Realising regional infrastructure benefits

As we bring Australia’s economic engine out of idle in the wake of COVID-19, governments are looking to infrastructure as fuel for the recovery.

It’s a strategy that’s tried and tested. From the Great Depression to the Global Financial Crisis, investment in large scale projects has been used to kick-start activity and distribute stimulus funding. But as we prioritise and plan the projects that will spark our economic revival, there’s a risk that traditional approaches to assessing benefits could reinforce inequity of investment between metro and regional areas. 

 

Why worry about regional investment?

Regional areas have a significant role to play in helping our economy bounce back.  

According to the Regional Institute of Australia, regional areas account for 40 percent of our national economic output and employ around a third of our workforce. Since 2001, regional productivity growth has exceeded metro areas in every industry except mining, and has recorded the highest rates of national productivity in more than a third of industries. 

Despite this, conventional approaches to analysing benefits that focus heavily on things like transport and land use can fail to demonstrate the broader benefits that regional infrastructure investment can bring.

Things like:

Facilitating social inclusion and cohesion

Access to employment opportunities and essential services such as healthcare, education and affordable housing.

Mother with her 2 young children outside home from new social and affordable housing

Supporting critical local industries

Maintaining local populations to provide the workforce and customers required to keep critical local industries going (retail, construction and services), and support the competitiveness of export-focused industries such as agriculture, mining and manufacturing.

Worker at local cafe

Growing tourism

Easy and reliable access to key tourist destinations and responding to changing travel patterns with greater tourist-related travel outside traditional peak hours. 

Tourists sightseeing on the Great Ocean Road, regional Victoria

Improving placemaking and amenity

Improving quality of life through reduced noise and pollution, improved safety and comfort, and a reduction in the extent to which different parts of communities are cut off by roads or other infrastructure.

Park garden in Toowoomba, regional Queensland

Building resilience

Increasing the ability of our regions to adapt and respond to climate change, drought, bushfire and flooding, and improve safety and recovery following incidents or outages.

Bushfire prescribed burn

The problem with traditional assessment

In the case of transport infrastructure, economic appraisals usually focus on things like congestion relief, safety, environmental improvement, higher-value land uses, and infrastructure cost savings from a more compact urban form. There are established methods for estimating these benefits and they factor heavily in the cost-benefit ratios and other metrics we use to determine whether a project is worth pursuing.

In cities with large, concentrated populations, such metrics make it (comparatively) easy to reach necessary benchmarks. Overall transport demand is higher and there are a greater number of beneficiaries—even when the higher average cost to develop in metro areas is factored in.

In places where the population is smaller and spread further apart, such a narrow approach to value assessment can put regional projects on the back foot. This is especially problematic when you consider the challenges that underinvestment can compound in places already dealing with poorer access to essential services, greater levels of social disadvantage, decline in traditional industries and commodity prices, drought, and the ongoing impacts of the 2019/20 bushfire season.

While conventional benefits will continue to play a critical role in demonstrating the need for infrastructure investment, there are significant opportunities to use other accepted methods to ensure regional projects get the investment they deserve.

This approach needs to be informed by regional development objectives and backed by research that demonstrates the positive impact of infrastructure development on local communities. It should also leverage the stakeholder engagement that is regularly undertaken as part of regional development strategies.

So, how can we make benefits front and centre of the business case for regional initiatives?

Make social impact measurable

Pharmacist distributing medicine in chemist store

Social inclusion refers to people's ability to participate adequately in society, including access to education, employment, public services, social and recreational activities. 

When people are prevented from participating, they can become trapped in a cycle of disadvantage that results in lower levels of school completion, long-term unemployment and chronic ill-health.

Evidence shows that a lack of transport infrastructure can be a significant barrier to social inclusion. This is of particular concern in regional areas that have:

The Australian Bureau of Statistics’ Index of Relative Socio-economic Advantage and Disadvantage (IRSDA) Interactive Map shows that areas of relative advantage are concentrated around capital cities (with pockets of coastal communities and commodity-rich regional areas). Other regions face significant disadvantage.

If designed and delivered well, infrastructure projects can help address all of these issuesFor example, when people have fast, viable options to travel to work in the city but live regionally, housing accessibility and affordability improves. This encourages regional population growth and improves overall standards of living in turn.    

 

The takeaway...

Finding ways to consider and quantify health, education, employment and other social benefits in terms of the cost savings and productivity improvements they deliver can lend vital support to a regional infrastructure project’s business case. It demonstrates to decision-makers how a proportionately small capital investment now could yield long-term benefits like reductions in welfare dependence or less strain on public emergency and acute healthcare services while driving improved productivity, investment and quality of life at the same time.

Take tourism into account

Port Douglas, North Queensland, tourism destination

Tourism can be an important driver for economic activity in regional centres.

According to Tourism Australia’s The Economic Importance of Tourism snapshot, Australia generated $60.8 billion in direct tourism gross domestic product (GDP) and international visitors spent $44.6 billion in 2018-19. For every tourism dollar, 44 cents were spent in regional areas.

Airports, rail links and roads improve access to tourism destinations and increase regional visitation. This directly benefits travel agents, tourist operators, hoteliers and other local business owners who gain revenue from visitor spending on transport, accommodation, food and other services.

While achieving this additional revenue from tourism is not costless and may involve some re-distribution from other areas, these benefits do flow down the economic chain. People directly employed in tourism spend money on local goods and services which sustains local economies.

While a lot of emphasis is placed on international tourism, the conversation doesn’t have to be about all about international inbound visitors, either. Inter- and intra-state travel provides important opportunities for regional communities to prosper and their economies to thrive. In fact, 52% ($4.5 billion) of domestic overnight spend in 2018-19 was spent in regional areas.

As we continue to wrestle with COVID-19 and Australian borders remain shut to international travellers, local tourism is likely to be a growth market.

 

The takeaway...

As travel restrictions begin to lift in parts of the country, we should be looking at opportunities for regional tourism and infrastructure to grow in tandem. Doing so makes the case for investment in infrastructure stronger, while better assets and services enhance the marketability of regional tourism destinations.

Emphasise placemaking and amenity

Bike path active transportation

Infrastructure can make or break quality of life in regional areas.

It is important to consider and quantify the impacts of infrastructure on local amenity, accessibility, and liveability, including how complementary investment could multiply the benefits of the primary infrastructure spend.

Infrastructure projects have the potential to be an isolating force. When a major road or rail line runs through the centre of a town it can divide its population, while bypasses can cut communities off. When it’s difficult to access or unsafe to cross transport corridors or transition between different areas, the negatives begin to pile up. Additional travel time, less incentive for residents to adopt healthy active transport options, less overall amenity, the list goes on.

When quality of life drops there is less incentive for people to move to regional areas, and more chance that existing residents will migrate away. This can have a devastating impact on local businesses who struggle to stay viable.

It’s important that placemaking and amenity opportunities are explored, and their benefits quantified in the business case phase. For example, applying the transport oriented development principles that are commonly used in the city can help to negate safety and accessibility issues while delivering significant benefits like improved walkability, the activation of public spaces, and the attraction of additional commercial investment.

 

The takeaway...

Even when infrastructure investment is not strictly for regional communities, careful planning and management of the interface between assets, people and place can generate real benefits for regional accessibility, amenity and liveability. Incorporating options in the business case that demonstrate how these positives can be realised through complementary investment can put regional projects ahead in the race for funding.

A catalyst for prosperity, diversity and resilience

bushfire site.jpg

The communities most at risk to economic shocks like COVID-19 are those that lack economic diversity.

Infrastructure can help with this. It creates opportunities for industries to grow, reduce costs and work more productively.

Inland Rail is a great example. With a faster, more reliable heavy freight link strategically integrated with export port terminals in Melbourne and Brisbane, the overall cost of moving goods along Australia’s east coast will be reduced, while our capacity to move them greatly enhanced.

The estimated result of our investment in Inland Rail is a $16 billion increase to gross domestic product (GDP) throughout the project’s delivery and first 50 years of operation (ARTC, 2020). There is also evidence that regional infrastructure projects generate up to five jobs for every million dollars of investment.

Regional infrastructure can help lower commercial barriers, which gives producers more scope and incentive to diversify the products they bring to market. It’s is an insurance policy for regional areas that have traditionally suffered most from the devastating social and economic impact of core industry collapse (eg mining and manufacturing).  

Certain assets can also help regional communities to better respond to emergency incidents such as severe weather events. For example, road upgrades might provide an alternative route for emergency services to respond to bushfires and a safer path for community residents to evacuate. While emergencies might be relatively rare (low frequency), the 2019/20 bushfire season proved that the social and economic impact when they do happen is huge.

When it comes to the business case, it is important to position this not just in terms of the probability and frequency with which emergency events occur, but in terms of the negative consequences that could be avoided through improved preparedness and resilience.

 

The takeaway...

Infrastructure can act as both a facilitator for benefits and a mechanism for negative impact avoidance. Project business cases should incorporate modelling and scenarios that demonstrate the potential for jobs growth and productivity improvement. They should also paint a picture of their contribution to regional resilience and emergency preparedness.

Out of every challenge comes a new opportunity. By changing how we make the case for infrastructure investment in regional areas, we can help Australia capitalise in the country as well as the city.

Lee Jollow

National Lead - Economics

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