Governments worldwide are spending massively on infrastructure to help their economies rebound from the Covid crisis. But there is growing pressure on them to fund only low-carbon projects
Public investment in infrastructure, widely acknowledged as a key stimulant of economic growth, is at the heart of many nations’ plans to recover from the Covid crisis. In the UK, for instance, the chancellor has pledged £100bn of capital expenditure for this year, on top of the government’s so-called levelling-up fund of £4.8bn for local regeneration projects.
The UK Infrastructure Bank, based in Leeds, opened for business in June. Its main goals are to tackle climate change and to support local developments, especially in more deprived parts of the country. Eyes are on the bank’s potential to back substantial investments in projects covering areas such as housing, transport, renewable energy, digital telecoms and waste management.
According to the Treasury, the bank has “an initial £12bn of capital to deploy and will be able to issue £10bn of government guarantees, helping to unlock private-sector funding and more than £40bn of overall investment”.
Dr Jennifer Schooling, director of the Centre for Smart Infrastructure and Construction at the University of Cambridge, agrees that infrastructure investment has a key role to play, but stresses that “we have to be spending on the right things”.
She explains that, while “new assets must be designed, built, managed and maintained to give us whole-life value”, the government also needs to focus on “getting more out of existing infrastructure and using smarter technology – machine learning and digital twins, for instance – in an informed way.”
The labour shortage in the UK construction industry is not only a consequence of Brexit and the Covid crisis, according to Schooling. “It has an ageing workforce, with many employees due to retire in the next 10 to 15 years,” she says. “We need to move the perception of the industry away from ‘shovels, mud and concrete’ by using the best available technology in the most appropriate way. We need smarter methods – more automation, for instance – so that the work is less physically taxing. This should make the industry more appealing to younger people.”
Sir John Armitt is chairman of the National Infrastructure Commission, which advises the government on the nation’s long-term infrastructure challenges. Reaching for shovel-ready projects is an understandable instinct for any government looking to kick-start the economy, he says, noting that Westminster has not been alone in this respect.
“Only weeks into the pandemic, the UAE set up a £3bn package that included measures to accelerate major infrastructure schemes, while Australia planned a series of fast-track projects worth more than £2bn,” Armitt says. “The problem is that there aren’t all that many truly shovel-ready projects sitting around waiting to get started. Major infrastructure works take time to plan and design for good reason – and they cost a lot.”
The US’s recently announced $1tn (£760bn) package, with at least $110bn allotted to physical infrastructure projects, is a testament to his last point.
“Every large economy will be looking at investing in infrastructure,” Armitt says. “The question that I hope everyone involved will be asking themselves is: ‘How can we make this investment support a low-carbon future as well as GDP growth?’”
Jim Hall is professor of climate and environmental risks at the University of Oxford and a member of the Council for Science and Technology, which advises the prime minister. He agrees with Armitt that “the problem is going to be ensuring that infrastructure is green, especially in nations facing intense short-term pressures of a growing population and high unemployment”.
Described as the 21st-century Silk Road, Beijing’s multitrillion-pound Belt and Road Initiative (BRI) is one of the world’s biggest infrastructure programmes. Its aim is to better connect Asia, Africa and Europe, while extending China’s influence.
Although the BRI predates the pandemic, it will be key to the country’s recovery from the Covid crisis. China is planning construction or already building in more than 100 countries, with agreements to cooperate on infrastructure projects including railways, highways and ports.
The G7 countries have countered the BRI with their Build Back Better World initiative. This US-led programme is designed as a transparent partnership to provide the £29trn-worth of infrastructure required by the developing world by 2035, according to the White House.
Successful infrastructure projects in developing countries can have a significant socioeconomic impact. Research by the International Monetary Fund (IMF) indicates that investment in railways in Ghana and Kenya, for instance, can “produce long-term gains by reducing trade costs and integrating markets, potentially transforming the economic landscape in poor remote regions with high trade costs”.
Many nations in the developing world have been pouring more public money into infrastructure, while participation from the private sector has also increased, according to the IMF. But it adds that the cost of the pandemic may limit planned expenditure in some countries.
Armitt says: “The UK’s big institutional investors, including the government, can play a role in funding worthwhile programmes overseas. Traditional infrastructure projects tend to be a relatively safe bet, albeit not always with the biggest returns.”
The challenge, he adds, is to de-risk and attract private investment for more innovative engineering projects that could help to deliver a lower-carbon economy.
“Developing countries have secured considerable private finance for telecoms and energy projects,” Armitt reports. “But they need to look to other sources of finance, including the World Bank or aid funding, in other sectors, including transport.”
Approaches to infrastructure development vary considerably around the world. Singapore, for example, has an infrastructure body that takes a 50-year strategic view, which is broken down into 10-year plans. Senior civil servants are rotated between the planning and delivery functions.
Australia, on the other hand, created an infrastructure commission in 2008, taking a federal view on what is needed and then disbursing the funds under its control to support state-level projects that align with its assessment.
China, meanwhile, has centrally funded its key infrastructure projects over the past 30 years. Its 2020-25 national infrastructure plan, according to Beijing, is worth about £1.4tn, although some regions also have multibillion-pound programmes of their own. In addition, the government has recently introduced a Covid-19 relief package to revamp the country’s digital infrastructure. This includes the installation of a 5G network, the construction of high-speed inter-city rail links and the development of the internet of things.
“Whatever the governance model, every country shares the challenge of how to build resilience and adaptation to climate change,” Armitt says.
Hall believes that China – the world’s biggest emitter of greenhouse gases, according to US research institute the Rhodium Group – is committed to addressing climate change through low-carbon infrastructure projects.
“Yet, even as the Chinese are clamping down on coal-fired power stations at home because of air pollution, they are still exporting such plants to developing nations – Pakistan for instance,” he says.
On the other side of the world, Colombia serves as an example of how things can go wrong. Since the 1990s, its government has trumpeted infrastructure projects in packages described as “a new generation”. The fourth and most recent of these, which began in 2014, was the biggest investment programme of its kind in the country’s history: 29 projects to build or upgrade 3,000 miles of highway, 775 bridges and 41 tunnels at a cost of about £9.5bn. The programme was scheduled to end in 2022 but has faced serious delays, owing partly to flaws in contract design and partly to a corruption scandal in which a Brazilian construction firm called Odebrecht bribed officials to win contracts.
The nationwide 4G network roll-out is more than 40% complete. This represents significant progress since the election of Iván Duque Márquez as Colombia’s president in 2018, yet there is clearly still much work to do, offering foreign investors potentially lucrative opportunities.
George Monbiot, an author, columnist and environmental campaigner, argues that foreign infrastructure investments in developing nations are the answer only if they are ecologically sustainable.
He says that any such investment would be desirable “only if it does not expand industrial frontiers into wildlife habitats; only if it replaces, rather than supplements, damaging infrastructure; and only if the new infrastructure is appropriate, has the active consent of those it affects and meets the needs of the poor as well as the rich.”