We are drowning in a sea of information. But knowledge can be hard won and wisdom sometimes seems almost impossible to implement. Many would experience this in the infrastructure sector. So for those that follow me on LinkedIn, I thought a series of infrastructure haikus might be a novel way to look at some of the issues.
Early vision cast, Needs and dreams on paper sketched, Blueprints in the mist.
Funding battles fought, Public voice and budgets weigh, Choice in numbers set.
Designs come to life, Engineers and planners meet, Maps turn into roads.
Shovels break the ground, Concrete, steel take form and rise, Promise now concrete.
End of useful life, Time to reassess the need, Planning is reborn.
Each haiku focuses on a specific phase of infrastructure planning, from initial conception to design, construction, operation, maintenance, and eventually reconsideration for future needs. Collectively, they aim to encapsulate the cyclical, ongoing nature of infrastructure planning and its multifaceted aspects.
Managing a local council’s budget is no simple task. From infrastructure to public services, CFOs are faced with the challenge of funding projects that are essential to the prosperity of their communities. Two potential sources of funding have been generating quite a buzz in council meetings across the country: grants and Public-Private Partnerships (PPPs). In this article, we unpack the advantages and limitations of these two funding avenues.
Grants: A Gift That Gives Back
Grants are like the presents that keep on giving, primarily because they don’t need to be paid back. This feature makes them a cost-effective source of financing for many local councils. Moreover, the focus of grants often aligns perfectly with the mission of local councils: benefiting the community.
Another upside is that grants often come with a degree of spending flexibility, depending on their source and nature. However, a word of caution: it’s not all smooth sailing in the world of grant funding.
Applying for grants can feel like being in a fiercely competitive race. It requires a significant investment of time and resources to prepare a compelling application – with no guarantee of crossing the finish line first. Another pitfall lies in the scope of funding. For larger, more ambitious projects, grants might fall short. The funding pool is also subject to availability and can fluctuate from year to year. Lastly, grants can come with strings attached, limiting how councils can use the funds.
Public-Private Partnerships: Sharing the Load
If you’re looking to bring big projects to life, PPPs could be the answer. They’re an effective way to facilitate large-scale projects that might be beyond the reach of a council’s independent financing. An appealing aspect of PPPs is risk-sharing. By involving the private sector, both entities share the project risks, mitigating the council’s financial exposure.
Another potential advantage is efficiency. The private sector often boasts specialized skills, innovative technology, and advanced management techniques that can help deliver projects more effectively.
But PPPs aren’t without their challenges. They often entail complex and lengthy negotiations, requiring clear agreements on roles, responsibilities, and rewards. It’s also important to remember that private entities are profit-driven, which could result in prioritizing profitability over community benefits. Lastly, the long-term nature of PPP contracts could tie the council’s hands, reducing flexibility to adapt to changing community needs.
Making the Choice
Both grants and PPPs have their unique strengths and challenges. The choice between them hinges on a council’s specific circumstances and needs. Remember, these aren’t the only funding options out there. Other strategies such as municipal bonds, levies, or direct budget allocations are also worth exploring.
In the ever-changing landscape of local government finance, it’s more crucial than ever for CFOs to stay informed about the various funding mechanisms available. Balancing community needs with financial sustainability is the art of local council financing.
Recently Lytton Advisory is seeing Artificial Intelligence (AI) being applied across a wide range of sectors of economies. Currently we are engaged in national infrastructure investment planning in Samoa and Vanuatu. This prompted us to think about some of the issues around using AI in national infrastructure investment planning. It is a promising approach that can enhance efficiency, precision, and foresight. However, implementing this technology, especially in Pacific Island nations, is not without challenges. Three big challenges we see are:
Limited Access to Quality Data: AI thrives on large, diverse, and high-quality datasets. For AI to be effective in infrastructure planning, it needs access to data on the current state of the infrastructure, usage patterns, environmental factors, and the like. However, in many Pacific Island nations, data collection and management practices may be underdeveloped due to resource limitations, which results in poor quality or incomplete datasets. These nations may lack the digital infrastructure, like advanced sensor networks, to gather sufficient real-time data for AI to work effectively. The issue of data privacy and protection also comes into play, given the sensitive nature of certain infrastructure-related data.
Technological Capacity and Expertise: The implementation of AI requires technical expertise and strong digital infrastructure. In many Pacific Island nations, these capacities may be lacking due to constraints in resources, education, and infrastructure. Training locals to use and manage AI systems could be difficult, and attracting or retaining AI talent may also be a challenge due to economic factors and brain drain. There’s also the task of integrating AI with existing systems, which could be outdated or incompatible.
Environmental Vulnerability: Pacific Island nations are among the most vulnerable to climate change. Frequent natural disasters like cyclones, flooding, and sea-level rise create an unpredictable environment for infrastructure planning. While AI could potentially help manage and adapt to these issues, the volatile environment also makes data collection and analysis more challenging. Infrastructure and equipment needed for AI, such as data centers and sensor networks, could also be damaged by environmental events.
To overcome these challenges, it’s essential to adopt a strategic approach that includes improving data management practices, investing in education and digital infrastructure, promoting technological capacity building, and implementing robust measures to mitigate environmental risks.
Trying to do this at a national level may be limiting, especially for some of the very small nations of the Pacific. Developing AI on a regional Pacific basis, rather than a series of national ones, might bring some of the following benefits:
Shared Resources: AI development requires substantial resources, including technology, data, and skilled professionals. By pooling resources at a regional level, Pacific Island nations can collectively create more robust AI systems than they might individually. They can share the costs of necessary infrastructure, the development of AI applications, and the hiring or training of experts.
Standardization and Interoperability: A regional approach can foster standardization of data formats, protocols, and AI technologies. This makes systems more interoperable across countries, which can facilitate cross-border initiatives and collaborations. This is particularly useful for the Pacific Island nations given their geographical proximity and shared regional challenges.
Shared Data: AI relies heavily on data for training and functioning. By pooling data at a regional level, nations can create larger and more diverse datasets, which can help improve the accuracy and reliability of AI systems. This can also compensate for the smaller population sizes and hence smaller national datasets of these nations.
Regional Adaptation: Given that Pacific Island nations face similar environmental challenges, such as climate change and natural disasters, a regional AI system can be designed to specifically tackle these issues. AI models could be trained to predict and respond to regional weather patterns, sea-level rises, and natural disasters, aiding in preparedness and mitigation strategies.
Collective Bargaining: A region acting as a unified entity has a stronger position when negotiating with global tech companies or other international entities. This can lead to more favorable terms in data privacy, technology transfer, and intellectual property rights.
Capacity Building and Learning: A regional approach encourages collaboration and exchange of knowledge and best practices among nations. This can help build capacities in AI and related fields across the region, further fostering a regional tech ecosystem.
While a regional approach offers these advantages, it also presents its own challenges such as coordinating between different national interests and regulations, data privacy concerns, and managing shared resources equitably. Therefore, a balance between regional cooperation and national autonomy needs to be found.
International cooperation could play a vital role in providing the necessary resources and expertise, particularly in kick-starting a regional approach. It’s crucial to develop AI systems with an understanding of local contexts and needs, as well as appropriate safeguards for data privacy and security.
I have been doing cost benefit analyses for a few years now. The concept is deceptively simple but provides a solid framework for insightful decision making.
It is a tool used to assess potential costs and benefits of a decision or project, usually in monetary terms. It is commonly used to evaluate the feasibility and potential impact of projects, policies and regulations.
Recently I have been thinking about the usefulness of the approach given that many major project often seem to float past this analysis.
Here are five epiphanies that might help CBA evangelists:
The true value of a decision lies not just in its financial cost and benefit, but also in its impact on people and the environment.
CBA forces us to weigh the pros and cons, but it’s important to remember that some benefits and costs are difficult to quantify and may have long-term effects that are not immediately apparent.
It should not be the sole factor in decision-making, as there may be intangible or ethical considerations that cannot be easily measured in financial terms.
CBA is a useful tool, but it is important to remember that it does not account for future uncertain events. Therefore, it should be used in conjunction with other decision making tools for a comprehensive evaluation.
Cost-benefit analysis can be misleading if it only looks at short-term financial gains and ignores long-term social and environmental costs. A more holistic approach should be used that accounts for all the potential impacts of a decision.
These are just some of the insights about CBA, but there are more that might be organisational or project relevant.
Is CBA a key driver of your organisation’s project appraisal process or just another compliance element in developing business cases?
When Lytton Advisory was in the US last month we visited Boston. Moving around the old parts of the city, a number of infrastructure challenges were evident.
Boston’s infrastructure is aging, with many of its roads, bridges, and transit systems in need of repairs and upgrades. This can lead to increased maintenance costs and disruptions to transportation and other services, which can impact the city’s economic competitiveness.
A significant part of the old city is on reclaimed land. The city is practically the Venice of the US. It is vulnerable to the impacts of climate change, including sea level rise, which could have significant impacts on the city’s infrastructure. This can lead to flooding and damage to critical infrastructure, such as roads, bridges, and buildings, which could be costly to repair and disrupt economic activity.
Like many other cities, Boston is facing a housing affordability crisis, with high housing costs and a limited supply of affordable housing options. The city has some of the highest rents in the nation. This can make it difficult for low- and middle-income families to find suitable housing, which can limit economic opportunities for those who cannot afford to live in the city.
Boston also experiences significant traffic congestion, which can impact the city’s economic competitiveness by increasing commuting times and reducing productivity. According to the Global Traffic Scorecard, Boston drivers lost about 134 hours of their lives sitting in traffic in 2022. That’s a jump up of 56 hours from 2021 as more workers head back to the office, though still 10% less than pre-pandemic levels. This can also have negative environmental impacts, such as increased air pollution.
Finally, some locals mentioned to me that Boston is also facing challenges related to digital infrastructure, such as access to high-speed internet and other digital technologies. This can impact economic growth and innovation, as well as limit access to important services and resources for residents. Nearly 15% of households in Boston do not have a subscription to Internet service at home, and more than 32,000 households have no Internet access at all. However, I am not as sure how significant the digital divide is in Boston.
These challenges are all known and potentially solvable. Focus and resources are needed to resolve them. The city has huge potential to address these issues given its role in Massachusetts and the nation’s life, as well as its long history of development and adaptation.
In February Lytton Advisory spent a week in New York City, mainly in Manhattan. It is hard to comprehend the scale and scope of this metropolis and the infrastructure challenges that the City and its residents face. We believe there are three key infrastructure challenges that NYC faces:
Aging Infrastructure: New York City’s infrastructure is aging, with many of its bridges, tunnels, and other transportation facilities built over 50 years ago. This has led to increased maintenance costs and disruptions to transportation and other services, which can impact the city’s economic competitiveness.
Affordable Housing: New York City has one of the highest housing costs in the country, which is a major challenge for many of its residents. The lack of affordable housing options can make it difficult for low- and middle-income families to find suitable housing, which can limit economic opportunities for those who cannot afford to live in the city.
Economic Inequality: Despite being a global economic hub, New York City has one of the highest levels of income inequality in the country. This can create a variety of economic challenges, including limiting access to quality education, healthcare, and other services, as well as limiting economic mobility for those at the lower end of the income spectrum.
In a heavily built urban form solutions are never easy, but there are some possible answers:
Aging Infrastructure: To address the aging infrastructure in New York City, the city could invest in a comprehensive infrastructure renewal plan, which would prioritize repairs and upgrades to critical transportation, water, and energy systems. The plan could also include public-private partnerships to help fund infrastructure improvements and ensure they are completed in a timely and efficient manner.
Affordable Housing: To address the lack of affordable housing options in New York City, the city could invest in new housing construction and rehabilitation of existing properties. The city could also create incentives for developers to build affordable housing units, such as tax breaks or streamlined permitting processes. Additionally, the city could explore policies like inclusionary zoning, which requires a certain percentage of new developments to be affordable for low- and middle-income residents.
Economic Inequality: To address economic inequality, the city could invest in education and workforce development programs that provide training and support to residents from disadvantaged backgrounds. The city could also work to promote small business development and entrepreneurship, which can help create jobs and economic opportunities in underserved communities. Finally, the city could implement policies like minimum wage increases, paid sick leave, and other labor protections that help ensure workers are able to earn a livable wage and have access to essential benefits.
All of these require money and a critical challenge is how NYC could fund the investments needed to address its economic infrastructure needs:
Government Funding: One possible funding source is government funding, such as federal or state grants, which could be used to support infrastructure improvements or affordable housing projects. The city could also allocate funds from its own budget to support these initiatives.
Public-Private Partnerships: Another potential funding source is public-private partnerships, which could help finance infrastructure projects and affordable housing developments. Under this model, private investors or companies would provide financing in exchange for a return on their investment.
Tax Credits: The city could also offer tax credits to incentivize private investment in infrastructure and affordable housing projects. These tax credits could be structured in a way that encourages long-term investment and helps ensure that projects are completed in a timely and efficient manner.
Municipal Bonds: Another option is for the city to issue municipal bonds, which would allow it to borrow money from investors to fund infrastructure improvements or affordable housing developments. These bonds would be repaid over time, typically with interest.
Impact Investing: Impact investing is a relatively new form of investment that aims to generate social and environmental benefits in addition to financial returns. The city could explore opportunities to attract impact investors who are interested in supporting infrastructure improvements and affordable housing projects.
The matrix of need and funding needs to be carefully assessed to make sure the right incentives are generated to do the right projects with the right funding. The problems are not particularly unique, but the scale and scope of work of a key node of the global economy means the investigation is definitely worth the effort.
Infrastructure investment planning in the context of Pacific Island nations requires a tailored approach that takes into account the unique characteristics and challenges of these countries. This is because Pacific Island nations have small populations, are geographically dispersed, and have limited resources. Therefore, infrastructure planning must be done in a manner that reflects their unique needs and priorities.
One of the best techniques for infrastructure investment planning in the context of Pacific Island nations is conducting a comprehensive needs assessment. This involves engaging with local communities and stakeholders to better understand their needs and priorities. This process is critical for identifying infrastructure gaps and prioritizing investment projects. Lytton Advisory considers this is best done at agency or infrastructure sector level.
Another important technique for infrastructure investment planning is taking a multi-sectoral approach. Infrastructure planning must take into account the interdependence of different sectors such as transportation, energy, water and sanitation, and telecommunications. A holistic approach is essential to ensure that infrastructure investments are aligned with the overall development goals of the country. In our view it also help more effective conversations with donors and private investors, helping countries retain greater sovereignty over national priorities.
Climate resilience is also a critical consideration in infrastructure investment planning in Pacific Island nations. These countries are particularly vulnerable to the impacts of climate change, and any infrastructure investment planning must take this into account. Projects should be designed to withstand extreme weather events and rising sea levels. Risk identification and mitigation are critical factors here.
Engaging the private sector can help to leverage additional resources and expertise for infrastructure development. Public-private partnerships can be a viable option for financing and delivering infrastructure projects. Private sector engagement can also help to promote innovation and efficiency in infrastructure development. However, the ability to engage the private sector also depends on national government capacity to see the commercial interests and incentives with great clarity.
Capacity building is critical to ensure that Pacific Island nations have the skills and expertise necessary to plan and implement infrastructure projects. This includes training in project management, procurement, and technical skills. By investing in capacity building, Pacific Island nations can become more self-reliant in planning and implementing infrastructure projects.
Sustainable financing mechanisms, such as green bonds and climate funds, can be used to finance infrastructure projects that have positive environmental and social impacts. This is important for ensuring that infrastructure investments are aligned with the overall sustainable development goals of Pacific Island nations. This also means identifying and avoiding some predatory financing practices as well, particularly where there might impose difficult burdens on the national treasury.
Finally, it is important to monitor and evaluate infrastructure projects to ensure that they are delivering the intended benefits and to identify areas for improvement. This includes tracking project performance against key indicators and engaging with stakeholders to gather feedback. By monitoring and evaluating infrastructure projects, Pacific Island nations can continuously improve their infrastructure planning and delivery processes. This is one of the hardest things to do, but has the potential to delivery greater informational value for future projects.
Recently I have been thinking about how early-stage screening of infrastructure proposals can be made more effective. Time and again I see lists of projects here in Australia that are unfunded, undeveloped and, frankly, never-deliverable.
A key element of good infrastructure planning is the capture of the complete suite of proposals that could be under consideration at a point in time. This is critical for national infrastructure planning. Part of this also needs to consider the best way to screen all of these proposals, so determine which ones might be come investment ready projects. There are several best practices that can be followed when screening infrastructure proposals.
Identify the goals and objectives of the project: It is important to have a clear understanding of the purpose and potential impacts of the project. This will help to ensure that the proposal aligns with the goals and objectives of the organization or community.
Evaluate the feasibility of the proposal: Consider the technical feasibility of the proposal, including whether the proposed solution is technically sound and can be implemented within the available resources.
Assess the financial viability of the proposal: Determine the costs associated with the proposal and consider the potential return on investment.
Consider the environmental and social impacts: Infrastructure projects can have significant environmental and social impacts. It is important to consider these impacts and ensure that the proposal takes them into account.
Involve stakeholders in the process: Engage with stakeholders, including community members, local businesses, and other interested parties, to gather input and ensure that the proposal is responsive to the needs and concerns of the community.
Utilize a formal proposal review process: Establish a formal process for reviewing and evaluating proposals, including the use of a proposal review committee or panel to evaluate and provide recommendations on proposals.
I wonder how many proposals processes check off against these issues. What has been your experience?
Lytton Advisory is pleased to advise that in December 2022 Craig Lawrence was appointed as a consultant to the Pacific Regional Infrastructure Facility (https://www.theprif.org/what-we-do).
He will be assisting PRIF by helping Pacific Island states develop national infrastructure investment plans to drive economic and social development.
Craig is Managing Director of Lytton Advisory. For the past nine years he has led teams of economists examining infrastructure and public policy issues.
Recently I have been thinking about inland freight and logistics to see how this affects Australia’s seaports. Volumes may be constrained by production factors – you can only grow what you can grow when the environment allows you to grow it – but where these volumes go can be determined by these inland costs.
Policy can have consequences as NSW’s freight and logistics strategy shows. Improvements in freight handling and inland cargo aggregation can reduce costs. Some of these improvements reduce the cost of multi modal handling, as well as reduce the cost of line haul by mode – whether that is by rail or road.
For an economist like me it is a relative comparison game. Relatively lower costs will shift the movement of commodities from one mode to another, as well as shift the direction of commodities. Subject, of course, to existing commercial agreements.
However this is not the only story. The other story is around the development of vertically and horizontally integrated businesses that develop their own end-to-end freight and logistics systems. This means they are able to profit maximize by using less profitable parts of their networks to feed the more profitable parts. These firms are also taking equity stakes in their clients.
This is different to geographically and modally constrained freight and logistics operators – they have to maximize efficiency of throughput at a single point or along the linear operation of a particular mode. They certainly do not own parts of their client’s operations. Also, singular operations cannot transfer price because the other parts of the network or system are owned by other parties, and often singular operations cannot aggregate the volumes of goods required to develop leverage over prices.
This article also provides a gratuitous opportunity to show some of the canola fields near my home town in the South West Slopes region of NSW. I took this picture last week on a visit there. Primary production remains an important part of the freight task, albeit a volatile one that is hostage to world demand, weather and yields.
Lytton Advisory 