Boom-bust & its costs

Economic cycles are normal, but they are costly. We also have political cycles, especially in infrastructure construction, which are especially costly, as a lot of it is avoidable.

TL;DR: The answer is to agree on what projects matter for NZ, not what projects matter for our politics.

Sudden (political) changes in infrastructure projects leads to specialist skillsets moving overseas during busts, and future booms take longer, cost more, and we do things on the cheap, rather than investing in best available technology, because those businesses doing the delivery do not have the confidence to invest.

New Zealand has an estimated $204b infrastructure shortfall (see my report here for New Zealand Infrastructure Commission, Te Waihanga ). To maintain existing assets and fill that shortfall would require $1,000b of investments over the next 30 years. New Zealand cannot afford to invest such huge sums. There is growing political consensus on the issues, but not the projects.

A key risk for infrastructure is that government is the main client, and project choice and funding can be affected by a change in government or government preferences.

Rail investment is in such a situation now. In fact, it has been boom-bust for a long time. Last year when I was at Sense Partners I worked on a report for KiwiRail looking at rail construction specifically and lessons from past booms and busts - which benefited enormously from interviews with experienced sector leaders (see the report here).

The interviews were my favourite part - learnt so much from talking to these amazing people with deep experience and expertise. Some highlights:

• "Every time there is a sharp slowdown, workers and specialised businesses head offshore in search of more consistent work opportunities."
• "... the boom-bust cycle poses significant challenges in hiring and retaining skilled workers and stifles investment in specialised best-in-class capital equipment, which have long economic payback periods."
• "All interviewees emphasised the importance of a transparent pipeline, coordination, and sequencing to provide greater certainty in the sector. This certainty needs to be end-to-end, from the political stage to delivery."

The solutions put forward by rail construction specialists are true for all specialised infrastructure delivery folk:

• Political agreement on rail sector objectives
• A transparent, long-term funding envelope
• A detailed pipeline built up in a bottom-up way, with details around location, what needs the project will meet, prioritisation method, how they were costed and how they will be sequenced to provide efficient delivery
• Ensuring skilled people and specialised equipment are consistently utilised for maximum long term benefit.

This is consistent with the suggestion put forward in the initial report that quantified the infrastructure deficit, has been reiterated by a recent report from the Mahi a Rongo | The Helen Clark Foundation , summarised neatly in this piece in the The Conversation Australia + NZ , how to finance it by this piece from MinterEllisonRuddWatts , and discussed briefly in this conversation with Mayor Wayne Brown . This also leads to low productivity in the sector, although there are solutions outside of government, which I wrote about in this report to New Zealand Chinese Building Industry Association (NZCBIA) .

The answer may be unappealing in the cut and thrust of politics. But our deficit is solvable, and the main change required is less tribalism (in politics and among voters) on what infrastructure we build, and more long-termism in what we care about.