Build, Build, Build development programme to boost the Philippines' construction industry and close the infrastructure gap


Favourable government policies and a growing, increasingly urbanised population have created fertile ground for the expansion of the Philippines’ construction sector in recent years. Driven by major investments in transport networks, residential complexes and social housing, the construction industry grew at an average annual rate of 12% from 2012 until 2016. The annual growth rate more than halved in 2017, falling from 12.1% to 5.3%, but as of the first quarter of 2018, growth was registered at 9.3% year-on-year (y-o-y).


In recent years the peso has come under sustained pressure as capital goods imports have surged to serve the needs of major infrastructure projects, with the current account deficit swelling to $2.52bn in 2017 – more than double the 2016 deficit of $1.2bn. This largely stems from the flagship Build, Build, Build (BBB) campaign of President Rodrigo Duterte’s administration. At an estimated total cost of $158bn, the scheme has 75 priority projects under its purview, including airports, rail and urban transport projects, plans for water transport and power plant ventures.

In September 2017 an inter-agency panel chaired by President Duterte approved four major infrastructure projects worth P386.3bn ($7.6bn), including the country’s first subway, which is being billed as Southeast Asia’s “project of the century” (see Transport & Infrastructure chapter). For the most part, these bigticket projects are being driven by official development assistance (ODA) and state funding, with the subway project receiving P51.4bn ($1bn) in funding from the Japanese government, for example.

As of January 2018, a total of 60 infrastructure projects were either under construction or in the pre-construction phase, according to a statement from Gil S Beltran, undersecretary of the Department of Finance (DoF). Of this total, 15 are big-ticket developments, with eight of these larger projects confirmed as ODAfunded. In some cases, support also comes from the private sector in the form of public-private partnerships (PPPs). In terms of contractors, a number of international firms are already lining-up to participate, or are being encouraged to do so. “Japanese, Chinese and of course Filipino companies seem to be in prime position to execute the BBB plans,” Romolo V Nati, chairman and CEO of Italpinas Development Corporation, told OBG. “However, I believe that more European companies should also look at entering the market, as there are FUNDING: Prior to the current administration’s massive infrastructure drive, cash-laden developers were the key driving force behind new construction projects. While private investment saw the industry expand at a rapid rate, state spending lagged behind until the Duterte administration and an influx of foreign loans ushered in a wave of public infrastructure development.

Before the BBB programme, foreign and local businesses generally expressed frustration with the sluggish pace of PPPs under former president Benigno Aquino III. As a result, President Duterte has opted to fund bigticket projects primarily through state funds and the application of below-market-rate loans by way of ODA. Room has also been left for unsolicited proposals and hybrid PPPs, whereby operations and maintenance, or engineering, procurement and construction works are contracted out to the private sector while the development costs are met by the state and ODA.

Ensuring projects materialise on time is another important facet in creating strong working relationships with funding partners. “With all the projects being executed under the BBB programme, the government may choose to address business disagreements through the faster and less expensive practice of dispute avoidance as they are about to occur rather than wait for disagreements to escalate to full blown disputes and resolving such disputes by turning to a more costly and time consuming dispute resolution mechanism like arbitration or litigation. This will help to keep building moving forward, especially concerning projects receiving ODA or foreign-funded works with international contractors and stakeholders,” Salvador P Castro Jr, country representative for the Philippines of the Dispute Resolution Board Foundation, and president and CEO of construction firm SPC astro, told OBG REFORM: Despite considerable growth, the construction sector’s economic contribution is constrained by a cumbersome permit process and a relatively shallow talent pool. Some lawmakers have been pushing to replace the decades-old Republic Act No. 6957 of 1999, also known as the Build-Operate-Transfer Law, with Senate Act No. 951, otherwise known as the PPP Act, in an effort to further accelerate national infrastructure development through more effective collaboration between government and the private sector.

Among other objectives, the proposed law aims to ensure sufficient competition and a non-discriminatory tender process by adopting a new framework on unsolicited proposals, creating a risk-management programme, refining implementation methods and prohibiting regulatory bodies from implementing deals that they regulate. The proposed law was considered a priority in the final months of the Aquino III administration, but as of the second quarter of 2018, it was still pending before both houses of Congress.

Although conventional PPPs fell out of favour early in the Duterte administration, efforts to promote the use of capital market financing and the proposed PPP Act could simplify and clarify rules for such joint projects going forward. While high levels of liquidity among developers limited the use of the domestic capital markets for financing in the past, the recent drive to narrow the national infrastructure deficit has highlighted the need to diversify financing options. With the support of the Asian Development Bank and the US Treasury Department’s Office of Technical Assistance, the domestic PPP Centre has pushed for reforms that will promote the use of capital markets for infrastructure funding. In addition, in December 2016 the Philippine Stock Exchange issued specific listing rules for PPP companies. With the primary objective to support the development of well-structured, bankable projects that attract private investors, the PPP Centre has also been instrumental in supporting legislation that facilitates right of way for national infrastructure projects.

Notable conventional PPPs that have been awarded or continued under the Duterte administration include the Mactan-Cebu International Airport passenger terminal building, valued at P17.5bn ($345.7m); phase two of the Ninoy Aquino International Airport Expressway, costing P17.9bn ($353.6m); the P64.9bn ($1.3bn) light rail transit Line 1 Cavite extension; the P35.43bn ($700m) Cavite-Laguna Expressway; the P62.7bn ($1.2bn) Metro Rail Transit Line 7; and the North Luzon Expressway-South Luzon Expressway Connector Road Project, estimated to cost P23.2bn ($458.3m).


In an effort to accelerate the implementation of infrastructure projects, the Department of Public Works and Highways (DPWH), which is responsible for the planning, design and construction of national roads, bridges, water resources projects and other public works, received a total budget allocation of P650.87bn ($12.9bn) for 2018 – a 39% increase over 2017 – of which P613.2bn ($12.1bn) is earmarked for the construction of various infrastructure projects. According to DPWH data, the two main targets of the department’s infrastructure outlays for the year are the construction of highways, at P286.22bn ($5.7bn) or 47% of the total, followed by flood control efforts, at P127.73bn ($2.5bn) or 21% of the total. In terms of geographic spread, Mindanao will receive the lion’s share of DPWH expenditure, at 36.5%, followed by Northern Luzon at 21.75%; Southern Luzon (21.08%); Visayas (16.52%); and the National Capital Region (7.46%).

Launched in February 2017, the Philippine Development Plan (PDP) 2017-22 aims to make the Philippines an upper-middle-income country by 2022. At the same time, the construction industry’s output in real terms is expected to rise at a compound annual growth rate of 9.79% through to 2021. According to the Department of Budget and Management, government spending increased by 10% in the first 10 months of 2017 in comparison to the same period of 2016, reaching a total of P2.24trn ($44.3bn). Spending in October 2017 rose by 28.2% to P226.9bn ($44.3bn), with infrastructure accounting for P51.5bn ($1bn), up 17.8% y-o-y. Given the PDP targets and BBB initiatives, spending on public infrastructure is expected to increase for the foreseeable future, from 5.4% of GDP in 2017 to around 7.3% of GDP by 2022, equating to an estimated P8.4trn ($166bn) through to 2022.

Room for Improvement

While the sector has witnessed steady growth in recent years, applying for construction permits remains unnecessarily cumbersome, causing considerable delays that sometimes stall investment and restrict development. According to the World Bank’s “Doing Business 2018” report, construction permits take around four months to acquire, entailing 23 procedures and costing some 2.6% of the warehouse value. This ranks the Philippines 101st out of 190 countries for dealing with construction permits. Property registration ranked even lower, at 114th, with nine procedures taking up to 35 days to complete and costing approximately 4.3% of the property value.

Given the commitment to tackling the infrastructure deficit, major steps are being taken to expedite projects. “The PPP Centre has been vocal about making the procurement process more agile so that it better meets the needs of companies involved,” Patrick N David, president of AlloyMTD Philippines, told OBG. “Risk-sharing measures, as well as the removal of ambiguity in parts of the legislation, will also be necessary steps to enhance the ease of doing business.”

In addition to permit delays, identifying suitable land, particularly outside urban centres, can be troublesome. “The Department of Agriculture has imposed a twoyear delay on land conversion that is affecting land not being used for agriculture,” Telesforo E Peña, founder of T&D Design Consultancy, told OBG. “This is affecting investment and companies’ ability to execute projects.”

Efforts to narrow the infrastructure gap is evidenced by the signing of Executive Order 30 in mid-2017 and the creation of the Energy Investment Coordinating Council (EICC), an inter-agency group overseen by the Department of Energy aimed at simplifying the approval process of permits related to big-ticket projects in the sector (see Energy chapter). Expected to accelerate major energy projects – particularly the construction of coal-fired power plants – Executive Order 30 should act as a major driver of infrastructure development. Previously the permit process for energy projects could take as long as four years, with more than 300 signatures needed from around 70 different agencies. Under the new ruling, an application for any energy project of national significance should receive a decision within 30 days. The new guidelines state that each agency involved in the permit process must act on presumption of prior approvals. While moves to close existing gaps have been welcomed, some scepticism remains due to the fact that many planned infrastructure projects failed to come to fruition under previous governments. “Continuity is necessary to avoid pet projects being dropped by the next administration,” Dan Simeon, country head of PEB Steel, told OBG. “Concerted, long-term plans will benefit the Philippines, as it seeks to maximise the favourable economic situation it is currently experiencing.”


Alongside the expansion of infrastructure works, demand for construction materials has steadily risen, with cement sales reaching 24.4m tonnes in 2015, according to the latest available data from the Cement Manufacturers’ Association of the Philippines (see analysis). The Philippines imported 6m tonnes of cement in 2016 alone, with similar volumes of imports expected for 2017, according to international media reports. With the gap between local production and market demand increasing, a deficit in cement production is expected through to 2020, after which point local capacity-expansion projects will come on-line.

In late 2017 Holcim Philippines invested a reported P1.5bn ($29.6m) in a mechanised ship unloading and loading facility, as well as a grinding facility to increase annual capacity from 1.4m tonnes to 2.2m tonnes. For its part, Taiheyo Cement Philippines invested P30m ($592,700) in mid-2017 in a new cement plant in Panacan, Davao City, which was set to open in early 2018. Meanwhile, Semen Indonesia International, an Indonesian cement company, is looking to expand into Mindanao, where it is already exporting around 20,000 tonnes of cement. In the interim, however, imports from China, Vietnam and other ASEAN members will be needed to satisfy rising domestic demand.

With higher volumes of imports expected, local cement importers have been lobbying the Department of Trade and Industry (DTI) to allow pre-shipment inspection and certification of cement, which has been met with opposition by local producers who prefer inspection after shipment.

To level the playing field, the DTI announced in October 2017 that a department administrative order will include an import commodity clearance and product safety mark process to ensure product standard compliance. The DTI also aims to remove the requirement that shipments be held at a warehouse while samples are tested. Under the new process, pre-shipment testing shall be conducted by a testing laboratory recognised by the Bureau of Philippine Standards (BPS). The identified laboratory is then required to submit the original copy of test reports – after three, seven and 28 days – directly to the BPS. If the subsequent three- or seven-day compressive strength testing meets the 28-day strength and chemical composition requirements for cement, a certificate of conditional release shall be issued. Once the cement arrives at the port of entry, the importer is required to notify the BPS or the closest DTI office in writing that the shipment is ready for inspection. The shipment will then be transferred to the warehouse and shall not be used or offered for sale until results of testing are verified.


The steel segment, similar to cement, is expanding alongside the BBB initiative. For the most part, domestically produced steel has been limited almost exclusively to rebar, used in the construction of everything from bridges to high-rise towers. According to March 2017 reports from the US International Trade Administration, steel plates and other products are mostly imported, with China, Japan, South Korea and Taiwan accounting for 96% of all steel imports in 2016. The Philippines is the world’s 16th-largest steel importer, accounting for 1% of all steel imported globally in 2015. In 2016 the country imported 8.1m tonnes of steel, a 152% increase over 2015. In terms of current account contribution, steel represented 3.8% of all imports in 2016, and as of March 2018 iron and steel was the second-fastest-growing import category after mineral fuels and lubricants, rising by 14.5% y-o-y.

Despite these positive trends, there are recurring security and import challenges for construction materials. In some cases, projects requiring grade-A materials end up utilising grade B supplies to cut costs. To address this problem, the Construction Industry Authority of the Philippines – a division of the DTI – is spearheading the creation of a construction road map.

With the support of international development agencies, a number of anti-dumping duties and countervailing duties, as well as associated suspension agreements, are set to be created to serve as safeguards for the industry. However, as of the first quarter of 2018, the Philippines imposed no anti-dumping duties or countervailing duties on steel, although it does have one safeguard on imports of steel angle bars from all countries.

Talent Pool

The availability of skilled and unskilled labour for construction projects in the Philippines remains a major concern for the future. “ASEAN integration has not had the desired effects in terms of human capital mobility,” Daniel Terence Yu, president of Philippine architectural firm Visionarch, told OBG. “For an architect to work in another ASEAN country, they still need accreditation and to adjust to the different regulations and liability criteria.” The rollout of big-ticket projects has resulted in the sector growing faster than the supply of labour. In response, free government training programmes are being offered in an effort to bolster the construction sector’s talent pool. According to data from the Philippine Statistics Authority, in January 2018 the industry’s workforce grew by 424,000 staff y-o-y to a total of 3.64m workers, accounting for 8.3% of employment across the country. The sector is expected to employ around 5.8m workers by 2022.


With the Duterte administration intent on addressing infrastructure needs, the outlook for the construction industry is positive. In the short to medium term, building will be largely concentrated in Mindanao, Metro Manila and Luzon, with transportation and energy projects leading the charge.

To support long-term progress, however, policymakers will work to further reduce the high number of approvals necessary for construction projects, which create timing and cost constraints for firms, and protect the industry from the importation of sub-par materials.

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The Report: The Philippines 2018

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