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Management in Practice

What Will It Cost to Rebuild Canada’s Infrastructure?

After decades of underfunding, Canadian Prime Minister Justin Trudeau is aiming to sharply increase public and private investment in infrastructure. Yale Insights talked with Amarjeet Sohi, Canada’s first-ever minister of infrastructure and communities, about the government’s approach.

In the 1950s, Canada spent more than 3% of GDP on infrastructure. Over the next three decades, spending fell to 0.4% of GDP. By 2015, as Canada’s Conservative Party prepared to defend its majority in a general election, the infrastructure deficit—the money needed to fund necessary repairs and replacements—was more than $200 billion, according to the Federation of Canadian Municipalities. Despite low interest rates, governments were reluctant to borrow to fund bridges, roads, and rail lines.

Writing in the Winnipeg Free Press in August 2015, Dan Lett argued that Prime Minister Stephen Harper “has utterly failed to come up with a plan that matches the size of the infrastructure problem,” noting that the government had failed to even spend the money previously budgeted for this purpose.

A few weeks later, Harper’s opponent, Liberal Party leader Justin Trudeau unveiled a plan to sharply increase infrastructure spending, doubling spending from $65 billion to $125 billion over 10 years. “Government has a responsibility to act decisively and for the public good,” he said. “Canada’s economic growth was made possible by building ambitiously. We must do so again if we are to transform our transit and transportation systems, create more livable communities, and ensure that we adapt to a changing climate.”

After Trudeau’s election win, he appointed Edmonton MP Amarjeet Sohi as the country’s first-ever minister of infrastructure and communities, charged with overseeing the infrastructure plan. Now called Investing in Canada, the plan has grown to include $180 billion of federal spending over 10 years, as well as hundreds of billions of dollars from provincial and municipal governments. It also includes the creation of the Canada Infrastructure Bank to attract private investment for infrastructure projects.

In October 2017, Sohi visited Yale, meeting with officials from the Connecticut and New York Green Banks, the Yale Center for Business and the Environment, and Yale SOM’s Case Research and Development Team to discuss lessons learned as Canada develops its first national infrastructure bank. (The Connecticut Green Bank is the subject of a forthcoming Yale SOM case study.) Sohi sat down for a conversation with Yale Insights about Canada’s approach.

Q: For a little bit of context, how long has Canada had an infrastructure minister? Why is it a cabinet-level position?

Our government has put quite a bit of focus on building new infrastructure and helping maintain the existing infrastructure. We believe that infrastructure is the foundation of building a stronger middle class, creating opportunities, creating jobs, economic growth, as well as enabling our partners to put more emphasis on building greener communities, sustainable communities, and providing opportunities for those who are sometimes left behind, because of their socioeconomic situation.

In order to deliver on a commitment of tripling the investment that we are making into infrastructure, for the first time Prime Minister Trudeau has created a stand-alone ministry, just solely focused on infrastructure and building stronger communities. This is the first time in the history of Canada—infrastructure in the past was part of other departments.

Q: You mentioned Canada’s comprehensive infrastructure plan, Investing in Canada. What’s the state of the infrastructure now? Is there a particular impetus to making an effort at this point?

There’s a number of reasons. First of all, our communities have lacked infrastructure investments for the last decade or so, so there’s a large infrastructure deficit that exists. Second, when you talk about infrastructure, you have to have a long-term vision because infrastructure takes planning. It takes a number of years before a project can be undertaken. So we want to make sure that we’re giving a long-term, sustainable, predictable funding model to our communities and that’s why we’re developing this 10-year plan—to deal with the deficit, to give them predictability and sustainable funding. But at the core of our desire to have this stand-alone ministry and do the work that we need to do, it ties back to the three themes of economic growth and opportunities, building greener communities, and inclusive communities.

Q: Can you put some context on the scale of the plan, relative to normal spending?

When you look at the investments that the federal government will make over the next decade, we are tripling our investments from approximately 60 billion dollars to over 180 billion dollars. And that is the money that we leverage, with provincial support and municipal support. When you look at the total investment plan for the next decade from public bodies, it is close to 800 billion dollars that will be invested into public infrastructure.

For the federal government, we are focused on five areas of investment. We want to build public transit systems so people don’t have to drive their personal vehicles all the time, and it’s also a sustainable mode of transportation. Cycling infrastructure ties into that. And then this other component is green infrastructure. How do we enable our municipalities to reduce their impact on the environment, or make their existing infrastructure more resilient to the impact of climate change, or invest into new technologies to stop the production of greenhouse gas emissions?

The third component is social infrastructure. Focus on affordable housing, on social housing, building shelters for women fleeing domestic violence, recreational culture infrastructure, investing into early learning and childcare so that kids have the opportunity to succeed.

The fourth component is improving our trade corridors—building better trade corridors, bridges, and the road network. And the fifth area is supporting our rural and northern communities, more isolated communities, because their needs are unique and different from our needs in urban centers.

Q: Is there a political consensus around investment in infrastructure in Canada? Is it a struggle to get people behind this?

I come from a municipal background. I served on city council for almost eight years before I got into this position. Infrastructure always garners more support from the public because people see the benefit of it. The lack of infrastructure really hinders their ability to fully participate in the economy and the community. It really touches on people’s lives when the people are stuck in traffic for an hour and they can’t move around. They really see how critical that infrastructure is for them in order to relieve congestion and other challenges in the urban centers—a lack of housing, for example.

Q: Is there a political resistance to the spending involved?

I have not seen that, particularly, when it comes to infrastructure, because people see the benefits. This was, I would say, one of the campaign commitments that we made and our party stood out because of that commitment. The other two parties were not committed to investing in infrastructure and we were. And we launched that during the campaign and Canadians have given us the mandate to do so. So there’s a broader support for the plan that we’re putting forward. But it also ties into an overall broader government approach to building a stronger middle class and providing opportunities for those Canadians who work hard each and every day to be part of the middle class. And they cannot do that when you don’t have the proper support system for them to do so.

Q: How does the private sector fit into the plan? What is the role of the Canadian Infrastructure Bank?

Well, despite the historic investments that we’re making in infrastructure, there will still remain a large infrastructure deficit in Canadian communities. Because of population growth, because existing infrastructure is aging, you need to replace it. So when resources are limited, you need to look for creative, innovative ways of stretching your dollars. And we believe that if we can mobilize institutional investors, pension funds, and the private sector to partner with the federal government, and partner with provinces and municipalities to build new infrastructure that is needed, that is in the public interest and there’s revenue attached to it. I think there’s potential for us to leverage public dollars by engaging private sector to get more work done, to get more infrastructure built, which helps not only create immediate jobs but also make your economy more productive in the long term.

Q: What do you think business schools need to be teaching to develop the expertise to address infrastructure issues?

One thing that I am really passionate about is that infrastructure is more than just physical structures that we see. Infrastructure enables people. It allows people to succeed.

When we talk about building better public transportation system, we focus on congestion, and that’s very legitimate, and that’s how we measure it. Well, we don’t measure that the person who’s getting on that bus or train is going to work—if that system was not available, that person might be making different choices where the wages or benefits or opportunities may not be as great as when they have that access to employment. Women fleeing domestic situations where they’re being fearful, or being abused, or being violated, cannot effectively participate in the economy, and the loss of that person to society is huge. I think more business analysis can be done about it to understand the benefits. If you want me to leave a challenge for your students I think that would be one challenge I would leave for them.

Another is how we use technology and data to optimize the existing infrastructure, how we properly maintain it, how we upgrade it, and how we create more efficiencies. Because we cannot build our way out of congestion. We cannot build our way out of some of the challenges we face in some of major urban centers. You’ve got to look at optimizing through better use of technology and data and really understanding how they interact.