Mark­ing one year of Build, Build, Build

Business World - - OPINION - WESLENE UY

Dur­ing the Boao Fo­rum held in China last week, Pres­i­dent Duterte said that the coun­try’s Build, Build, Build (BBB) pro­gram will pro­vide the solid back­bone for growth.

In­deed, sev­eral an­a­lysts have cited the ad­min­is­tra­tion’s abil­ity to ex­e­cute its in­fras­truc­ture pro­gram as an im­por­tant fac­tor for achiev­ing our growth tar­gets. To the ad­min­is­tra­tion’s credit, it has ex­erted a con­certed ef­fort to put to­gether an in­fras­truc­ture plan and pro­mote it ag­gres­sively.

As the BBB marks one year since its launch in April 2017, it is high time to re­visit the gov­ern­ment’s in­fras­truc­ture agenda and ex­am­ine how the Duterte gov­ern­ment has fared so far.

Re­cently, the Strat­base ADR In­sti­tute hosted a round ta­ble fo­rum to dis­cuss the Spe­cial Study writ­ten by Dr. Alvin Ang on “Fi­nanc­ing In­clu­sive In­fras­truc­ture.” Dr. Ang’s study tack­les the Of­fi­cial De­vel­op­ment As­sis­tance (ODA) and Pub­lic Pri­vate Part­ner­ship ( PPP) de­bate and ex­plores how in­fras­truc­ture can be­come more in­clu­sive to ben­e­fit a wider seg­ment of the Filipino pop­u­la­tion. Ex­perts also dis­cussed chal­lenges sur­round­ing the gov­ern­ment’s in­fras­truc­ture plans and of­fered so­lu­tions to rem­edy these is­sues.

Al­though the Philip­pines has recorded stel­lar eco­nomic growth rates in the last few years, in­fras­truc­ture in­vest­ments have failed to keep pace with grow­ing de­mand. In­fras­truc­ture to GDP spend­ing, for ex­am­ple, av­er­aged at only 2.4% from 2010 to 2016.

Con­se­quently, the un­der­in­vest­ment in the sec­tor has pre­vented us from reach­ing our full eco­nomic po­ten­tial. JICA es­ti­mates that traf­fic con­ges­tion in Metro Manila now costs P3.5 bil­lion in lost op­por­tu­ni­ties ev­ery day, a 45% in­crease from P2.4 bil­lion in 2012. Un­sur­pris­ingly, sev­eral global rank­ings have scored the Philip­pines poorly in in­fras­truc­ture qual­ity.

In an ef­fort to over­turn our dis­mal per­for­mance, the Duterte ad­min­is­tra­tion promised to al­lo­cate record-break­ing funds into the sec­tor to usher in the “golden age of in­fras­truc­ture.”

Un­like the Aquino ad­min­is­tra­tion, which was bogged down with scru­ti­niz­ing deals made dur­ing Ar­royo’s term, the Duterte ad­min­is­tra­tion quickly ex­panded on the plans and projects of its pre­de­ces­sors. Also in con­trast to the Aquino gov­ern­ment, the Duterte ad­min­is­tra­tion has de­cided to tap more into over­seas fi­nanc­ing. Sev­eral con­glom­er­ates have felt side­lined with the ad­min­is­tra­tion’s de­ci­sion to fa­vor ODA over PPP, es­pe­cially for its flag­ship projects.

Not­with­stand­ing this shift, the gov­ern­ment’s ag­gres­sive in­fras­truc­ture cam­paign has so far yielded promis­ing re­sults.

In 2017, in­fras­truc­ture to GDP spend­ing reached 3.6% and ex­ceeded its tar­get by P19.4 bil­lion. This trend is ex­pected to con­tinue this year as the gov­ern­ment has com­mit­ted to roll out in­fras­truc­ture projects in “full steam.” Re­forms are also un­der­way to speed up project im­ple­men­ta­tion, such as a shift to an an­nual cash-based sys­tem, forc­ing gov­ern­ment agen­cies to im­prove bud­get ex­e­cu­tion. A bud­get re­form bill is also pend­ing in Congress to in­sti­tu­tion­al­ize re­forms in fi­nan­cial man­age­ment, bud­get­ing, and ac­count­abil­ity.

In ad­di­tion to in­creas­ing spend­ing lev­els, it is also equally, if not more, im­por­tant to con­sider what type of projects we’re in­vest­ing in, where these projects will be lo­cated, as well as to en­sure that these projects will gen­er­ate op­ti­mal so­cioe­co­nomic re­turns.

Prof. Epicte­tus Patal­inghug, a trus­tee and con­venor at Strat­base ADRi, pointed out that in­fras­truc­ture may have a larger im­pact if it is in­vested in ru­ral projects. In­done­sia and Malaysia, for ex­am­ple, have re­duced their poverty rates faster be­cause they con­cen­trated on ru­ral in­fras­truc­ture pro­vi­sion. China’s town­ship and vil­lage en­ter­prises, which also pri­or­i­tized ru­ral ar­eas, was in­stru­men­tal in prop­ping up the Chi­nese econ­omy.

Lo­cally, the BBB’s less pop­u­lar rel­a­tive, the Three-Year Rolling In­fras­truc­ture Pro­gram (TRIP), de­serves equal ex­po­sure. The TRIP cov­ers 4,895 smaller in­fras­truc­ture projects that will be rolled out within the next three years. A lit­tle un­der a third of these projects will be im­ple­mented in the five poor­est re­gions in the coun­try.

The main is­sue here is whether the gov­ern­ment can over­come sev­eral chal­lenges in project ex­e­cu­tion.

Prof. Patal­inghug also ob­served that in­fras­truc­ture spend­ing has so far been di­rected to­wards fund­ing new projects. How­ever, project main­te­nance mer­its equal at­ten­tion. The rates of re­turn from World Bank-as­sisted road main­te­nance projects, for ex­am­ple, were nearly twice those of road con­struc­tion projects.

While the im­proved in­fras­truc­ture spend­ing is promis­ing, there are sev­eral prob­lems the gov­ern­ment still needs to over­come.

For in­stance, there have of­ten been huge de­lays be­tween project ap­proval and project ex­e­cu­tion. Thus, the prom­ise of in­creased in­fras­truc­ture spend­ing must come hand in hand with cor­rect­ing in­sti­tu­tional weak­nesses, ad­dress­ing ab­sorp­tive ca­pac­ity con­straints, poor project eval­u­a­tion and project se­lec­tion, as well as tack­ling cor­rup­tion. The con­ti­nu­ity of in­fras­truc­ture plans should also be en­sured, es­pe­cially since the scale of the BBB projects sug­gests that its com­ple­tion dates will most likely spill over to the next ad­min­is­tra­tion.

Ac­cord­ing to ex­perts, these ex­e­cu­tion bot­tle­necks are more press­ing than con­cerns on which fi­nanc­ing mode is more su­pe­rior, since the PPP and ODA have their own strengths and weak­nesses. A project should in­stead be as­sessed to de­ter­mine which fi­nanc­ing scheme is most ap­pro­pri­ate for it.

Ul­ti­mately, the main is­sue here is whether the gov­ern­ment can over­come these ex­e­cu­tion chal­lenges.

As Dr. Alvin Ang pointed out, this year will be crit­i­cal in that the Duterte ad­min­is­tra­tion should be able to de­liver a much-im­proved in­fras­truc­ture spend­ing and faster im­ple­men­ta­tion of pro­grams. Filipinos are of course ex­pect­ing con­crete de­vel­op­ments, rather than just mere lip ser­vice.

If suc­cess­ful, the BBB could be­come the Duterte ad­min­is­tra­tion’s legacy pro­gram. Oth­er­wise, Duterte’s pop­u­lar­ity might be eroded sooner if he fails to meet ex­pec­ta­tions.

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