The New Zealand economy has been one of the high performers among developed countries in recent times. But future growth is at risk of outpacing the country’s capacity. And the infrastructure plans that will help New Zealand capture this growth opportunity cannot all be funded from public sector sources.
"Leadership and certainty are needed - including agreeing, as a country, to what infrastructure is key to our future success."
David Green, Managing Director Institutional, ANZ New Zealand
The private sector though is willing and able to play a greater role in delivering infrastructure that will drive New Zealand’s growth. Unlocking this potential will require strategic leadership and certainty for investors and developers - including agreeing, as a country, what infrastructure we need for future success.
The key players in New Zealand infrastructure met recently for the sector’s annual symposium. Progress in a number of areas within the sector will ensure infrastructure remains high on the national agenda.
Encouraging recent developments
The most significant development in the past year has been the Christchurch rebuild, which is now well underway. A number of much-anticipated projects are now either confirmed or under construction.
Sustained investment in energy is bringing more certainty of supply and competitive pricing that will support economic growth. And our growing demand for data, and the supporting requirement for more networks and services, is driving an increasingly competitive telecommunications landscape and demand for capital.
Our water sector is beginning to benefit from a renewed focus on optimising water-use, with construction now under way on Central Plains Water, a ground-breaking scheme that will irrigate 60,000 hectares of farmland and create up to $NZ1.4 billion in new economic activity.
Transport is enjoying significant growth and re-investment too, across ports, airports, air transport and roads. The Government’s recent announcement on Transmission Gully opens the way for a road project that will cut congestion, improve safety and support economic growth across the Wellington Region. First mooted almost a century ago, the benefits of Transmission Gully will be unlocked through New Zealand’s largest public-private partnership (PPP).
The emergence of a PPP market
Private sector involvement is, to varying degrees, now a feature of many other nationally significant developments. The New Zealand PPP market is well in place and delivering public benefits. Projects such as the Hobsonvillle Primary and Secondary Schools, Wiri Prison and Transmission Gully have brought successful private sector engagement which confirms the potential for bringing forward other critical infrastructure.
All of these projects have been supported by debt and equity providers. Markets have the capacity to support a pipeline of new initiatives.
The Government is looking to apply what it has learnt from the alternative procurement models behind these projects so the advantages of public-private sector delivery can be replicated elsewhere.
The private sector, for its part, has shown a willingness to play a role in finding solutions for delivering infrastructure. The advantages to New Zealand are clear: bringing in expertise and capital to secure or bring forward projects whose benefits to the economy and society might otherwise be deferred, or lost.
There is now an opportunity to build further on this success.
In Christchurch and in the health and waste water sectors in particular, there is significant potential to explore greater private sector involvement in projects that would deliver clear benefits to the community in outcomes, cost and delivery timeframes.
The PPP capability now established in New Zealand and its growing track-record of delivery provides decision makers with an opportunity to assess the innovation and value that new procurement methods would bring towards delivering a new world-class city to the people of Christchurch.
As activity and demand grow across the infrastructure sector, some constraints are beginning to emerge, particularly around the ability to secure supply chains and source skilled labour in the construction sector.
These issues are particularly evident in the Christchurch rebuild, which in itself is the largest infrastructure event in New Zealand’s history. And the constraints in capacity that are emerging in Auckland as residential construction picks up to meet demand are adding to the capacity challenges for the infrastructure sector.
Engaging the private sector in alternative procurement models to deliver infrastructure could help alleviate some of those constraints. We have seen this through the Transmission Gully project and the pipeline of further New Zealand Transport Agency projects, with their ability to attract large international players to the New Zealand market, providing both capacity and international best practice.
The need for leadership
Strategic leadership continues to be a key requirement in securing the development of what will be long-term, strategic assets for New Zealand.
In the lead up to the general election, the industry will be listening with great interest to what our political leaders have to say about their visions for the future.
Investors from New Zealand and offshore will be looking for a sense of stability, consistency of approach and certainty over regulation.
They will be seeking confidence and a shared sense of direction which goes beyond the three-year electoral cycle.
The establishment of the National Infrastructure Unit has been a positive development in this direction. And the long-term strategic plans of local authorities are providing some welcome certainty at a local level.
But what infrastructure does NZ really need?
At a strategic national level, there remains a need for New Zealanders to decide what infrastructure is important for future success.
This is a discussion which needs to involve a wide range of stakeholders. The objective should be a long-term vision in which investors and developers can have confidence, regardless of who is in government.
Matched with this is a need for greater clarity, and certainty, over the process for converting projects from aspiration to reality – particularly around consenting requirements for infrastructure related to harnessing New Zealand’s natural endowment.
An environment of stability and certainty will help to secure private sector backing and reduce the cost of capital by allowing would-be participants to plan and invest with confidence on the sort of large-scale, long-term basis demanded by major infrastructure development. In doing so, it could help this country secure development that might otherwise not be possible.
The opportunities across the sector are on a scale never before seen in this country.
The private sector participants – from investors, financiers, advisors, construction firms, industry bodies and service providers – are all positioned to deliver into this opportunity, working with local and central Government. The potential is significant. Success will help to underpin future growth and prosperity for New Zealanders.
David Green is Managing Director Institutional at ANZ New Zealand