We must link infrastructure and growth industries

Over the past 10 years, Ireland has engaged in a huge investment programme around our infrastructure.

Roads, ports and airports have been the recipients of major capital spending programmes that have created a first-world set of assets capable of supporting the long-term development of the economy.

Unfortunately, some of these facilities have come with associated debt burdens that make the operation of these assets relatively expensive. Decoupling that debt from the underlying asset is now a key challenge for strategists in Irish political and economic circles.

Take the easy bits first. Our motorways are superb connectors of the nation’s key cities. As a regular user of the N7 linking Dublin with Cork, I can vouch for the efficiency and safety of that umbilical cord that facilitates trade and enterprise across the country. Fast dual carriageways link Dublin to Limerick, Galway, Belfast and Waterford.

It is apparent, when travelling these roads, that they are heavily under-utilised during many parts of the day and week. That implies headroom exists to manage larger levels of economic activity in our road system without material cost. These roads, therefore, are sunken investments that can support future growth in the economy.

A similar tale exists at our airports, where extensive spending has left us with state-of-the-art facilities in Cork and Dublin airports, while an upgrade at Shannon leaves it with ample scope for volume growth. The three Irish airports are operating passenger volumes that are about 20% below their highs in 2008.

Unfortunately, these assets are intertwined with debt attached to very expensive terminal building programmes and those borrowings must be butchered before the airports can help stimulate growth. The disposal of non-Irish assets owned by the airports and possible sale and leasebacks of new terminals could be required to activate these aviation-related assets. We can, however, confidently say that Irish airports can handle at least 20% growth without requiring major investment.

That leaves the ports and, here, too, we can sense capacity usage is suboptimal. Irish Ferries, the dominant ferry company on the Irish Sea, recently said it had substantial headroom in its sea and port assets to absorb higher volumes of traffic. That suggests seaborne trade is primed to play a role in Ireland’s economic recovery too.

We, therefore, know that the infrastructural backbone of the economy is in fine fettle from an investment perspective. The key challenge now is to engineer ways in which that scaffolding can be used to build a stronger and growing economy.

The agrifood industry is a good place to start. After 2015, milk volumes are set to grow sharply and it is likely that beef production could balloon too.

Those products will have to sell largely outside of Ireland, so moving them from farm to factory to end user will rely on hyper-efficient roads and ports primarily. S

Tourism is the sector that will probably rely most on roads and airports. By having roads that are fast, efficient, and not exorbitantly tolled, we can drive both internal and external tourism activities across the State. Airports are major funnels for tourists, particularly in an island economy such as Ireland. Policymakers must find ways of connecting our airport infrastructure with airlines that can drive the tourism volumes. Addressing debt levels will be key to that process.

So with the infrastructural assets that contain the seeds of economic growth, the task forthwith is to target their usage to industries that offer most potential, and set about the business of linking utilisation and growth.

* Joe Gill is director of research with Bloxham Stockbrokers