Globally, over USD 2 trillion has been committed to infrastructure investment to support the recovery from COVID-19*. Much of this will be delivered by regional and local governments, who are responsible for 56% of public investment in OECD countries. This signals a strong global response – much stronger than for the 2008 financial crisis. Are we ready to make the most of it?
Infrastructure investment can transform prospects for regions and cities. It can reduce digital divides, connect people, firms and places, and put us on track for a carbon-neutral future. But the high upfront costs and long life-cycles of infrastructure mean that it is essential to pick future-fit investments.
This means anticipating changing needs and preferences, and responding to the megatrends of climate change, demographic change and digitalisation. It also requires anticipating risks, such as natural disasters, geopolitical crises and pandemics, and to build resilience and tackling structural inequalities between regions within countries, which have worsened during the crisis. This can help to provide a brighter future for places that would otherwise risk being left behind.
Creating future-fit infrastructure can be supported by analysing regional infrastructure needs in the face of megatrends. Infrastructure Australia recently studied the competitive strengths of regions throughout Australia, and identified future investment challenges and opportunities. The study involved a tour around the country, meeting over 1,000+ stakeholders, and resulted in a roadmap for future regional infrastructure investment.
Long-term co-ordination and co-operation
Decision-makers at all levels must draw on local knowledge. Working collaboratively with regional and local governments in planning and investment decisions can help to anticipate future infrastructure needs and risks.Dorothée Allain-Dupré, Isabelle Chatry and Courtenay Wheeler
Working together can maximise the benefits of investment for local residents. All levels of government must team up to develop the right incentives, platforms, tools and resources to engage with local governments and communities over the long-term.
To encourage collaboration during the recovery, the French Government recently implemented contracts for the recovery and ecological transition (Contrats de relance et de Transition écologique). These six-year contracts aim to accelerate the recovery and support ecological, demographic, digital and economic transitions by co-ordinating investments across levels of government. This collaborative approach aligns funding and investments from multiple actors towards common goals. Once established, these relationships can also help support future collaborative investment.
Public and private sector capacity
Increased infrastructure investment needs to be accompanied by additional investments in skills. Regional and local governments will need new workers to support project appraisal, planning, procurement and management, as well as to evaluate project outcomes. Investments in capacity building is sometimes neglected in the rush to kick-start spending. Yet this is essential to realise the benefits of major public investments.
National governments can help build capabilities in regional and local governments. Many are already doing so. In Korea, as part of the 75 trillion won (55 billion Euros) Korean New Deal, the government is setting up a body to help local governments hire specialised staff.
The construction industry will also need to boost capacity to avoid shortages in workers and materials that could provoke inflation in the cost of projects. This will require careful planning and sequencing of investment projects across jurisdictions and levels of governments. It will also require expanded local training programmes to increase recruitment in the industry and tackle skills gaps. Australia has created a market capacity report to help smooth the infrastructure pipeline across jurisdictions.
Diverse funding and financing sources
Current stimulus funding provides a unique opportunity for subnational governments to invest in the future. They should do so with ambition. But in the future, funding for infrastructure may be more scarce than it is today. This means that subnational governments will have to consider how today’s investment can help to generate revenues needed for future projects and, importantly, to help operate and maintain infrastructure.
In our recent OECD report, we explored the many innovative and traditional funding and financing approaches used by subnational governments to help support infrastructure investment. Many opportunities exist for subnational governments to expand the use funding and financing. These include land-value capture, increased use of green and social bonds, and leveraging infrastructure assets. Regional and local governments can innovate by adapting funding and financing instruments to their local context.
This unprecedented level of investment provides an opportunity to build a better future for all regions and cities. To make the most of this opportunity, we need to get the basics right – through future-fit planning, improving co-ordination, building capacities, and adopting new funding and financing arrangements. This can help create strong foundations for the recovery.
Read more on the OECD work at Unlocking infrastructure investment: Innovative funding and financing in regions and cities.
* Based on data from O’Callaghan, B., et al. (2021). Global Recovery Observatory. Oxford University Economic Recovery Project. Sum of investments in communications, transport, energy, local, buildings, natural and other large scale investments.