Taking a holistic view of economic growth
It’s clear that economic growth can be enhanced through infrastructure development:
- convention centres and stadiums make cities an attractive place to live and attract visitors
- roads carry products to ports
- light rail networks bring people to cities to work and shop
- district energy systems provide a financially attractive way of heating buildings in a sustainable way
- improved sewage systems allow denser, more productive development.
Infrastructure development tends to be approached as fairly simple equations responding to specific challenges, for example “we need to move people and goods faster and more reliably” or “we are running out of generation capacity” or “we cannot continue polluting our rivers”.
Investment is generally rationalised using sector specific methodologies such as road users’ value of time saved in traffic versus net costs to taxpayers.
Rethinking the investment paradigm
But what happens when one takes a step back to look at the wider challenge of economic growth and how it can be delivered through infrastructure investment? Is moving people from point A to point B really delivering the greatest value for the city or region overall, or should we instead be moving where they live?
Around the world successful cities and sub-regional governments have started to rethink the way they approach infrastructure investment. They have asked themselves how – when compared against a range of potential investmentoptions – different forms of infrastructure might be developed to enhance job creation and drive productivity, growth, and, critically, how they might address the inevitable trade-offs.
Creating connectivity as a platform for growth
When viewed against those criteria, one quickly starts to rethink the way that infrastructure delivers value to the economy. Digging deeper into transportation investments, for example, it becomes apparent that, rather than simply linking two points on a map, transport infrastructure delivers value by connecting businesses to labour markets, businesses to businesses, or businesses to consumer markets. It’s about improving connectivity.
But there are other ways to improve connectivity. For example, in KPMG’s work with the Greater Manchester regional authorities in the UK, civic leaders started to think about regeneration programmes as a way to improve business connectivity, and housing programmes as a means to improve labour markets.
Rather than simply building out interregional transportation systems to save commuter travel times, they began to think about how housing, planning and transport can be improved not only to boost labour markets, but also to deliver a catalyst to communities that were less connected.
Getting ‘bang for the buck’
Essentially, what it comes down to is the question of what investment will deliver the most potential for job creation, productivity and improvement in social outcomes.
Suddenly, rather than deciding on the value of a single transportation system, the field is thrown wide open to also include civic planning, business promotion, urban regeneration and a host of other approaches and investments that may deliver a bigger bang for the investment buck.
Of course, this path of thinking creates a number of organisational and institutional challenges for governments at all levels. For one, it requires civic authorities to consider their investment options across a wide range of government departments that often do not operate as a cohesive unit. So rather than thinking about a ‘transport budget’ or a ‘housing budget’, planners and administrators need to start thinking about a ‘social and economic growth budget’ where every dollar is channeled towards the programmes that deliver the greatest value.
It also requires cities and civic leaders to think about the impact of the investment on their wider economic region and the net impact on its tax base. This necessitates close cooperation with a variety of different government bodies and institutions.
The Christchurch Central Development Unit (CCDU) provides the ideal vehicle for this centralised planning to focus on creating holistic economic value.
For example, the CCDU will be overseeing the development of social infrastructure such as the rebuild of its existing central city housing stock, while concurrently developing a number of other anchor projects including the convention centre.
These distinct projects may normally be planned and procured by different local and central government departments. With CCDU being fully involved in the planning of all of them there is an opportunity to focus on the holistic economic and social advantages that can be gained through developing the three separate projects together.
Being disciplined about prioritisation
Finally, the authorities should rethink the way they prioritise their investments. In our experience the essential first step is to agree among all stakeholders what metrics they want to achieve and how this balances the overall regional impact against the localised benefits to individual stakeholders.
This leads to a set of disciplined criteria that can be used to independently assess proposals to ensure investments not only achieve their objectives, but are distributed in a way that delivers the most value for the economy as a whole.
Using our work in the UK for the Greater Manchester regional authorities as an example, this was done on a ‘whole life cost’ basis, after taking into account the net impact on the city’s tax base. While this process certainly required a significant investment of time and coordination, it has paid off.
Greater Manchester is now seen as best practice for driving economic growth from investment and is constantly cited by national and local governments around the world as a case study to be emulated. The torch has now been picked up by dozens of regional governments around the UK, with the strong support of Whitehall, and is gaining traction in a number of international markets.
While each city and region will approach the challenge somewhat differently – as no two places have identical economic or political geographies – one thing will remain constant: a single minded focus on driving economic value from infrastructure investments.
By Lewis Atter, KPMG in the UK and Gwyn Llewelyn, KPMG in NZ.