Industry Trend Analysis - Growing Government Role Positive For Construction - JULY 2017

BMI View: The Philippines' infrastructure sector will continue its shift away from PPPs owing to a lack of interest from private investors and slow implementation timelines. As the government increases its role in the construction space , it will be supported by surging financial support from China and Japan as both seek to capitalise on opportunities in the fast-growing market.

The Duterte administration will continue to take a more active role in developing the Philippines' infrastructure sector, moving away from the public-private partnership (PPP) model favoured by the previous government. In particular, we expect airports, ports and rail projects to be moved out of the PPP programme and directly financed by the government or official development assistance (ODA). While the market has used the PPP model successfully in implementing toll road and water infrastructure projects and its framework is considered to be in line with international best practice, other sectors have typically suffered from project delays stemming from disputed tendering processes and a lack of investor interest ( see ' PPP Failures Highlight Project Execution Risks ' , February 1). We have already seen the shift away from PPPs, with recent examples including government's decision to revive the PHP227bn (USD44bn) Mega Manila Subway as an ODA project and to withdraw five airport projects from the PPP programme ( see ' Chinese Firms Poised To Seize High-Value Projects ', December 12 2016). Overall, since the start of Duterte's term in July 2016, at least 18 projects were removed from the Philippine PPP Center's database, with several relaunched as publicly procured projects or as projects financed and sponsored by multilateral development organisations.

We note while this will mean fewer opportunities for private investment in infrastructure, this shift will help to reduce the likelihood of contractual disputes and uncertainty over financing that has weighed on proposed PPPs, thereby improving overall project implementation. Indeed, out of the 56 PPP projects launched since 2010, only five have been completed. This shift therefore lends further supports our robust outlook for the Philippines' construction industry over the first half of our forecast period between 2017 and 2021, which we expect will expand by 11.2% in real terms and be a global construction growth outperformer ( see 'Myanmar Leads Global Construction Growth Outperformers', May 16).

Strong Infrastructure Growth Ahead
Philippines - Construction and Infrastructure Industry Forecasts
f = BMI forecast. Source: Central Bank, National Statistical Coordination Board, BMI

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