‘Build, Build, Build’ program has faulty underlying assumptions

THE Duterte administration is ushering in a “Golden Age of Infrastructure” with its “Build, Build, Build” program. The avowed goal is to fast-track infrastructure spending of P8.4 trillion. This will raise the ratio of infrastructure spending to GDP from 5.4 percent in 2017 to 7.4 percent in 2022. This is nearly on par with international standards.

The proposed 2018 budget allocates P1.097 trillion, nearly 30 percent over the 2017 allotment. This huge amount for 2018 will fund various road and highway networks, railways, airports, and seaports.

The “Build, Build, Build” program is clearly a welcome intervention to correct decades of neglect. It definitely, if accomplished, will make the Philippines more competitive. Several issues and challenges, however, loom ahead.

First, the obvious issue of lack of capacity of our construction industry. Such undercapacity is shown by the persistent infrastructure underspending of P355 billion a year from 2011 and 2016 between 2011 and 2016. Of course, underspending may not be solely due to incapacity of contractors. It may also be due to red tape, right-of-way questions, or weather.

The huge doubts assailing the lack of capacity is because the infrastructure projects under the “Build, Build, Build” program involve large number of manpower, both skilled, technical, and common labor. But even now, just listening to real estate developers and construction firms, they are hard-put looking for skilled workers, electricians, welders, and plumber — and even more difficult to recruit foremen, mid-level managers, and supervisors.

Explaining largely the current lack of manpower, the country’s labor force participation rate (LFPR) has been falling to such degree that in the past five years, only 415,000 people have entered the labor force every year. True, there are over 15 million and underemployed Filipinos of working age. But they do not possess the necessary skills or training for these massive public works projects.

The second major issue is the sourcing of funds for the “Build, Build, Build” program. It appears that the major funding source is through taxes. For instance, the TRAIN (Tax Reform for Acceleration and Inclusion) expects to raise the bulk of the revenues to support the infrastructure funding.

It seems to me that sourcing the bulk of funds to finance this gargantuan infrastructure program from taxes does not make sense at all. It should be sourced principally from Official Development Assistance (ODA), from the private sector through PPP, and borrowings, especially for income-enhancing public works. Relying mainly on taxes is not only bad economics but also psychology.