Construction under the Philippines' Build, Build, Build infrastructure programme forges ahead


The Philippines’ construction industry is entering a period of strong growth, supported by government spending led by President Rodrigo Duterte’s signature Build, Build, Build (BBB) infrastructure programme. Primarily a transport initiative, BBB is also leading to ancillary construction and development around airports and seaports, especially residential and retail projects. On the back of solid economic growth and enabling policies, as well as robust domestic compounded by Chinese demand for property, BBB is proving to be the necessary vehicle to realise President Duterte’s “golden age of infrastructure”.

Structure & Oversight

The Construction Industry Authority of the Philippines (CIAP), a state agency chaired by the secretary of the Department of Trade and Industry (DTI), regulates building in the country. Board members include the secretaries of the Department of Public Works and Highways (DPWH), the Department of Transportation (DOTr) and the Department of Labour and Employment (DOLE).

Flagship infrastructure projects under BBB are reviewed by the National Economic and Development Authority (NEDA), which is responsible for overseeing broad economic strategy. Many large BBB projects fall under the remit of the DPWH, as it is oversees the construction and maintenance of roads, bridges and waterways. The DOTr, meanwhile, handles rail and airport projects, and the Bases Conversion and Development Authority is responsible for mixed-use developments at former US military facilities.

In March 2019 the CIAP, the DTI and the Philippine Constructors Association (PCA) launched the Construction Industry Roadmap 2020-30. The plan aims to significantly grow the industry’s contribution to the economy from P2.3trn ($42.8bn) in 2018 to P130trn ($2.4trn) by 2030, while boosting employment from 4m to 7m personnel. “If we follow the roadmap, government and the private sector can generate total spending of P130trn ($2.4trn) over the next 10 years,” Anthony Mariano, programme director for digitalisation and transformation at the PCA, told OBG. In order to address the possibility that a change in administrations may hinder the smooth progress of infrastructure projects, the roadmap proposed a 30-year master plan that mandates infrastructure spending reach at least 5% of GDP each year.

Developments to Watch

In the meantime there is uncertainty over the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill that passed in September 2018. TRABAHO, on one hand, reduced corporate income tax from 30% to 20% by 2029, while also removing many tax incentives for industries investing in economic zones within two years. This in turn may limit the amount that manufacturing companies invest in new facilities.

A larger global trend could also impact demand from business process outsourcing (BPO) companies. These firms are exploring the potential of replacing front-line jobs with artificial intelligence, primarily in the form of chatbots (see BPO & Creative Economy chapter). However, demand is expected to stay high in the medium term. “Even though BPO is undergoing a transition due to the disruption from automation, demand for BPO office space remains a key driver of growth in the construction and real estate sectors, along with the surge in the growth of offshore gaming firms,” Joseph Homer Macapagal, country chief executive for international testing, inspection and certification agency Bureau Veritas, told OBG.

IT and BPO firms accounted for the most office space transactions in the first quarter of 2019, at 36% of the total. Traditional offices made up the second-largest contribution, at 35%, followed by offshore gaming operators at 29%. Office space demand by the latter surged 118% year-on-year (y-o-y) in the first quarter of 2019 to 106,000 sq metres, according to Philippines-based international property consultancy Pronove Tai, causing some firms to go into pre-leasing.

Doing Business

In 2018 net inflows of foreign direct investment (FDI) fell for the first time in three years to $9.8bn, according to the central bank, Bangko Sentral ng Pilipinas (BSP). This was down 4.5% on 2017, a record year of $10.26bn. The drop can be partially attributed to the uncertain external environment, which saw global FDI dip amid the ongoing US-China trade dispute and Brexit developments. Still, the government is making efforts to improve the domestic business environment and ensure the Philippines is an attractive destination for international investors. Towards this end, the government passed the Ease of Doing Business and Efficient Government Service Delivery Act in May 2018.

The act is also an attempt to elevate the Philippines’ ranking in the World Bank’s annual ease of doing business index, which in 2019 was 124th out of 190 economies – 11 places lower than the prior year – with a slightly lower score of 57.68 out of 100. The Philippines ranked 94th in the ease of obtaining construction permits category, with building a warehouse in Quezon City requiring 23 approvals, against a regional average of 15 in East Asia and the Pacific. Permit costs amounted to 2.5% of the warehouse value, compared with 1.9% in the wider region.

To become more competitive in this area, the legislation mandates a single form combining various building clearances, local government approvals and tax-related permits, while also requiring government agencies to respond to transaction requests within three to 20 working days, depending on their complexity. The law further aims to create a one-stop shop for business permit processing, both online and offline; a more centralised approach to permit registrations; and the enforcement of strict deadlines on local government offices for processing transactions.

Performance & Size

Economic growth of 6.2% and government-led infrastructure investment under BBB helped expenditure in the construction industry expand by 15.9% in 2018, reaching P625.23bn ($11.6bn). Gross industry value rose by 21% that year to P2.35trn ($43.7bn), accounting for 7.13% of GDP, and was spread across more than 150,000 projects nationwide. Construction output accounted for an average of 6% of GDP over the 2010-17 period.

In 2018 the value of private sector projects grew by 18.4% to P1.68trn ($31.2bn), compared to growth of 27.7% in public projects to P671bn ($12.5bn), according to the Philippine Statistics Authority (PSA). Government spending on infrastructure rose by 41.3% to P803.6bn ($14.9bn), equal to 5.1% of GDP, with the DPWH receiving the lion’s share of P538.2bn ($10bn) for road building and rehabilitation work, as well as flood control projects. At an economic briefing in February 2019, Benjamin Diokno, the former budget secretary and current BSP governor, shared that government outlay on infrastructure is set at P910bn ($16.9bn) for 2019 – 4.7% of estimated GDP.

However, delays in passing the 2019 budget due to an impasse in Congress weighed on infrastructure spending in the first half of the year. Consequently, the late disbursement of funds postponed the commencement of some projects until the rainy season of June through October. In April 2019 the DTI said it expects construction industry growth for the year to be in the “low teens” – behind the rate of 16% observed in 2018 – as a result of the delayed budget and the moratorium on disbursing public funds between March 29 and May 12, 2019, in light of the congressional mid-term elections. Looking ahead, the budget allocation for infrastructure should reach P1.22trn ($22.7bn) in 2020 and rise to P1.81trn ($33.7bn) in 2022 – totalling 7% of GDP.

The sector continues to enjoy healthy jobs growth, with DOLE reporting in April 2019 that construction’s share of employment rose to 9.5% in October 2018 from 8.5% a year earlier, accounting for a total of 3.9m jobs. Nevertheless, there is still difficulty in sourcing the manpower required to carry out the country’s BBB projects. Indeed, according to OBG’s March 2019 CEO Survey of four South-east Asian nations, engineering was the most common response (31%) among Philippines-based CEOs when asked to pinpoint the most-needed skill in the domestic workforce. In comparison, the average response for engineering across all four countries was 18%. “Labour supply is scarce; there is a lack of engineers as well as unskilled construction workers,” Fredric Chung, co-founder and director of AtlasLand, told OBG. “Engineers are becoming very expensive.”

President Duterte has acknowledged a shortfall in the supply of skilled construction workers, with the prospect of higher salaries overseas often cited as a reason for the shortage (see analysis).

Building Materials

The prices of construction materials remained steady throughout most of 2018, but began to increase slightly in the first couple of months of 2019, particularly in Metro Manila. Indeed, in the National Capital Region (NCR) the Construction Materials Retail Price Index rose by 0.04% in April 2019 over the previous month, which increased by 0.03% compared to February 2019. The higher costs in April primarily stemmed from heightened prices for carpentry and plumbing materials. Moreover, April 2019 marked a 1.7% y-o-y increase, while March showed an annual climb of 1.9%.

In January 2019 the Asian Infrastructure Investment Bank reported that building costs will likely rise further. BBB demand is projected to absorb domestic materials supply, opening the door to imports that could become more expensive if the peso weakens. “The surge of volume in construction and the lack of domestically manufactured construction materials like rebar and concrete are a hindrance to real estate and construction expansion,” Richard Ray King, president of Cebu-based RFK Holdings, told OBG.

The prospect of rising costs is of particular concern to contractors involved in power plant projects that have yet to secure the power supply agreements necessary for them to begin construction. For example, delays to the agreement for Manila Electric Company – better known as Meralco – and its 2x600-MW coal-fired plant in Atimonan, Quezon, placed construction in limbo. This is likely to result in a renegotiation of financing terms, which Oscar Reyes, the former president of Meralco, has suggested will lead to P3bn ($55.8m) in additional annual costs amid higher interest rates and a weaker peso.


In December 2018 the Cement Manufacturers’ Association of the Philippines (CMAP) called attention to the fact that 13% of national annual cement demand was being met by imports despite the local industry having sufficient capacity, and requested that the government level the playing field for domestic players. According to the CMAP, the country had an installed and operating capacity of 34.5m tonnes at the beginning of 2019, while annual demand was roughly 25m tonnes in early 2018. In response, the DTI began levying a safeguard tariff of P210 ($3.91) per tonne of imported cement in February 2019 for an initial period of 200 days. This decision was opposed by the Management Association of the Philippines, which says domestic producers have failed to keep up with demand. Figures cited in local media put cement production in 2015-17 at 73.1m tonnes, versus demand of 78.9m tonnes.

Annual cement demand could reach as high as 40m tonnes by 2022, according to some industry estimates, requiring local players to secure licences for new quarrying operations if they intend to keep pace. Pronove Tai says the local cement shortage led to a 30% delay in building completions in the first quarter of 2019. The situation was likely exacerbated by Holcim Philippines temporarily closing its grinding plant in Batangas in February 2019 under orders from the local Environmental Management Bureau.

In this climate domestic players are ramping up production. In July 2018 CEMEX Philippines said that increased demand stemming from the BBB prompted the company to invest P3bn ($55.8m) in building another 1.5m-tonne cement production line at its Antipolo plant. The addition brings the facility’s capacity to 3.4m tonnes per year to capitalise on the 8-10% per year projected growth in cement demand.


Capacity for steel is also set to expand in step with the implementation of BBB, yet the Philippines remains a regional laggard in terms of steel production and consumption. Domestic mills almost exclusively produce rebar, and the country relies on imports for roughly 70% of consumption.

Wellington Tong, president of Pag-asa Steel Works, told OBG that the country needs to grow and diversify steel usage beyond construction in order to increase consumption in the longer term. An example of this is for steel to be used more widely in industrial activities related to shipbuilding, and appliance and equipment manufacture, among others.

“Today the Philippines consumes approximately 11m tonnes of steel per year, but growth in steel consumption lags behind that seen in neighbouring countries,” he told OBG. “Thailand and Vietnam used to be behind the Philippines in steel consumption but now Thailand consumes 16m and Vietnam 20m tonnes per year.” In April 2019 Roberto Cola, president of the Philippine Iron and Steel Institute, told local media that steel consumption will likely rise by 5-6% in 2019, to approximately 11.1m tonnes.

On the production side, Chinese steelmakers are actively exploring new investment opportunities overseas, including in the Philippines, in the face of a prolonged trade dispute with the US and environmental limitations on expanding domestic capacity. China’s second-largest steelmaker, HBIS Group, announced in December 2018 that it had signed a memorandum of understanding for a $4.4bn steel complex in Mindanao that will produce 8m tonnes of steel per year: around 4.5m tonnes of hot-rolled coil and 600,000 tonnes of slab is set to be produced annually under the first phase, valued at $3bn. If implemented according to plan, the project would represent the biggest industrial investment from China in the Philippines to date.

Demand Drivers

The BBB programme is certainly the engine propelling the construction industry forwards, and with it has been a proliferation of ancillary building nationwide – particularly outside of Metro Manila. Data from the PSA shows that the value of construction in the fourth quarter of 2018 rose by 49.8% y-o-y to P122.4bn ($2.3bn), with residential units accounting for 47% of that total, up 38.3% as a result of strong demand for condos, duplexes and quadruplexes. Foreign entities and individuals are limited to owning 40% of land development projects in the Philippines, including residential developments. This means individuals can purchase condominium units if at least 60% of the building is owned by Filipinos, and Chinese investors have been quick to take advantage, particularly in Metro Manila.

Congestion in the capital and the technical difficulty of realising new projects close to Manila Bay are driving up the costs of a number of major construction projects. This, alongside the BBB’s focus on transport infrastructure – particularly new airports – is spurring a trend of decentralisation and increased construction in the provinces. “The solution to Metro Manila’s congestion is to develop new cities in the provinces – or even around Metro Manila in the Subic-Batangas corridor – that can be built with an urban master plan,” Romolo Nati, chairman and CEO of Italian-Filipino real estate firm Italpinas, told OBG.

The PSA data shows that Calabarzon, which borders the NCR to the east and the south, accounted for one-quarter of the 40,369 building permits approved in the fourth quarter of 2019. Central Visayas followed with 13.8%, then Central Luzon with 10.9%, the NCR with 7.7% and Davao with 7.3%.


The BBB programme is being led by the construction of new airports and seaports, as well as the renovation of existing facilities, which in turn is facilitating the development of nearby complexes combining commerce with recreational centres and housing. Since 2017, six airports have been upgraded under the DOTr, including the Mactan-Cebu International Airport. This P17.5bn ($325.5m) public-private partnership (PPP) saw Terminal 2 and its apron upgraded by the first quarter of 2019, with further development of Terminal 1 and its associated facilities almost complete at that time.

Other airports developed under the programme include New Bohol (Panglao) Airport, Puerto Princesa Airport, San Vicente Airport, Virac Airport and Maasin Airport. Furthermore, the DOTr completed the Cavite Barge Gateway Terminal, known as CGT, and the Parañaque Integrated Terminal Exchange, called the PITX, for intercity buses in 2018.

Other BBB projects include the third stage of the Metro Manila Skyway, set at P37.4bn ($695.6m). It is scheduled for completion in 2020, along with the P12.55bn ($233.4m) Clark International Airport expansion. Meanwhile, the P64.9bn ($1.2bn) Light Rail Transit Line 1 Cavite extension proposed under a previous government began construction in May 2019.

Beyond the Plan

Private players also have the opportunity to submit unsolicited proposals for infrastructure projects, and this is what San Miguel Corporation (SMC), the Philippines’ largest company by revenue, did shortly after President Duterte took office. In partnership with South Korea’s Incheon International Airport Corporation, the P735.6bn ($13.7bn) proposal is to shoulder the entire cost of building, operating and maintaining a new airport in Bulacan, which is being referred to as the New Manila International Airport (see Transport & Infrastructure chapter). Providing a concession agreement between SMC and the DOTr is approved – which is expected to occur during the third quarter of 2019 – the four-runway project will accommodate up to 100m passengers per year and link with various expressways under construction around the capital.

Roads and expressways are generally progressing less rapidly than airport and seaport projects due to difficulties acquiring right-of-way permissions. Still, one recent completion is the P1.3bn ($23.8m) Laguna Lake Highway in Taguig that opened in November 2018. The 7-km passage has two lanes in both directions, as well as a bike lane and sidewalk to more safely accommodate cyclists and pedestrians.

China & Japan

Some industry participants are frustrated that projects involving official development assistance (ODA) – primarily from China and Japan – are being fast-tracked ahead of opportunities for Philippine companies, despite the latter being bound by less stringent investment criteria. This is partially because the China has emerged as a key partner in financing and executing BBB projects through its state-owned enterprises. Bilateral ties between China and the Philippines have warmed under President Duterte despite periodic spats over territorial claims in the South China Sea and calls to reduce the number of Chinese migrant workers.

“The Philippines needs FDI that brings technology transfer to local companies, as it is one of the components that they lack to implement large-scale infrastructure projects,” Morris Agoncillo, president of the PCA and president of construction firm Datem, told OBG. Agoncillo added that 14 projects under the BBB programme are to be funded through ODA, with several more approved by NEDA also set to receive foreign loan financing. China has agreed to provide around $24bn of ODA to the Philippines, but only a small portion of this – including $62.1m for the Chico River Pump Irrigation Project and $232.5m for the New Centennial Water Source-Kaliwa Dam Project – had materialised as of mid-2018.

Transport infrastructure is a focus of Chinese-Philippine partnership under an Infrastructure Cooperation Programme signed in November 2018, yet the country is playing a role in a variety of projects. Works lined up for Chinese assistance include the Ambal-Simuay River and Rio Grande de Mindanao River flood control projects, Davao-Samal Bridge construction project, Pasig-Marikina River and Manggahan floodway bridges construction project, Subic-Clark railway project, the rehabilitation of the Agus-Pulangi hydroelectric power plants project and the Safe Philippines project, where an initial 12,000 surveillance cameras are to be installed in Metro Manila and Davao by China’s Huawei.

Japanese ODA, meanwhile, is facilitating BBB’s largest project, the P356.96bn ($6.6bn) Metro Manila Subway. The line is envisioned to link 15 stations from Quezon City’s Mindanao Avenue to Manila’s Ninoy Aquino International Airport along 36 km of track. In March 2018 the Japan International Cooperation Agency agreed to extend a P51bn ($948.6m) loan to the Philippine government for the first phase of construction, while a deal for the design and construction of three stations was signed in February 2019.

Other major works include the unsolicited proposal for the $3.7bn Makati City Subway, which is set to break ground in the second half of 2019 with the backing of several Chinese financiers; the $1bn Metro Cebu Expressway to connect Naga City to Danao City; and the ongoing development of Clark to host central government functions that are being moved from Manila. The final project includes upgrades to the international airport in Clark and a rail line connecting the city to Malolos in Bulacan province.


The coming years are expected to be positive for construction, with the BBB providing the momentum stakeholders need to confidently plan for the future. Still, obstacles include delays in ODA, rising costs as the supply of building materials struggles to meet demand and a shortage of local skilled labour. Nonetheless, BBB projects aimed at improving the connectivity are driving works beyond the government’s plans, primarily in residential building (see Real Estate overview).

Congressional approval of a mandated infrastructure funding level of 5% of GDP for 30 years will be another important determinant for future investment by continuing to prioritise building and providing long-term stability for the construction sector.


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The Report: The Philippines 2019

Construction & Real Estate chapter from The Report: The Philippines 2019

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