Construction Stimulus

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Infrastructure development has been identified as a key driver for the Philippines' economy, as the country moves to minimise the effects of the global downturn.

The government will spend 60-80% of its $29.9bn budget on infrastructure projects, Secretary of Finance Margarito Teves said in a statement to the local press, identifying job creation as one of the primary motives behind the decision.

According to the National Economic Development Agency (NEDA), government spending on infrastructure is central to reaching its GDP growth target, which is set at 3.7-4.7 % for the upcoming year, though this is well above predictions put forward by the Swiss banking group UBS, which expects growth of 1.8%.

An additional stimulus package of $6.9bn is expected to be signed into law by President Arroyo shortly, with $2.1bn slated to go immediately towards infrastructure projects, including the $378m Northern Luzon Expressway and the $200m Clark Freeport Zone. Further key projects include ongoing work on the $135m closed loop connecting the Metro Rail and Light Rail Transit systems in Manila, as well as construction of the $74m Legazpi City International Airport and the $84m third terminal at Clark International Airport. Other priorities, as laid out in the government's 2004-2010 Medium Term Development Plan, include the upgrade of transport in Luzon, energy development in Visayas and Mindanao as well as the improvement of water systems across the nation.

According to the World Bank Development Report 2009, infrastructure upgrades are central not only to maintaining stability during the global economic crisis, but also to increasing economic activity in the island country's poor rural areas. The report declared that economic growth in the Philippines is "spatially unbalanced", citing Metro Manila's 33% contribution to the country's economy.

Speaking at a local discussion forum, Bert Hofman, World Bank country director for the Philippines, said, "The poor would benefit more by efficiently connecting the lagging regions and provinces to the growth centres through investments in infrastructure, including transport, communications, information technology and better education."

One issue that often plagues the Philippines construction sector is corruption. In January, the World Bank indicted three Filipino and four Chinese contractors for allegedly colluding to manipulate bids on World Bank-financed road projects worth $33m from 2002-2006. All seven contractors have been banned from bidding on any World Bank projects in the future.

Meanwhile, the private sector looks to rebound from a particularly difficult year in 2008, as high supply costs combined with volatility in worldwide financial markets to hinder growth in the sector. But during the last quarter of 2008 the prices of steel and petroleum fell dramatically, giving the private sector construction industry a much needed break heading into 2009.

Commercial demand, especially in the Manila area, is expected to be sustained due to continued expansion in the business-process outsourcing (BPO) industry. In spite of the global economic turmoil, the sector is still expected to grow at a rate of 35% in 2009, according to the Business Process Association of the Philippines (BPAP), although this is actually a decrease in growth compared to the last five years. Additionally, the association recently reduced its projection for industry employment growth by 2010 - down from 1m jobs to 700,000.

The industry is hopeful that downsizing in the US and other developed countries will result in outsourcing to the Philippines. In a statement to the local press, Ralph Recto, socioeconomic planning secretary and director general of NEDA, said, "Ownership of dwellings and real estate is expected to sustain its robust growth, given the continued strong demand from the outsourcing firms and the OFW [Overseas Filipino Worker] sector. Business-process outsourcing is seen to benefit from the global economic slowdown, and this will fuel the growth of private services as well."

However, with economies contracting worldwide, many OFWs are now returning. Just last month 2500 workers in Taiwan were sent home, out of a total of 90,000. Nevertheless, Central Bank Governor Amando M. Tetangco Jr has projected that total overseas remittances are expected to grow at a rate of 6-9% in 2009, although this would be slower growth than in 2008.

Not everyone is as optimistic. Speaking with the international press, Filipino political commentator Antonio Abaya said, "If the massive infrastructure and construction projects in the Gulf and Middle East, for example, are cut back, we could start to see many of these workers return home, which would have a significant impact on the economy."

If a serious reduction in overseas remittances results in less spending power, then the Filipino construction sector may indeed face challenges. However, with the government prepared to spend large budgetary and stimulus amounts on improving infrastructure, the construction industry still looks prepared for an active year.

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