While the geographic features of the Philippine archipelago have historically hindered the creation of an efficient transport network, given the obstacles to increased productivity and growth posed by the country’s many islands and congested road system, the administration of President Rodrigo Duterte has made infrastructure development a top priority.
As a result, an array of major transport projects are being rolled out across the country under the Build, Build, Build (BBB) programme. The country’s transport network has struggled to keep pace with rising levels of urbanisation driven by robust economic growth; traffic congestion has become a national issue and roads and ports are over capacity.
To address this situation, the government has set about accelerating infrastructure investment, focusing on projects to integrate the archipelago’s islands and stimulate development, including major upgrades to road, railway and port systems.
Since 2000 the performance of the Philippine logistics sector has fallen in relation to that of other ASEAN countries. In the World Bank’s most recent Logistics Performance Index, published in 2016, the country ranked 71st out of 160 countries, with a score of 2.86 out of 5. This marks a fall from 44th in 2010, 52nd in 2012 and 57th in 2014. In comparison, Indonesia increased its ranking from 75th to 63rd, over the same time span.
Similarly, in the World Economic Forum’s “Global Competitiveness Report” for 2017-18, the Philippines ranked 113th out of 137 countries in terms of its quality of overall infrastructure, with its roads ranking 104th, railways (91st), seaports (114th) and airports (124th). Conversely, the country’s ASEAN counterparts Singapore, Malaysia and Thailand ranked second, 21st and 76th, respectively.
Due to geographic challenges and shortfalls in the current transport network, commuting between provinces remains costly. “Inter-island flights are more expensive than many international routes to Manila,” Stefan Schmitz, CEO of Antrak Logistics, told OBG. “This stems from infrastructure gaps that cause costs to rise and delays to increase.”
Under the current structure, transport policy and development falls under the Department of Transportation (DOTr), including all maintenance of land, air and seaports. Meanwhile, infrastructure development is the responsibility of the Department of Public Works and Highways (DPWH). In addition to the DOTr and DPWH, the National Economic and Development Authority (NEDA) has served as a critical driver of infrastructure investment, approving 155 projects valued at P2.87trn ($56.7bn) between 2010 and early 2018. Development has accelerated since President Duterte took office in June 2016, with 40 projects approved with a value of P1.23trn ($24.3bn) between In terms of strategy, transport development has been steered by a number of national development plans in recent years, such as the Philippine Development Plan (PDP) 2011-16 and the PDP 2017-22, both of which were geared heavily towards accelerating infrastructure development. The National Logistics Management Plan 2017-22 is another ongoing fiveyear master plan, which falls under the purview of While there is political consensus around the need for major infrastructure development, debate remains about the most appropriate way to finance the BBB programme. Given the long delays experienced in the delivery of public-private partnerships (PPPs) in the past, the Duterte administration has placed renewed emphasis on official development ODA-financed builds are beneficial in that they allow the country to access credit at rates that are below the prevailing market value and benefit from the engineering expertise of more advanced development partners. However, others within the broader business community have defended the traditional PPP model as an effective means to access private sector funding for public benefit while alleviating the financial burden on the state.
When involving the private sector, the government of President Duterte has tended to favour a hybrid PPP model, whereby financing is provided by state and ODA funds, and the private sector is involved in operations and maintenance or construction (see analysis). Many private stakeholders are hopeful of more opportunities arising as the BBB programme expands further, even if they do not come from conventional PPPs. “The private sector expects substantial opportunities in construction due to the large increase in the budget for the DPWH in 2018,” Ray Manigsaca, president of AppleOne Properties, told OBG. “With the pace of the BBB programme set to accelerate in 2018 and 2019, the country should see the rollout of major flagship projects.”
Investing for Growth
Under the BBB programme, an inter-agency panel chaired by President Duterte approved four major infrastructure projects with a combined value of P42.9bn ($847.5m) in the first four months of 2018, including bridges, roads and airport expansion. Work has also begun on the Philippines’ first subway system (see analysis). Together, these projects promise to alleviate a number of existing transport bottlenecks.
According to the Department of Finance, government spending on infrastructure is expected to increase from 5.4% of GDP in 2017 to around 7.3% of GDP by 2022, with $158bn earmarked for infrastructure spending until 2022. This is intended to boost economic growth to 7-8% starting in 2018. The government spent P568.8bn ($11.2bn) on infrastructure in 2017, a 15.4% increase on the previous year, according to the Department of Budget and Management, and in December alone, government spending on the sector increased by 23% year-onyear to P82.3bn ($1.6bn). Under the BBB programme, the DOTr and DPWH budgets in 2017 increased by 40.3% and 24.4%, respectively. A total of 75 flagship projects have been identified for rollout under BBB through to 2022, including six airports, 12 rail and urban projects, and four water transport projects, along with a host of non-transport-related projects, with the construction of coal-fired power plants a significant contributor to infrastructure expansion.
For 2018 the DPWH was allocated a budget of P650.87bn ($12.9bn), of which P613.2bn ($12.1bn) was earmarked for the construction of various infrastructure projects across the country. The DPWH has identified four priority projects, namely a traffic-decongestion programme, the creation of an integrated transport system, a rural road development programme, and the establishment of sustainable and resilient communities.
As part of efforts to upgrade the country’s road network, major cities are set to benefit from the development of the Luzon Spine Expressway, a 1040-km network of highways. The DPWH is also prioritising the upgrade of Manila’s bridges to ease the cities traffic issues. In addition to the 26 existing bridges crossing Pasig River, Marikina River and Manggahan Floodway, 12 new bridges will be constructed in the capital under the department’s Metro Manila Logistics Improvement Project.
Part of the DPWH’s budget will be used for the implementation of the Bonifacio Global City-Ortigas Business Centre link road, a 961-metre network which involves the construction of the four-lane Santa Monica-to-Lawton Bridge and Lawton Avenue-to-Bonifacio Global City viaduct. Meanwhile, the construction of the Binondo-Intramuros Bridge and the rejuvenation of the Estrella-Pantaleon Bridge will be financed by a grant from the Chinese government. The former, spanning 807 metres, will have a steel bowstring arch with intersecting inclined arches supporting a four-lane deck, while the existing Estrella-Pantaleon Bridge will be replaced with a twin-spine steel box girder with a four-lane concrete deck slab of approximately 560 metres. Both bridges are expected to be completed in 2020. Furthermore, under the Metro Manila Priority Bridges Seismic Improvement Project, the DPWH will rehabilitate the Guadalupe and Lambingan bridges.
In terms of regional development, the DPWH is overseeing the new Bacolod Economic Highway that will reduce travel time from Bacolod City to Silay Airport from 45 to 15 minutes, the 73.8-km Metro Cebu Expressway, the Davao City Coastal Road and the Davao City Bypass, intended to improve mobility in Davao City and its nearby provinces.
The Asian Development Bank (ADB) is also playing a critical role in improving and expanding the country’s growth corridors, with a notable work being the Mindanao Road Sector project, which involves the construction and improvement of 276.5 km of road network in the provinces of Zamboanga del Norte, Zamboanga del Sur and Zamboanga Sibugay. The project is the recipient of the first Mindanao-specific loan granted by ADB in 16 years, totalling $380m.
In an effort to expand and diversify sources of finance, efforts have been made to encourage more foreign investment in the economy. In a memorandum order signed in November 2017, President Duterte instructed the NEDA to ease restrictions on certain investment areas with that have limited foreign participation.
These areas include contracts for the construction and repair of locally funded public works and public services, except for public utilities. Senior figures in the administration also spoke in 2017 about their intention to ease or remove a range of additional restrictions on foreign investment and ownership in construction and other sectors currently included on the negative investment list. Nevertheless, as of May 2018 the revised list had yet to be published.
Rail & Air
Major investments across the aviation sector and rail network are also under way as part of the BBB programme. Shortly after taking office, the Duterte administration revived several stalled projects, including new light rail lines in Metro Manila and the construction of the country’s first underground public transport system in the capital (see analysis). At the same time, efforts to upgrade Ninoy Aquino International Airport and Clark International Airport, as well as expansion plans across a broad portfolio of regional airports, are set to bolster the country’s aviation segment.
The development of an integrated transport network is expected to have positive multiplier effects on the economy, particularly beyond the capital. “There are opportunities to create new transport hubs in secondary cities in the Philippines,” Dexter Comendador, CEO of AirAsia, told OBG. “Through better connectivity to a wider domestic and international network, the country will see increasing passenger flows and lower prices as more airlines look to the country to cover new routes.” Comendador also expressed confidence that Clark would become an attractive centre for inbound transport and tourism to the Philippines. “The Duterte administration’s infrastructure push, and the decision to connect Clark and Manila by road and rail will enhance the viability of Clark as a major economic hub, easily reachable from Manila,” he said.
As of May 2018 there were 44 infrastructure projects already under development in the country with another 15 major projects in the pre-construction stage. In terms of financing, the 15 big-ticket projects will be financed by different sources, with ODA backing eight of the projects, multilateral lenders supporting three, the government funding three and one being developed under a PPP.
The projects include the P355.6bn ($7bn) Mega Manila Subway, the P285bn ($5.6bn) North-South Commuter Railway, the P211.5bn ($4.2bn) Malolos-Clark Railway, the P134bn ($2.6bn) Philippine National Railway South Commuter Line, the P51.7bn ($1bn) Visayas-Mindanao grid interconnection, the P37.8bn ($746.8m) Metro Manila Bus Rapid Transit EDSA Line, the P35.3bn ($697.4m) Mindanao Railway Phase 1, the P25bn ($493.9m) Metro Manila Flood Management project, the P12bn ($237.1m) C5 South Link Expressway, the P11.4bn ($225.2m) construction of 30 bridges across the archipelago, the P5.5bn ($108.7m) Metro Manila Bus Rapid Transit España-Quezon Avenue Line, the P4.4bn ($86.9m) Arterial Road Bypass, the P4.6bn ($90.9m) Binondo-Intramuros Bridge, the P1.4bn ($27.7m) Estrella-Pantaleon Bridge and the P1.2bn ($23.7m) partial redevelopment of Marawi City.
The primary transport corridor in the Philippines is an integrated network of highways and ferries that form the Strong Republic Nautical Highway (SRNH). Stretching 919 km, the SRNH covers the major provinces and cities of Oriental Mindoro, Tagaytay City in Cavite, Marindugue, Romblon and Batangas City in Luzon, along with Aklan, Antique, Iloilo, Capiz, Negros Oriental, Negros Occidental, Bohol, Bebu, Guimaras and Siguijor in Visayas, and Misamis Occidental, Misamis Oriental, Lanao del Norte and Dapitan City in Mindanao. The integrated network was opened in 2003 and is designed to facilitate economic integration and the efficient movement of goods and people.
Around 80% of Metro Manila residents use public transport on a daily basis, with rising demand continuing to weigh on already overstretched municipal and state-owned transport services. The Metro Rail Transit system, for example, carries around 600,000 passengers per day, despite having a design capacity for just 350,000. As a result, the majority of commuters opt to travel via bus or jeepney; around 71% of journeys are made using these road-based transport options, according to the Japan International Cooperation Agency (JICA).
Over 50% of these vehicles are privately owned, small-scale enterprises, competing for road space with publicly owned services. This reliance on private vehicles is a key contributor to congestion, which is set to rise as car sales increase and urbanisation accelerates. This traffic situation in Metro Manila currently costs an estimated P3.5bn ($69.1m) in lost productivity per day, according to the JICA.
As with many mega-cities, chronic congestion and traffic delays in Metro Manila have contributed to the expansion of private and corporate helicopter usage. Furthermore, an increasing number of local private companies have begun to offer helicopter rental and ride-sharing services, providing additional options to avoid city traffic.
The paved road network gradually increased across the country between 2007 and 2017, expanding at an average annual rate of 4%. This was achieved through a 10,029-km expansion in paved roads and a 6531-km decrease in unpaved roads. By the final quarter of 2017, 94.4% of national roads were paved.
There were a total of 32,868 km of roads across the Philippines in 2017, according to data from the DPWH. Some 64.4% or 21,181 km of the network was made of concrete, while 30% or 9854 km was surfaced with asphalt, 5.4% (1779 km) with gravel and 0.2% (53.7 km) with earth.
In terms of geographic spread, Region VI – which includes the provinces of Iloilo, Capiz, Aklan, Antique and Guimaras – has the longest area of concrete roads, with a total length of 2275 km, while the National Capital Region (NCR) has the shortest area of concrete roads, at 435 km. Region IV-A, also known as Calabarzon, has the longest aggregate asphalt road length, at 1532 km, while Region IV-B has the shortest, with only 124 km. The NCR and Region I have the highest ratio of paved roads or roads composed of concrete or asphalt, with virtually no gravel and earth roads. Among the three main islands, Mindanao had the smallest percentage of paved roads at 88.9%, followed by Luzon with 94.9% and Visayas with 99.2%.
According to a 2017 assessment of the national road network from the DPWH, 41.6% of paved roads were deemed to be of good standard, while 31% were considered fair, 12.3% were considered to be of a poor standard and 5.6% were deemed bad. Another 9.5% of paved roads received no assessment. In terms of road density – the ratio of the length of the total road network to the total land area – the national average is 10.6 km per sq km. The NCR has the highest, with 187.5 km of roads per sq km of land area, followed by Region IV-A, which has only 15.3 km per sq km. Cagayan Valley, meanwhile, has the lowest road density per sq km, at 6.5.
While there is still a need for improvement in terms of alleviating road congestion, rising investment in port infrastructure in recent years has yielded notable results. The Port of Manila ranked 32nd in the Lloyd’s List Top-100 Ports Ranking 2017, rising four places from the previous year’s report. The port, which is the largest in terms of revenue and throughput in the Philippines, managed to outpace a number of leading international ports in terms of container volume, including London, Melbourne, Piraeas, Vancouver and Seattle, in the Lloyd’s List Top-100 Ports Ranking 2017.
Increased volume-handling capacity at the Port of Manila’s international terminals was bolstered by the introduction of a Terminal Appointment Booking System in 2015, which has in turn improved turnaround time and efficiency at the Manila International Container Terminal (MICT) and the Port of Manila South Harbour. As a result, total container traffic in Manila and Northern Luzon rose from 3.98m twenty-foot equivalent units (TEUs) in 2015 to 4.82m TEUs in 2017, a 21.1% increase. Meanwhile, total container traffic in the Philippines rose by 20.5% over the same period, from 5.86m TEUs to 7.06m TEUs.
According to the most recent data from the Philippine Ports Authority, Port of Manila South Harbour handled 587,000 TEUs in the first nine months of 2017, while the MICT handled a total of 1.69m TEUs and the North Harbour, Manila’s domestic terminal, handled 922,000 TEUs. The cargo clearance process at the Port of Manila was given a further boost in late 2017, when a paperless system was introduced, leading to the dismantling of 15 transaction windows. The closure is also expected to help curb corruption as it will limit face-to-face interaction between Customs officers and importers, which has historically led to undervaluation of shipments.
The new system was launched at the Port of Manila in November 2017, with the MICT expected to follow suit in late 2018, followed eventually by the rest of the country’s ports. In addition to these advances, port redevelopments in Clark and Subic Bay are expected to increase handling capacity and promote the cruise line industry.
Despite facing a number of obstacles, the transport sector’s future is promising, with a series of major projects in the pipeline set to ease congestion. Nevertheless, over the short term, increased urbanisation, rising private car ownership and limited public transport offerings will continue to weigh on economic activity. However, supported by rising maritime trade, an uptick in airline activity and increased domestic and international investment, the sector is well positioned to act as a major driver of economic growth over the coming years.
Crucially, the efforts of the current administration to upgrade infrastructure and strengthen international gateways should enable the country to take advantage of its geographic position between the global logistics routes of North America, ASEAN, China and Australia. In terms of maritime trade, new port developments are set to improve multi-modal connectivity, while the upgrade of roads and the development of an integrated public transport system should help to reduce chronic congestion in the Metro Manila area over the medium to long term.