The committee offers the best hope in averting a national crisis. We are giving a clear warning that the lack of investment in infrastructure poses a threat to Ireland’s economic and social progress which can be averted through innovative thinking and flexibility on our behalf and that of the European Union. We must, however, act quickly as the situation is stark.
Ireland is last in the EU28 for gross domestic product invested in infrastructure. We invest only 2% of gross domestic product in productive infrastructure. The importance of investment in productive infrastructure in stimulating economic growth is well established. The late T. K. Whitaker identified the need to invest in productive infrastructure in his economic development document in the late 1950s which acted as a blueprint for the modern Irish economy. However, we are prevented from increasing investment in this area by the European Union’s fiscal constraints. The Government must seek a relaxation of the rules to enable capital investment in productive infrastructure to be made.
There is a consensus from independent bodies across Ireland, the European Union and internationally that Irish infrastructure is grossly inadequate. The Taoiseach has stated investment in infrastructure is critical. The Irish Fiscal Advisory Council told the committee that the level set out in the capital programme by historical and internationals standards was low. ICTU, IBEC, Chambers Ireland, the ESRI, the National Competitiveness Council, Engineers Ireland and the Irish Fiscal Advisory Council have all called for increased investment. Several chief executives of foreign direct investment companies such as Google, Apple and PayPal have identified it as a threat to further expansion of their sector. The European Commission’s recent country report identified inadequate investment as a threat to medium-term growth. The IMD World Competitiveness Centre and the World Economic Forum global competitiveness surveys rank Ireland poorly for infrastructure.
The construction industry is at the forefront of infrastructure delivery. We can confirm these facts on the ground and amplify the warnings. Our civil engineering sector which delivers productive infrastructure entered into negative activity levels last year according to Ulster Bank’s purchasing managers' index, PMI. DKM Economic Consultants forecasts that this negative cycle will continue to at least 2018, as the project pipeline dries up. This is an indication that the pipeline of Government investment will be dangerously low for the next few years. We need to radically increase the level of investment in infrastructure in the economy to 4%-5% of GDP to deliver sustained growth in the coming decade. The review of the public capital programme is under way, with a reported extra €5 billion becoming available as identified in the spring economic statement. This additional funding is inadequate, however, when one considers that 50% of it has been allocated for housing delivery. Of the remaining 50%, an increasing proportion will be spent in covering depreciation. DKM Economic Consultants states the proportion of investment spent on depreciation has grown from 20% in 2006 to 35%-40% since 2010.
If this trend continues, less money will be available for new investment each year.
The European Commission is among the chorus of bodies and institutions advising the Government on the need to increase investment in infrastructure. Through quantitative easing, the European Union has established what the National Treasury Management Agency, when its representatives appeared before the committee, described as "a supportive backdrop for our borrowing activity." In short, according to the NTMA, "the State is now borrowing at lower rates, for longer durations and from a wider investor base than was previously the case." With this level of funding available - Ireland's first 100-year bond was launched recently - now is the time for the Government to have the European Union relax the constraints of the fiscal space. I understand from our civil engineering side that tender prices are relatively low as the sector is still pricing competitively. This is the time for significant investment.
Owing to long construction lead-in times and public procurement processes, every year of delay in the allocation of capital investment is magnified. For example, additional allocations to the public capital review of 2017 scheduled for budget 2018 will likely see start dates for major infrastructural projects delayed until 2020. We understand more fiscal space may become available in 2018 if Ireland meets its medium-term growth target. However, waiting until 2018, combined with the time involved in the procurement process, would mean the positive economic benefits of new infrastructural projects would not become manifest until the mid-2020s. It is imperative that we act now, particularly in the face of a potential 4% decrease in gross domestic product arising from Brexit in the next decade.
DKM Economic Consultants estimates that every €1 million invested in infrastructure generates approximately €1 million in the economy through construction alone and also generates and sustains 12 jobs per annum. Applying these multipliers, the additional €2.5 billion in the public capital review, if invested correctly, could generate €2.5 billion in economic activity and 30,000 jobs over the course of construction. This is before the economic and social benefits of additional infrastructure are calculated. One of our recommendations is that a national, cross-departmental infrastructural investment target be put in place to tie investment to growth. A delivery unit should also be established to address bottlenecks and blockages in the system.
What is most frustrating about the current infrastructural crisis is that the Government is not using all of the tools available to it to increase investment and maximise the return on existing investment. What can we do? The Government must redouble its efforts to persuade the European Union to relax the fiscal space constraints for infrastructural investment in Ireland's case. It must access more of the available European Investment Bank funding, given that Ireland is in the lowest quartile for drawing down EIB funds. We must access more European funds for strategic investment, including EIB funding, and from the European Union's transmissions system for quantitative easing. We must increase the usage of public private partnerships, where appropriate, and improve the efficiency of the process. The current process adds 18 months to PPP timelines. The Government must adequately resource the modernisation of the public sector procurement process, as outlined in its medium-term strategy for the public contracts Act.
I thank members for their time and hope the committee can chart a path with us on this critical issue. Mr. Crampton will present some further slides.
