A report has cited the need for Asia, especially emerging economies such as the Philippines, to continuously invest in infrastructure in order to sustain economic momentum in the country and the region.
The finding was based on “Risk and Reward in Asia’s Golden Age of Infrastructure Development,” a report by the Economist Corporate Network (ECN) and commissioned by US-based solutions provider Panduit Corp.
The report cited Asia as “the world’s fastest-growing regional economy and…the destination for over a third of global foreign direct investment (FDI).”
The Economist Intelligence Unit (EIU), research and analysis division of The Economist Group, said Asia and Australasia’s real GDP will grow by an average of 4.2% a year in 2018-22, which is a faster rate than that expected for the global economy (2.8%).”
Southeast Asian economies, including the Philippines, will average an even higher growth rate of 4.8% a year, with the Philippines in particular having a growth outlook of 6.1% this year to 6.4% by 2022.
“The real GDP of China, the world’s second largest economy, is forecast to moderate from 6.4% growth in 2018 to 5.3% by 2022. By contrast, India, the world’s fastest-growing large economy, will see its rate of expansion accelerate to an annual average of 7.7% over the same period,” the report also said.
“Yet this scenario is not certain, as without the required increase in infrastructure, the region’s economic success may be in peril, Panduit’s statement on the report said.
Transport infrastructure in the Philippines is “underdeveloped,” especially in poorer regions in Mindanao and parts of Visayas; as compared to more developed regions in the National Capital Region, economic zones in Subic and Clark, Calabarzon and Manila.
The government has made transport infrastructure among its priority projects by increasing its funding from an equivalent of 5% of GDP to 7% by 2021.
In the latest Global Competitiveness Index on this sector, the Philippines ranked 90th out of 144 countries, compared with regional neighbors Vietnam (76th), Indonesia (62nd), Thailand (44th), Malaysia (24th), and Singapore (2nd).
The ECN report said, “Mr. Duterte plans to accelerate infrastructure development by moving away from the PPP (Public-Private Partnership) model and cumbersome (but transparent) public bidding procedures favored by his predecessor, (Mr.) Benigno (S.C.) Aquino (III), and towards a system based on greater central government spending and official development assistance (ODA) from such countries as China and Japan.”
“Smaller economies such as Indonesia and the Philippines find themselves in the happy position of being courted by two well-endowed suitors, each offering attractive financing for much-needed infrastructure projects. Competition between China and Japan may also lower the cost of the high-quality infrastructure that developing nations covet, but may not necessarily be able to afford,” the report also said.
It cited ODA agreements with the Japan International Co-operation Agency last March — one on the Metro Manila Subway Project (“the Philippines’ first”) and another on “the construction of a four-lane bypass…in the northern part of Metro Manila.”
“As the government expedites financing by preferring to use ODA loans, the number of feasibility studies for planned projects should rise,” the report said.
It also said road quality in the Philippines “varies by region; less than half of the network is all-weather. This is a concern as, according to the ADB, road transport is by far the dominant subsector, accounting for 98% of passenger traffic and 58% of cargo traffic.”
Port services in the country are adequate at major locations, but still suffer from major delays at the Port of Manila due to congestion, the report said.
“Air services have generally been improving, although the country needs to upgrade and expand its list of 71 registered airports,” the report also said. “The railway system is very limited. Several new rail lines are also planned and the government has approved for tender a P211bn (US$4.1bn) rail project north of Manila and a P35bn rail line in Mindanao.”
As for the energy sector, the Philippine government will need as much as $135 billion of investments to fund power projects from China and Japan.
The power-generating projects from China and Japan, in addition to the 23 new coal-fired power plants in the pipeline are expected to increase capacity by 43 GW by 2040.
At present, the country has 15,665 MW of dependable capacity, “which can meet current demand,” said the report, which also flagged “unreliable” power supply especially in the southern region of Mindanao.
It noted that power consumption is “poised to expand by an average of 4.4% a year in 2018-22.”
“The EIU expects renewable sources (including combustible renewables and waste) to account for about 37% of total energy consumption by 2022, down slightly from 38% in 2016,” the report said. It also said fossil fuels “remain the main source of energy.”
Geothermal capacity in the country was around 2,118 MWe, equivalent to 9% of the total energy capacity in 2017, the report said. A 12-MW extension of the Maibarara geothermal plant came online in March 2018.
Wind power contributed “a small proportion (in) total energy generation” of 305 GWh in 2017, and solar power, 123 GWh in 2016, the report said.
“Under the revised energy plan, solar energy will remain marginal, although developers of renewable energy resources are eligible for wide-ranging fiscal incentives, including exemption from income tax for seven years,” the report also said. — Charmaine A. Tadalan