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Does Build, Build, Build translate to Win, Win, Win for the Philippine economy?

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With the steadily warming relations between the Philippines and China, and among the various members of the Association of Southeast Asian Nations (ASEAN), as well as the strong bilateral ties with other nations, there is an opportunity to achieve win-win results for the Philippine economy. This is particularly relevant to addressing one big problem — traffic congestion.

Based on a study conducted by Japan International Cooperation Agency (JICA) and the National Economic Development Authority (NEDA) in 2014, traffic congestion cost in Metro Manila alone was at least P2.4 billion every day. The studies on the cost of traffic are based on factors including the value of time lost due to delay, fuel costs, vehicle operating costs, and the impact on health and greenhouse gas emissions, among others. Taking only inflation from 2012 to 2017 into consideration in computing the traffic congestion cost for 2017, the Philippine is now losing approximately P2.8 billion every day in Metro Manila alone. That translates to approximately P1 trillion every year, which is nearly one-third of the Philippine 2017 budget. This does not include traffic congestion costs in Metro Cebu and Metro Davao and does not consider the double-digit growth in automotive vehicle sales in recent years.

As a proposed solution to this problem, the economic managers of the Duterte Administration launched the Build, Build, Build program in April 2017. This aims to usher in a “Golden Age of Infrastructure” in the Philippines. Some of the projects under this program that may help in solving traffic problems and improve connectivity across the country include:

• Bridges, such as the Lawton-BGC Link Bridge and the Iloilo-Guimaras-Negros-Cebu Link Bridge;

• Roads, such as NLEx-SLEx Connector Road;

• Port and airport development, such as the Clark International Airport New Terminal Building and the Roro Ports Development;

• Railroad and rapid transit systems, such as the Mega Manila Subway, Metro Manila Bus Rapid Transit System, and the Mindanao Railway; and

• City development projects.

With these projects in the pipeline, the administration is expected to spend P8.4 trillion (approximately $168 billion) over the six-year term of the Duterte administration. The government expects to fund these projects from various sources, including the expected substantial tax take from the ongoing tax reform program, Official Development Assistance (ODA), Public-Private Partnership (PPP), and the World Bank (WB), among others.

The JICA/NEDA study also proposes a Transport “Dream Plan” for Metro Manila, which combines infrastructure with better traffic management. If implemented properly and successfully, the plan anticipates a significant economic impact on the country with significant reductions in vehicle operating cost and travel time cost of up to P4 billion a day, toll revenue of up to P119 billion per year, lower personal transportation costs and travel times, and environmental benefits.

Given the warming ties between the Philippines and China, another source of funding that the country can tap is the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund under the One Belt, One Road (OBOR) initiative of China. These initiatives were launched by China to lend or invest its surplus funds for infrastructure projects to bridge infrastructure gaps primarily in Asia.

In addition to the benefits in traffic reduction, the NEDA expects that the increased infrastructure spending by the government will benefit the following sectors/industries in terms of effect on gross value added: (1) construction; (2) household sector; (3) wholesale and retail; (4) food manufacturers; (5) crude oil, natural gas and condensate; (6) basic metal industries; (7) petroleum and other fuel products; (8) chemical and chemical products; (9) non-metallic mineral products; and (10) electricity.

Perhaps the greatest impact of an effective infrastructure development program will be on the very real issue of unemployment. The NEDA estimates that the current administration’s public infrastructure development programs will generate an average of 1.06 million new jobs per year, which would certainly have a significant impact on our current unemployment situation, and even provide a job “buffer” for the need for more jobs as our population increases. The NEDA identifies the following sectors as the main ones expected to have increased job creation: (1) construction; (2) wholesale and retail; (3) wood, bamboo, cane and rattan articles; (4) forestry; (5) fabricated metal products; (6) stone quarrying, clay and sandpits; (7) land transport; (8) non-metallic mineral products; (9) gold mining; and, (10) renting and other business activities.

Putting this in another context, the Philippine Statistics Authority reports that the population 15 years old and over in January 2017 was estimated to be 69.4 million, of which 42.1 million were in the labor force. Out of the 42.1 million in the labor force, 2.7 million were unemployed.

One other consideration for a successful Build, Build, Build program would be the need for an adequate and reliable supply of fuel and electricity. This is another area where our warming relations with China can be beneficial in helping us build up our electricity production capabilities, given that China is considered the world’s largest electricity producer. We can already see Chinese expertise and technology being leveraged in some new power plant building projects that have been initiated in Bataan and Lanao del Norte.

With these considerations in mind, there is certainly much reason for optimism that the Build, Build, Build program will be the key for us to achieve a Win, Win, Win level of inclusive economic growth in the country.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Jonathan T. Bino and Alexander E. Dacanay are Senior Directors of SGV & Co.