Transport potential

Transport is not only a fundamental driver of economic activity, it is a major sector in its own right. But while transport has suffered from the economic crisis, as echoed in downturns in trade and activity generally, it could be a source of recovery too. We asked José Viegas, head of International Transport Forum, to explain. 

How has transport suffered from the economic crisis?

José Viegas: The initial impact of the crisis was particularly severe in the transport sector. Trade fell much more than overall economic activity and transport fell more than trade. The result was a sharp decline in freight transport volumes–international sea containers, international air freight, road freight in Europe, rail freight, and so on. The same was true for discretionary passenger trips–effectively those trips that are neither work or school related. In contrast, commuter traffic, passenger rail traffic and public transport were not hit as hard – or not so far at least.

Freight and air passenger volumes had bounced back to near pre-crisis levels by 2011, but then stagnated again, particularly where economic activity weakened. Indeed, the up and down pattern in the transport sector reflects the performance of national economies, so it should be no surprise that freight traffic to fast growing Asian markets recovered fastest. But in general the outlook is not bright. Take air freight volumes, which are a useful leading indicator of economic performance, not least because their data is available six months ahead of GDP figures. Well, I am afraid that the latest figures suggest more economic stagnation ahead. The financial crisis has also proved difficult for public-private-partnerships involved in developing transport infrastructure. A number of toll road programmes have become financially distressed as traffic volumes fell below projections, and some projects have either gone bankrupt or been bailed out by government. In Portugal, for example, the scale of the motorway liabilities makes up a significant part of the overall fiscal deficit.

What role can transport policy play in helping to boost economic growth?

An end to the economic and financial crisis requires growth even more than fiscal responsibility. Growth in turn requires investment, including in transport infrastructure, especially where it cuts costs and increases productivity. Investment to relieve recurrent bottlenecks has to be the priority, and projects that can advance quickly are particularly relevant now. Fortunately, there is a rather long list of modest scale transport infrastructure projects already in the planning pipeline–approved but not financed–which are ready to go. Here, transport is a good place to look for stimulus spending. And policymakers should avoid the trap of postponing maintenance of public infrastructure to meet austerity targets. After all, the quality of roads, railways and bridges is directly linked to productivity, and nuisances such as potholes and reduced travelling speeds impose costs on everyone.

What are the three things that policymakers should do?

First, increase public spending on productive infrastructure investment, with a focus on small scale projects that can stimulate employment in the short term. Second, improve programmes for attracting private finance to infrastructure through public-private partnerships–or PPPs–to make them more fiscally responsible. This requires limiting the overall financial volume of such partnerships to contain contingent liabilities. It also means ensuring that budgeting and accounting rules treat PPPs and publicly financed investment in the same way. This will focus attention on the right kind of project types for them, rather than trying to use financial engineering to jump the queue, regardless of the risks. In addition, more use could be made of financial instruments such as project bonds to encourage private sector involvement in financing transport infrastructure.

Third, think of the longer term, and the financial sustainability of transport infrastructure spending. This needs careful examination. Policymakers should focus on asset management over the entire life-cycle of the investment. This means you first have to develop a good understanding of what your transport assets are worth and what needs to be spent to keep them up to expected standards over, say, several decades. And because you cannot rely on taxation, you must give serious thought to how users and indirect beneficiaries can contribute more through the likes of tolls, kilometre charges and ticket prices, –and less via taxpayers.

Leipzig summit

“Funding Transport” will be the theme for discussion at this year’s annual summit of Ministers of Transport, organised by the International Transport Forum (ITF) in Leipzig, Germany on 22-24 May 2013. The ITF is an intergovernmental organisation housed at the OECD in Paris and is the only global transport organisation that covers all transport modes. It acts as a policy think tank for 54 member countries, providing evidence based analysis and advice on a comprehensive range of issues, from road safety to airline regulation.

Visit www.internationaltransportforum.org 

©OECD Observer No 296 Q1 2013




Economic data

GDP : +0.5%, Q4 2014
Employment rate: 65.9%, Q4 2014
Annual inflation : 0.57% Feb 2015
Trade : -3.0% exp, -3.7 imp, Q4 2014
Unemployment : 7.022% Feb 2015
More moderate expansion ahead? Composite leading indicators
Updated: 23 Apr 2015

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