Infrastructure
Invest in infrastructure and complete
the European jigsaw
Peter Stafford considers the role of the EU in the future development of Irish infrastructure
One of the most enduring legacies of
the European Union in Irish life is the
almost constant presence of the EU flag
on our motorways, public buildings and
public transport. Investment in Ireland
from EU structural and cohesion
funds undoubtedly transformed the
quality of Ireland’s built environment
and infrastructure, and the flag of the
yellow stars on the blue background is
a constant reminder of the benefits of
Ireland’s membership of the EU.
One of the reasons why Ireland attracted
funding from Europe during the first wave
of investment was its relative lack of
infrastructure compared to the rest of
the then EEC. This placed Ireland at a
significant disadvantage when competing
against other European countries for foreign
investment, and the aim of the cohesion
funds was to build Ireland’s infrastructure
to make it more attractive to investors.
Ireland still lags behind most European
states in terms of competitiveness, one
reason is due to the fact that our network
of infrastructure is not yet complete and so
business costs are higher. From a simple
economic point alone, because a well-
developed infrastructure lowers business
costs, Ireland risks falling even further
behind our European neighbours and
losing out on new foreign investment if
the investment process stops before the
jigsaw is complete.
Infrastructure comes in waves
and is never complete. The first basic
infrastructural need is a network of utilities
including energy and water supply; a
network of transportation through road
and rail systems; and communications,
and social and leisure facilities. When one
piece of infrastructure is completed, a new
form of infrastructure requires investment.
In 2009, Ireland needs to connect itself
more firmly with markets in Europe and
around the world through a programme
of joining trans-European infrastructure
together.
New Role
That means a new role for European
funding has emerged. The banking crisis
in Ireland has put many of the scheduled
Public Private Partnerships into jeopardy,
so there is a new role for the European
Investment Bank to assist Ireland in
ensuring that projects which will help
Irish economic growth become financially
Public Affairs Ireland
“Ireland’s under-developed
physical infrastructure is marked:
In terms of capital stock per
head of population, Ireland ranks
extremely low, with Spain, Greece
and Portugal. Meanwhile some of
the most economically powerful
countries in Europe have the
largest capital stock.”
viable. This is not a return to European
funding, but recognition that a new wave
of Irish infrastructural investment can take
place provided a new form of financial
support from Europe is forthcoming. It
is, after all, in Europe’s interests for its
member states to continue to invest in
joining their markets, preserving economic
activity and safeguarding the jobs of the
48.9 million people in Europe who are
employed in construction.
It was from Europe that the concept of the
“rolling multi-annual investment envelope”
was created. Rather than investment being
spent on an annual basis, projects were
funded through an envelope of money
over a defined number of years. This
strategic funding model was undoubtedly
good news for the construction industry
and the domestic agencies which oversaw
their commencement, construction and
completion because public building and
civil engineering projects, once approved
and commenced, were guaranteed to be
properly funded until they were completed,
even if that took a number of years.
Every business – whether in construction,
manufacturing or services – requires a
solid set of measures on which to base a
realistic medium-term outlook, and the
multi-annual capital envelope allowed the
construction sector and all of its suppliers
and professional services an opportunity
to do that.
Rate of return
The CIF, amongst others, have been
publicly calling for continued investment
in infrastructure because the jigsaw is not
yet complete and the massive investment
over the last twenty years is not yet giving
the taxpayer the best possible rate of
return.
Ireland’s under-developed physical
infrastructure is marked: In terms of capital
stock per head of population, Ireland ranks
extremely low, with Spain, Greece and
Portugal. Meanwhile some of the most
economically powerful countries in Europe
have the largest capital stock: Switzerland,
Japan and the USA have twice the levels
of infrastructural stock per head of
population compared to Ireland. Everyone
living and working in Ireland will be able
to pinpoint deficits which have an impact
on their lives. Many schools are reliant on
portacabins in which to teach children, a
temporary arrangement which continues
to exist. Many hospitals are still housed in
outdated and unsuitable buildings. Quality
of water treatment in parts of Ireland,
especially Galway, continues to need
massive capital investment to bring them
up to 21st century standards.
These deficits in the quality of our
infrastructure obviously harm the quality
of life and business environment, but in
terms of cold economics, they undermine
the potential rate of return on investment
across all areas.
There is the potential for Ireland to
market its experience of investing
European funding to new states, and use
our increased capacity to deliver to join
with the EU in helping them resolve their
own deficits.
But this requires stability at all points
along the process. Stability in funding
– either from new European sources or the
Irish exchequer, and stability in ensuring
that once the project has been scheduled,
it is delivered. Investment in our economic
and social infrastructure is a multi-annual
programme which requires a pipeline of
projects coming to the construction on
a regular basis. That pipeline is broken
at the moment, and many people whose
livelihood depends on public building and
civil engineering are finding that there is
no longer any work for them. In a period
where Ireland needs to maximise the return
on every euro which is invested, it should
look to the last twenty years of successful
and productive infrastructural investment
and adapt them for a new environment.
Dr Peter Stafford is Chief Economist with
the Construction Industry Federation
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