(Part 1)
Future generations will think well of the economic program of the Duterte Administration for two major reasons: the herculean task of bringing up the percentage spent on infrastructure to GDP from the measly 2-3% in the past to 5-6% under the last Administration. The second is the equally difficult task of curing our political leaders of their decades-long ultra-nationalistic mindset of restricting the presence of foreign investors in the country. This was accomplished by amending the Public Service Act (PSA) so that today and in the coming years, foreigners can own as much as 100% of critical infrastructures, telecom, renewable energy, and transport facilities (especially trains, subways, and airports).
The Build, Build, Build program of the Duterte Administration did much to compensate for more than 30 years of government neglect of such countryside infrastructure as farm to market roads, bridges, tollways, and other facilities badly needed by farmers to improve their incomes from the small farms that they acquired through the Comprehensive Agrarian Reform Program (CARP). The CARP failed miserably to improve the lot of the small farmers, not because of land fragmentation in itself, but because of the almost criminal negligence of the State in not providing the agrarian reform beneficiaries with all the facilities that they needed to make their small farms productive. This failure of the Philippine State to help the small farmers stands out in stark contrast with the very successful agrarian reform programs of our neighbors such as Thailand, Vietnam, and Malaysia whose governments lavished their farmers with all the infrastructure assistance that they needed.
The Build, Build, Build program under the Duterte Administration has done much to make amends for such neglect by the Philippine State. It was gratifying to witness that the bulk of the government budget on infrastructure in the last Administration was spent not in the urban centers like Metro Manila and Metro Cebu, but in the countryside, especially in regions that are lagging behind. It was a policy of the Build, Build, Build program that infrastructure that would benefit urban dwellers, such as expressways and tollways as well as international airports, were assigned to such private sector conglomerates as San Miguel Corp., Metro Pacific, Megawide, DM Consunji, and others through public-private partnership (PPP) arrangements, with participation of some foreign companies like GMR from India and Acciona from Spain.
The Administration of President Ferdinand R. Marcos, Jr. has the good intention of continuing the Build, Build, Build program under the new tagline of “Build Better More.” I find the change of name of the program appropriate because as the country transitions from low-middle income to high-middle income this year, we cannot continue just building roads, bridges, and tollways. We have to move on to higher quality and more sophisticated infrastructure like railways (bullet trains someday), subways, world-class international airports, telecom facilities, renewable energy, etc. Indeed, in the next two decades, we must build better and more. It is pointless for us to talk about being a major center in the Indo-Pacific region for data centers, international tourism, and high-value IT-BPM services unless we significantly improve our telecom services, international airports, and renewable energy sector. We have to go beyond roads, tollways, and bridges if we are to be part of Industrial Revolution 4.0 that is underway all over the world.
The Marcos Jr. Administration is putting on a brave front by telling the whole world that they can continue investing 5-6% of GDP in infrastructure development. In fact, the National Economic and Development Authority (NEDA), the government’s economic planning agency, has identified some 3,600 infrastructure projects worth $372 billion that are supposed to be implemented under the present Administration. Recently, NEDA came out with a shorter list of 206 priority projects worth $159 billion that are ready for implementation in partnership with the private sector through the PPP scheme. A good number of these ready-to-go projects are in telecommunications, domestic shipping, railways and subways, airline, expressways and tollways, and airports. Sovereign wealth funds and independent pension funds may own up to 30% of the capital of a public service classified as a critical infrastructure. Newly approved are 194 infrastructure flagship projects (IFPs) amounting to $170 billion. Among these are 48 projects that will be funded via PPPs; 82 projects to be funded via Official Development Assistance (ODA); 63 to be fully funded by the National Government; with the remaining still seeking sources of funding. To get a flavor of some of these flagship projects, 35 are transport facilities, 22 are road networks, four are airports, three are agricultural infrastructure, two are health facilities, two are irrigation systems, and two economic zone infrastructure.
While we should congratulate the present Administration for coming out with these very concrete projects in their Build Better More program, we should ask the concerned officials in the Cabinet to make a reality check about the sources of funding for these ambitious projects.
It is well known that our government is buried deeply in debt and does not have the same ability to borrow as the Duterte Administration, which had a debt-to-GDP ratio half the present ratio of over 60%. To make matters worse, interest rates have increased significantly because of the efforts of the Central Bank to lower historically high inflation rates. Add to these obstacles the way the Philippine savings to GDP ratio has plummeted to abysmal levels of 9-10% (in contrast with 25-30% of our neighboring East Asian countries).
Despite some sanguine announcements that the 5-6% ratio of infrastructure to GDP can be maintained under the present Administration, a more realistic range is 2-3%, back to the historical average before the Build, Build, Build program of President Duterte.
The only way the 5-6% ratio can be maintained is to attract many Foreign Direct Investments in the coming years. This is a realistic target because of the amendment of the PSA that allows as much as 100% foreign equity in strategic infrastructure. There are countries like Spain, Japan, South Korea, and Taiwan that have abundant long-term capital and some of the largest infrastructure companies in the world that find the Philippines a very attractive market for their capital, experiences, and technology. Some of them have already been very active in investing in the Philippines and partnering with local companies in the building of power plants, bridges, airports, telecom facilities, and other flagship projects. The Government, with the strong support of the private business sector, should be very active in attracting these global infrastructure companies to invest here.
It is encouraging that the President has signed Executive Order (EO) 18 to establish what is called the Green Lane for strategic investments. Strategic investments refer to highly desirable projects, foreign direct investments, and projects or activities under the Strategic Priority Plan. EO 18 will establish One-Stop-Action-Center for Strategic Investments (OSAC-SI) by August this year. This office will facilitate and fast track all FDIs and other investments from abroad in strategic sectors, particularly infrastructure, renewable energy, and large-scale agribusiness ventures. As a response to a complaint made by the President himself about red tape and many obstacles that face foreign investors, EO 18 will ensure efficient processing for the issuance of a permit or license to do business in the Philippines not to be longer than three working days for simple transactions, seven working days for complex transactions, and 20 working days for highly technical transaction upon the receipt of the complete application.
(To be continued.)
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.
bernardo.villegas@uap.asia
