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Covid-19, the green and digital transition and local investment – a European perspective
Presentation by Debora Revoltella G20 Workshop: Financing infrastructure investments for local communities
Covid-19, the green and digital transition and local investment – a European perspective
- 1. 09/02/2021 European Investment BankGroup 1 Covid-19, the green and digital transition and local investment – a European perspective Debora Revoltella Chief Economist European Investment Bank
- 2. 09/02/2021 European Investment BankGroup 2 I. Public investment – is this time different? II. Local infrastructure gaps: legacy and new needs III. What does it take to make a difference Outline
- 3. Public investment –a European perspective. Is this time different? Commitment so far preserved, but implementation is crucial • Barriers and bottlenecks • Planning and coordination to maximize spillovers • Complementarity of public and private investment The experience of the last 40 years shows that public investment is the first victim after crises • Government investment has remained below trend for over a decade following fiscal consolidation episodes This time promises to be different, but the challenge is ahead • New fiscal debate vs discussion on fiscal rules • Intra-EU divergences and cohesion 3
- 4. 09/02/2021 European Investment BankGroup 4 I. Public investment – is this time different? II. Local infrastructure gaps: legacy and new needs III. What does it take to make a difference Outline
- 5. Needs are clear- decade-long austerity begets investment gaps for infrastructure & local government investment 09/02/2021 5 Source: EIB calculations, EPEC, Eurostat, IJ Global 0,0 0,5 1,0 1,5 2,0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Government Corporate non-projects (2019) PPP non-PPP Share of infrastructure investment in EU GDP by institutional sector, in % Share of local in general government investment, EU in % 30 32 34 36 38 40 42 44 46 48 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Eurostat COFOG
- 6. Gaps are clearalso at the municipality level At the local level, legacy gaps, while barriers to investment remain substantial Investment gaps: mostly perceived in climate change mitigation and adaptation, digital infrastructure and urban transport Source: (1) and (2) EIB Municipality Survey 2020. EIB Investment Report, chapter 9 Municipalities’ perception of investment gaps (adequacy of investment over the last 3 years) Municipalities’ perception of barriers to investment % municipalities reporting a gap % municipalities identifying a barrier 0 20 40 60 80 EU Central and Eastern Europe Southern Europe Western and Northern Europe 0 10 20 30 40 50 60 70 80 90 Regul. length Regul. uncertainty Lack funding Stakeholders coord. Technical capacity Tech. uncertainty Coord. w/ municipalities Core infrastructure Major obstacle Minor obstacle
- 7. The digital andgreen transition confirm gaps and complementarities among private and public investment EU municipalities with gaps in green and digital adoption Source: (1) EIB Municipality survey; (2) EIB Municipality survey and EIBIS. EIB Investment Report, chapter 8 and 9 Public/private sector complementarities 0 10 20 30 40 50 60 70 80 90 EU Central and Eastern Europe Southern Europe Northern and Western Europe non green non digital % municipalities non green or non digital AT BE BG HRCY CZ DK EE FI FR DE EL HU IE IT LV LT LU MT NL PL PT RO SK SI ES SE 0 10 20 30 40 50 60 0 20 40 60 % firms that are non green and non digital % municipalities that are non green and non digital 7
- 8. The twin transitionposes challenges, but can also generate opportunities Regions with high downside risks to jobs from automation and decarbonisation Source: ECON calculations. Note: Red= high exposure to two types of transition risk, i.e. linked to automation and potential job losses in carbon intensive industries. Orange = high exposure to one type of transition. Grey = relatively low exposure to both types of risks. EU outermost regions not displayed. Clean-energy employment is set to increase to over 1.1 million jobs by 2030, with about 60% in highly skilled positions Firms that are more digitalised: • do better – grow faster, pay higher wages, seek skilled workers and invest more in training • are more optimistic - on job creation effects of new digital technologies 8
- 9. 09/02/2021 European Investment BankGroup 9 I. Public investment – is this time different? II. Local infrastructure gaps: legacy and new needs III. What does it take to make a difference Outline
- 10. (1) A policyresponse focusing on public investment 09/02/2021 European Investment Bank Group 10 Severity of crisis demands ambitious response: • Pressing schedule requires absorptive capacities; • high and rising public debt levels require investments to raise growth outlook; • Need to prioritise structural investment gaps, notably climate and digital, while buttressing social cohesion.
- 11. (2) Local investment- an essential part of coherent investment strategy 09/02/2021 European Investment Bank Group 11 • Local infrastructure an important delivery point for national strategies, e.g. digital and environmental; • Local multipliers can exceed aggregate ones, if autonomy fosters improved project identification and implementation. • Address Investment Barriers - Where capital transfers address lack of funding, need to ensure benefits of local agency (e.g. better knowledge of needs) outweigh costs (e.g. reduced skin in the game); - Challenge of ramping up local absorptive capacities even as first projects are rolled out; - Regulation…
- 12. (3) Maximizing impactof local infrastructure investment 09/02/2021 European Investment Bank Group 12 • Ensure sound governance; • Effective planning and prioritisation; • Employ life-cycle approach, incorporating sustainability; • Coordination important along various dimensions: - Still not systematic - Vertically: shared responsibilities require clearly assigned functions - Horizontal: shared technical capacities - Hub-periphery: access core infrastructure
- 13. Ex ante projectassessment and coordination Room for improvement, with regulatory requirements a potential driver 09/02/2021 European Investment Bank Group 13 Coordination Ex ante assessments 0 10 20 30 40 50 60 70 80 90 100 Neighbouring municipalities Other municipalities in your region Networks of municipalities Always Frequently Occasionally Never 0 10 20 30 40 50 60 70 80 90 100 Budget Financing Socio-Economic impact Environmental impact Always Frequently Occasionally Never Source: EIB Municipality Survey 2020 Question: Before going ahead with an infrastructure project, how often does your municipality obtain an independent assessment of any of the following? Source: EIB Municipality Survey 2020 Question: Still thinking about the planning and implementation of infrastructure projects, typically how often, if at all, does your municipality coordinate its investment projects with each of the following?
- 14. Conclusions • Local infrastructureinvestment an essential element of a coherent investment strategy: • Equally important to address both • funding needs • Ramp up/complement absorptive capacity; 09/02/2021 European Investment Bank Group 14