ARTICLE
14 August 2018

Dealing to the infrastructure deficit

Article discusses the infrastructure deficit in the world and particularly, in New Zealand.
New Zealand Strategy

New Zealand's sagging infrastructure is inhibiting the economy and our quality of life, in the form of gridlock, lost production, unaffordable housing, environmental degradation, and more – and current financing models are not equal to the task, Chapman Tripp says.

Commenting on the release of the firm's "What next for infrastructure?" publication, Chapman Tripp partner Mark Reese said it was widely agreed that New Zealand's infrastructure problem is severe and will not be easily unwound.

"But we are not alone in this. The world infrastructure deficit is estimated at US$21 trillion, which means that this is a front-of-mind issue for authorities such as the International Monetary Fund, the World Bank and the OECD so there is a lot of international research to draw on.

"There are also a number of best-practice examples of innovative thinking that could be adapted to the New Zealand context," Reese said.

What was required was:

  • a coordinated approach to create a solid pipeline of work, and
  • financing tools to attract private sector investment.

"There is a wave of global capital looking for a home, with institutional investors worldwide now managing more than US$120 trillion. Pension funds, in particular, are seeking out safe asset classes that deliver a long-term return, and infrastructure investments fit neatly into this profile.

"The need for solutions is becoming more urgent as the meteorological effects of climate change begin to bite and the emissions-reduction strategy, based around an effective carbon price, shifts up a gear.

"At the Government's instigation (through the 2017 Budget Policy Statement), significant work is taking place behind the scenes to develop innovative funding mechanisms. Moves are also underway to forge a political consensus around the Zero Carbon legislation, to provide planning certainty and ensure that the policy framework can survive the three-year electoral cycle.

"On the regulatory front, we have the proposed Urban Development Authority (UDA), which we expect will have the ability to agglomerate land for residential subdivisions, including a power of compulsory acquisition. This takes up on a recommendation of the Productivity Commission, which the National Government had adopted.

"A key challenge in addressing the infrastructure shortfall are capacity constraints in the construction sector but we are starting to see more interest from overseas contractors and are confident that, if the supply of work is large enough and the funding is available, some of the second-tier companies will be able to resource up to the next level."

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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