Friday, March 29, 2024

Opinion – Will Auckland road spend bring national prosperity?

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Are we building the infrastructure that delivers New Zealanders the lifestyle they aspire to, asks Ian Proudfoot. The political year has kicked off in earnest this week with the first shots being fired in the debate to ratify the Trans-Pacific Partnership and many of the party leaders delivering their state of the nation speeches to influence the agenda for the year ahead. 
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The Prime Minister gave his State of the Nation address to an Auckland business audience and focused on infrastructure, announcing new or accelerated funding for a number of transport projects around the country, but most particularly the Auckland City Rail Loop and a new link road in the Onehunga-Penrose “industrial” area.

Key trumpeted the Government’s $4.2 billion investment into road infrastructure in Auckland over the next three years as well as the funding for the rail loop (likely to be at least $1b).

Having made these major investments in Auckland, there was not much left for the rest of the country but the Prime Minister did announce $115m of new or accelerated funding for four regional road projects. 

His announcements raised a question for me as to whether the investments will drive economic wealth and job creation or are simply sweeteners to attract votes in 2017.

I passionately believe New Zealand’s future prosperity will be derived from the primary sector, through selling the products we grow and licensing the intellectual property we employ in creating those products, to customers and consumers around the world. 

This belief raises questions over the right infrastructure needed to create wealth, particularly in a digitally disrupted world, and whether the Government is investing in today’s reality or future proofing NZ for tomorrow.

Growing and selling biological products to the world may be one of the oldest forms of economic activity, but to do it effectively in the modern world, and consistently derive a premium requires the right mix of people, natural capital and infrastructure. 

People bring their knowledge and relationships to the table, the natural capital comes from our environment and its sustainable utilisation, while infrastructure is the community assets, transport networks, irrigation resources and communication systems that enable us to connect ourselves and the solutions we create with their ultimate consumers.

Getting the optimal resources in place for each element of the farming equation is challenging, but getting the infrastructure right in regional areas makes it easier to attract the right people and manage the environment sustainably. 

The biggest impediment to getting rural infrastructure right, as was clearly demonstrated yesterday, will always be politics – winning Auckland is critical to winning the Government benches and as a consequence policy will be shaped to increase the likelihood of attracting votes in the Auckland region, whether this is best long term for the economy or not.

For example, the emergence of autonomous vehicles has the potential to multiply the number of cars able to fit on to existing roads while changes in ownership models may mean there are ultimately fewer cars on the road. 

These innovations will reshape vehicle ownership in the coming decades, potentially before some of the projects announced this week are realised.

Innovation will likely mean the economic return from road investment will be lower than current business cases suggest.

The lack of people in regional areas means the business cases for infrastructure projects that would have truly transformational economic and social impact are often overlooked for political reasons.

A prime illustration of this is the roll-out of ultrafast broadband. In rural areas ultra-fast broadband connects businesses to their customers and consumers around the world, farmers to the opportunities presented by emerging digital technologies and people to potentially lifesaving services, yet the funding has been focused on urban residential suburbs and enabling people to stream Netflix faster.

The political realities are unlikely to change, making it critical the primary sector thinks innovatively about how it overcomes market failure and gains access to the infrastructure needed to unleash its potential. 

Farmers have used co-operative models to build critical water infrastructure but progress remains slower than necessary, although this is partly because of an unfavourable regulatory environment.

Exploring innovative partnerships – for instance co-operating with electricity lines companies to roll-out local fibre loops, or looking for alternative, long-term offshore investment – rapidly appears to be becoming the main options available to build the infrastructure that will really secure the lifestyles all New Zealanders aspire to.

Ian Proudfoot is Global Head of Agribusiness at KPMG

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