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How construction can contribute to EU growth?

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The debate, in the EU, about the correct economic policy mix is at the top of the agenda. The advocates of “austerity and nothing but austerity” are facing strong criticism, in many corners, from those who want to re-launch growth.

This is of course high level politics. However, the issue is not indifferent to the cement industry as the construction sector has a clear role to play in generating growth and jobs. The construction sector - the largest single economic activity and it is the biggest industrial employer in Europe -, with a relatively high ratio of labour intensity per euro of fixed capital formation, represents a rapid means for generating economic activity, creating jobs and growth while, in the longer term, providing the EU with a better infrastructure that will strengthen the latter's competitiveness.

A report published in the UK1 has estimated that, for every £ 1 invested in construction, there is an additional boost to the economic activity of approximately £ 3. No doubt the same ratio is valid for Europe as a whole: € 1 leads to € 3. Further to the Aktins Report2, the European Commission itself confirmed that 1 job created in construction creates 2 jobs in related sectors3.

It thus appears that, through the multiplier effect, the construction sector is one in which investment makes economic sense in the short as well as in the long term.

How could such an investment be triggered and implemented at a time of high public debt and scarce money? Creating Eurobonds to fund infrastructure projects (and limited to specifically earmarked projects) is a way forward, particularly if combined with no recourse or limited recourse project finance for self paying projects such as toll bridges or toll motorways (see this month’s Eurobrief article). Funding for such projects could possibly be raised, with a little creative imagination, without increasing public indebtedness. Creating a European equivalent to IFC (International Finance Corporation) next to the EIB could be part of this “new deal”.

While politicians discuss and still hesitate as to how to proceed, the construction sector, unfortunately, seems to be unable to get its act together. It should be the spearhead of this initiative and make politicians and bankers an offer they cannot refuse.

 

 


 

1 LEK Consulting report: Construction in the UK Economy: The Benefits of Investment published October 2009

2 European Commission, DG Enterprise, Effects of Regulation and Technical Harmonisation on the Intra-Community Trade in Construction Products, September 2000

3 The Competitiveness of the Construction Industry” – COM(97) 539 final