A view at dusk of Makati City commercial district in Manila

Philippines Infrastructure Potential

By Jaya Prakash

Once mocked as Asia’s sick man, the Philippines is sporting a new persona. Forecast after forecast have toasted the sprawling archipelago of 14,000 islands as the nation to watch and for infrastructure development potential.

Perhaps the most effusive praise has come from the World Bank when it said: “The Philippines is currently one of the most dynamic economies in the East Asia region, with sound economic fundamentals and a globally recognized competitive workforce.”

Despite a weak external environment, growth in 2016 accelerated to 6.8 percent year-on-year from 5.9 percent in 2015 on the back of upbeat domestic demand. The country’s economy is expected to remain a top regional performer with growth projected at 6.9 percent in 2017 and 2018.

Supporting the optimism, President Rodrigo Duterte asked the nation’s legislature in May to fast track a tax reform bill, because a “tax reform measure will sustainably finance the government’s envisioned massive investments in infrastructure, thereby encouraging economic activity and job creation.”

But there is an urgency for infrastructure improvements gripping the country. With a population of more than 100 million people with harsh penalties for abortion, the population has surged exponentially over the decades. And so too has poverty on the back of creaking infrastructure and connectivity, brought on by years of political inertia and an incapacity to build the roads and bridges needed to weld the nation closer together. The Asian Development Bank estimates some 21 percent of the population are living below the national poverty line.

In response, the Duterte administration is reportedly planning to spend some 5.4 percent of its gross domestic product on the biggest spurt in public-sector infrastructure investment in decades. Not only is that a huge outlay by global standards, the president has also staked his political and historical reputation on this reinvention of his nation.

Advocacy group Arangkada Philippines calculates that the nation only spent 3 percent of its GDP on infrastructure developments last year, compared with spending for education and health at slightly more than 4 percent of the GDP.

“It is the golden age of infrastructure,” said Victoria Mario M. Dimagiba Jr., the charge d’affairs in Singapore’s Philippine Embassy, speaking to Breakbulk of the promise this new era of developments brings to the Philippines. The US$173 billion infrastructure investment program – dubbed as Dutertenomics – is designed to take the Philippines to a high middle-income economy by the end of President Duterte’s term in 2022.

Philippine president Rodrigo Duterte speaks during his first visit to the Philippine Stock Exchange in Makati City July 11, 2017
Philippine president Rodrigo Duterte speaks during his first visit to the Philippine Stock Exchange in Makati City July 11, 2017. / Credit: Rouelle Umali/SIPA/Newscom

Build, Build, Build

Happily for project cargo movers, the catchphrase for these new times is “Build, build, build.” Under that all-encompassing slogan, the administration has formed the State Investment Coordination Council, responsible for a whole gamut of projects designed expressly to foster connectivity.

One project that sits at the heart of development when it comes to connecting the people, according to Dimagiba, is the Mega Manila Subway Phase 1. This mammoth subway project will link Quezon City, Mandaluyong, Pasig and Taguig. The project is expected to be ready by 2024. The subway dovetails with the construction of an 18-kilometer Laguna section of the Cavite-Laguna Expressway. Combined, the subway and expressway will reduce travel times and, in doing so, raise productivity in the Philippines. The project is also expected to create some 3,000 direct jobs.

The project, according to the nation’s Department of Public Works and Highways, will form part of the 45-kilometer closed-system tolled expressway. It is to be co-administered with private concessionaire MPCALA Holdings Inc. of the Metro Pacific Group, which won the bidding under the government’s public-private partnership program.

Dimagiba said that some of the financing will come from within the Philippines, while the rest will come from foreign donors, with China alone pledging some US$24 billion. Previously, finance has been somewhat of an Achilles’ heel in the push for overhauling infrastructure in the Philippines. In one example, Beijing has forged an agreement for a full grant to finance the construction of two bridges that will soon be a new landmark in the cities of Manila, Mandaluyong and the commercial district of Makati. According to Public Works and Highways Secretary Mark Villar, the grant will cover the design and construction of the bridges, while the Department of Public Works and Highway will be responsible for the acquisition of its road right-of-way.

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Then there is the Mindanao Infrastructure Logistics Network, a long-term development plan of the road network in Mindanao connecting the major ports. The network will be administered by the Department of Public Works and Highway with a US$161 million price tag.

Also on Duterte’s to-do list is the ultra-modern and ultra-expansive NLEX-SLEX Connector Road, a four-lane elevated expressway linking major roads and thoroughfares within the Metro Manila commercial district. When completed in 2018, the Connector is expected to decongest traffic in the capital.

And with Japanese financial help in the form of an US$4 billion loan, the Mega Manila Subway System will link the nation’s commercial nodes and government centers, shaving 31 minutes off travel times and ferry some 400,000 passengers annually.

Further, the Subic-Clark Cargo Railway Project will connect with the Clark-Manila Railway, giving container traffic through the Port of Manila easier access to the hinterland. Outside of transportation, the Mandaluyong Main Drainage Project and Pasig Markina River Channel Improvement Project aim to combat the flooding that the Philippines is prone to in typhoon season – when typhoon Haiyan savaged the nation in 2013 damages totaled US$2.9 billion.

And the smorgasbord of projects does not stop there: two new seaports and 18 airports are also planned. The NLEX-SLEX Connector Road notwithstanding, there are a further 17 roads and railways projects under Duterte’s Build, build, build plan.

San Juanico Bridge, part of the Pan-Philippine Highway.
San Juanico Bridge, part of the Pan-Philippine Highway. / Credit: Shutterstock

Performance and Competitiveness Issues

There are, of course, challenges to development of this scale: the Philippines is ranked 71st in the World Bank’s global Logistics Performance Index, a position that leaves it lower than Indonesia, which is a larger archipelago with considerably more people. And in the last two World Economic Forum Global Competitiveness Reports focused on the ASEAN-6 economies, overall infrastructure quality in the Philippines ranked below Singapore, Malaysia and Thailand, and was about the same as Indonesia and Vietnam.

Rankings are also lackluster for power quality, telecommunications, access to water and sanitation, and roads, further complicating infrastructure projects. For example, the Philippines is ranked the lowest for fixed telephone lines per 100 inhabitants.

But these ease of business issues aside, there is certainly an air of optimism and dynamism in the Philippines. Duterte, fully aware of the pitfalls of foreign lending, has been keen to steer clear of outside investment as much as possible, so as to not plunge his country into the same debt servitude as many Latin American nations fell into in the late 1970s and early 1980s. However, this may have been forced on the Philippines by its meager ratings: the country is rated at BBB by Standard and Poor’s, Moody’s has placed it at Baa2, while Fitch has given it a BBB with a positive outlook.

The president has introduced new taxes on fuel and sugar to partially fund the developments, although there have been no indications on how much revenue these new taxes will actually net. However, caution is being exercised and the government has openly said if the capability of the government agency is financially constrained by the need to press ahead with some projects, then public-private partnerships or Overseas Development Assistance, or ODA, will be considered.

Duterte’s projects are undoubtedly the biggest and most dramatic to be undertaken in the nation’s long and often fraught history. But if and when the colossal projects reach completion in 2022, which is when his presidential term ends, they will mark out a seminal chapter in the history of the Philippines and take it a step, or several steps, closer to its goal of becoming a high-middle income country. Duterte and his Build, build, build program has both enraptured the nation and brought an ambitious level of project cargo demand to the Philippines.

Jaya Prakash is a Singapore-based maritime analyst with wide-ranging knowledge on Asia.

Photo credit: Shutterstock


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