With governments trying to cope with deficits and the under-investment of infrastructure, what viable options lie ahead for financing - and how can Canada hope to improve the infrastructure needs of its citizens?
The method of financing known as public-private partnership, or P3, allows risk and the financial burden of investment to be spread between the public and private sectors. In March 2009, Professor Saeed Mirza, professor emeritus of Civil Engineering and Applied Mechanics at McGill University, spoke with the Canadian Council of Public-Private Partnerships - a member-sponsored organisation that conducts research and advocates on infrastructure issues. In that interview, Mirza stated: "… Our infrastructure needs are way beyond what can be afforded by all levels of government. Therefore, the governments must acknowledge that Canada has a serious infrastructure crisis and they must attempt to find innovative sources of funding, the best one being public-private partnerships."
Canada is making up ground within the group of industrialised nations when it comes to P3s and its adoption of this type of financing. Scotia Capital's Giffen states: "Nearly all provinces have adopted P3s as the delivery method for large projects. The provinces successfully navigated through the credit crisis - so they have experience adapting to changing times. The federal government also appears to be ramping up its programme. So we are optimistic that Canada will continue to be one of the leading P3 jurisdictions globally."
Examples of some of these partnerships include the construction of a large healthcare facility (William Osler Health Centre) in Brampton, Ontario just outside of Toronto; the Royal Ottawa Hospital, which used a P3 consortium to help build a more than $100 million facility with the help of a healthcare infrastructure company; Confederation Bridge, which links Prince Edward Island with New Brunswick; and the Canada Line transit project in British Columbia. And the Conference Board's Hodgson says this will continue to grow. "As the fiscal pressures continue, and it will be particularly true for provinces and cities, they (governments) are going to have to find ways to take those risks off their balance sheets - whether it's through delivery or whether it's through financing and operations."
For its part, the Canadian government established a $1.25 billion Public Private Partnerships Fund to support projects providing alternatives to traditional government infrastructure procurement. Additionally, according to the Building Canada report, the government has committed $25 million over five years to establish a federal P3 office to help facilitate a broader use of P3s in Canadian infrastructure projects.
Developers and infrastructure operators like Brookfield see the need for private sector help growing exponentially over the coming years. Brookfield forecasts global infrastructure spending will be $2 trillion annually through 2015. Pollock adds that there "must be a shift in responsibility for infrastructure ownership from the public to the private sector".
As the investment gap grows, the evolution of infrastructure as an attractive asset class will evolve - and already has. Many large pension funds in Canada such as the Canada Pension Plan Investment Board and the Ontario Municipal Employees Retirement System have made significant investments in infrastructure projects - albeit generally overseas. The market for such investments in Canada remains small, but the country can expect similar interest from pension and sovereign wealth funds as project sizes increase.
The physical make-up of a society has a great influence on how infrastructure is planned as well as the geographic location of where future projects will be constructed. Two issues currently affecting investment are population growth and the changing demographics of Canada.
In 1979-80, the Canadian population grew by over 314,000 to reach a total of more than 24 million. The percentage represented by immigration was 45.8 percent, according to Statistics Canada. By 2009-10, the annual population growth by number was very similar - more than 388,000 to reach the current population of more than 34 million. However, the percentage of that year's growth made up of immigrants represented approximately 270,000 people, or 69.6 percent.
What does this mean? Carl Sonnen, president of Informetrica Limited, an Ottawa-based firm specialising in quantitative economic research, notes: "As a rough guide, one could conclude that immigration should be a main reason for adding infrastructure in the next generation." He hastens to add, however, that fixing the current gaps and recognising the requirement to replace existing infrastructure will remain a major piece of the puzzle.
Hodgson adds that an economic shift towards Western Canada is taking place. Provinces such as Saskatchewan, Alberta and British Columbia have already become net receivers of immigration and, while it may not be automatic, public policy may also move west in terms of infrastructure priorities. Hodgson points to discussions underway concerning a high-speed railway between Calgary and Edmonton as a sign of changing population corridors.
The burning question - which remains unanswered for now - is how will the combined effects of an aging population, with an influx of new immigrants, alter public policy attitudes? It could mean greater spending on healthcare and long-term care facilities but a decline in urban transit systems if the working population is aging. These questions are part of the debate currently taking place in Canada.