Capital Investment Plan | KPMG | IE

Capital Investment Plan highlights need for prioritisation of funding solutions

Capital Investment Plan

The International Project Finance Association (IPFA) conference held in Dublin this week heard that €2.6bn in the Government’s Capital Investment Plan to 2021 remains unallocated and that the impact of a hard Brexit following a failure to invest could be severe

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  • The conference highlighted housing, education, justice, technology and healthcare infrastructure as areas requiring additional focus and funding.
  • Solid GDP growth is expected in short term and public capital stock is continuing to recover.
  • However, following a peak of 5.2 % of GDP in 2008, public investment has collapsed to a low of 1.8 % of GDP in 2013 before slightly recovering to 1.9% in 2014 and it remains well below the EU average.
  • The absence of robust long term planning will slow down future growth. For example Ireland ranks 22 out of 28 in the EU in terms of public R & D as a percentage of GDP with a negative economic impact.
  • Following public consultation, a review of the Capital Investment Plan is expected to be published in July and a new ten year plan to be published before end of 2017.

Additional funding needed to overcome infrastructural challenges

  • In post conference comments, Michele Connolly, Head of Corporate Finance at KPMG called for faster and increased levels of capital expenditure, saying: “Despite the advances in the decade pre-recession, and current government commitments, Ireland is still playing catch-up on infrastructure compared to the rest of Europe. When the economy outpaces infrastructure investment we end up underperforming with consequences for quality of life, economic activity, employment and other important metrics.”
  • In 2010-2013, capital expenditure averaged only 4.8 % of total government spending, under half the long-term average in the period 1995-2008. In the context of new funding Connolly said: “It is critical that the new ten year plan properly prioritises projects according to need and economic value add delivered. The historic approach of simply allocating funding to a broad sector pool rather than a specific list of prioritised projects is outdated. We need to plan now for the capacity needed by the next generation and develop projects accordingly.”

Private capital and the housing crisis

According to Michele Connolly: “The social and economic cost of the housing crisis is significant – moreover unresolved it also is contributing to capacity constraints in the economy and inhibiting moves to counter the negative impact of Brexit.” Whilst current plans commit the government to a range of projects, there is also a need to assess how these are funded. Housing has been identified by KPMG as an example where private funding can help deliver such projects. Commenting at the conclusion of the IFPA conference, Connolly said: “There is significant interest from private capital in investing in Irish social housing projects. That capital tends to offer a low cost long term funding option. Whilst the current round of Social Housing PPP’s is welcomed, Government could do more to make structures available faster to target these capital sources to deliver a significantly scaled up solution which is what Ireland needs to address the housing crisis.”

Debt burden concern causing time lag

Connolly recognises that public debt challenges remain a concern but believes that further delay will come at greater cost: “Capital investment can still all be planned in a prudential manner focusing on value for money. What is critical however is that this is started now, rather than waiting until our debt burden disappears.”
 

ENDS

For more information/interview requests, contact:

Paul Gray, Communications Manager, KPMG in Ireland
paul.gray@kpmg.ie; (01)700 4728

Notes to the Editor

The provision of a 21st century infrastructure is widely seen as key to Ireland’s long-term economic health. However, for both the private and public sectors, the challenges are immense. Financing, cost management and many other complex issues require the support and assistance of those with demonstrated experience in the area. Over many years, KPMG has successfully delivered this support to both private and state entities. Our success is based on our experience, reputation and deep knowledge of how best to support the delivery of major infrastructural projects, including Public Private Partnerships (PPPs). KPMG has successfully assisted government in delivering PPP projects and developing effective PPP policies. We have deep experience in balancing an investor’s desire for profit with governmental requirements for high quality public services.

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