Low expectations for PH infrastructure agenda

THE Economist Intelligence Unit (EIU) is not impressed with the progress of the Duterte administration’s Build, Build, Build infrastructure program.

In a December 5 commentary titled “Rethinking Infrastructure,” the research and analysis arm of The Economist Group (best known for TheEconomist business and economic news journal) said the infrastructure program “has got off to a slow start,” and that “the authorities will struggle” to finish any significant amount of work before the 2022 elections.

The EIU agrees that the need for “modernizing the country’s crumbling infrastructure” is urgent, and acknowledges all the familiar ill effects of the Philippines’ current state: the P3.5billion daily cost of traffic congestion in Metro Manila; serious impediments to export shipments and inbound tourism due to the moribund condition of the country’s port and airport infrastructure; a lack of adequate sewerage systems across the country, and growing water supply crises in and around Metro Manila; and the Philippines’ dismal 66th rank out of 160 countries in the World Bank’s 2018 Logistics Performance Index, “well behind its regional competitors for FDI (foreign direct investment) — China, Indonesia, Thailand and Vietnam.”

The report notes, however, that as of the end of 2019, only two out of the 75 on the government’s original list of high-value projects have been completed. While a reset following the appointment in September of Vivencio Dizon as the presidential adviser for the infrastructure program injected fresh enthusiasm and expanded the list to 100 projects, it did not solve the “bureaucratic hurdles and a lack of technical expertise” delaying progress.

There are four big factors identified as having been responsible for much of the delays. The first is the conditional nature of the Chinese infrastructure investment pledges. Although President Rodrigo Duterte secured $24 billion in promised funding from China in 2016, only about $178 million of that has materialized, because of China’s insistence on funding in renmimbi instead of dollars (which actually makes sense, from the Chinese point of view), its preference for Chinese project contractors and its reluctance to cooperate with other lenders.

Second, the long time it takes funding to materialize from Japanese overseas development assistance, over the stringent vetting required by Japanese law. Japan has traditionally been the largest source of development funding for the Philippines.

Third is the delayed budget for 2019, which was aggravated by the pre-election spending ban in the run-up to the May midterm elections. This problem at least has been solved; the government has largely caught up with the delayed funding for this year, and the 2020 budget appears certain to be enacted on schedule.

The fourth factor is a combination of technical deficiencies, including the lengthy process of securing rights-of-way; a lack of technical expertise at local levels that delays permits and other bureaucratic processes; and a shortage of skilled workers. So far, there has been no real progress on addressing any of these issues.

The EIU report could have added yet another factor, but it was published before the news became generally known: we now know that there has been a great deal of corruption among contractors and local officials of the Department of Public Works and Highways, which has led to delays and substandard work in many smaller projects all over the country.

The EIU draws the conclusion that the infrastructure program will carry over into the next administration and we believe this suggests a prudent course of action for the Duterte government. Having seen the negative consequences of rushing large-scale initiatives in the controversy that has arisen over Metro Manila’s water supply, the administration should begin planning for the long term — carefully developing project terms of reference and contracts to ensure that they are fair, cost-effective and legally sound, and can continue long after the President steps down from office. President Duterte’s legacy may not be as the president who built much infrastructure in that case, but may be one that is even more valuable, as the president who initiated a sound, sustainable program for long-term development. That is something no other president has done, and if his administration can achieve that, it would place President Duterte among the best leaders the Philippines has ever had.