By Sam Stubbs. This article was originally written & published in The Post.

Any one living in a modern society is a heavy user of Infrastructure. Water, power, roads, schools and hospitals are our daily fare. And we are living off the efforts of past generations, because nearly all of it was built by somebody else. And some of it came hard. I grew up in West Auckland, where many of the roads were first built in the depression, with manual labourers earning just enough to eat.

The looming infrastructure issue

Unfortunately, the days of fruitfully living off the efforts of our forebearers is coming to an end. Anyone travelling on congested roads, old trains - or those in the Far North unable to drink tap water - knows that we need to upgrade a lot of our infrastructure. And the money required to upgrade it all is huge. The Infrastructure Commission estimates we will have a $210 billion infrastructure deficit over the next 30 years, with $110 billion needed for water alone. Our spend on new infrastructure will need to be over $30 billion a year. So the Government’s recent announcement of $6 billion of new infrastructure starting this year actually needs to be five times higher - every year.

When faced with these challenges, our politicians typically wait until the public purse can afford it, or look to overseas investors. They look for foreign investment because not enough money has been saved by Kiwis households to buy and own the infrastructure we use. In 1980 just 20% of Kiwi households had any savings outside their home. And some overseas investors have been good custodians of assets. Wellington is a good example. The electricity lines company was sold to a Hong Kong investor, who is allowed to get a predictable return for every dollar they invest in the network. That’s why the lights are always on a Wellington, while the council owned sewage pipes are, - literally - shi*.

KiwiSaver as a source of funding

But does that mean we have to turn to foreign buyers whenever councils or the Government can’t afford the infrastructure we all want? Not any more. We can now afford all the infrastructure we want, bought and owned long term, with our own KiwiSaver savings. KiwiSaver has made a strong start. With almost $130 billion saved, it is growing quickly. It is hard to imagine how much that is, so let me describe it another way. If I gave you a dollar every second, it would take 11 days to give you a million dollars. But to give you a billion dollars would take over 31 years. And to give to $130 billion, a dollar every second, would take over 4,123 years.

The numbers get even more impressive. Currently, KiwiSaver managers have an average of 30% invested in New Zealand. And because KiwiSaver is growing fast, to keep it at 30%, KiwiSaver managers would have another $295 billion to invest in New Zealand by 2050. $295 billion! Astute readers will have noticed that that is larger than the $210 billion deficit the Infrastructure Commission says we have. That means KiwiSaver managers could fund all the infrastructure we need by 2050, with another $85 billion available for investment in areas like Agriculture, Horticulture and Venture Capital.

The risk vs rewards game

KiwiSaver funds owning infrastructure assets removes most of the political liabilities of Public Private Partnerships (PPP’s), because paying for our water and power would be ok if we knew over three and a half million KiwiSavers were benefitting. And infrastructure is usually a very reliable investment, because things like power and water are the last bills we won’t pay. That means our KiwiSaver balances would be less exposed to the vicissitudes of the financial markets.

The economic impact from having large domestic investors is huge. Economists have predicted that a dollar invested from a local investor produces twice the GDP of a foreign dollar - because it sticks around. But politicians need to wake up to the possibility of KiwiSaver, and fast. When I started managing KiwiSaver funds, managers were investing over 40% in New Zealand. This has dropped to an average of 30%. And it will keep on dropping unless there are big things to invest in here. 

When you are talking hundreds of billions of dollars of investment, the only assets that can absorb it are property and infrastructure. We already have plenty in property, although KiwiSaver ownership of large scale build to rent homes and commercial property makes sense. But I’m not sure politicians from any party get the possibilities for owning infrastructure - yet. I was fortunate to attend the Investment Summit hosted by the Government recently. The quality of the opportunities, and the sell of NZ Inc, was impressive. But I was also struck by the fact that while there were many offshore investors there, only a couple of KiwiSaver managers were invited. 

So how can we actually take action?

I would venture to suggest that by 2050, if we get the money and opportunities properly matched, the top 10-15 KiwiSaver managers could be -  by far - the biggest investors in New Zealand. So for any politician reading this, call me and we can discuss how KiwiSaver could fund all the  infrastructure we need. And readers - tell your MP to get involved. Because - together - Governments, Councils, Iwi and KiwiSavers really can build all the infrastructure we need. For proof, look at Singapore and Australia.

The information provided and opinions expressed in this post are intended for general guidance only and not personalised to you. These materials do not take into account your particular financial situation or goals and are not financial advice or a recommendation. This post is not intended to convey any guarantees as to the future performance of any of the investment products, asset classes, or capital markets mentioned. Past performance is no guarantee of future performance. Information is current at the time of posting, and subject to change without notice. Simplicity NZ Ltd is the issuer of the Simplicity KiwiSaver Scheme and Investment Funds. For Product Disclosure Statements please visit our website simplicity.kiwi.