Philippines Infrastructure Report 2007

The Philippines construction industry is predominantly public-sector driven. Higher government expenditures on capital outlay for public works projects contributed to an upturn in public construction in the second quarter of 2006. However, private construction activity has concentrated around urban areas and dropped by a striking 10.5%. BMI's newly released Philippines Infrastructure Q306 Report forecasts the average construction growth rate in the nation to be 5.5%, during the 2006-2010 period. The construction industry in Philippines is expected to grow to about US$9.2bn by 2010.

The Philippine saw GDP growth of 5.5% in Q206, backed by continued growth in services and a revival in the agriculture sector. Philippine President Gloria Arroyo's plan for building and upgrading about 20 airports and other infrastructure projects, involving bridges, roads, railways, ports and irrigation, was reinforced with the promise of a higher allocation for infrastructure projects in the 2007 budget. Major projects include the US$1.2bn Metro Rail Transit 7 railway project, the US$1bn shipbuilding facility in Subic, the US$879mn 300 Megawatt (MW) power plants in Bataan, the US$400mn Subic-Clark-Tarlac highway and the US$300mn residential project in Cubao.

The double-digit drop in private construction expenditure during Q206 is a serious concern. The economy is highly indebted, with approximately one-third of government spending going into debt-servicing costs, which in turn affects infrastructure spend. Even though the debt burden ratios have improved and foreign exchange reserves have been rising, the nation has been unable to attain a balanced budget. Further, the president's campaign to remove constitutional provisions that curb foreign investment in poorly developed sectors has not made much progress. The Philippine economy has been rather inadequate at attracting foreign investors, with the island nation accounting for a mere 2.9% of the foreign direct investment (FDI) received by South Asia in 2005.

The nation ranks 10th among its regional peers on BMI's Business Environment Rankings. The infrastructure sector has fairly good growth potential but it is dependant on the opening up of the business environment and the nation's ability to secure foreign investment for stimulating infrastructure spending.