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Infrastructure hub: smooths the lumps but no silver bullet

The creation of a Sydney-based Global Infrastructure Hub announced at the G20 meeting on the weekend is being greeted with cautious optimism by infrastructure experts.

The hub will act as a clearing house for public infrastructure projects and assist in “developing a knowledge-sharing network to aggregate and share information on infrastructure projects and financing between governments, international organisations, development banks, national infrastructure institutions and the private sector”, according to the document agreed at the G20.

It’s estimated it will cost US$10-15 million a year once established. Most of that funding will come from Australia and other G20 states, but it is expected the private sector will contribute some funds. Importantly, it will be open to all countries inside and outside the G20, and will be free to engage.

The organisation will have a four-year mandate to deliver on objectives, and will be reviewed after three years to assess its effectiveness.

It’s widely being seen as a win for Sydney, which is positioning itself as an Asia-Pacific finance centre. The B20 business group claims it will help build an additional $2 trillion in infrastructure capacity, adding US$600 billion in GDP and 10 million jobs per annum to 2030.

But not everyone is so effusive. “The key point is to keep it in perspective … it isn’t going to be a silver bullet, but it will be a positive contribution — though the devil will be in the detail,” said Tristram Sainsbury, a research fellow at the Lowy Institute’s G20 Studies Centre.

“Providing they do it on the ideals G20 has articulated, the hub will provide a contribution to overcoming that.” 

“The global infrastructure challenge is enormous. The OECD has estimated we’re going to need $70 trillion investment in it to 2030. Every country faces infrastructure financing gaps. These are big, long-term issues. Providing they do it on the ideals G20 has articulated, the hub will provide a contribution to overcoming that.”

The hub will occupy a somewhat unusual space in that it has been created through the G20, but will not function as a G20 body. Part of the challenge, then, will be finding productive ways to work with other international organisations.

“It will be interesting to see how it interacts with the existing architecture, such as the World Bank’s recently announced global infrastructure facility,” Sainsbury told The Mandarin.

He argues the decision to leave open the possibility that the hub’s mandate could be renewed after four years — not automatically wrapping it up after that time, as was being discussed just last week — is a good thing.

Cassandra Wilkinson, former director of rail and freight policy in the New South Wales Ministry of Transport, thinks the hub may help to “even out some of the lumps” in infrastructure financing.

“For example,” she explained, “say a company has a huge project in Saudi Arabia, but come next year they need to be winning new business by getting a job somewhere else. Where do they find out which governments are wanting what in the next few years and what are their requirements?

“If there’s a clearing house available stating what potential clients need, and when, and what their decision-making framework will be influenced by, it will probably help even out lumps, and lower costs.

“Having a pipeline is good, instead of going to tender once every 10 years and everyone who doesn’t win the tender may as well shut down or go overseas.”

Plus, she adds, Australians may benefit by encouraging more competition in the market to drive down prices, not to mention the potential for Australian businesses to take advantage of the positioning of the hub in Sydney.

Political problems, money troubles

It’s hoped that by creating more transparency, projects will be “immune from political interference and sudden changes and cancellations”, Wilkinson says.

“Everybody wants an independent body to manage a pipeline of infrastructure that’s publicly available, so everybody has visibility on what’s coming online,” she said.

But Wilkinson is also reserved in her praise. It’s not simply a matter of improving the flow of information. The hub can’t solve the biggest problem with infrastructure financing — that borrowing costs governments money.

“The problem with infrastructure isn’t borrowing money, it’s paying it back,” she said. “Government infrastructure is very low risk and large scale, so it’s a good place to park huge sums of money when you have several billion dollars under management. The issue for governments is creating an income to pay the people their money back.

“On the supply side, there’s a push by the people with the money to create a market for money. That’s their job. But on the demand side of things, taxpayers need to understand money needs to be paid back.”

It’s easy to claw funds back on projects like ports and freight rail; they help private interests make money. It’s more difficult when it comes to public transport, schools or hospitals, where there is no income stream to cover the costs of building and running infrastructure.

“Ports spend a lot of money, but everyone gets richer from them,” Wilkinson said. “But that’s not the kind of infrastructure the community and media is talking about when they say there’s an infrastructure deficit. User-pays and taxpayer-subsidised systems are trickier than ports, et cetera, where fees can be used to take back money.”

Matthew Beck, a senior lecturer in infrastructure management at the University of Sydney Business School, told The Mandarin the Global Infrastructure Hub “could make a real contribution in terms of identifying better procurement methods that shorten lead times for infrastructure investment and, importantly, reduce the costs of tendering, which can be disproportionately large.

“It may offer some benefit if used as a global library of infrastructure successes and failures; what contributed to good projects with on-budget completion and what contributed to unstable projects.”

He’s sceptical it will be able to get much done in the four-year period allotted. But the most important thing is whether it can “divorce itself from the political cycle that governs current infrastructure decisions”.

“At the end of the day it depends on the will of political leaders to pay attention to it,” he said.

Author Bio

David Donaldson

David Donaldson is a journalist at The Mandarin based in Melbourne.