Powering up: Facing the infrastructure gap (Part 3)

In Part I of this series on the infrastructure shortfall and ways to overcome it, we considered the scale of the problem. We discussed how putting less into infrastructure than we should have for decades is coming home to roost and considered some of the advantages of third-party funding, acknowledging that no silver bullet exists. 

In Part II, we looked in greater detail at the types of third-party investment tools available, and then considered the opportunities for more third-party investment one infrastructure category at a time.

In this final part, our attention turns to how inward investment is attracted and managed overseas, and what sort of appetite exists for investment into New Zealand.

Inward investment in Australia is brokered by the states through state-level deals, or through private firms such as GHD, investment banks, and consulting companies. Austrade is the official federal government body for inward investment, and brokers business-to-business deals.

Singapore’s Economic Development Board is the Singaporean equivalent to New Zealand Trade and Enterprise (NZTE), facilitating inward investment, particularly through the local agencies responsible for regulating different sectors such as transport, water and energy. Singapore’s approach to attracting inward investment relies heavily on incentives, via the regulatory environment and tax breaks.

The United Kingdom (UK) takes a more decentralised approach to managing inward investment, opting for central government trade offices that are operated in the regions. Central government has a far less direct role to play, unless it is looking to attract major industries, or when significant changes to industry composition or structure are needed. The regional offices are more involved in investment attraction on a day-to-day basis.

The United States (US) has multiple agencies responsible for attracting investment into the USA, including the local, state and federal governments as well as statewide economic development agencies and private investors. All these entities play a major role in attracting investment. The federal government is typically only involved when there is a national security or national impact of an investment. Inward investment is largely incentivised through PPPs and direct private investment; however, it is worth noting that the environment in which these deals play out is quite protective of national interests.

Inward investment is facilitated in the United Arab Emirates (UAE) by equivalent agencies to NZTE, such as the Abu Dhabi Investment Office (ADIO), which is responsible for the regulation and incentives that enable and attract higher levels of investment into the region. Incentives for attracting inward investment are commonly used here, including free trade zones, where companies are allowed to buy and sell goods without paying tax, direct subsidies and long-term work visas to create certainty of employment.

There is still a lot of capital floating around looking for good investments. The challenge is explaining why a third party should invest here. New Zealand has a lot of advantages on this front. For a start, we’re a stable democracy, with a good credit rating at central and local government levels, with much lower debt levels than many other advanced economies.

Yet some economies overseas face such infrastructure challenges of their own that a lot of investment is being kept in-country there. Australian investors have their eyes on foreign markets with critical infrastructure pinch points as high-need infrastructure categories often provide better returns, while continuing to seek opportunities in the Australian market. In the UK, the level of required investment is high, meaning outward investment from investors there is lower. The British Business Bank is positioning itself as a sovereign wealth fund, but its activity is still ramping up, with few largescale infrastructure investments at this point.

In Singapore and the UAE by way of examples, the appetite is quite different with several government agencies interested in overseas investment. Singapore invests heavily in overseas infrastructure, with several publicly-run and private agencies managing this outward investment, including Enterprise Singapore, Singapore Cooperation Enterprise, Temasek Holdings, Keppel, and Sembcorp. Major government-linked agencies that deal with outward investment from the UAE include Mubadala, the sovereign investment fund that invests globally in a variety of sectors; ADIA, the government manager for Abu Dhabi’s sovereign wealth fund; and Khazna, a major investor in data centres around the world.

The US, given its scale, has many of its own infrastructure challenges, but also a large number of private investors looking for opportunities. The United States has several channels for outward investment. One of the biggest industries for outward investment from the public sector is defence, with either US-solo investment or partnership with allies such as the Australian Defence Force or other five-eyes partners. Privately, there are many institutional investors that will invest in projects with a good return, with specific interests in hydrogen technology, manufacturing plants, and data centres.

As we conclude this three-part series on accessing third-party funding, it is worth a brief re-cap.

The infrastructure shortfall is massive across practically every category. The cost of delivering this infrastructure will overwhelmingly be borne by taxpayers, ratepayers and utilities customers. Third-party funding of infrastructure, while no silver bullet, provides access to funds and skills now, frees Government to focus on service delivery, and includes well-known tools to bridge the gap.

It is inescapable that third party investment will need to be part of the solution to New Zealand’s huge infrastructure shortfall. Third party funding tools, where appropriate, offer many advantages. Each major infrastructure category in New Zealand presents opportunities to overcome the gap by accessing funds desperately seeking good investments.

Those who will win the competition for infrastructure investment are those that can show why they are a good bet.