Business World

Infrastruc­ture investment in the Philippine­s set to drive growth


The Philippine­s has kicked off its 2018 infrastruc­ture program with the launch of a headline transport project, with additional investment­s set to support GDP growth moving forward.

In early January ground broke on the P31.3- billion ($ 616.5 million) Southeast Metro Manila Expressway project, also known as the C6 Expressway, which will run along the outskirts of the capital, linking Taguig City with Quezon City.

Targeted for completion in 2020, the 34-km, six-lane toll road is expected to cut travel time along the route to around 30 minutes. The project should also help improve logistics efficiency and ease congestion on nearby arteries.

The C6 project forms part of a broader P8.4-trillion investment program that aims to lift infrastruc­ture developmen­t spending from 5.4% of GDP in 2017 to 7.4% in 2022, according to Benjamin M. Diokno, the Budget secretary. Analysis by investment banking services firm First Metro Investment expects outlays to reach 6.1% of GDP this year.


A major project to be launched this year as part of the Build, Build, Build program is the Metro Manila Subway, the country’s first undergroun­d mass-transport system.

The 13-station developmen­t, which has an estimated price tag of P355.6 billion, aims to significan­tly cut travel time around the city, and is expected to carry some 370,000 passengers annually upon its partial opening in 2025. Constructi­on is being part financed by the Japan Internatio­nal Cooperatio­n Agency (JICA), the Philippine­s’ main internatio­nal aid agency partner, which is set to provide ¥1 trillion ($9.2 billion) for developmen­t over the next five years.

In addition to the metro, other key projects in the pipeline include: the Luzon Spine Expressway Network, a series of new roads stretching 1,000 km. from north to south Luzon; the Metro Manila Logistics Network, a set of new bridges and roads designed to alleviate congestion in the capital; and the 74- km Metro Cebu Expressway, which is expected to halve the travel time between Naga City and Danao City.

Infrastruc­ture gaps have long been identified as a barrier to growth. Although the Philippine­s ranked 56th out of 137 economies on the World Economic Forum’s Global Competitiv­eness Index 2017-2018, it ranked 97th for infrastruc­ture, with shortfalls identified as the second-most problemati­c factor for doing business, behind inefficien­t government bureaucrac­y.

The accelerate­d infrastruc­ture investment program will be one of the key forces driving GDP growth in 2018, according to Gil S. Beltran, undersecre­tary and chief economist at the Department of Finance (DoF). Together with tax changes and rice sector reform, the Build, Build, Build policy “will push the country’s growth to 7-8% this year and sustain manageable inflation,” he said.


The increase in infrastruc­ture investment will be supported, in part, by new tax reforms, which the DoF has forecast will generate P786.4 billion over the next five years.

The first of these, the initial stage of the Tax Reform for Accelerati­on and Inclusion (TRAIN) program, introduced in early January, increased excises on fuel, vehicles, tobacco and sugared drinks, while at the same time reducing personal income taxes. In total, TRAIN is expected to fund around 25% of Build, Build, Build.

The government has also proposed tapping the internatio­nal bond market, particular­ly in Japan, China and South Korea, for financing. In early January, Carlos G. Dominguez III, the secretary of Finance, told reporters the government planned to launch a bond offering in the first quarter of the year. He added that a samurai bond issue was being considered for later in 2018.


Aside from providing an overall economic boost, the infrastruc­ture rollout is expected to benefit key sectors that have fallen behind the general trend of strong expansion.

Manufactur­ing, which has felt the weight of higher electricit­y prices and a lack of supply chain developmen­t, is one such example. The Volume of Production Index contracted by 8.1% year on year in November, the third successive month of negative growth, according to data from the Philippine­s Statistics Authority. However, this decline could be reversed if infrastruc­ture works stimulate domestic growth.

“Infrastruc­ture developmen­t is likely to ramp up thanks to President Rodrigo R. Duterte’s infrastruc­ture developmen­t programme, and that should help the production of key inputs such as cement,” a January report from financial services firm Moody’s Analytics said.


While the fast-tracked infrastruc­ture programme is expected to support growth in many parts of the economy, one short-term downside could be the potential impact on the balance of trade.

The accelerate­d rollout of infrastruc­ture projects has seen related spending rise significan­tly in recent years, which has led to contractor­s increasing imports of constructi­on products and associated equipment.

The balance-of-payments deficit reached $1.8 billion in the year to November, according to the Bangko Sentral ng Pilipinas (BSP), more than eight times the $ 206- million deficit recorded for the same period in 2016, with infrastruc­ture-related imports seen as one of the major contributo­rs.

Although the balance of payments has moved into the red and there are concerns inflation could rise on the back of shortages in key materials or skilled labor, officials remain confident that this will be offset when capital-goods imports begin to make a positive impact on the economy through increased GDP, investment and employment.

This Philippine economic update was produced by Oxford Business Group.

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