This op ed appeared in the Globe and Mail on June 8, 2017.
With every pothole, crammed subway, or crumbling bridge, Canadians know only too well the importance of good, well-functioning infrastructure. Canada’s history is rooted in reliable infrastructure, going back to the development of the transcontinental railway, and Canada’s economy has prospered with a reliance on essential infrastructure across the country. Today, more than ever, we need innovative ways to finance improvements to our infrastructure to keep Canada’s economy moving forward. The proposed new Canada Infrastructure Bank is a novel approach to help leverage private capital for public infrastructure.
Infrastructure literally underpins economic growth. Investment in infrastructure ensures that critical utilities such as power generation, water management, and transit help Canadians work more productively, transport goods more quickly, and manufacture products more efficiently. Infrastructure projects create well-paying jobs, both through construction and indirectly. To sustain that growth, we need increased investment in Canada’s infrastructure in all of its forms – highways and bridges, high-speed rail, port and airport expansions, smart city networks, national broadband, power transmission and natural resource infrastructure.
Canada’s infrastructure deficit has been well documented. The Canadian Chamber of Commerce estimates that the investment needed to address the country’s infrastructure deficit could be as high as $570 billion. Moreover, underinvestment in infrastructure hurts our national competitiveness. That same report from the Canadian Chamber showed that, in comparison to the U.S., Canada’s productivity declined by 20 percent from the mid-1990s to 2006, coinciding with a decrease in our infrastructure spending relative to the U.S.
While infrastructure investment has grown since the global financial crisis of 2008, not enough is being done to leverage the available pool of domestic and international private sector funds to close the estimated infrastructure gap. The Prime Minister’s Advisory Council on Economic Growth issued its first report in October 2016 to tackle these issues. The Council recommended a Canada Infrastructure Bank to leverage private sector institutional capital to finance the country’s growing needs, while avoiding placing an undue burden on taxpayers.
With this recommendation in hand, the federal government in its 2017 Budget, took a leadership role and introduced legislation establishing the Canada Infrastructure Bank, allocating at least $35 billion over 11 years in order to leverage additional investments from the private sector. It is important to note that the Infrastructure Bank aims to be one more tool in the public sector’s toolbox to address Canada’s infrastructure gap. As Prime Minister Trudeau indicated to the Federation of Canadian Municipalities’ recent annual conference, the Infrastructure Bank will be optional and be in addition to funds the federal government already directly invest.
What makes the Infrastructure Bank so innovative is that it has tools at its discretion including loans, loan guarantees and equity investments, and it would fall somewhere between the Public Private Partnerships and traditional private system by targeting large-scale infrastructure projects with revenue potential. For instance, the Infrastructure Bank will play a critical role in addressing early stage risks associated with these infrastructure projects such as investing equity upfront, to complete technical drawings, specifications, risk assessments, social impact analyses, early permitting, etc. It would also act as a centre of expertise to structure, negotiate and help deliver projects in the most cost efficient way.
Canada’s banking industry understands the importance of infrastructure investment. The industry advises a diverse range of public and private sector participants that are currently involved in the building, owning and operating of essential infrastructure. Banks are involved with strategic advice, structuring balance sheets and raising capital through bank lending, public and private debt and equity markets. Canadian banks are part of Canada’s world-class infrastructure system which includes long-term investors such as private sector companies, pension plans, insurance companies and others.
The Canada Infrastructure Bank will help transform the way infrastructure is planned, funded and delivered in Canada. And it will help Canada compete with jurisdictions that have similar institutions such as Europe, the U.K. and Australia. We believe that the Canada Infrastructure Bank has the potential to leverage infrastructure in order to mobilize industry, improve our economic competitiveness and ensure Canada’s long-term prosperity.