KPMG warns of growing infrastructure challenge

(CNS): The growing need for more infrastructure development with strained government budgets is a major problem for many island nations, including the Cayman Islands, warns accounting and consultancy firm KPMG. According to a new report, the first of its kind on infrastructure in island economies, the professional number crunchers point out the rising infrastructure challenges faced by local island government when the needs far exceed the total annual revenue budget of all participating countries. The report, entitled “Island economies and their infrastructure: An outlook 2010 and beyond”, provides a comparative analysis of public project development.

The KPMG survey was conducted during 2009 in conjunction with Island Analysis across the Cayman Islands and 15 other island countries through desktop research and interviews with 40 senior government officials. KPMG’s head of Transactions and Restructuring, Kris Beighton, (above) explained that the report highlights the infrastructure challenges, which are not unique to any one island.  “Some notable examples of challenges the Cayman Islands are facing include the new high school, government accommodations and the sea port. With the world population forecast to increase to 9-11 billion people by 2050, can governments meet the needs of the people and their economies?”

According to the KPMG survey, the short to mid-term demand for infrastructure needs far exceeds the total annual revenue budget of all participating countries.

“It is a common factor amongst island communities that tourism and financial services play an integral role in the generation of local revenues. Governments are now looking to diversify their revenue sources. Alternative financing arrangements, such as Public Private Partnerships, need to be seriously considered as options to overcome the present and future challenges,” Beighton added.

The report noted that expectations were running increasingly high among local island populations about what they expected from their governments. “Exceptionally strong forces are widening the gap between islander expectations of ‘infrastructure’ required in islands and the ability of island governments to deliver that infrastructure,” the authors wrote. “This growing shortfall in meeting expectations is expected to result in major political, financing, prioritisation and management challenges for island governments.”

The report also reveals that financing is not the only major challenge faced by the islands; the execution of public sector projects is also an issue. Eighty nine percent of government respondents believed the state of the existing infrastructure in their jurisdiction to be average or below average, KPMG said. Reasons cited included a lack of clear long term strategy and a lack of experienced project management personnel.

Sixty-six percent of officials interviewed believe the execution of infrastructure projects is either average or inefficient in their jurisdictions. Almost 60% of respondents say they never or rarely finish a project on time, and more than 60% either never complete on budget or only sometimes complete on budget.

“Without a clear long term strategy and an efficient procurement process to address overruns, governments will continue to struggle with deficits and ongoing infrastructure development requirements,” KPMG stated.

Simon Townend Regional Head of Corporate Finance at the accountancy firm said the report came to fruition as a result of discussions KPMG’s professionals held with local governments over the past two years. “Similar questions are being asked such as ‘What are other governments doing to address the burden of raising alternative finance and implementing efficiencies for public sector projects’ and ‘How successful have they been in their approach?” he explained.

As a result of the common challenges and trends specifically faced by the islands, the firm commissioned the research to benchmark and outline future models for success.

Dowload the full report