Spain is the new player in Build! Build! Build!

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Andrew J. Masigan

Numbers Don’t Lie

Despite President Duterte’s many tirades against the European Union, Spanish companies continue to look at the Philippines as a bastion of opportunity.

crane with flag

Last week, 33 of Spain’s top engineering companies came to the Philippines to conduct multilateral talks with the government and local conglomerates. The objective was to form partnerships, alliances and collaborations towards the Philippine’s $186-billion infrastructure program.

The Spaniards came in full force under the aegis of the Instituto Español de Comercio Exterior (ICEX), Spain’s national trade and investment office. The delegation was headed by no less than Mr. Franciso Javier Garzón, ICEX’ chief operating officer who is also an economic adviser to Prime Minister Mariano Rajoy. Along with Mr. Garzón were a team of CEOs including those representing the COMSA Industrial Group, Grupo Cobra, Indra, MAFEX Railway Association and SENER Inginiera y Sistemas, among others. These Spanish companies are among the largest infrastructure companies in the world.

Unknown to many, Spain has one of the largest concentration of engineering and infrastructure conglomerates. In fact, seven out of the world’s ten biggest civil and infrastructure projects were undertaken by Spanish companies. These include the expansion of the Panama Canal, the upgrade of New York city’s subway system, the expansion and modernization of London Heathrow Airport, and the construction of the high speed railway connecting Medina to Mecca in Saudi Arabia, among others. Spanish companies ranks first among those granted financing by the World Bank for infrastructure related projects.

While Spain’s engineering expertise spans a whole gamut of sectors, their competence is noteworthy in the fields of solar and wind energy, hydro-facilities, and railways. Their expertise in these sectors exceed that of the Japanese and Germans.

In a private meeting between Mr. Garzón and myself, I was told that several partnerships were set to be announced within the next 30 days.

However, one of the deals he was at liberty to share with me was one between the Department of Transportation (DoTr) and the Japan International Cooperation Agency (JICA). The deal calls for the acquisition of 120 brand new cars (30 train sets) for the LRT Line-1, all of which will be manufactured by the Construcciones y Auxiliar de Ferrocarriles, S.A. (CAF), Spain’s largest rolling stock manufacturer.

Not only will the new trains be more comfortable, it will run faster but produce less greenhouse emissions. The new trains are expected to come on-line by 2022.

Spanish infrastructure companies have a large footprint in Africa, South America, Central America and Mexico. They have been present in these countries for decades owing to their proximity to Europe and the use of Spanish as the mother tongue. This year, however, Spanish companies are deliberately pursuing Asia and looking at the Philippines as their regional base. The growth in Asia cannot be ignored, neither can the spectacular economic resurgence of the Philippines, declared Mr. Garzón.

In fact, the Spanish delegation to the Philippines is the largest ICEX has ever had.

Prior to visiting our shores, ICEX organized investment missions to Cairo, Yangon and Hanoi, all of which were attended by less than 20 companies, shared Mr. Garzon.

Credit must be given to the Commercial Office of the Spanish Embassy, headed by Counselor Pedro Pascual and Spanish Ambassador, Luis Antonio Calvo. Through the years, they have been relentless in promoting the Philippines as an investment destination and the driving force behind this successful ICEX conference.

Last July, numerous analysts sounded the alarm at the snail’s pace in which projects were being implemented by both the Transport and Public Works departments. As of mid year, both agencies announced that they had appropriated less than 30% of their respective budgets. Doubts were raised as to whether they had the absorptive capacities to realize even 50% of government’s ambitious infrastructure program.

Last week, I spoke to DoTr Usec. Tim Orbos who assured me that both agencies are on track towards spending no less than 75% of their budgets. In other words, the majority of projects earmarked for groundbreaking this year and next, will take place.

Its one thing to receive assurance from a government official and quite another to receive it from credible financial institutions. The latter’s assurance, obviously, carries more weight.

Mr. Aekapol Chongvilaivan is the Philippine country economist of the Asian Development Bank and he confirmed that the Philippines is on track towards spending 5.3% of GDP on infrastructure this year, accelerating to 6.3% and 7.4% of GDP in the years 2018 and 2019, respectively. This is unprecedented, he said.

One of the ways in which the DoTr was able to increase its absorptive capacity is by reforming its internal procurement process.

Beginning the fourth quarter of this year, all procurements in excess of P50 million are facilitated directly by the Department of Budget and Management so as to hasten their approvals. This saves a tremendous amount of time. The DoTr has also put together its own bidding and awards committee for procurements of less than P50 million. All transactions are undertaken with complete transparency in that requirements and terms of references are posted on the DoTr Web site. The opening of bids are also streamed live via the Internet.

Whereas in previous years, borrowings of the Philippines from the ADB were used simply to implement policy reforms, Mr. Chongvilaivan announced that this year, the majority of borrowings are earmarked for infrastructure projects such as long span bridges, railways, and highways. The Philippines has already exceeded the one billion dollar mark in borrowings for 2017, the highest in history.

Among the projects now underway are new airports at Clark, Bicol, Naga, and Puerto Princesa (already completed) in addition to the Aquino-led airport project in Mactan under a PPP scheme. Also in the works is the Cavite Gateway Barge Terminal which will be operational by the first quarter of 2018. The barge terminal is seen to reduce 140,000 road trips of container trucks every year as container transfers will now be done by sea.

In addition, construction of the Southwest Integrated Transport Terminal is now in full swing and scheduled for completion in the second quarter of 2018. The terminal will serve as a central depot for all incoming and outgoing southbound provincial buses. It will make satellite bus stations on EDSA a thing of the past.

Finally, the long overdue MRT/LRT common station in North Edsa broke ground last September. The DoTr was quiet as to when the common station will be completed.

All things considered, Spanish companies are confident that government will be able to undertake a large chunk of its Build! Build! Build! program. They are keen to participate as either a supplier, contractor, consultant or even a partner.

Like the Chinese and Japanese who offered soft loan packages to the Philippine government, Spain’s Corporate International Fund (FIEM) is ready to provide financing for projects where Spanish companies are involved.

While interest rates are on a par with those from ADB and the World Bank, what sets FIEM apart is that they are flexible and less stringent in terms of guarantees and collaterals.

Spain is serious about the Philippines and its intention to play a key role in the development of the country. Their interest is a positive development as it weans us from overdependence on the Chinese and Japanese.

As a nation, we must diversify our portfolio of business partners.

By virtue of history and our shared heritage, Spain has always been the Philippine’s link to Europe. It only makes sense for Filipino companies to establish stronger links with their Spanish counterparts.

After all, beyond partnerships and alliances for the Build! Build! Build! program, Spanish partners can open the doors for Filipino firms in Europe, Africa, South America and Mexico. Over and above the unique technologies and value that Spanish companies offer, their access to markets in the western hemisphere is something the Chinese can never match.


Andrew J. Masigan is an economist.