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Berl urges urgency on Provincial Growth Fund

The Provincial Growth Fund will spend $1 billion a year on projects in the regions and could provide serious growth to neglected parts of the country. But the speed at which the fund is moving, could mean some of the most crucial projects miss out. Thomas Coughlan reports. 

A briefing from economic think-tank BERL has given support to the Government’s $3 billion Provincial Growth Fund — even suggesting it is not going fast enough.

BERL deputy chief economist Hillmaré Schulze and Senior Economist Fiona Stokes said the fund presented an opportunity to tackle issues identified by New Zealand businesses in the latest Global Competitiveness Report. The top three barriers to business identified in that report were: inadequate supply of infrastructure; inefficient government bureaucracy; and insufficient capacity to innovate.

The authors argued that the fund will help to address some of these concerns and bring business to the regions.

There are some concerns that the Government will have difficulty allocating funding to regional projects within the ambitions timeframe it has chosen for itself without splurging on projects whose business case may be less than convincing.

Shulze called last week’s announcement of initial projects “disappointingly light”.

“This rather tentative start perhaps signals a more fundamental concern around the rapidity that current government processes can respond with necessary urgency,” she said.

Stokes argued that it is imperative the Government proceed with urgency. The main thing holding back projects was the extensive and time-consuming business cases that had to be made when bidding for funding of $20m or more. The business case is sent to cabinet for approval.

“You have to have done some reasonable feasibility studies or a reasonable business case to access that twenty million plus fund and that takes time and I’m not sure that there’s a pipeline of those types of projects ready to go,” she told Newsroom .

The politics of the fund create further problems. The Government has indicated it wants to have most projects in the pipeline by 2019-2020 (in time for election year). This could be a concern for some of the larger infrastructure projects, which require feasibility studies that can take years.

Other funding tranches can be approved more quickly. Projects costing between $1-20m are approved by the Minister and projects costing less than $1 million will be approved by regional and government officials.

Stokes said that this first round of projects included many that had been on the boil for a while. She hoped that the second round of projects announced would include some other projects like the Opotiki Harbour Development.

“But it is going to be hard to spend the money,” she said. “Not all regions have got a list of projects that are ready to go. Some of the projects that they do have ready to go are of various sizes so it may be difficult to spend that amount”.

Stokes said that to make serious gains in the areas identified by business in the Global Competitiveness Report, several infrastructure projects should be looked at.

“What’s missing is around telecommunications,” she said. “Access to the internet cellphone and broadband coverage is a big issue.”

Transport was another problem.

“What’s missing is around the roading network — what we call multimodal transport which is the ability to move around a city and between cities not exclusively by car.

“We have a situation in the Upper North Island where you have ports and rail working together. Some of the initial projects being looked at in terms of rail are in the New Plymouth area. They’re also looking around Gisborne whether there is a connection between Taranaki and the East Coast.”

But large infrastructure projects are expensive and time-consuming. The time it takes to conduct a feasibility study for a funding bid makes it more likely that some of these larger, essential infrastructure projects miss the 2019-2020 pipeline.

Dr. Eric Crampton, Chief Economist at the New Zealand Initiative, lent some cautious support to the fund.

“Research at the New Zealand Initiative has suggested that it would be right to have more spending focused at the local level, with more local control over activity.

"There has been too little investment in local and regional infrastructure projects that enable growth where the costs of that infrastructure are borne locally but the benefits of higher tax revenues fall to central government. In the regions, this has often meant underinvestment in infrastructure that supports tourism, for example."

However, Crampton urged caution that strong business cases be made before funding was allocated.

"For the fund to do well, the projects have to make sense. National spent a lot on large regional roading projects, some of which were supported by very weak business cases. We hope that the assessment underpinning projects selected under this fund will be more robust,.

"Central government funding may not be the only way of solving some tourism-infrastructure challenges. Greater use of user fees or private-public partnership for concession development can be a better way of ensuring that those benefitting from a facility help cover the facility’s costs.”

The briefing also questioned the necessity of the “surge regions” identified by the fund. These regions (Northland, Bay of Plenty, East Coast, Manawatu- Whanganui and the West Coast) were identified as needing early investment and have been given priority. An approach that considered all the regions may be more effective.

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