I would like to thank you for the opportunity to address your conference today. My Department will shortly embark on a review of our capital investment programme to help prepare our priorities for the period beyond 2016, it is therefore useful for us to reflect on what’s happening over the next couple of years.
As a government and a country, we are in a much different position now compared to when we did our last capital review shortly after coming into office. We had just entered into a bailout programme funded by the EU and IMF and were heading into a period of sustained fiscal retrenchment.
I know that those years have been difficult for everyone and we had to make hard choices in government that involved reductions in spending across all areas and the capital programme in particular.
However, I think we can agree that it’s a significant achievement that those painful efforts have allowed us to exit the Programme in the 3 year timeframe we set as our target and without the need for a precautionary credit line.
On economic trends
First I think it’s useful to look at the economic backdrop we’re operating in which continues to improve all the time. The latest figures show that Ireland’s economy recorded a third successive year of growth in 2013.
The most recent data, for the third quarter 2013, is particularly encouraging recording the strongest rate of quarterly growth in over two years. Recent high frequency economic data points to continued growth in the fourth quarter of 2013 with positive trends in core retail sales and property prices.
On the domestic front, there are increasing signs of a recovery with total domestic demand recording its strongest quarterly growth in over three years. Personal consumption recorded a second successive quarter of modest growth.
Of particular interest to yourselves is that there are increasing signs of a recovery in core investment with machinery and equipment increasing by almost 10 per cent in the first three quarters of 2013 compared with the same period in 2012.
The annual growth in building and construction was 14 per cent for the same period. Construction PMI data recorded a fifth consecutive month of expansion in January 2014 with positive trends in activity reported in the home-building and commercial sectors.
House prices have returned to consistent year-on-year growth nationally in the second half of last year, although it must be borne in mind that this is in the context of a very strong peak-to-trough fall of about 50 per cent. In due course, this increase in prices should serve as a signal for an increase in construction of new housing, which is at historically low levels. In this regard, I am pleased to see that there was small growth in commencements of new dwellings in year-on-year terms in the last quarter of last year.
Aimed at addressing the supply constraints that are effecting the Dublin market, the Minister for Finance introduced measures in Budget 2014 which include the extension of the Living City Initiative and the Home Renovation Initiative.
Labour market
More encouragingly, we are seeing consistent improvements in the labour market. The unemployment rate fell to 12.3 per cent in January 2014 – down from a peak of 15.1 per cent in February 2013. Employment has also grown with employment levels increasing by 61,000 in the year to the fourth quarter of 2013 – a 3.3 per cent increase. This increase is broad-based across many sectors and includes a return to continuation in growth in full-time employment.
Inward investment
In 2013, the IDA reported that 78 new companies came to Ireland for the first time – (an increase of 18 per cent on 2012). To underline the benefits of this for the Irish people, net job creation for IDA firms at over 7,000, was the highest in over a decade. This confirms that Ireland remains the destination of choice for many globally-mobile, high-technology firms seeking a presence in the EU. This is a clear demonstration that the Government’s strategy in relation to the 12½ per cent corporation tax rate is an appropriate one.
Macroeconomic Outlook
The Department of Finance set out its revised economic forecasts in October with Budget 2014 and it expects the economy to expand 2.0 per cent this year.
The domestic economy having returned to modest growth in 2013 is expected to strengthen over the forecast horizon.
Personal consumption is forecast to return to growth this year, supported by improving labour market conditions.
On the external side, exports are now expected to return to growth in 2014.
Over the medium term, Ireland’s export performance is expected to improve in line with the assumption of more favourable external conditions and further improvements in our price and cost competitiveness.
The Department of Finance will publish its next macroeconomic forecasts in April 2014.
2014 Capital Programme
Despite the difficult economic circumstances and the requirement that capital expenditure make a contribution to the fiscal consolidation effort, we have continued to make substantial investment in our public infrastructure over the last three years.
The Exchequer capital budget for 2014 has been set at €3.3 billion or 2.4% of GNP. This is a considerable level of funding given that we are a country emerging from a funding programme and that, over the decade preceding the publication of the last capital plan, almost €70bn had been invested in the State’s infrastructure.
The 2014 allocation of €3.3bn includes:
- €600m for road investment,
- €½ billion for investment in schools,
- just under €400m for Health infrastructure,
- €300m for Public Transport, and
- approximately €300m for Social Housing.
My Department has recently drawn up a list of the 20 largest projects being developed over the next four years. About half of these are PPPs. The projects have a combined indicative value of €3.27bn and are targeted for delivery from the second half of this year through to 2018.
Capital investment makes an important contribution towards providing the capacity for the economy to grow, which will in turn create employment. For this reason we are providing some €400m in Enterprise Supports through the Department for Jobs, Enterprise and Innovation this year and will provide a further €900m over the course of the next two years.
On Public Private Partnerships
Stimulus Package
In July 2012, as part of an additional €2.25 billion stimulus package I announced for investment in public infrastructure projects in Ireland there was included €1.5 billion to fund the new Public Private Partnerships (PPP) programme. This investment is additional to the exchequer public capital programme.
That €1.5 billion represents 9 projects across the Transport, Education, Health and Justice Sectors to support social and economic growth and create employment.
These 9 projects are expected to generate 13,000 direct jobs and many more indirect jobs.
The Irish PPP market had effectively closed in the years preceding the 2012 Stimulus announcement however as a result of the substantial amount of good work done by many Departments and agencies over the past 18 months the Irish PPP market has firmly been reopened for business. Seven of the nine projects have now issued to market.
The first project in the programme to reach financial close will be the N17/18 Gort to Tuam PPP this month. This is also the largest project in the programme. A particularly positive indication of Ireland’s re-entry to the PPP market is the number of international banks and international institutional investors willing to fund this project. It is expected that this project alone will create some 2,700 jobs.
The Council of Europe Bank (CEB) has also agreed in principle to fund Irish PPPs for the first time.
Social Clauses
The Government’s absolute objective is to maximise job creation. Projects were selected based on their impact on infrastructure needs and also because of their labour intensity. To maximise the labour impact of these projects we are including social procurement contract clauses which will set targets and conditionality, to take people from the live register for the duration of the contract and for apprenticeships.
This is being done on a pilot basis for the Exchequer schools programme to ensure compatibility with procurement rules and to monitor implementation. Other clauses have been included in individual projects such as a local employment framework on the Grangegorman project.
In the last quarter of 2013, the Grangegorman Development Agency awarded 4 contracts with a combined value of €40m. To date, there are 183 persons employed on the site of which 29, or 16%, are from Dublin 1 or Dublin 7.
Given the estimated 13,000 job creation potential in delivering the Stimulus Programme, the provision of a requirement to recruit from the ranks of the long-term unemployed is entirely appropriate in this context and we expect the construction industry to fully cooperate with the implementation of these measures.
Other measures
Bid Time & Costs
We have also been examining what can be done on the State side to reduce bid time and costs. The normal timeframe for PPP procurement of accommodation projects has been redesigned and reduced from 21 months to 15.
We intend to have planning permission in place for all projects before preferred tender stage so that the bidders don’t have to do this. We will also prepare specimen designs for standard buildings before we go to market.
To reinforce our commitment the Government agreed to introduce the reimbursement of bid costs in the context of the roll out of Phase 1 of the new PPP Programme on a limited and temporary basis. A fixed amount will be paid as compensation for cancellation and a compliant tender fee would also be paid to a max of 3 short listed tenders. We have also reduced the level of construction performance bonds required on public works contracts.
Building Information Modelling BIM
The NDFA advise that Building Information Modelling (BIM) technologies and processes have the potential to enhance the quality, efficiency and sustainability of State assets to be delivered under the Public Capital Programme and ultimately, to improve the overall value for money to the Exchequer. The NDFA are working with key stakeholders to assist in developing necessary BIM skills and capabilities.
Meet the Buyer Events
There has been active engagement with the market both to help generate interest in our projects and to get a sense of market sentiment. The NDFA and Enterprise Ireland are working closely to encourage SME participation and to encourage local employment. A number of very successful meet the buyer events have already taken place and will continue for the remaining projects.
We look forward to the continued co-operation between the private sector and State in meeting our vital infrastructure needs.
Exchequer Stimulus
In addition to the PPP programme where possible, I have supplemented the Exchequer allocation with additional investment through non-traditional funding sources.
For instance, in June 2013, I announced additional Exchequer investment of €150m to be funded from the proceeds of the sale of State assets. This allocation is helping to fund 28 school projects, local and regional road maintenance and repair and an Energy Efficiency scheme for Local Authority Housing.
National Lottery
Last week I granted the next licence to operate the National Lottery to Premier Lotteries Ireland delivering €405 million to the Irish citizen. As I announced in Budget 2014, half of the proceeds from the Lottery licence transaction will be used to help fund a number of job rich projects across the country. These include the Wild Atlantic Way Driving Route, 1916 Commemoration Projects and the Unfinished Housing Estate Resolution Pilot Project, amongst others.
The other half of the proceeds will be used to help fund the construction of the New Children’s Hospital – the largest, most complex and significant capital investment project ever undertaken in healthcare in Ireland.
Capital review
As I already said, we are midway through the 2012 to 2016 capital plan, and my Department will undertake a review of the public capital programme this year with a view to establishing our investment strategy for the coming period.
We are, of course, in a very different position today to where we were in 2011 when the last capital review was undertaken and this will be reflected in our investment strategy. However, we must be mindful that we are just emerging from a very difficult economic period and we must match expectations to the level of resources that are realistically available. In order to get the best return for the taxpayers’ money, the review will examine the scope for using non-traditional funding sources in order to augment traditional capital investment.
Construction Sector Strategy
In July last year Forfás published a major new strategy report on the construction sector entitled, Ireland’s Construction Sector: Outlook and Strategic Plan to 2015. The strategy proposes a range of measures in a number of key areas that are aimed at:
- helping restore confidence in the domestic market;
- driving further internationalisation and helping our construction sector to compete globally;
- embedding competitiveness and innovation and
- ensuring the sector is skilled to deliver.
Government is conscious of the fact that we need to focus on the sector. With this in mind, we had a special Government last Thursday on construction and will continue to see how best we can address the challenges in the sector in a targeted and meaningful way.
Action Plan for Jobs (and construction)
The Action Plan for Jobs, now in its third year, is a fundamental element of the Government’s strategy to tackle unemployment and create an environment conducive to new employment opportunities.
As the Plan has progressed, high-impact measures for job creation have been developed and are being implemented in partnership with senior industry partners.
The Plan, which is a whole-of-Government initiative for job creation, is having an impact on the ground. Recent data on employment is encouraging. There are now almost 1.9 million people at work, an increase of 58,000 in Quarter 3 2013, compared with Quarter 3 2012. Over the past six consecutive quarters, unemployment has fallen. The seasonally-adjusted unemployment rate in Quarter 3 2013 was 12.8 per cent, down from a peak of 15.1 per cent in Quarter 1 2012. In addition, domestic demand is growing and Ireland’s competitiveness rankings are improving.
APJ 2014 puts a strong focus on a number of domestically trading sectors, including the Construction & Property sector.
The Government is focused on supporting the recovery of a sustainable construction sector capable of contributing to economic growth and job creation, and equipped to meet our future infrastructure needs.
The Government’s stated commitment to continuing investment in public infrastructure is reflected in the 2014 Plan by the inclusion of a number of actions dealing specifically with mobilising the Public Capital Programme, including:
– Exploring mechanisms for private financing and greater use of Public Private Partnerships;
– Completing and implementing a review of the public works contract; and
– Extending the use of social clauses in public works contracts, where appropriate.
As with all actions in the Action Plan for Jobs, actions in relation to the Public Capital Programme will be monitored on a quarterly basis to ensure delivery on the Government’s commitments.
Finally I wish you well with the day and that you find it useful and stimulating.
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