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In the last few years The Republic of Srpska and the rest of B&H are building their infrastructure. Highway January 9 and tunnel March 1 are new public investments. These objects represent a symbol of soul and emotions of people who live in this country. Infrastructure connects different sector in the economy and increase business efficiency. Public works are a response to the crisis.
Public investments link work, capital and technology. Current potential public investment program is 17,6 billion EUR worth. There are 1.678 projects in candidate or implementation phase. Those investments can’t be financed with traditional approach. Traditional approach means government issues debt and build infrastructure. Debt service is from government budget with revenue support from using infrastructure objects. There is need to find new models. Models which involve market mechanism support for new infrastructure creation, maintenance and use.
Those models involve consumers.
In the last 10 years B&H increase debt by 4 billion EUR. In the same period gross fixed capital formation was 26 billion EUR. These are capital investments efficient we will see in the future. Total value of economic infrastructure in B&H is worth 120% of GDP or 17,3 billion EUR. For its maintenance we need 350 million EUR.
Citizens use infrastructure facilities to meet the different needs transportation, electricity etc. Debt service for infrastructure investment depends from tax revenue and revenue from infrastructure use. Tax revenue and infrastructure demand are in correlation with population growth, urbanization and GDP per capita. More population means larger tax base and more companies who increase the tax base again.
Yet, trends show that in the next period we will have a population decline in B&H and region. According to UN projection in the next 35 year, ie 2050, the population will decrease by 488.000, or more than 12% then today. Demography structure will change. The share of population older than 65 years will be 24% while in the 2015 share was 15%. The average age will increase for 12 years and will be 53 years while in 2015 average population age was 41 years.
Those trends will affect tax base, number of companies, innovation, creation and long term potential of the domestic market. Today in B&H there is one enterprise per 152 citizens. World average is 32. If we had in mind that population will shrink so enterprise number will decline also. Those trends will decide tax base value who will shrink also, but needs will increase (health costs, pensions costs, new investment needs etc.).
Consumption will change. Future consumption will shape the millennial generation. Those changes will decrease demand for housing, public transport demand will change (private transport sharing with others), awareness of climate change will dominate the future etc. Long term policy development and infrastructure construction should reflect to be consistent with long – term trends. Infrastructure creation should focus from supply driven to demand driven creation. Bill for today infrastructure creation will pay Millennials.
Although trends suggest that today’s generation lives in the most prosperous time in history, creative destruction, fast value creation like Uber, Google, Apple which represents a chance for all of us, the amount of uncertainty and entropy are greater than ever. Great business is created from the garage keeping in mind the long-term trend. As Nigel Lake ideas suggest a short-term perspective is necessary to replace the long-term desire for creation. Ideal of competition we need to change with ideal of creation.
Economy and future is shaped by infrastructure (digital infrastructure for example). In the last 20 years there have been more innovation than in the past 200. Innovation means a change in consciousness, creative destruction and new beginnings. Similar problems to maintain existing, create new infrastructure and demographic trends have more developed, stronger and more stable nation. Former German Federal Minister of Transport, Building and Urban Development Dr. Peter Ramsauer said, referring to public private partnerships as a form of infrastructure financing that German highway known as Autobahn represents the soul and the pride of the Germans. Autobahn is word recognizable everywhere in the world. It is difficult that emotions expose to market mechanisms. Thus, the development of public-private partnership, which is an alternative to the traditional way of infrastructure financing, especially in critical infrastructure, infrastructure that are associated with emotions, need higher attention and extra effort to educate, in order for people to better understand those things, remove doubts and innovative way to be accepted.
For B&H we need to start long-term thinking on these issues and we need to start tomorrow. It is necessary to develop a new framework for the creation, maintenance and use of infrastructure facilities in line with long-term trends. Trends which link, consumers, investors and public sector.
Author: MSc Saša Stevanović