The Philippines: Building investment

The Philippines’ construction sector appears set for a busy year, with the state planning to inject billions into the industry. While the government’s infrastructure programme continues to ramp up, the country’s contractors are looking forward to increased public spending after a slower-than-expected 2011.

Under the 2012 budget, the government of President Benigno Aquino III allocated $4.15bn for infrastructure projects, a 25.6% increase on the funds set aside in 2011. The two agencies to benefit most from this higher spending are the Department of Public Works and Highways (DPWH) and the Department of Education, with the former receiving $2bn for roads, bridges and flood-control projects, while the latter was allocated funds to clear the shortfall in classrooms across the country, an election pledge made by Aquino.

The increased pace of state-backed projects will be welcomed by the building trade, as a slower GDP growth rate over 2011 was largely attributed to a lack of public spending. However, given the expected ramping up of government projects in 2012, most forecasts of the domestic economy suggest an increase in growth this year. Estimates vary as to the rate GDP will expand, with the Aquino administration targeting 5-6% growth, while in a December statement, the IMF placed the figure at a more conservative 4.2%. This compares to an estimated 3.7% last year, though well down on the 7.3% of 2010.

With many leading economies again teetering on the edge of recession, and growth expectations continuing to lower, it is possible that the Philippines may also experience a further cooling, thus making state spending increasingly important.

If last year’s performance provides any indication, the government may struggle to realise its ambitions, with the list of uncompleted or yet-to-be-commenced projects lengthening as the year progressed. Some of this delay was imposed by forces beyond the government’s control, with damage and flooding from tropical storm Sendong in December forcing a reallocation of resources and interrupting work on many projects.

Of greater impact, though, was the tightening of bureaucratic procedures covering the planning and letting of contracts imposed by the government as part of its campaign to eliminate corruption and waste of resources. Though laudable in its intentions, the new regulatory regime has slowed work on large-scale construction projects.

In mid-January, Rogelio Singson, the DPWH’s secretary, was prompted to defend the pace at which projects were being tendered, saying that a measured approach was necessary to ensure the best and most cost-effective results.

“We are not here for the sake of spending,” Singson said. “The easiest thing for us to do is to spend. But that is not the policy of the Aquino administration. We want to ensure that we spend for the right project, at the right cost.”

On January 12, Budget Secretary Florencio Abad announced that most government departments had been provided with the bulk of their budgetary allocation less than two weeks into 2012, with those agencies tasked with infrastructure projects provided with sufficient funds to at least begin their tasks.

“For infrastructure, easily about 70% has been released as of today,” Abad said. “There can now be no excuse that no release was made.”

Though the government’s main priority is to develop the infrastructure necessary to facilitate continued economic growth, the Aquino administration is also looking upon the investment programme as a way of reinforcing the role of the private sector.

“For the first time this year, we will involve the private sector for bulk construction,” he said.

The industry will be awaiting the roll-out of public-private partnership (PPP) projects, long touted as a focus of this administration, though only one PPP project has been tendered 1.5 years into the administration.

Even with the increased role allocated to the private sector, delays are still expected. The Department of Education has already warned it may not be able to complete all of the some 50,000 classrooms it hoped to have built by the end of the year, though Education Secretary Armin Luistro said in late December he was confident at least 30,000 would be constructed by December 2012, with the remainder finished by the middle of 2013. Tenders for the first 10,000 of the new classrooms have already been called.

While the construction industry may continue to encounter delays over the course of the coming year, the expected increase in public spending is anticipated to provide further strength to the sector and to the wider economy. Coupled with an already booming real estate and construction market, this new spending on public infrastructure works should further cement the industry’s continued role as one of the country’s primary growth engines for 2012.

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