And the Council is right to focus on roads as a priority. Trains appeal to the heart, but roads to the head. The emphasis on rail is the reality of coalition politics, but the business minds want roads. And long-term investors like KiwiSaver managers will invest where the research and development is focused. In transport that's nearly all on road and air transport.
As much as we love trains, Elon Musk doesn't do them. Nor do Google, Microsoft, Amazon or Uber.
As a coalition minister, it's understandable that Phil Twyford has to pour cold water on the Council's recommendation to start the 12 roading projects which are 'shovel ready'.
But his excuse, that none of them will pay for themselves as toll roads, is flawed logic. Using that argument, no new rail should be built either. Passenger rail, anywhere in the world, very rarely pays for itself. Twyford's logic would have the Auckland City rail link project, already $1 billion over budget, stopped yesterday, and never approved in the first place.
The 12 roading projects passed the economic return test along time ago, that's why they're 'shovel ready'. They could get underway with private funding and a Government underwrite, because at some stage the Government will be helping fund them anyway.
From the long-term perspective of a KiwiSaver investor, the Business Advisory Council's calls have been positive. However, one aspect needs refining. To achieve their wishes, they're effectively asking to open the door for offshore capital, and to consider selling old assets to fund new ones.
Logical as it might seem, these are very hard sells to the public, and impossible with a coalition Government. Their request also reflects the number 8 wire mentality that most business leaders in New Zealand have been forced to adopt. To most business minds, the big cheques are available only offshore, but that has now changed.
Via planning and political will, KiwiSaver, ACC and NZ Super could fund many desired infrastructure projects, and they could be purchasers of established assets. Combined they're already managing $160b in assets, and that should be $400b in 10 years time.
A 10 per cent allocation to infrastructure would be $40b, a feasible allocation if the projects were attractive enough. If the government were prepared to underwrite a modest economic return, that $40b would buy a huge amount of new and/or existing infrastructure.
Think all major roads on the desired list, a third Auckland Harbour crossing, and most of the 'three waters' shortlist. And the politicians should love it, because selling anything to KiwiSaver managers, NZ Super, or ACC is actually selling to Kiwis, who will be richer for it, and all of whom have a vote.
The selling of a minority stake in KiwiBank to ACC and NZ Super (with no political blowback, in spite of an uncontested process) is a good sign that selling otherwise sensitive big projects to local players will be politically acceptable.
I understand why the Business Council isn't fully connecting the dots between the need for infrastructure and the ability to fund it domestically. There are no domestic funders on the council, with David MacLean from Westpac the sole finance industry representative.
He's there as a banker rather than an investor. Banks make no money when their KiwiSaver clients profit from investments; they would rather they were debt funded to make profits for their shareholders.
To write out really big cheques over the long-term, local fund managers need long-term visibility so they can 'soft circle' future fund flows into large infrastructure projects. Like many things, it's all possible with time. And when domestic capital funds domestic infrastructure, marvellous things happen.
Look at Singapore and Australia. A big reason why Singapore has grown so fast is local pension funds investing in huge infrastructure for the very long term. And Australia has been recession proof for 26 years, a significant factor being the rising tide of superannuation savings channeled into large scale infrastructure. And it's why Brisbane, with a similar population to Auckland, has so much better roads.
Given infrastructure projects are 30-50 year investments and KiwiSaver, NZ Super and ACC are 30-50 year pools of money, it's a match made in heaven. Fund managers adore investments that match the investment horizon of their investors. For decades the curse of infrastructure investment has been the short termism of our capital markets. For the first time in history, we can now think and act truly long term.
Currently, the investment options in projects like toll roads, electricity grids, greywater, stormwater, sewage and irrigation is virtually zero.
The proposed Infrastructure Commission should go some way to helping provide options, but the Business Council is right in upping the importance and urgency of planning and capacity building. Otherwise, much of the money that could be invested in NZ will simply go offshore. It already is, as KiwiSaver managers have only 37 per cent invested in New Zealand, down from 43 per cent five years ago.
It will go lower if the Stock Exchange fails to list enough big companies and the government keeps a lid on borrowing. The Cullen Fund and ACC have commented on how thin the investment market is in NZ. Large scale infrastructure, funded by local players, is the circuit breaker.
All this is possible with long-term planning, especially with a 'National Prospectus' as the council refers to. We need the capacity to manage the projects too, which is why their suggestion to train civil servants in large scale project management skills is a brilliant one.
This is a golden moment in history to create large scale infrastructure for New Zealanders, owned by New Zealanders. The numbers stack up. But it needs Government, Industry and local funders to get around the table and start some serious long-term planning. It simply won't happen by itself.
- Sam Stubbs in the managing director of Simplicity NZ
