Response to Canada’s call for a National Infrastructure Assessment
Letter to The Honourable Catherine McKenna, Minister of Infrastructure and Communities, responding to the National Infrastructure Assessment.
Dear Minister,
Thank you for the opportunity to host a roundtable meeting as part of the National Infrastructure Assessment. This memo builds on our productive conversation and provides several considerations as you lead this important assignment for Canadians.
The challenge
Estimates of Canada’s infrastructure deficit range from $110 billion to $270 billion [1]. On a per capita basis, our country’s investments in infrastructure lag those of many peer countries, including Australia, Spain, the Czech Republic, and Sweden. According to the World Economic Forum and others, the quality of Canada’s infrastructure is average [2], [3].
The federal government’s ability to address these challenges is constrained by its current fiscal position. Hence there is a need to consider our future infrastructure priorities and how they will be funded. Equally, there is an opportunity to explore innovative partnerships with the private sector.
Decouple infrastructure planning from politics
In its 2019 final report, the Business Council of Canada’s Task Force on Canada’s Economic Future recommended that the federal government create an independent statutory body with a mandate to identify and prioritize nationally significant infrastructure projects [4].
Countries such as Australia and the United Kingdom have already adopted a similar approach to infrastructure planning. For example, Infrastructure Australia conducts periodic audits of the country’s nationally significant infrastructure. The agency develops 15-year rolling infrastructure plans and weighs the business case for each project based on its impact on productivity and economic growth. Infrastructure Australia’s work is insulated from the political process, ensuring that infrastructure priorities are determined using objective scientific and economic criteria.
The Honourable David Emerson emphasized the need for a national infrastructure strategy when he completed a statutory review of the Canada Transportation Act in 2015. In 2017 the Advisory Council on Economic Growth recommended a similar approach [5], [6]. We urge the federal government to heed this advice. A national infrastructure strategy that is developed collaboratively by the federal, provincial and territorial governments – and supported by an efficient, predictable regulatory environment – would strengthen economic growth and materially improve the quality of life of Canadians in every region.
Create the conditions for private sector investment
Canadian governments control a diverse portfolio of infrastructure assets with a combined value of approximately $150 billion. These assets include electricity generating plants, transportation infrastructure, and waste and water treatment plants. Canadian pension plans and other Institutional investors are fully prepared to invest in these facilities but are discouraged from doing so by lengthy and often duplicative regulatory processes, short concession terms, and an aversion to user-pay systems, among other impediments.
This represents a missed opportunity for Canada. In countries such as India, Brazil, Australia, and the United States, institutional investors are deploying billions of dollars to finance projects such as power transmission lines, desalination plants, railway systems and highways. Partnerships between the public and private sectors feature concession terms ranging from 25 to 99 years and user fees that support a reasonable return on investment. Governments that sell or lease assets in this fashion can then turn around and invest the proceeds in new infrastructure projects.
When he was Chair of the Caisse de dépôt et placement du Québec, Michael Sabia spoke about the benefits of asset recycling programs, saying they give governments “the financial flexibility to take on new and innovative infrastructure projects.”[7] Notably, asset recycling would allow governments in Canada to finance new projects without going deeper into debt.
Australia’s recent experience with asset recycling offers useful lessons for Canada. By creating a two-year window during which states and territories were encouraged to sell off assets, Australia’s national government helped unlock more than $17 billion in new infrastructure developments, including new port, highway and freight infrastructure and light rail systems [8]. As a testament to the success of this initiative, the country is now exploring a second round of asset recycling. Meanwhile, the states of Victoria and New South Wales have moved forward with similar initiatives.
Focus Canada’s infrastructure investments on growth opportunities
As a result of the pandemic, Canada is now the world’s sixth most indebted jurisdiction, with economy-wide gross debt of more than 3.5 times GDP. While Budget 2021 forecasts an economic rebound over the next two years, it also suggests that by 2023 our country will return to what economists call “the two per cent trap” – an era during which our GDP will expand by a mere two per cent annually.
By embracing a strategic approach to infrastructure development, the federal government can elevate Canada’s long-term growth trajectory while modernizing the economy and boosting productivity levels. As Bank of Canada Government Tiff Macklem put it when he was Dean of the Rotman School at the University of Toronto, “The simplest and clearest operational metric to identify strategic infrastructure would be its ability to generate future revenue streams.”
Recently the federal government’s Industry Strategy Council tabled a report that outlined an ambitious growth strategy for Canada. It emphasized the need to invest in nation-building projects that support economic growth and enhanced productivity. Doing so would strengthen the country’s ability to withstand future shocks, reduce the burden of public debt, and generate income that will be needed to support Canada’s aging population.
Specifically, we view the following three areas as priorities for infrastructure development:
Digital connectivity
Technologies such as artificial intelligence, the Internet of Things and quantum computing are driving a paradigm shift in how people live, learn, work and play. Smarter cities, precision agriculture, advanced manufacturing, and smart grid technology are just a few of the opportunities that can be accelerated with improved connectivity.
Recent government investments in this area are promising, but we would encourage you to go further. A long-term investment strategy aimed at building the next-generation digital economy would complement private sector investments in technologies such as 5G, the rollout of which will cost an estimated $26 billion over the next seven years [9].
Trade-enabling infrastructure
Investments in trade and transportation projects – including roads, bridges, airports, rail lines, and port facilities – are essential to help businesses compete, grow and create more jobs for Canada’s middle class. Efficient transportation networks are especially important to ensure that Canada maintains its top-10 market share as supplier of commodities such as potash, nitrogen, grain, pulse crops, titanium, gold, aluminum, and natural gas.
We encourage the federal government to build on the National Trade Corridors Fund so as to provide a sustainable funding stream for projects that support exporters and strengthen the country’s competitiveness.
Energy efficiency and green infrastructure
Climate change is among the greatest public policy challenges facing Canadians today. The transition to a low-carbon economy offers myriad opportunities to improve the lives and well-being of individuals and families in every part of the country, but we must act urgently and decisively if we are to achieve the goal of net-zero GHG emissions by 2050.
In 2017 the Conference Board of Canada estimated that $1.7 trillion would need to be invested in electric power generation to meet Canada’s original target under the Paris Agreement [10]. Your government’s latest climate plan points to a similar conclusion, stating that Canada will need two to three times as much clean power as exists today to achieve net zero by 2050 [11].
Canada has what it takes to succeed in a low-carbon world, but only if governments and business work together to achieve common goals. Public policy and government infrastructure spending must be designed to encourage private sector investment in energy transition.
In conclusion
The Business Council of Canada and its member companies have the expertise to support this assessment and can make a considerable contribution to your proposed independent advisory board. Please find attached two papers that describe the important role infrastructure investments can play in supporting a strong and sustainable recovery for Canadians. In summary, we believe that:
- the primary goal of Canada’s national infrastructure strategy should be to enhance the country’s economic capacity;
- the best way to increase investment in infrastructure is to encourage private sector investment, new ownership options, and alternative financing mechanisms; and,
- the top priorities for infrastructure development are digital connectivity, trade-enabling infrastructure, and energy efficiency and green infrastructure.
On behalf of Canada’s business leaders, thank you for the opportunity to participate in this public engagement on the country’s first National Infrastructure Assessment.
[1] Boston Consulting Group (BCG), 2019. 15 things to know about Canadian Infrastructure.
[2] World Economic Forum, 2017. Canadian Infrastructure Report Card. BCG analysis.
[3] Deloitte, 2019. Canada’s competitiveness scorecard.
[4] The Task Force’s recommendations were based on a nine-month consultation process that considered more than 100 submissions and diverse views provided by expert roundtables hosted across the country.
[5] Canada Transportation Act Review, 2015. Pathways: Connect Canada’s Transportation System to the World.
[6] Advisory Council on Economic Growth, 2017. Unleashing Productivity Through Infrastructure.
[7] World Economic Forum, 2017. Recycling our infrastructure for future generations. Available at: http://www3.weforum.org/docs/WEF_Recycling_our_Infrastructure_for_Future_Generations_report_2017.pdf
[8] Address by The Hon. Joe Hockey to the Federal P3 Conference. November 27, 2018.
[9] Accenture Strategy, 2019. Accelerating 5G in Canada: Benefits for Cities and Rural Communities.
[10] Source: https://www.conferenceboard.ca/temp/ede3fa6b-3640-4247-b3fb-9257c0190720/9021_Cost-Cleaner-Future__RPT.pdf
Sincerely,
