Investment in infrastructure in the EU: Gaps, challenges, and opportunities

03-10-2018

Public infrastructure consists of the basic physical assets and structures that support economic activity. Investment in such assets is markedly different from other types of capital expenditure, due to the heavy involvement of the public sector and the significant positive spill-over that it generates throughout the economy. Yet the same characteristics that underlie infrastructure investment can also result in its under-provision over time, due to factors such as fiscal constraints. In the European Union (EU), following a period of sustained growth, investment in infrastructure has been declining since 2009. Despite the gradual easing of this negative trend from 2015, investment rates remain below pre-crisis levels. This has given rise to a lively debate over the emergence of an investment gap and its implications for the EU's economic recovery and competitiveness. This is because investment in infrastructure has the potential not only to boost aggregate demand in the short term, but also to bring important benefits over the longer term by broadening the productive capacity of the economy as a whole. Estimates for the EU indicate that plummeting investment is below the levels needed. European Investment Bank (EIB) estimates suggest that economic infrastructure investment needs for energy, transport, water and sanitation, and telecoms are as much as €688 billion per year. Additional estimates for social infrastructure suggest that the investment gap for health, education and social housing is at €142 billion per year. The mobilisation of resources required is therefore significant. In due recognition of the emerging needs, the current and previous multiannual financial frameworks put emphasis on the expansion of programmes and initiatives where infrastructure plays a prominent role, both directly, as the primary targeted sector, and indirectly through broader interventions covering a range of sectors.

Public infrastructure consists of the basic physical assets and structures that support economic activity. Investment in such assets is markedly different from other types of capital expenditure, due to the heavy involvement of the public sector and the significant positive spill-over that it generates throughout the economy. Yet the same characteristics that underlie infrastructure investment can also result in its under-provision over time, due to factors such as fiscal constraints. In the European Union (EU), following a period of sustained growth, investment in infrastructure has been declining since 2009. Despite the gradual easing of this negative trend from 2015, investment rates remain below pre-crisis levels. This has given rise to a lively debate over the emergence of an investment gap and its implications for the EU's economic recovery and competitiveness. This is because investment in infrastructure has the potential not only to boost aggregate demand in the short term, but also to bring important benefits over the longer term by broadening the productive capacity of the economy as a whole. Estimates for the EU indicate that plummeting investment is below the levels needed. European Investment Bank (EIB) estimates suggest that economic infrastructure investment needs for energy, transport, water and sanitation, and telecoms are as much as €688 billion per year. Additional estimates for social infrastructure suggest that the investment gap for health, education and social housing is at €142 billion per year. The mobilisation of resources required is therefore significant. In due recognition of the emerging needs, the current and previous multiannual financial frameworks put emphasis on the expansion of programmes and initiatives where infrastructure plays a prominent role, both directly, as the primary targeted sector, and indirectly through broader interventions covering a range of sectors.