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GOVERNMENTAL FAILURES IN INFRASTRUCTURAL INVESTMENT


IT’S WIDELY ACCEPTED THAT AN INVESTMENT IN INFRASTRUCTURE IS AN INVESTMENT IN OUR COUNTRY’S FUTURE. SO WHY HAS THE GOVERNMENT NOT MADE IT A PRIORITY? COLM MCGRATH AT SURETY BONDS INVESTIGATES

Irish economists broadly agree that a slowdown in the Irish economy is inevitable, but the big question is when. Nothing seems to be imminent but over the next few years seems to be the consensus, mainly because of Brexit but also other global challenges such as the US and China trade war, European slowdown and ongoing global tensions. The slowdown could be gradual or it could be fast, due to a shock event like a hard Brexit which is still on the cards.

I don’t want to seem overly pessimistic; a number of multinational IT and fund management companies continue to see Ireland as a hub for their European operations and have invested accordingly. To add to this positivity, the construction industry being led by the commercial sector is continuing to expand, albeit at a slower pace, due to expenditure on Foreign Direct Investment projects and by renewed activity in the commercial office sector due to rising rental levels. The residential sector is catching up. The required volume of 36,000 units per annum is not being met so there is still massive scope for growth. The benefit of increased levels of supply is the easing of house price inflation which is slowing to a more sustainable pace.
The missing piece of the jigsaw is investment in infrastructure. There is huge scope for civil engineering projects which is currently posting the weakest activity of all construction sectors. If a slowdown or even a recession were to occur, then it’s obvious that investment in infrastructure is required to support Ireland’s growth and this lies firmly on the shoulders of the Government.

The title of this article is “Governmental Failures in Infrastructural Investment”. I’m not just including our own Government in this disparaging title; I’m including Europe and in particular Germany who holds the purse strings. The eurozone budget sanctioned by Berlin under pressure from Paris is so small as to be invisible. Germany has more to lose than any other country and as it continues to obfuscate its responsibilities, it will be hard to see growth in the EU within the short to medium term. There is huge scope for massive infrastructural investment in Germany and Europe that would have a significant positive impact for all European countries, including Ireland.

On the other hand, the Irish government is completely in control of its own investment decisions and is at fault when it comes to the lack of investment in infrastructure in Ireland. To support Ireland’s, not just Dublin’s, long-term growth lies firmly on the shoulders of this Government.
With a potential spend of €116 billion, the National Planning Framework 2040 should put some certainty back into the construction and the civil engineering market for the long-term but it won’t due to the boom and bust cyclical nature of our governmental policies, which are clearly outlined in this wish list. It’s certainly not a defined plan that would give me long-term comfort.

To put this into context, the Department of Transport’s total budget for 2019 is €2.36 billion. This is made up of €755 million in current spending and €1.61 billion for investing in infrastructure on the roads network. The level of spend for new projects is completely inadequate. As CIF Director General Tom Parlon said at the National Construction Summit 2017, “a lack of State spending on infrastructure could make a prolonged recession more likely in the future.” This point was further highlighted in an article in October 2019 in which David McWilliams quite rightly said: “Every country needs an infrastructure plan dictated by demographic realities and national vision – rather than by the ebb and flow of the business cycle. After all, this is what long-term interest rates are for; they enable a state to borrow for up to 30 years, ironing out cyclical economic blips and peaks. Public infrastructure building should pre-empt demand, not catch up with it. Remember when Dublin’s Terminal 2 was built during the recession? People criticised it for being empty, overblown and far too big for the temporarily diminished traffic. Ten years later it is bursting at the seams.”

From a governmental point of view, investment in infrastructure has a high rate of return. IBEC estimates that all road improvements carried out between 2006-2010 lead to an annual beneficial contribution in GDP of €525 million and in present value terms over a 30-year period, this would equate to €9.5 billion. If the government was to address many of the road projects listed in the 2040 NPF, not only would that alleviate congestion but it would encourage investment in other regions and give the State a decent return on that investment over a 10 to 20 year period.

Infrastructure lasts lifetimes and while interest rates on Government borrowing are at an all-time low, it seems like a no brainer to make a decision to invest in Ireland’s future now rather than continuously kicking the can down the road as successive governments have done.
Colm McGrath is the Managing Director of Surety Bonds, an independent bonding intermediary

Denise Maguire        
Editor of Irish Construction Industry Magazine

Email: denise@mcdmedia.ie

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