New Zealand’s Infrastructure sector: Key to rebuilding the country’s economy?
The COVID-19 pandemic has had wide-ranging impacts on New Zealand’s economy, and the construction and infrastructure sectors have not been immune to these challenges. Infrastructure expenditure has long been seen as an effective tool to reinvigorate an economy and generate growth, and New Zealand’s Infrastructure sector is a key beneficiary of the Government’s economic stimulus package post COVID-19.
In January this year, the Government announced $12 billion of additional infrastructure funding as part of the New Zealand Upgrade Programme and subsequently announced an additional $3 billion as part of its COVID-19 Response and Recovery Plan. There is another $3 billion from the Provincial Growth Fund. The Government is clearly looking to address decades of underinvestment in infrastructure and generate economic growth. Considered in the context of previously committed infrastructure funding, there are plenty of positives for the sector to look forward to.
Stepping back, there are several observations and trends within the infrastructure sector, and where it is heading over the coming months and well into the new year. These include:
- a focus on broader outcomes for infrastructure projects;
- legislative reform to facilitate further infrastructure development;
- a broader system approach to the infrastructure sector;
- a healthier pipeline of projects; and
- a shift towards more collaborative contracting models.
In 2019, Government released the fourth edition of the Government Procurement Rules, which introduced the new concept of “Broader Outcomes” for public sector procurement. Agencies subject to the Rules are now required to consider the cultural, environmental, social and economic outcomes from their procurement activities.
Fast-forward to present day and the consideration of broader outcomes have become more prevalent in large and complex infrastructure projects, with a renewed focus on how such projects can enable and unlock broader outcomes for the community. For example, the Auckland Light Rail project, which started life as a mass transit project connecting Auckland’s city centre to the airport, has evolved into a project with a strong urban development focus. This is reflected in its four key outcomes: access and integration, environment, urban and community and customer experience.
The Government is also looking to address decades of underinvestment in water infrastructure through the three water reform programme currently being spearheaded by the Department for Internal Affairs. Amongst other outcomes, this reform programme is intended to address affordability issues, facilitate improvements in freshwater outcomes, increase resilience to climate change and natural hazards, and enhance community wellbeing.
Legislative reform is expected to play a key role in facilitating the development of a number of current and future infrastructure projects and initiatives.
Legislative reform on the horizon includes:
- the three waters reform programme, which represents a step-change in local government water services delivery arrangements;
- a review of the Resource Management Act to unlock development opportunities across the country. With what appeared to be cross- party political consensus in the lead up to the General Election, it will be interesting to see how this review unfolds and the extent of reform that is ultimately proposed; and
- potential legislation to enable the delivery of mass transit projects.
Broader system thinking
Another market trend worth watching is broader system thinking across the Infrastructure sector, both in terms of joined up approaches between sectors and a potential shift in the framework for the delivery of infrastructure projects generally.
Many current projects traverse various sectors (e.g. Auckland Light Rail’s focus on both land transport and urban development) and there are considerations being given to broader system thinking more generally.
This approach will be supported by the Infrastructure Commission which is tasked with developing a 30-year infrastructure strategy to be tabled in Parliament in late 2021. To develop the strategy, the Commission is working with stakeholders across the sector with the aim of reaching a consensus view as to a long-term vision for infrastructure and the outcomes it enables for New Zealand.
In a down cycle, infrastructure is always a leading beneficiary of economic stimulus, and after a period of uncertainty recent funding announcements have strengthened the project pipeline. This is a clear positive for the sector, as it allows the industry to plan ahead and resource effectively.
Building on a key challenge identified by the Construction Sector Accord, the Infrastructure Commission continues to maintain and update the Infrastructure Pipeline for projects in New Zealand’s infrastructure market.
Alternative contracting models
When markets are facing a period of uncertainty it is not uncommon for a shift towards alternative contracting models with a greater focus on alliances and collaboration, and this is a trend that is worth watching going forward.
The Infrastructure Commission is currently reviewing the country’s Public Private Partnership (PPP) model, and this is expected to highlight a broader range of contracting models available to the public and private sector beyond the PPP model previously used in New Zealand.