Transcript Figure 12 - Australian Competition and Consumer Commission

Trends in Infrastructure Investment
Eighth ACCC Conference
Sanctuary Cove, 27 July 2007
Jeff Balchin
Director
Purpose
Attribute cause for any
inadequacy of infrastructure
investment
Increasingly difficult
Assess adequacy of
infrastructure investment from
aggregate data
Increasingly interesting
Understand historical trends in
infrastructure investment
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The null hypothesis…
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Method / measurement
Methodological issues:
Extent of aggregation / accuracy
Measure quantities / volumes
Public vs. private participation
Measures:
Value of past investments
Accumulated depreciation
Capital stock
User cost of capital
Annual depreciation
Capital services
Decreasing level of reliability
Investment / expenditure
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Data series
Investment
Engineering construction activity (ABS)
More disaggregated (9 classes of infrastructure)
September 1986 onwards
Excludes buildings / land
Commenced vs. Undertaken vs. Remaining
Gross fixed capital formation (ABS, OECD)
Less disaggregation (3 classes of infrastructure)
1960 onwards
Includes buildings, excludes land
Capital stock (ABS)
Same breakdown as GFCF
Gross asset value = reproduction cost
Assumed deterioration of stock of assets
Capital services (ABS, OECD*)
Same breakdown as GFCF for Australia
More aggregated for OECD data
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Breakdown of data: ECA vs. GFCF
Engineering construction activity
Electricity (gen., trans. and dist.)
Pipelines
Water storage and supply
Sewerage and drainage
Roads, highways etc
Bridges
Railways
Harbours
Telecommunications
Recreation
Oil, gas, coal, minerals
Other heavy industry
Other
Gross fixed capital formation
Electrictity, gas and water
Transport and storage
Communications services
Agriculture
Forestry and fishing
Mining
Manufacturing
Construction
Wholesale trade
Retail trade
Accommodation
Cafes and restaurants
Finance and insurance
Property and business services
Government admin. and defence
Education
Health and community services
Cultural and recreational services
Personal and other services
Ownership of dwellings
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1. Trends in investment
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Investment – Engineering Construction Activity (I)
Infrastructure construction undertaken
(chain volume measures, $m, reference year 2004-05)
ABS, Engineering Construction Activity, Cat 8762 Table 6; Deflators purchased from National Accounts Branch,
Underlying indexes for Engineering Construction, March Quarter 2007.
Annual expenditure more than doubled since 1990
Above average growth – pipelines, railways, roads, harbours
Average growth – telcos, electricity
Below average growth – bridges, water and sewerage
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Investment – Engineering Construction Activity (II)
Infrastructure construction by owner/operator
Total Infrastructure construction
(chain volume measures, $m, reference year 2004-05)
(chain volume measures, $m, reference year 2004-05)
50,000
15,000
40,000
30,000
10,000
20,000
5,000
10,000
Infrastructure construction commenced
Total for the private sector
For the public sector by the public sector
For the public sector by the private sector
Total for the public sector
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
Infrastructure construction completed
1987
-
-
Infrastructure construction planned
ABS Engineering Construction Activity, Cat 8762, Table 6.
ABS Engineering Construction Activity, Cat 8762, Tables 8, 10, 11; Deflators purchased from ABS National Accounts Branch,
Underlying indexes for Engineering Construction, March Quarter 2007.
Estimates of remaining infrastructure construction activity systematically
exceeds actual remaining expenditure
Large increase in infrastructure controlled by the private sector:
13% at start of the period, 42% at the end of the period
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Investment – Gross Fixed Capital Formation
Gross fixed capital formation in infrastructure industries
(chain volume measures, $m, reference year 2004-05)
ABS National Accounts, Cat 5204, Table 71.
More interesting period appears to be the 1980s
Caused by state government financial problems?
Accumulated gold plating?
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Infrastructure capital stock / services
Net capital stock
Capital services index
(chain volume measures, $m, reference year 2004-05)
(1964-65 = 100)
ABS National Accounts, Cat 5204, Table 89.
Similar pattern, but dampened
ABS National Accounts, Cat 5204, Table 71.
Changes in level of ‘services’
dependent on asset lives
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2. Adequacy of investment
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Measuring adequacy
Upward trend in infrastructure investment is
unexpected
Economy has grown
Need more infrastructure
How much does the stock of infrastructure need
to grow as the economy expands?
In line with GDP growth?
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Investment – Engineering Construction Activity
Infrastructure construction completed
(per cent of GDP)
ABS, Engineering Construction Activity, Cat 8762 Table 6; Deflators purchased from National Accounts Branch,
Underlying indexes for Engineering Construction, March Quarter 2007.
Positive story – growth in all sectors except water, sewerage and bridges at or
above GDP growth
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Investment – Gross Fixed Capital Formation
Gross fixed capital formation in infrastructure industries
(per cent of GDP)
ABS National Accounts, Cat 5204, Table 71.
Picture not so rosy when compared to the heydays of the 1960s
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Infrastructure capital stock / services
Net capital stock
Growth of capital services relative to GDP
(per cent of GDP)
(1964-65 = 100)
ABS National Accounts, Cat 5204, Table 71.
ABS National Accounts, Cat 5204, Table 89.
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Investment – international comparisons
GFCF: Electricity, Gas & Water supply
(Per cent GDP)
GFCF: Post and Telecommunications
(Per cent GDP)
GFCF: Transport and Storage
(Per cent GDP)
The OECD STAN Database for Industrial Analysis
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Capital services
Growth of capital services relative to real GDP
(non-residential construction assets, 1985 = 100)
OECD, Productivity Database, 6 October 2006; OECD Factbook 2006: Economic, Environmental and Social Statistics
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Growth of capital services and GDP: Half empty or
half full?
Growth rate of capital services to GDP
Growth rate of GDP to capital services
Two observationally equivalent hypotheses:
Australia is underspending relative to the better performers – we should be
concerned
Australia has managed to achieve substantial GDP growth while only needing a
modest increase in infrastructure – we should be impressed
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Capital services and GDP growth
Growth of capital services to GDP
Real GDP growth
Relative GDP growth appears to explain most of the differences in
growth of capital services relative to GDP
Indeed, the ‘losers’ (in terms of falling capital services to GDP) have
been winners (in terms of GDP per capita)
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Why may infrastructure needs decline as a
proportion of GDP?
Economies of scale / scope / density
Changing composition of the Australian
economy
Efficiency in investment decision making
Forecasting tools
Financial appraisal techniques
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Changing demand for infrastructure
Industry Shares of GDP
Population Density
Capital City
Statistical Division
Sydney
Melbourne
Brisbane
Perth
Adelaide
Population Density
1976
1996
249
308
338
407
213
321
150
231
468
543
Change (%)
1976-96
23.69
20.41
50.7
54
16.03
Department of Environment and Heritage, State of the Environment
Second Technical Paper Series.
Australian Bureau of Statistics, Year Book Australia 2005.
Reducing importance of manufacturing,
increasing importance of services
Population now much more dense
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How to assess adequacy then?
Focus on quantity / quality of outputs rather than
quantity of inputs
Shortcomings in data – a priority
Cannot answer all questions – i.e. whether
investment is optimal
A micro-analysis is the only reliable method
Social costs and benefits
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Final remarks
Private sector / capital is now extremely important
Hence, getting the policy settings right is a priority
Making robust inferences on issues relevant to
infrastructure investment is difficult
Trends may be easy, establishing adequacy and causes much
harder
Focus on outputs rather than inputs would be an
improvement
Need for improved data collection
No substitute for proper analysis of economic costs and
benefits
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