Page last updated at 23:35 GMT, Tuesday, 24 March 2009

Infrastructure's value to economic growth

By Richard Lee
Partner and head of KPMG's US infrastructure advisory group

New York
Infrastructure impacts on a city's competitiveness

The debate over how to fund much needed infrastructure projects is once again centre stage, as the United States and other countries approve stimulus packages that devote significant funds to infrastructure.

Taking the US as an example, many state and local governments have been eager to request funds to create needed jobs in their communities.

But the $100bn or so allocated to infrastructure in the US stimulus plan really is just a first step towards addressing the more than US$2 trillion of US infrastructure needs.

The stimulus money will fund desperately needed shovel-ready projects that should spur immediate activity.

It has brought much needed attention to the state of infrastructure in this country.

Affects locations

When analyzing the return on investment infrastructure spending delivers, it goes well beyond just construction jobs.

Good infrastructure impacts a country's (or city's) competitiveness.

It attracts business, which brings in increased tax revenue and more jobs.

In fact, a recent KPMG International survey found that an overwhelming majority - 90% - of business executives said that the availability and quality of infrastructure affects where they locate their business operations.

Especially in this economic environment, attracting - or losing - major corporations can have a huge impact on a community.

To see the ripple effect it has, just take a look at the cities devastated by the loss of manufacturing companies.

Thus, improved infrastructure boosts a community's overall economy and standard of living.

It is a win-win situation for business and citizens alike.

Get it right

President Obama's stimulus package also has the potential to do even more, to be a catalyst to redefine the way in which infrastructure improvements are delivered over the long term.

Road building delivers more than just construction jobs

While shovel-ready projects are making headlines, government needs to consider legacy infrastructure projects that deliver long term community benefits.

For example, the interstate highway network in the US is a vast road network that has served the country admirably for more than 50 years.

Likewise, London's sewage system, which has served its citizens so well for 150 years, is only now being replaced.

But very few governments globally have a consistent history of delivering infrastructure improvements of this scale.

Therefore, it is not surprising that most corporate executives believe that the public sector must involve the private sector more frequently in the delivery of new infrastructure assets, according to the same KPMG study, tapping into their resources, expertise and funds.

One alternative is increased usage of Public-Private Partnerships (PPP), used successfully by governments around the globe.

Another option is a user-pay financing system.

It is all about spending the money wisely.

Unique opportunity

Infrastructure investments made over the next few years can enhance US competitiveness, which is why it is so important that the Federal, state and local governments - with the help of private sector entities - get this right.

This is a once in a lifetime opportunity to make improvements to how governments approach infrastructure projects.

To make the most of this opportunity, changes should be considered, including:

  • New financing models for the delivery of infrastructure assets should be explored, moving away from predominant reliance on government grants and municipal bonds.
  • Performance-based decision-making could be applied more consistently to prioritise project funding, including criteria such as total lifecycle costs, congestion relief, economic benefits and environmental considerations.
  • Government should be completely transparent to the public and accountable for delivering results - success will breed success, and ultimately the public will value infrastructure that work.

Decisions made today will impact the standard of living and business competitiveness of future generations.

So as governments worldwide struggle to find ways to fund infrastructure projects in the midst of a massive financial crisis, it is important that they approach the challenge holistically.

It is not about a new bridge here or a toll road there, but the health of our cities, national competitiveness and an overhaul of infrastructure delivery.

If governments spend the money wisely and think of the big picture, the benefits can be enjoyed by many for years to come.

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