EIB Report 2017: EU Must Invest More in Infrastructure

The EU’s bank says public investment in infrastructure is needed to keep the economy growing

The European Union must invest more money in infrastructure like transport to reverse years of neglect and provide a boost to the nascent recovery of the region’s economy, according to the European Investment Bank (EIB).

Although public investment in infrastructure and other sectors had halted its decline, it was still at its lowest level in 20 years in marked contrast to an increase in private investment, says the bank, which describes itself as the EU’s bank, owned by the block’s 28 member states.
Neglect was particularly acute in countries lying in the EU block’s periphery, it adds.

«There is a need to re-prioritise public infrastructure investment and to support it with better planning and prioritisation between alternative investment opportunities», it says in an annual report entitled “Investment Report 2017/2018: From Recovery to Sustainable Growth”.
Fiscal constraints – a consequence of the global financial crisis a decade ago - were one of the obstacles to greater investment, it explains.

The state of the EU’s infrastructure is illustrated by the fall in Germany’s international standing. Since 2006, the block’s largest economy has dropped from third to 13th place for the quality of its infrastructure, according to the Global Competitiveness Report 2016-2017 of the World Economic Forum. It also fell to 16th for the quality of its roads, 11th for its railway lines and 12th for its air transport.
The EIB’s report says general investment in the EU had grown at a faster pace than it had before the crisis. Between 2013 and 2016, it reached an average 3.2% a year against 2.8% before the crisis erupted in 2008. “This investment recovery has been supported by an economic recovery in the EU that is gaining momentum, with rising levels of employment and disposable income,” the report says.

Corporate investment – a component of the EIB’s definition of general investment - had recovered as businesses bought machinery and other equipment. Another component, household investment, had also witnessed a rise.

Public investment, meanwhile, had remained low in terms of a share of the EU’s gross domestic product (GDP). At 2.7%, it was at its lowest in 20 years. «While the economic and investment recovery has become more broad-based, there is still a need for policy action to maintain conducive financing conditions, re-prioritise infrastructure investment, improve the business environment, and address the pressing structural challenges facing Europe», reads the report, citing infrastructure among the priorities to be addressed.

Milan, Italy

«Investment in infrastructure has halted its decline, but it is still at 20% below pre-crisis levels, thus slowing economic convergence», it adds. «Infrastructure investment appears to have stabilised at 1.8% of GDP, down from a peak of 2.2% in 2009, with transport infrastructure the most badly affected. The decline is strongest in countries with the lowest infrastructure quality».
The report says fiscal consolidation in many EU countries had led to a reduction in infrastructure investment because it was biased against capital expenditure, favoring current expenditure such as social transfers. «Some of the decline in public investment, including infrastructure, may (also) be due to structural changes in the economy. However, in many countries the quality of existing infrastructure has declined with investment, pointing to outstanding needs».

Citing results from its annual Group Survey on Investment and Investment Finance (EIBIS), the EIB says in the report that businesses list transportation as the second most important priority - the first being education - in which they want to see public investment in the next three years. Businesses see the poor state of this type of infrastructure, among others, as an obstacle for their own investments.

Private funding of infrastructure had its own obstacles to overcome, like regulation, according to the report. «Investments by Special Purpose Vehicles are well below pre-crisis levels, with access to finance continuing to be a bottleneck. Public Private Partnerships make up 6% of infrastructure investment. Stricter rules for the accounting of these PPPs as government liabilities could pose a risk to this investment».