At a glance
Government agencies across other jurisdictions play roles ranging from minor to significant in inward investment. There is strong appetite for investment from public and private investors in capital-rich jurisdictions. Increased awareness of geopolitical risks are tempering where and what foreign investment is possible across jurisdictions.
In Part I of this series on the infrastructure shortfall and ways to overcome it, we considered the scale of the problem. We discussed how putting less into infrastructure than we should have for decades is coming home to roost and considered some of the advantages of third-party funding, acknowledging that no silver bullet exists.
In Part II, we looked in greater detail at the types of third-party investment tools available, and then considered the opportunities for more third-party investment one infrastructure category at a time.
In this final part, our attention turns to how inward investment is attracted and managed overseas, and what sort of appetite exists for investment into New Zealand.
Transmission: how inward investment is attracted elsewhere
Inward investment in Australia is brokered by the states through state-level deals, or through private firms such as GHD, investment banks, and consulting companies. Austrade is the official federal government body for inward investment, and brokers business-to-business deals.
Singapore’s Economic Development Board is the Singaporean equivalent to New Zealand Trade and Enterprise (NZTE), facilitating inward investment, particularly through the local agencies responsible for regulating different sectors such as transport, water and energy. Singapore’s approach to attracting inward investment relies heavily on incentives, via the regulatory environment and tax breaks.
The United Kingdom (UK) takes a more decentralised approach to managing inward investment, opting for central government trade offices that are operated in the regions. Central government has a far less direct role to play, unless it is looking to attract major industries, or when significant changes to industry composition or structure are needed. The regional offices are more involved in investment attraction on a day-to-day basis.
The United States (US) has multiple agencies responsible for attracting investment into the USA, including the local, state and federal governments as well as statewide economic development agencies and private investors. All these entities play a major role in attracting investment. The federal government is typically only involved when there is a national security or national impact of an investment. Inward investment is largely incentivised through PPPs and direct private investment; however, it is worth noting that the environment in which these deals play out is quite protective of national interests.
Inward investment is facilitated in the United Arab Emirates (UAE) by equivalent agencies to NZTE, such as the Abu Dhabi Investment Office (ADIO), which is responsible for the regulation and incentives that enable and attract higher levels of investment into the region. Incentives for attracting inward investment are commonly used here, including free trade zones, where companies are allowed to buy and sell goods without paying tax, direct subsidies and long-term work visas to create certainty of employment.
Charging on: the appetite for outward investment
There is still a lot of capital floating around looking for good investments. The challenge is explaining why a third party should invest here. New Zealand has a lot of advantages on this front. For a start, we’re a stable democracy, with a good credit rating at central and local government levels, with much lower debt levels than many other advanced economies.
Yet some economies overseas face such infrastructure challenges of their own that a lot of investment is being kept in-country there. Australian investors have their eyes on foreign markets with critical infrastructure pinch points as high-need infrastructure categories often provide better returns, while continuing to seek opportunities in the Australian market. In the UK, the level of required investment is high, meaning outward investment from investors there is lower. The British Business Bank is positioning itself as a sovereign wealth fund, but its activity is still ramping up, with few largescale infrastructure investments at this point.
In Singapore and the UAE by way of examples, the appetite is quite different with several government agencies interested in overseas investment. Singapore invests heavily in overseas infrastructure, with several publicly-run and private agencies managing this outward investment, including Enterprise Singapore, Singapore Cooperation Enterprise, Temasek Holdings, Keppel, and Sembcorp. Major government-linked agencies that deal with outward investment from the UAE include Mubadala, the sovereign investment fund that invests globally in a variety of sectors; ADIA, the government manager for Abu Dhabi’s sovereign wealth fund; and Khazna, a major investor in data centres around the world.
The US, given its scale, has many of its own infrastructure challenges, but also a large number of private investors looking for opportunities. The United States has several channels for outward investment. One of the biggest industries for outward investment from the public sector is defence, with either US-solo investment or partnership with allies such as the Australian Defence Force or other five-eyes partners. Privately, there are many institutional investors that will invest in projects with a good return, with specific interests in hydrogen technology, manufacturing plants, and data centres.
Energising our infrastructure sector
As we conclude this three-part series on accessing third-party funding, it is worth a brief re-cap.
The infrastructure shortfall is massive across practically every category. The cost of delivering this infrastructure will overwhelmingly be borne by taxpayers, ratepayers and utilities customers. Third-party funding of infrastructure, while no silver bullet, provides access to funds and skills now, frees Government to focus on service delivery, and includes well-known tools to bridge the gap.
It is inescapable that third party investment will need to be part of the solution to New Zealand’s huge infrastructure shortfall. Third party funding tools, where appropriate, offer many advantages. Each major infrastructure category in New Zealand presents opportunities to overcome the gap by accessing funds desperately seeking good investments.
Those who will win the competition for infrastructure investment are those that can show why they are a good bet.
David Norman is Chief Economist Australia and New Zealand, at GHD. You can contact him here.
36 Comments
'and includes well-known tools to bridge the gap.'
Reads: How much can we make out of these suckers, if we coerce/lobby the current ideological leadership? If we can commandeer the Commons, we can extract wealth from it.
And, given that we are injecting no resources, no energy, our digital 'contribution' - which could have been keystroked by anybody - but it will give us an umbilical wealth-suck forever, at the expense of said suckers.
Interest.co are fine putting this stuff up, but only if they balance it with what really happens - which has been obvious since '84 in this country, earlier elsewhere. The future needs to be questioned too: the same wrung-out folk - tenants, workers, mortgage-payers, bill-payers - are being wrung yet again, and by coming legislation on behalf of the wringing-brigade too. Only so much blood in that stone....
Not on this topic, but I am hoping for PDK's assessment of this guy's optimism:
https://youtu.be/AypUDutNK54?si=XIvpgwaIOtWBaYvI
Let's assume the needed energy comes from the solar/wind he predicts rather than fossil,
We are a sovereign currency issuing nation so public financing of infrastructure is not an issue.
The issue is having (or ensuring there is) the resources (labour and materials) available to construct, operate and maintain the infrastructure.
For an insight into the real world of private 'investment' in infrastructure watch this interview: https://novaramedia.com/2023/12/17/the-secret-plan-to-privatise-everyth…
Yep, we need a continuous program of NZ funded infrastructure projects so that contracting companies can gear up for them. Centrally planned. (Which is not done in the power industry which is why that industry is in my view, stuffed: Power cuts ahead).
I am not sure if this Interest.co.nz article is aiming to convince us that Chinese belt and road funding is wise. If it is then I would suggest that that would be a huge monumental mistake.
We want it all and we've been taking it all since the 80s with negligible giving back.
Boomers? I'm a boomer. I don't think the current predicament can be placed solely in boomers laps. There's a great number in subsequent gen X and millennial cohorts who have subscribed to the neoliberal economic ideology (the me first, in my opinion). But that's not helpful in digging us out of this mess.
I agree with PDK that what GHD is advocating is yet another iteration of self interest, profit extraction, commodification of the core infrastructure necessary for an economy to function. And in my opinion that is plain wrong. Pursue that course and NZ becomes even more of a tenant within it's sovereign boundaries.
Future generations will pay offshore interests for the basic functions of drinking a glass of water from the tap, or flushing the toilet. One way or another, every NZ resident will pay.
Better to establish a new MoW and do it ourselves. A clear investment by all NZers in assets NZ owns.
There is much discussion on the quantum of dollars needed, casting that as insurmountable for the NZ economy. But like all businesses faced with high cost investment, break it down into bite size pieces and take a microscope to examine the cost lines. For example, traffic management - just how many cones are needed to demarcate a work zone. And is it really necessary to have manned traffic control on secondary roads with very low vehicle movements? (A recent experience on Route 52 had 4 separate, manned traffic managed sites in a 10km stretch - 8 people, 4 vehicles, must be a cost of between $5-7k per day).
Addressing the infrastructure deficit is a responsibility shared by all NZers. There's going to be inconvenience - suck it up. Otherwise you are going to be paying 'rent' to offshore interests for a long time into the future.
Yes it is a responsibility shared by all, but where is the money coming from? I think David is pointing out the elephant in the room in that we need additional funding streams to get us out of this mess that we are in. You can't run infrastructure into the ground en masse and then expect to just magic up the funding from traditional means when almost every asset class is at the point of failure. The housing Ponzi has significantly impacted millennials from contributing to the deficit, unless they're expected to give up paying their mortgages and transition to slightly cheaper, but unstable, rental market. Unless we move to means test super, increase taxes and introduce more policy to push down house prices, we will have little fat in the system to fund a Ministry of Works 2.0. I can't see boomers giving up their play money (super) to fix a problem they created. I can't see the property speculation industry put their hand up to help either. I've come to the conclusion that NZ will simply slip into a 3rd world state and pretend it's still 1st world without overseas funding. We should open our arms to this as David has suggested.
Maybe you meant to use the word spent instead of invested?
I very much understand that NZ infrastructure has been left to lie fallow, especially in recent times. The funds for infrastructure investment should not be taken from personal savings. The typical kiwi is woefully unprepared for retirement, and transferring their rather insufficient funds from Kiwisaver to infrastructure is inappropriate and results in a reduction in saving for the future.
Infrstructure investment should come from .gov. That is the essential reason for their existence. We have seen how nine years of neglect, followed by six years of scorn, has worked out in regards to essential infrastructure. One can always hope that this might change.
No I do not mean spend. I do mean invest.
the question is where the funds come from? Offshore with 'rents' being paid to offshore interests; or from within NZ with 'rents' staying in NZ.
We are all going to pay for this one way or another. The government is us Kiwis. The question is whether as much as practicable of those payments remain in NZ or are siphoned offshore.
Invest to me implies a return on investment as well. So infrastructure needs to be spelt out more clearly. Roads but would have to be tolled. Hospitals, Schools, Public Transport. Public Transport is already mostly in the hands of private enterprises but heavily subsidised by govt/regional/local bodies. If a return is required equates it to privatisation. So the funds from Kiwisaver need to be invested such that the investment provides a return. After all most of the contributions to Kiwisaver a going to end up in the hands of the individual contributing. I certainly don't want my Kiwisaver fund spent on infrastructure for no or very little return.
And that sentiment is the nub of the issue here - it needs to happen but don't clip MY ticket.
The money, whether through central/local/regional government, excise duties, user charges, etc will be a cost to each of us.
You want all the benefits of sovereignty yet seem to view renting our core infrastructure functionality from offshore interests as a desirable solution. And in the meantime you will moan about the state of the pipes and roads (and expect Waka Kotahi to pay for your wheel repair when you don't have the driving skill to read the road surface and avoid the potholes).
The author seems to believe that money is a commodity of a fixed quantity and before anything can be undertaken those that have it must be sought out. This is fabled loanable funds theory of mainstream economics but modern money does not work in this manner. Money now is created as the demand for it arises either by the banks as credit or by governments to finance their spending and as the domestic currency, and money is simply key stroked into existence. What does have a limited supply though are the resources such as workers, materials and machines which can undertake the building of infrastructure.
Reminder. When we actually built infrastructure at scale - roads, hydro, schools, houses - we made an explicit choice to minimise offshore borrowing. But, sure, let's forget what works and remember that our job as a country is to ensure that offshore capital gets a decent return and we continue to live beneath our means.
Cmon Jfoe.
We borrow plenty from offshore, we are importers of capital. It's how we fund our current account and a reasonable % of our bank debt and there is nothing bad about it per se. What is bad is borrowing in a currency other than NZD, that's where the risk escalates significantly (Argentina for example).
No, we are importers of debt.
Don't call it capital; it's a call on natural capital.
And it doesn't 'fund' anything; it is a 'call on'.
And yes, there is something very bad about it, at this point in the human (overshoot) trajectory; it will get exponentially harder to repay (even at 0% and even below that) as near-term time goes on.
It is true that our spiralling offshore debt is a result of our trade balance - offshore companies exchange things we import for NZD and then swap those NZD for interest-earning NZD Govt bonds (around $80bn owned by non-residents from memory). But, the more offshore debt we have, the less independence we have over monetary policy. RBNZ cannot really break away from following the Fed at the moment, because overseas holdings of our bonds are so high.
Completely agree on borrowing in another currency obviously - fool's game.
I don't see how offshore debt has any affect on monetary policy.
Current account has to be balanced by the capital account. Most of this is via the cross currency basis swap (a good proxy for current account position). This basis swap moves out to the point offshore issuers (Kauri Bonds) issue in NZ$ and swap this back to their home currency - which generates US$/Eur etc funding to settle our obligations
We're talking about debt - a real demand on real resources and energy, over time.
You are talking about derivative hedging, if I get what all your words mean when melted down.
The former needs repaid, or defaulted on, or inflated away, or a collapse to wipe the books away.
The latter is a series in interlocked bets, by a lot of players who were never told the board had edges.
Quote from the Electric Viking comments: "As Tony sieber points out in one of your other videos the cost of renewable energy is going to drop by at least 50% in the next 10 years and also is going to become 50% more efficient. The cost of battery storage is also going to drop significantly. Nuclear power electricity generation is far more expensive than renewable energy and battery storage and there are always cost overruns and extra time required to build the reactors. Then there is the safe storage of the nuclear waste for 100,000 years. Most countries haven't solved this and the costs of storing it is expensive." The sun and wind hours in parts of NZ make it the way to go.
ÓF - have a wee think. Our grid is at capacity, and suffering from entropy (needing more and more maintenance per time). It has taken us 100 years to epmirically build it. Electricity only does 40% of our energy; fossil fuels do the other 60%. And we're STILL buying new fossil-fuelled vehicles and machinery.
You are proposing something that can only be grid-supplying, with a lead-time of?
And that will solve our problems how?
Great commentary powerdownkiwi...you display a much better knowledge of the infrastructure scam than the writer. Transmission gully is the text book example. National led of course, a 850m road will cost us mug taxpayers 3.5B over 20 years and the ppp investors brought virtually nil expertise to the table. Not as bad as Rbnz 10.5B subsidy to the banks for covid QE. Govt 4sale going cheap
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