Setting New Zealand’s infrastructure policies in the right direction

With the economy experiencing an acute downturn, infrastructure is set to provide an essential economic and social service to the world as it rebuilds from the impact of the COVID-19 pandemic. It is therefore more important than ever to address infrastructure gaps and pain points and work towards providing increased quality of infrastructure services. For infrastructure to play a central part in the recovery from COVID-19 – as it should – the quality of policy frameworks for infrastructure investment and delivery is critical. 

In this context, it is timely to understand how New Zealand’s infrastructure governance, procurement processes and funding capacity currently compare against other countries. International benchmarking is a way to identify opportunities to reduce the barriers to investment, improve performance (including through best practice guidance) and encourage greater investment in quality infrastructure. A common ambition across countries is to consider infrastructure spend as an economic stimulus, a driver for keeping up with changing technologies, and a way to meet the social-environmental ambitions of the UN Sustainable Development Goals.

Unlocking quality infrastructure relies on a range of factors

Supported by Deloitte, the Global Infrastructure Hub has launched InfraCompass 2020, which provides a comprehensive view of the infrastructure indicators that enable infrastructure investment. InfraCompass 2020 covers 81 countries, collectively representing 93% of global GDP and 86% of the global population, and compares the results to similar analysis conducted in 2017. The data presented in the report was collected in December 2019.

InfraCompass 2020 has identified eight indicators as the most important catalysts for unlocking quality infrastructure across 81 countries:

• Funding capacity – credit rating of the government to borrow money for infrastructure spending
• Permits – reliability and transparency of land administration processes
• Procurement – transparency of procurement processes
• Financial markets – the overall depth of the local financial market to sustain relatively large financial transactions
• Governance – protections for creditors to recover their investment if a business or project fails
• Planning – transparent public infrastructure project pipelines to allow the industry to prepare for projects and citizens to have a say
• Regulatory frameworks – the ability of the government to formulate and implement sound regulations to promote infrastructure investment and delivery
• Activity – a strong, recent track record of investment in infrastructure by governments and the private sector.

How does New Zealand compare across important catalysts for unlocking quality infrastructure?

InfraCompass 2020 offers some positive findings for New Zealand relative to other countries – procurement processes and funding capacity have materially improved, the cost of doing business is favourable but investment activity is trending downwards.

New Zealand’s top performing metrics

New Zealand ranks second globally for permits, which encompasses reliability and transparency of land administration processes. Key contributors to this driver is the cost and the time to start a business. According to the World Bank, the average cost of starting a business in New Zealand is 0.2% of income per capita, easing the entry of new firms and encouraging competition. It also only takes half a day to start a business in New Zealand, the shortest timeframe of any InfraCompass 2020 country. A key barrier in permits is dealing with construction permits.

New Zealand’s strong governance, transparent public procurement processes and regulatory frameworks provide favourable conditions for investment in infrastructure projects. We note, however, New Zealand’s ranking in regulatory frameworks has dropped since 2017.

New Zealand notably increased its global ranking in procurement. New Zealand’s public procurement notices are made available online and tender documents transparently detail procurement procedures. The transparency of the process encourages more participation and greater competition, which drives value for money. A key barrier identified in these drivers are around shareholder governance.

Investment Activity

InfraCompass showed New Zealand’s track record of investment by Government and the private sector dropped 17 rankings relative to other economies. Key drivers for this drop in ranking included limited private infrastructure investment and a drop in the value of closed PPP infrastructure deals. This was New Zealand’s ranking pre-COVID-19.

New Zealand began the fight against COVID-19 with a healthier government budget than what has been seen in much of the developed world. New Zealand’s ratio of net core Crown debt to GDP was at just under 20%. This figure was significantly lower than the High Income Countries’ average of 74% of GDP, suggesting capacity to borrow to fund infrastructure. As evidenced by the 2020 Rebuilding Together Budget, a significant amount was allocated to infrastructure spend to aid recovery in New Zealand. As such, we expect infrastructure investment activity to materially increase with the Government’s current focus on infrastructure as a stimulus to aid recovery.

It is important however for this spending to be targeted to boost economic recovery. For example, targeted spending that will accelerate delivery of projects already in progress or approved and/or productivity-focused investments is vital in securing not just a strong recovery, but ultimately, a thriving, resilient economy in the long-run.

We hope the findings of InfraCompass 2020 encourages further important conversations within and between the public and private sectors as well with the communities they ultimately serve.

Combined with the leadership and political will to implement reforms, InfraCompass 2020 can help drive greater prosperity by helping to close the infrastructure gap and identify reforms that deliver a greater service outcome for every dollar invested - an important metric for the Government and the private sector in a post-COVID-19 world.