Investment gap or efficiency gap? Benchmarking New Zealand’s investment in infrastructure

Is New Zealand investing enough in infrastructure? Should we invest more to close the gap between today’s infrastructure and what we’ll need in future?

About the report

To answer these important questions, Te Waihanga economist Peter Nunns turned to the international data to benchmark how much we invest in infrastructure and assess how efficient we are in turning investment into high-quality infrastructure.

Contrary to widespread perceptions, our infrastructure investment, as a proportion of GDP, is similar to the average high-income country. Our investment patterns are not dissimilar either – although we’ve put more into telecommunications and ports.

Where we do differ is in ‘efficiency’ – the return to us for every dollar spent. New Zealand’s infrastructure efficiency lies in the bottom 10% of high-income countries. We seem to get less value from our infrastructure spending than most other developed countries.

So why do we seem less efficient than average? Peter finds that it is due partly to factors that we can’t easily change, such as the fact we have a small population spread out across several long, shaky islands, and partly due to factors that are in our control, like the quality of our institutions, planning frameworks, investment decisions, and management of cost and delivery pressures. Countries like Chile and Switzerland show that it is possible to overcome the penalty created by tricky geography.

If we can improve the efficiency of our spending, the research shows that we should be investing more than we do right now. This is especially true in an environment of low interest rates, which is a signal that we should be spending more to prepare for the future.

How can we lift the efficiency of infrastructure investment? Te Waihanga’s draft Infrastructure Strategy suggests that we need to get the evidence base right, developing a deeper, cross-sector understanding of what’s going well and what could be better, and lift our game when it comes to infrastructure decision-making processes.

Te Waihanga’s research shows that New Zealand gets less value from its infrastructure spending than most other high-income countries.

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