A news article in The Philippine Star 23 July 2013 edition noted that the Philippines Government plans to increase infrastructure expenditure to 5% of GDP before President Aquino steps down in 2016, lifting expenditure off a relatively low percentage of GDP base.
As featured in our blog post on population projections through to 2050, the Philippines is expected to be the 10th most populous country in the world by 2050.
From an infrastructure asset management professional’s perspective, President Aquino’s proposal to increase investment in infrastructure is logical and necessary considering the population growth occurring, and the economic growth desired by the Philippine Government.
When compared with other planned infrastructure expenditure in the East Asia and Pacific Region being 7.2% of GDP, it can be seen that it is likely the Philippines Government will continue to lift infrastructure expenditure for the foreseeable future to keep up with the expected growth, economic drivers, and competition from other countries in the region.
Two sides of Infrastructure Management can be considered – these sides being revenue and expenditure.
With the Philippine Government moving to provide the revenue for the infrastructure, the real challenges will be in making sure the expenditure delivers the right infrastructure, built to the appropriate standards in the right places.
This large increase in the available budget and expenditure for infrastructure (planned to more than double current levels of budget) in a short time period has potential to create multiple challenges:
- Will there be enough suitably experienced Engineers to design and supervise the infrastructure?
- Are current standards suitable for such an extensive program of new infrastructure – should these be revisited?
- Have the latest earthquake and tsunami engineering lessons (from Japan, New Zealand, and the Philippines) been incorporated into the infrastructure engineering design standards?
- Can the construction industry scale to build this new infrastructure – does it have enough experienced staff, the right methods, and the right quality standards for an extensive new infrastructure program?
- Is there agreement on what infrastructure is needed and where – will this be driven by national, or province economic analysis and drivers or by mere political considerations?
- Will the new infrastructure be designed and built using the whole of life cost and maintainability analysis – to optimize the cost and standard of services delivered across the whole life of the asset?
- The Philippines is experiencing massive growth in population – how will this level of growth be factored into the infrastructure design and provision, when the parameters are changing so fast.
Clearly, the Philippines has a range of exciting and very interesting challenges ahead as it plans this next phase of its national infrastructure development.
The challenges listed above apply to any country that is rapidly increasing its infrastructure expenditure and construction levels.
The use of infrastructure asset management techniques will assist in this planning and ensure the new infrastructure provision is fit for purpose and providing the services required in a period of high growth.
PHOTO CREDIT: Karl Hipolito
Five percent is surely not enough if the Philippines has to maintain its upward trajectory. As you noted, our regional neighbors already averaged around 7%.
And with demographic demands rising at a faster rate, social and economic infrastructure seem to be always playing catch up. But it is the right investment policy and perhaps pragmatic in our stage of development. The country’s inadequate infra continue to be a major constraint to industrialization.
The PPPs are a potential silver lining. I remember back in the 80’s we were already experimenting with the BOTs but instead of our learning curve improving, here we are stuck with big ticket projects that just cannot take off.
But the macro policy environment has become more favorable. Improved transparency (let’s keep our fingers crossed) will result to more resources flowing into projects rather than the pockets of politicians. This will redound to better and more durable capital infra that will yield better economic returns and longer economic life.
Ross Waugh says
Geony, thank you for your comment.
I think PPP’s are definitely part of the answer, particularly when they are also used to capacity build and transfer skills, systems and knowledge to Philippines partners and companies.
Given the level of investment the Philippines Government is planning, and the length of time it can be reasonably expected to continue (at least the next 30-40 years) there is a huge amount to be gained economically and socially in further developing the national Engineering, Construction, and Infrastructure industries in the Philippines.
A world class skill set, building world class infrastructure would benefit the Philippines far beyond the initial infrastructure capital investment.
I agree with your comment that ultimately 5% of GDP is not enough – however I would bracket that observation with the thought that internal capacity has to be built, and that will take time. As you will be aware there is an international skills shortage in experienced Engineering resources.
Infrastructure investment is a very virtuous economic circle – where better infrastructure lifts national / provincial economic performance, which then provides additional capital resources to further invest in better infrastructure.
I agree with you. Indigenous talent in executing projects of massive scales and complexities is simply non existent. Being just a newly industrializing economy, there simply is no local model to learn from.
While admittedly 5% spending is small vis-à-vis the need, if realized, this would still make the Philippines highly competitive. First, as you also noted, infra can only lead to positive cumulative causation and thus that 5% expenditure, especially in transport and power, would actually contribute to maintain a high growth trajectory (as long as other indicators will rise as well).
Second, increasing transparency in governance (experience of other countries shows gains in this area are sustained). would ensure money well spent (as against now where a huge chunk is lost to corruption). This means more value for every peso spent.
And given the weak global economy, it is doubtful if the 7.2% infra spending elsewhere in Asia can be sustained in the near term (although some neighboring countries will continue to have higher overall public expenditure as % of GDP).
Well, I’m simply looking at the good things that could come out of planned earmarking of 5% of GDP for infra. And that’s assuming there’s political will to slice this much from the pie.
Tampuhaw Gid says
This needs a lot of experienced and knowledgeable experts just to formulate something sensible, considering a lot of factors existing/happening and soon to exist/happen.
Ross Waugh says
Tampuhaw Gid – I agree, and therein lies a large part of the current challenges for the Philippines.
It is very easy to build lots of infrastructure.
It is a lot harder to build the right infrastructure for now and the future, in the right places, to the right standards, for the right price, and in the right sequence. That takes some thought and planning.
How much is enough? With the massive damage to infrastructure brought about by typhoons, floods and earthquakes (not counting those that have easily deteriorated due to substandard implementation), surely, 5% of GDP will not be enough.
But, can the Philippine government afford to appropriate more than that? Say, 7% or 8% to be at par with its neighbors? Granting it can, the question is, will this amount be “converted” to infrastructure that will be appropriate and according to accepted standards?
One way forward would be to let these infra projects pass through the strict scrutiny of the regional development councils through their infra committees and not through politicians with their personal political agenda.
That’s right. We have always argued for a greater role of the RDCs in setting investment priorities. Seeing the wisdom of a regional interface with members of Congress, then Pres. Ramos in fact created the LEDAC (Legislative Executive Development Advisory Council) that should have helped ensure proper use of budgetary allocations.
But the LEDAC has not always been effective. I remember a long time ago we had to work late hours to prepare and attend to a meeting at the Batasan of RDCs and Congressmen so the projects coming from the LGs and regional offices can be included in the budget.
I had the impression the LEDAC was about to be revived. But now with the pork barrel scam a new mechanism needs to be in effect. It’s more than just transferring the authority. Maybe we need to even dissipate it. But we need to continue to strengthen the policy environment, like, for instance, by passing the FOI bill.
I agree with Geony that we need to continue to strengthen the policy environment, e.g., the passing of the FOI bill. But it is also a fact that we already have a lot of good policies and processes in place with regards to infra.
The usual problems occur in the implementation. This is where corruption (and I mean big time corruption) usually sets in and the policies and processes that are in place are circumvented or blatantly ignored resulting to projects that easily crumble in the face of calamities and even standard uses.
We cannot also discount those projects that never even came to existence but only in the accomplishment reports. These kinds of infra failure could not be attributed solely to lack of engineering expertise, management skills, or standard design but rather to poor implementation due to corruption.
Of course, there were also a lot of infra projects that have been put in the right places and for the right reasons and have benefited many but most of these are overpriced. If only this prevailing practice in infra planning and implementation could be “corrected,” the 5% appropriation, though arguably not enough, could go a long way in putting in place infra projects that would not only benefit the poor but could also spur economic development and build up local engineering expertise.
Ross Waugh says
Toolbyte, thank you for your comment
It is true that 5% is probably not enough, but it is a good starting point to build off.
With regard to Typhoons, Floods, Earthquakes – these can of course be designed for – and with the current rapid developments in materials / design techniques pilot projects can be developed to test designs and the effectiveness of natural event defences and countermeasures.
The suggestion that you have made regarding RDC’s (and Geony has supported) makes a lot of sense.
I think these is a lot to be gained in testing and piloting techniques for governance, management, design, project management and construction to adapt them to solutions that work well in the Philippines.
Freddy Panes says
if you look at the need it is really not enough > BUT the real question is even with the existing infrastructure that we have in the philippines do we really have a concrete infrastructure management? > do we have the expertise? > in the u.s. most of the large infrastructure belongs to the federal government and they are pretty good at that.
but what about the philippines > national infrastructure projects are expensive and maintaining them can be expensive too if you have a team that doesn’t know what they are doing > you need the expertise of experts with technical and practical experience in maintaining such projects. > BIG question: do we have it? > to allow them to crumble and then start all over again is a very expensive way to go.
sometimes, i look at it that our infrastructure is such in a substandard condition is because the constant rebuilding is good for the construction industry. have you ever heard of “guarantees?” i never heard of such in the philippines. in the u.s. a contractor whose project failed will be compelled to make it again or pay a stiff penalty. i wish our government seriously considers this.
Jonan Castillon says
Sad to say we can’t avoid seeing infrastructure development in the Philippines as lucrative fund source for corrupt politicians in cohorts with favored contractors, popularly known as ‘SOP’. And the more expensive the cost of projects, the better.
How I wished that alongside infrastructure budget and spending is the investment on social infrastructures, where citizens are trained and empowered to monitor and evaluate the quality of infrastructure they are getting.
On a micro-scale, Filipinos have achieved as narrated in the “Power at the Grass Roots: Monitoring Public Works in Abra, The Philippines, 1986 – 1990”
Ross Waugh says
Jonan, thank your for your comment.
I was looking at the Legatum Institute 2013 Global Prosperity Rankings yesterday http://www.prosperity.com/#!/country/PHL and noted that indeed the Philippines receives relatively poor rankings around corruption perceptions.
Given this is a ‘fact on the ground’ and that everyone seems to be aware of the issue – I think also that many infrastructure, engineering and other professionals will have given thought about how to mitigate the effects, and there will be plenty of grass-roots examples of initiatives that have been tried – as you have noted above. Through communication, discussion and looking at successful examples – then approaches can be advanced and steady progress made.
We have recently entered a new era, where with internet connectivity the message can no longer be controlled by elites, and globally there is steadily increasing transparency. Looking forward, I believe that this will produce reasonably rapid changes in societies.
Returning to the theme of this post – as other commenters have also observed – with 5% of GDP being spent on infrastructure there will be plenty of opportunities for that expenditure to be misdirected – either through building substandard infrastructure in the wrong places, or through more direct methods.
There will however, also be many opportunities for the expenditure to be directed in the right places, at the right standards and so increase the capital, wealth and economy of the Philippines.
Good infrastructure be it roads, transportation systems, ports, airports, water, wastewater, drainage, irrigation, power, telecommunication has the potential to benefit the whole of society from the poorest to the richest.
Ross Waugh says
Freddy, thank you for your comment.
We have been re-learning here in New Zealand that you need robust chains of competence and chains of quality in delivering and maintaining infrastructure systems and networks.
These chains need to flow from governance, through infrastructure management to engineering design, project management, project delivery, construction and maintenance.
When the chains are weak or break then the failures can be quite spectacular, and hugely costly – both money and to society
Achieving and maintaining these chains is a huge challenge across the world – in both OECD countries, and also rapidly developing counties
Geraldine Beluso says
The role of the Civil Engineering graduates or licensed Civil Engineers or Infrastructure Asset Management Experts in the Philippines cannot be underestimated. Theirs is to design the needed infrastructure program and eventually supervise its implementation in our country, aimed at coping the ever-increasing population and development demands, among others.
Ross Waugh says
Geraldine, thank you for your comment. I agree with your analysis. There is a worldwide Engineering skills shortage which we are increasingly noticing in Australia and New Zealand. The shortage of skilled engineering resources could be a key constraint on the ability of countries to deliver infrastructure programs – new infrastructure, renewal of infrastructure, and maintenance programs.