To extricate itself from its transportation crisis, Israel must invest 2% of GDP, or no less than NIS 850 billion by 2040, say researchers at Reichman University (IDC Herzilya). According to their findings, this amount will benefit the economy by NIS 150 billion per year, by the target year. Beyond the budget question, it is not at all certain that the State of Israel’s executive bodies are capable of implementing projects of this scale.
The study, authored by Sani Ziv and Oren Shapir from the Aaron Institute for Economic Policy at Reichman University, suggests setting quantitative goals for improving travel times by 2040 to improve accessibility in metropolitan areas, and make them comparable to those in high-quality European metropolises. Among other things, they propose increasing use of public transportation in Israel’s metropolitan areas from 10-20% to 40%, shortening travel time by 30%, so that a trip taking one hour today will take 43 minutes by the target year. Other goals are to increase the proportion of travelers with a 45-minute commute time to the metropolitan areas, and increasing the speed of public transportation.
To reach these goals, the researchers say, an investment plan for a period of at least 20 years is needed, so that it will be possible to coordinate adjunct projects in energy, water and sewage.
The analysis finds that achieving those goals will require a NIS 850-950 billion investment in transportation infrastructure during the period 2023-2040, or average annual investment of about NIS 48 billion, equivalent to about 2% of the forecast GDP for this period.
"Israel lags behind significantly in its transportation infrastructure. As a result, travel times are very long, in comparison with other of the world’s metropolises similar in size to the Tel Aviv metropolis, and this at a time when Israel’s population is growing at a rate of 2% annually, with double the population in 20 years. This is in contrast to any western metropolis where the rate of growth is lower. If today we lag behind, and if there is no massive investment, by 2040 travel times will have only continued to increase. Therefore, we believe that a long-term investment plan should be carried out with qualitative and quantitative goals," explains Sani Ziv.
The ROI: A 5.4% increase in GDP per employee
The international TomTom Traffic Index, which ranks urban congestion worldwide, rates the Gush Dan region a stellar 16th place among over 400 metropolises in the world. "We employ an agglomeration index that is used widely around the world. With it, we measure the employment density in terms of time. The shorter the travel time to and between employment centers, the more the agglomeration grows. So, as travel time decreases, the effective density increases, and there are more people per unit of area who are close to other business centers, and we can measure the economic benefits of reducing travel times," says Ziv.
The great investment plan will quickly pay for itself in positive impact on GDP. In a scenario where the plan is realized, and NIS 850-950 billion is invested in the aggregate until 2040, the GDP per worker in the economy will increase by 5.4%, and the total addition to annual GDP will amount to NIS 151 billion. The researchers do recognize that there has been substantial investment n Israel’s transportation infrastructure in recent years. Between 2002 and 2022, this amounted to 1.1% of GDP, and implementation of currently approved plans will raise that to 1.4% of GDP.
If the approved plans are implemented by the target year, including the three Metro lines, then total investment will reach NIS 577 billion, which will generate an annual GDP increase of approximately NIS 58 billion (NIS 93 billion less than the proposed plan). However, this is an underestimate, as the model does not take into account the economic benefits such as increased leisure time, changes in air pollution levels, lower costs of transporting goods, energy savings, and more.
"When the Metro starts being constructed (at an estimated cost of NIS 150 billion - A.Z.) investment will increase in 2030, and its economic contribution will be huge. But it’s not only about the need for investment in Tel Aviv," explains Ziv. "If the Haifa metropolis is strengthened and attracts workers who will be bale to get there, not only from the northern region but also from the Hadera region, it will encourage competition to raise the bar even higher for Tel Aviv, and this can optimize economic activity. A good plan is also being implemented in Jerusalem that needs to be continued and invested in. But if we stay with just the existing plans, in the end, we’ll be at a standstill."
Action items: Make decisions, formulate budgets
Even now, the Ministry of Transport is promoting a series of strategic plans for the 2040 target year, along with a wealth of projects. But, Ziv says, to implement these plans, a government decision on a 20-year plan must be made, and a budget determined. "If they decide on and advance initial planning today, which is not a huge cost compared with detailed planning and execution, this will reduce the political feasibility of transferring budgets to other places, and the government will be able to convey certainty to the public and the business sector."
Ziv emphasizes that funding does not have to come entirely from the state and can be derived in other ways as well, through the private sector and through raising property values as in the model used in financing the Metro. "Freezing National Outline Plan 38 in the vicinity of the stations is an example of the economic inefficiency resulting from a lack of long-term planning, as it’s clear that building rights near stations should be increased."
Execution: Most existing projects are delayed
Even if the government accepts such a plan, there will be substantial difficulties in implementing it. Presently, coordination of infrastructure is preventing projects from progressing: infrastructure companies wait a long time for power to be connected, or for traffic regulations to be approved by the police. Manpower is in short supply in every area, including engineers and managers. On the political level, local authorities do not want and do not permit their cities to become construction sites, despite the acute need. A lack of raw materials such as cement, is already happening. The concern is, therefore, that the plan will remain on paper, and the authorities responsible will not be able to execute it.
Even now, most of Israel’s transportation projects are experiencing delays: the entire Gush Dan light rail network has been delayed for years, and the Jerusalem rail system is behind schedule as well. Only a couple of weeks ago, the external company appointed by the Ministry of Transport to oversee the project warned that the opening of the Red Line in the Dan region would be delayed until June.
Some of these barriers can be overcome by way of a National Infrastructures Law. A draft proposal appeared in the Economic Arrangements Law but was later removed. The draft proposed to select ten infrastructure projects of national importance that would be prioritized among the relevant entities: Israel Electric Corporation, telecommunications companies, water infrastructure providers, local authorities, and others. Another law, designed to pave the way for the Metro project, proposed to override local authorities so that they could not issue administrative work stoppage orders, aside from in exceptional cases. All were based on conclusions drawn from real cases, when local authorities demanded that work should be stopped due to political pressure, residents' objections, and in other cases, to force the infrastructure companies into making various improvements in their cities. In turn, however, the infrastructure entities have been criticized for not sharing information sufficiently with the public and local authorities about national projects planning.
But there’s more. At present, not all of the infrastructure entities are capable of executing the projects assigned to them, complying with schedules, and staying within the approved budget frameworks. In the last government budget, billions of shekels were allocated to promote public transportation infrastructure. In addition to trains and light rail systems, considerable sums were also allocated to priority lanes, bus stops, and bicycle paths, and there are fears that the budget will not be fully utilized, given the scale of these projects. The addition of hundreds of billions of shekels in other projects could leave these important projects, for the most part, on paper.
The fear: Projects go unexecuted
Postponing projects also has economic impact. "If you do a project like the Red Line 13 years late, then you’ve also postponed its outcome, and that loss of product is significant because we could already be benefiting from it today. And it also has a corollary effect because instead of a population growing and building-up near train stations, it will grow and disperse to the periphery; it will be hard to build a transportation system to serve a scattered population, and so the damage from failing to build the transportation system will last for generations," says Ziv.
Last week, the research was presented at a round table discussion attended by senior officials from the Ministries of Finance, Transportation, and the Bank of Israel and other experts. One participant, Dalit Zilber, a former director of the Israel Planning Administration, told "Globes", "The study is correct. We are still weak in both execution and investment, but we have no other way of existing here. The investment must come, first of all, from the government, and it is essential because it is the basis for our continued existence here.
"We must return to urban density centered around public transportation, and to mixed use, because investment in reaching outlying areas where no one will really go, is less relevant than investing in very dense areas. This is the State of Israel’s most important task because we are in a catastrophic situation."
Published by Globes, Israel business news - en.globes.co.il - on November 6, 2022.
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