need to be informed by the National Planning Framework and Regional strategies, both to give effect to them and to ensure that investment is not just sectorally driven. The WDC will be considering regional priorities and inputting into these regional and national processes.

The regional economic and spatial strategies and the National Planning Framework should provide a strong framework as well as input into consideration of the key infrastructural priorities needed to optimise growth, economically and socially, for all citizens and spaces across Ireland. Without this framework, investment will be piecemeal and ad hoc, sectorally driven and relatively inefficient.

 

Deirdre Frost