Australia's infrastructure must be rigorously assessed to ensure benefits are delivered

In a recent speech, RBA Assistant Governor Lucy Ellis described infrastructure as “not so much an engine of growth as an enabler of growth”. Infrastructure is an enabler necessary for the economy to function efficiently.

Ellis noted that in the long run, the economy gains from the productivity benefits of infrastructure which might include: new export businesses enabled by the construction or expansion of an airport; higher productivity of logistics firms if their vehicles spend less time in traffic; and better health outcomes from reduced accident rates when roads are made safer.

In comparison to some countries, Ellis noted that international research suggests that Australia is fairly well served by its current infrastructure. However, with a growing population, we face a challenge of ensuring that the stock of infrastructure keeps pace with expanding needs. Utilities such as electricity and water, as well as transport links, need ongoing investment.

This challenge has clearly been recognised and, over recent years, governments at both the state and federal level have been increasing infrastructure investment. As can be seen from the chart, public investment in communications infrastructure has increased with the rollout of the NBN. Transport infrastructure – road and rail – has increased even more sharply.

Ellis highlights that infrastructure risk takes many forms. There’s the risk that the project is not built efficiently, that investors are unwilling, that demand is too high – leading to congestion – or not high enough. There are risks that revenue can’t be collected as intended, or that the construction isn’t resilient enough.

To achieve the benefits and avoid the risks, projects need to be rigorously assessed.

Commonwealth Bank’s Managing Director, Infrastructure and Utilities, Michael Thorpe has noted that Australia has a limited supply of contractors with the requisite capabilities and appetite to undertake large scale infrastructure projects – not to mention a shortage of the skilled workers necessary to execute on these plans. Politicians, the public and investors also have a low tolerance for delays and cost over-runs. This means that robust project analysis and execution are essential.

For more on the benefits of infrastructure see our BI Research Smart Infrastructure Report

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