NZ does not build infrastructure as efficiently as it could

Monday, 20 December 2021

Water reform is in the works across the country, but local and central government are facing myriad of issues and critiques. Hear more in RNZ's The Detail. (First published August 2020)

New Zealand gets less value from its infrastructure spending than most other high-income countries because it does not build it as efficiently, according to a new report.

It is often assumed the country has under-funded infrastructure development, but the report from the New Zealand Infrastructure Commission/Te Waihanga found that had not been the case.

Te Waihanga director of economics Peter Nunns said the country spent about the same amount as other wealthy countries, or even a bit above average, but it could get more value from what was spent.

New Zealand’s “efficiency rating” of building infrastructure was in the bottom 10 per cent of high-income countries, with the Netherlands, Switzerland and Israel in the top 10 per cent, he said.

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The quality of New Zealand’s infrastructure does not match the quantity of the spending on it.

“The quality of our infrastructure does not match the quantity of our spending, suggesting that we are comparatively inefficient in delivering infrastructure relative to other high-income countries.”

But some reasons for that were beyond the country’s control.

The report found there were four main factors which affected infrastructure investment efficiency. They were population size, geography, institutional quality and swings in investment over time.

Countries with larger, more densely located populations and less varied geographic terrain often had better outcomes because they could operate at scale and sustain specialised expertise in delivering infrastructure networks.

Te Waihanga director of economics Peter Nunns says if we can figure out how to get more bang for our investment buck it will make a big difference to a lot of people.

Nunns said New Zealand’s smaller, more sparsely located population and diverse terrain meant it was intrinsically penalised in those areas.

“We can’t do much about that, but those factors account for only around a quarter to half the gap, so there are other factors at play too.”

Even though the country’s institutions were generally good, there were signs that public investment processes were not performing as well as they could be, he said.

There was also evidence of volatility in public investment and such swings made for less efficiency.

While the Government has committed $57 billion over the next five years to various large infrastructure projects, Nunns said to solve the challenges, it would be necessary to build more efficiently as well as building more.

“To address that, we need to drill into the details of how our investments are performing, in terms of cost-effectiveness and value for money, and what we need to do differently to achieve better outcomes.”

The commission’s draft New Zealand infrastructure strategy, released in October, highlighted the factors that underpinned quality infrastructure investment, he said.

They included good decision-making, an enabling planning system, and the raw materials and workforce needed to build the infrastructure.

But there were problems in the infrastructure consenting system and the availability of raw materials, and the costs to consent and build infrastructure are rising, Nunns said.

“We’ve recently published other research showing that consenting costs for infrastructure projects are increasing, and availability of key materials like aggregates is increasingly constrained.

“This makes it difficult to deliver infrastructure efficiently. We need to address these types of systemic issues to get good value from infrastructure investment.”

There was no silver bullet to fix the problem, and instead there were a number of changes that needed to be figured out and implemented, he said.

“But New Zealanders want better infrastructure and if we can figure out how to get more bang for our investment buck it will make a big difference to a lot of people.”

Good infrastructure investment has many economic, social, and environmental benefits, the report found.

An example was that better infrastructure could reduce transport and transaction costs, which allowed people to do existing activities more efficiently and develop new business models.