Infrastructure: The perfect storm
Not that long ago, when people at a party asked me what On-Site was about, I’d say “construction.” They would nod diplomatically. Now, I say “infrastructure,” and I get their full attention.
Infrastructure, a concept that most people grasped only vaguely a decade ago, has become a fashionable topic. Surveys reveal that large swathes of voters feel it is a suitable tonic for the country’s economic woes, even though for many, concerns about transparency remain to be dealt with. Politicians, too, have been crying infrastructure from the rooftops as a top national priority. And business is eager to join the party, as P3s make profitable, steady, long-term investments a reality.
This struck me with great force at the Canadian Council for Public-Private Partnerships National Conference in Toronto in November. The politicians were very much front and centre, including Toronto Mayor John Tory, Ontario Finance Minister Charles Sousa and Quebec Finance Minister Carlos Leitao. With an infrastructure deficit ballparked at $400 billion, the hunger for infrastructure improvement in the room was quite apparent. Most people in the audience appeared to be quite taken with the new federal government’s aggressive stance on infrastructure investment.
The investment community was also present in large numbers. Looking around the room in some of the conferences, I could only guess at the hundreds of billions of dollars parked on the chairs that were looking for worthwhile projects to invest in. The old rules are dropping away. it is clear that pension funds are quite prepared to push the boundaries of how they invested their funds.
And of course there was a host of civil servants, lawyers and consultants eager to further the cause.
What is getting in the way? First, reasonable standards of efficiency, transparency and risk have to be met, and many of the sessions at the P3 conference focused on just that. At the end of the day, I think we might be looking at the perfect storm for infrastructure – a long-term period of investment that will be of historical importance.
We’ve come a long way in the past 30 years, from infrastructure investment being something of a political reward to infrastructure as driver of job creation to the situation today, where it actually looks like investments will be made to strengthen the economy over the long term.
Payback numbers of as high as 1.7 times were being tossed around during the event – every dollar invested in infrastructure pays you back $1.70 in long-term economic benefits.
But as one speaker noted, that’s really just a number. It depends on the specifics of the project itself. Throwing money at a badly planned or unnecessary project is not going to get you any return on your investment. It is no longer enough to look for projects that are “shovel-ready.” The fact that they are ready to go is merely a detail. We have to look for bang for the buck, projects that will enrich the country and improve our productivity even as we pay the debt.
Economist Dr. Jack Mintz, President’s Fellow, School of Public Policy, University of Calgary made that point in a news conference after the election. The focus should be on projects that enhance productivity.
“We don’t need infrastructure spending to stimulate the economy. We need infrastructure spending to grow the economy,” he noted.
The main obstacle I foresee for the next few years is simply capacity – Canada’s chronic shortage of construction talent. I suspect it’s going to be an interesting ride, as the infrastructure juggernaut gathers speed.