Thank you Elana for the introduction.
Good morning ladies and gentlemen and thank you to Industry Super Australia for bringing together such a diverse group of people who have a common interest in developments in infrastructure policy.
Why infrastructure is important
Australia's population is growing and the world's population is growing. The UN estimates that the global population will grow by 30 per cent to 9.3 billion over the next 30 years. This population growth puts pressure on cities and towns across the globe. As a result, greater investment in infrastructure is critical.
Without adequate investment in critical infrastructure like roads, rail, ports, energy, water and telecommunications we will see reduced living standards across the world. Billions of people will miss out on opportunities to improve their lives and the lives of their children.
As Chairman of the B20 infrastructure and investment taskforce, David Thodey said infrastructure "is becoming more critical as populations grow and finite resources and footprints are stretched."
Expanding infrastructure investment is critical to near term global growth prospects. It is also critical to meet the G20 commitment to lift global growth over the next five years by 2 per cent above what would occur under current policy settings which will add more than US$2 trillion to our global economy and create millions of jobs.
Furthermore, in the period to 2030, global infrastructure investment needs for transport, water and energy infrastructure alone are estimated to be around US$70 trillion. On current policy settings, these needs are unlikely to be met.
As B20 Sherpa, Robert Milliner, and B20 Chair, Richard Goyder AO, pointed out last year "closing the global infrastructure gap could create 100 million jobs and generate US$6 trillion over the long term."
The need in countries across the globe is obvious. Investment in infrastructure globally promotes development and growth in emerging economies, growth and jobs in developed economies, and better trade between all.
While governments have a crucial role to play in investing in infrastructure, there needs to be greater involvement by the private sector – as I'm sure everyone in this room agrees.
The world needs to invest in new infrastructure.
The need in Australia
We can also see this need in Australia. At our borders we need upgrades to port infrastructure. Across our economy we need improved road, rail, energy and telecommunications networks.
We see the need on a daily basis at the local level. For example, my electorate of Higgins has the dubious honour of having three of the ten most dangerous level crossings in Victoria. Not only are level crossings dangerous, but they inhibit economic activity in my electorate and throughout Melbourne, as well as greatly frustrating residents and reducing the choices available to their families. As Australia opens up new trade opportunities with China, Japan and South Korea, with other trade opportunities still to come, we need to be ready to make the most of these opportunities.
We need to reduce bottlenecks on our roads and at our ports, and improve the efficiency, productivity and effectiveness as to how goods are handled and moved from origin to destination.
The Government's $50 billion investment in infrastructure – the largest infrastructure investment in Australia's history – will improve road and rail links, reduce travel times and support economic growth.
Together with state government, through the asset recycling scheme, and private investment, the Government's Infrastructure Growth Package will drive over $125 billion of new infrastructure. The issue in addressing Australia's infrastructure needs is not lack of finance. I don't need to tell the people in this room that there is no shortage of funds seeking stable long-term returns.
- You will have seen the comments just this week from AustralianSuper in Monday's Financial Review.
- It has earmarked $4 billion to spend on infrastructure over the next 2 years as it looks to increase the share of infrastructure in its portfolio to 13-14 per cent, up from 10 per cent.
- This is just one example of the appetite from pension and long-term investors for infrastructure assets.
Instead, the issue is the availability of appropriate bankable projects that investors can finance.
Factors contributing to this shortage are:
- gaps in infrastructure data (particularly on the financial performance of infrastructure projects);
- inadequate and fragmented information on investment ready projects;
- insufficient access to standardised project selection and procurement information;
- global issues, such as the impact of regulation on banks and insurance companies; and
- more local issues such as the lack of certainty and lack of time limits on significant approvals processes.
But these are not issues faced by Australia alone. These are issues faced across the globe.
Australia's approach at the G20
During our Presidency of the G20 last year, Australia took a practical approach to addressing the issues of economic growth and job creation.
Quality infrastructure is fundamental to economic growth across the globe, and investment in infrastructure drives economic activity and creates new jobs.
The Global Infrastructure Hub was an idea conceived in Australia and I would like to pay tribute to the work of Richard Goyder, David Thodey, Robert Milliner and many others for the recommendations they provided to the G20 from the B20 Infrastructure and Investment Taskforce.
The proposal for the Global Infrastructure Hub was then taken to the world during our G20 Presidency. In the case of the Hub, the G20 felt action was needed given the breadth and importance of the G20 infrastructure agenda – described in the Leaders Communiqué as the Global Infrastructure Initiative.
The strength and clarity of the mandate we achieved is a major achievement for Australia's G20 Presidency under the Prime Minister and Treasurer.
- The G20 does not mandate organisations lightly to do a job like this – the closest precedent during the G20's 16 year history is the establishment of the Financial Stability Board in 2009 at the height of the global financial crisis.
The Brisbane G20 Leaders Summit announced the Hub's establishment as a key mechanism for delivering the Global Infrastructure Initiative. An improved mechanism will ensure delivery of these key priorities.
It is appropriate and timely that at this Australian symposium we reflect again on the vision for the Hub, and on its broader importance, both for the G20 and the Government's infrastructure agenda.
The Global Infrastructure Hub
The Hub has been tasked with five key work streams.
1. First, developing a knowledge-sharing network by jointly working with governments, international organisations, development banks, national infrastructure institutions, the private sector and infrastructure researchers.
- The CEO will be crucial to the success of this knowledge-sharing network, as improved collaboration between the many existing sources of expertise and finance.
- There is simply no point in the Hub duplicating existing sources of information.
2. Second, the Hub will address the key data gaps that matter to investors.
- One clear gap is the lack of data to measure performance of infrastructure as an asset class. If we cannot give investors an accurate picture of expected returns from infrastructure investment, and Governments benchmarks for comparative projects, then such investments will remain a niche product.
- Another gap is the lack of comparative cross-country information on project costs, which currently reduces the efficiency of bidding processes.
3. Third, the Hub will give substance to the leading practices on prioritising, planning, approving and delivery of infrastructure projects, developed by the G20 and the OECD.
- These Leading Practices provide a toolkit to assist governments introduce the necessary conditions and frameworks to encourage greater private sector involvement in infrastructure delivery.
- However, it is one thing having these Leading Practices; it is another thing to have these practices in common used across the globe.
- The Hub will work with countries to provide customised implementation assistance.
- It will be a big win for investors if they are more closely involved in government decisions about infrastructure delivery, and if these practices are used more consistently worldwide.
4. Fourth, the Hub will build the capacity of government officials to improve institutional arrangements.
- Officials from developing countries will be provided with tailored assistance in the application of best practices in each country, focusing on the requirements for successful project preparation and execution.
- This capacity building will also involve forums to exchange experiences on policy successes, and facilitate peer-to-peer relationships in equivalent organisations worldwide, allowing officials to draw upon each other's knowledge and experiences.
5. And fifth, the Hub will develop a consolidated database of infrastructure projects to help match potential investors with suitable projects.
- This database will draw together information about investment ready projects from national and multinational development bank databases.
Why the Hub matters internationally
The need for the Global Infrastructure Hub can be felt both internationally and at home here in Australia.
At the beginning of Australia's G20 Presidency in February 2014, Finance Ministers and Central Bank Governors discussed the global need for improved infrastructure at their first meeting in Sydney.
- They expressed a degree of frustration that they were constantly 'reinventing the wheel' on infrastructure and not learning from each other's experiences in planning, preparation and delivery of infrastructure projects.
As discussions progressed over the course of 2014, it became clear that there was an appetite within the G20 to establish dedicated resources to address these issues. These dedicated resources would also help to bring down the transactions costs of infrastructure investment and, ultimately, create a more defined and liquid asset class.
Why the Hub matters to Australia
The Hub is a global initiative with a global mandate but it matters to Australia.
Expanding investment opportunities
Why? First, because it expands investment opportunities.
The Hub's mission to expand the availability of bankable projects, suitable for investment, is crucially important for a country with $1.6 trillion1 in superannuation assets alone.
OECD research has found that Australian superannuation funds have been pioneers in infrastructure investing since the early 1990s, with some of the highest allocations to infrastructure in the world (around 4 per cent for the sector as a whole at the end of December 2014).
However as I said earlier, there is much potential for further growth. This growth will be assisted by the Hub's efforts to improve the functioning of infrastructure markets.
- These efforts will improve data availability and contribute to convergence in standards for identification, preparation, approval and delivery of infrastructure projects.
At the whole-of-government level, the Hub's efforts will be complemented by the Asia Region Funds Passport being developed under the auspices of APEC. From 2016, the Passport will mean that fund1 managers will only have to meet regulations and maintain a physical presence in one country to gain access to markets in other participating countries.
Acting as a policy exchange
Second, the Hub will act as a policy exchange.
The Hub is open to G20 and non-G20 countries. It will give G20 and other countries access to the most innovative thinking from around the world, including Australia.
For example, the Hub will be well placed to draw lessons from the Australian Government's pioneering Asset Recycling Initiative, which provides financial incentives to States and Territories to sell assets and reinvest the proceeds into productive economic infrastructure.
This is an important issue worldwide. Governments from across the political spectrum recognise the importance of better managing their balance sheets, given the scale of future demand for infrastructure delivery.
Complementing Infrastructure Australia
Third, the Hub will complement our domestic infrastructure program.
The Hub will work closely with government agencies and multilateral bodies across the G20. In Australia the Hub will collaborate with Infrastructure Australia and other Infrastructure Departments in the States and Territories but it will not and should not duplicate their work.
Basing the Hub in Sydney
Finally, locating the Hub in Sydney is recognition of our long experience in infrastructure delivery, including in PPPs, and of the depth of expertise in the Australian market.
An update on Implementation and Governance
Whilst Australia has handed over the G20 presidency to Turkey, Australia has retained responsibility for establishing the Hub and has been working hard to do this as quickly as possible.
- As the Hub was developed under our Presidency, we have a responsibility to ensure its success.
Since its announcement in November 2014 a team of Treasury officials, together with Brisbane's B20 Sherpa, Robert Milliner, have been working through a detailed implementation plan for the Hub.
It has been registered as a not-for-profit company, limited by guarantee, under Australian law. A temporary board has been appointed.
The temporary board has also procured a web address for the Hub, and I am pleased to formally launch the Hub's website today.
- The website www.globalinfrastructurehub.org contains background information on the Hub and will continue to provide updates as its establishment continues
- You can also use this website as a contact point for the Hub.
Currently, we have engaged a global head hunter so that we may engage a CEO of the right calibre and we are searching for an appropriate location for the headquarters in Sydney.
The permanent board of the Hub will provide a strong line of sight for the G20 on the Hub's operations, with four G20 country directors in addition to Australia as Chair of the Board.
However, it will also be important for the private sector to have direct input to the Board and the CEO on both strategic and operational issues.
In recognition of this, the Hub's governance structure will include two independent directors and a Strategic Advisory Council, to allow senior stakeholders from a cross section of global businesses and international organisations to provide advice directly to the Hub's Board and CEO.
This Council, which will not have formal governance responsibilities, provides the best mechanism to engage the expertise and goodwill of the very top tier of global business and international organisations.
It should keep the Hub focussed on its efforts to provide a better interface between Governments, multilateral development banks, international organisations and the private sector.
Australia is growing and the world is growing.
Better infrastructure presents growth and opportunities to billions of people. Whether it's roads, rail, ports, energy, water, telecommunications, the global infrastructure need is large.
Establishing the Hub is a significant and practical initiative to drive faster progress on the G20's infrastructure agenda and to move engagement with the private sector beyond business as usual. The Hub is a strong legacy of our G20 Presidency and the Government is committed to ensuring its effective implementation.
We are committed to the Hub working closely with the G20 in delivering on its mandate. This G20 mandate is the key distinguishing feature of the Hub and we recognise its importance through the strong G20 representation on the Hub's Board.
The G20's decision to create the Hub and give it such a clear mandate has few precedents. The people in this room have skin in the game and the Government looks to harness your skillsets to grow infrastructure in Australia and around the globe, and to provide you with opportunities to match your investment dollars with projects. Success will see a pipeline of more projects, to match with more investments.
The Global Infrastructure Hub is good for Australia's infrastructure needs and good for global infrastructure needs. It's good for global investment needs, and it's a tangible way to improve growth and living standards across the globe.
The mandate is an ambitious one but with around US$70 trillion in unmet infrastructure needs through until 2030 the prize is big.
1 Financial year 2012-13, Table 7 - http://apra.gov.au/Super/Publications/Pages/annual-superannuationpublication.aspx