Capital projects need proper funding

Comment High investment over 15 years will be required to eliminate our infrastructure deficit

The Construction Industry Federation would like to see a major debate on issues surrounding funding and delivery of infrastructure and national development strategies. In that context the CIF welcomes the new study, Public investment and the Irish economy, by Prof John FitzGerald of the ESRI.

The financing and delivery of the public capital investment programme is a central concern to the CIF and Prof FitzGerald highlights the decline in public capital investment in the period 1980-1995.

That long period of under-investment contributed significantly to the infrastructural deficit which is now a major constraint on the economy. The extraordinary economic growth of 1995-2000 has placed additional burdens on this underdeveloped infrastructure.

Congestion is the most obvious manifestation of the problem. A totally inadequate transport system is daily forcing thousands of people to undergo excessive commuting times and we know that excessive commuting seriously undermines family and community life.

Quality infrastructure is both an economic and a quality of life issue.

The Republic has clearly stated ambitions to be a world class economy. If we are to achieve this, it will be necessary to provide the infrastructure to match our ambitions. The National Development Plan and the National Spatial Strategy are the blueprints for future growth and development. For more than a year now, the CIF has been arguing that the targets of the National Development Plan will not be met within the timeframe envisaged. The federation has also highlighted the funding gap which is already beginning to undermine delivery of the plan.

Prof FitzGerald's study deals with critical issues of funding and value for money in the delivery of infrastructure. The CIF believes that a high level of investment sustained over a period of 15 years will be required to eliminate our infrastructure deficit.

The federation also believes that current revenues will not be adequate to meet the level of investment which will be required.

Relying on current revenues and annual budgets is not an adequate approach to the provision of infrastructure. This stop-go approach to spending is also seriously detrimental to obtaining value for money.

For example, the CIF has argued for multi-annual budgets for the National Roads Authority. The federation also strongly favours the orderly sequencing of major capital projects and a spread of projects, both geographically and in size. This approach is much more likely to lead to maximum utilisation of construction industry resources and is also likely to deliver better value for money.

There is a need for a stronger emphasis on project management expertise in the public sector. A report published by the NESC last month suggests the need "for the public sector to build a core competency in project management capability, which would be non-sector specific and could be employed throughout the wide remit of the public sector in infrastructure delivery". I believe there is considerable merit in this approach.

With regard to funding to 2006, it is now clear that EU structural funds will only fund a diminishing share of capital investment and beyond that less again. PPP initiatives will provide an increasing but still relatively small portion of the investment required. The sale of State assets will provide a certain amount of funding. And Central Bank reserves may also become available for investment purposes which could be a significant one-off source of funding.

There is a compelling argument for investing a percentage of the National Pension Reserve Fund in capital projects in this State. Currently, the funds are invested in volatile equity markets or are held in cash. Cash reserves are being eaten up by inflation and investment in equities have suffered severe losses. Investment in capital projects in Ireland expands the capacity of the economy which in turn will help fund future pension requirements plus meeting the concerns which led to the establishment of the Pension Reserve Fund.

The CIF believes that €4 billion per annum over and beyond what is likely to be available from current revenues will be required from now to the year 2020 if we are to develop a world class infrastructure. The CIF believes that key infrastructural projects should be identified and these projects financed by long-term borrowing. At a time of historic low interest rates, it makes sound economic sense to borrow for productive infrastructure. It also makes sense to spread the burden of major capital projects across the generations.

Dublin Port Tunnel for example, will be of benefit for 100 years or even more. All the costs of this project are being shoehorned into a six- to seven-year timeframe. This does not make sense.

The EU has, of course, been a major contributor to the Republic's development. However, the Growth and Stability Pact is now taking on the appearance of a straitjacket. The pact may suit developed mature economies. But it does not suit rapidly expanding economies such as Ireland's and it certainly will not suit the new entrants who have major developmental needs. The Government must be prepared to engage with the EU in a robust way on Ireland's future development requirements.

The Republic now has a realistic opportunity to become a world class economy with our citizens enjoying a quality of life to match our economic progress.

For this to happen, we will need long-term strategic planning with an emphasis on a high level of investment in productive and social infrastructure. Annual budgets and the four- to five-year political cycle are no longer adequate. We need a 15-year timeframe. A funding strategy appropriate to our requirements will be essential if we are to realise our true potential as an economy and as a society.

Don O'Sullivan is director, main contracting, at the Construction Industry Federation