International Finance

Philippines: Meeting the infrastructure challenges

IFM_Philippines infrastructure challenges
The Philippine economy ranks among the best performers in Asia in recent years. Still, the economy faces constraints from its outdated and insufficient infrastructure

In the early 1980s, Edgardo Perea worked on a project that would provide Metro Manila, a region in the Philippines, with a consistent supply of clean water. But even after forty years, he is still waiting. The project has not been finished yet.

Perea was employed by the government agency named ‘Metropolitan Waterworks and Sewerage System’ as a member of a team that started construction on a dam. At that time, he and his co-workers thought they would utilize the abundant fresh water resources in the region. Perea said that all the feasibility studies were done, all it needed was implementation, but politics got in the way.

In 1986, the Philippines People Power revolution led to the removal of dictator Ferdinand Marcos. Under the new government, many projects that had been approved under the previous regime languished or were cancelled altogether.

Perea has been thinking about his experiences a lot these days as his country prepares for another transfer of power, while many of the old problems linger. Besides being deeply personal, they are emblematic of the struggles to improve infrastructure in the Philippines, an archipelago of about 110 million people, where many people still live without basic amenities. In an added layer of irony, the incoming president is the son of the ruler who was pushed out 40 years ago.

New President Ferdinand Marcos Jr, known commonly by the nickname Bongbong, will take office. His predecessor, Rodrigo Duterte, made infrastructure a key policy as part of an initiative he called Build, Build, Build. Duterte promised that the programme would create jobs and improve the quality of life for many Filipinos for whom severe traffic jams and other inconveniences are a fact of life.

Duterte, who described spotty infrastructure as the ‘Achilles’ heel’ of Philippine economic development, pledged to allocate between 8 and 9 trillion Philippine pesos to the programme he said would usher in a ‘golden age of infrastructure,’ adding bridges and railways while expanding a major airport north of Manila.

Filipino voters and political analysts are not sure how Marcos Jr will govern. Throughout his election campaign, he invoked nostalgia for what some Filipinos, accurately or otherwise, think of as a happy time under his father’s rule. But he has been short on policy specifics, leaving unanswered the question of whether he will continue Duterte’s infrastructure drive as he gets set to start his term.

Duterte has called on the new president to continue with Build, Build, Build and the Asian Development Bank has pledged to continue supporting the initiative even with the change of administration.

The programme has a mixed record, with some analysts arguing that it made helpful improvements to under-served parts of the country, while others contend that it fell far short of its objectives.

Ronald U Mendoza, dean of the School of Government at Ateneo de Manila University, said Philippine politicians use public infrastructure to show voters that they have brought home the bacon, though the longer-term desirability of such projects is questionable.

“During an infrastructure boom – not just Marcos’s but also Duterte’s – the effect on various parts of the country is stimulative and job-creating and hence it is much welcomed by citizens and quite palpable and visible,” Mendoza said.

“It is easy to be nostalgic about an infrastructure boom when you fail to appreciate the crisis and difficulty that is associated with the bad decisions and corruption during the spending part of that debt-fuelled experience. If there’s bad governance and bad decisions, then the party has to end at some point, he added.

Flawed execution
According to Jan Carlo Punongbayan, an assistant professor at the University of the Philippines School of Economics, the execution of the ambitious initiative was also flawed.

“Good, though its intention was, Build, Build, Build unfortunately failed to live up to expectations,” Punongbayan said.

“Spending plans that were not well thought out led to repeated changes in the initiative’s project master list. Only a portion of the promised projects was executed, Punongbayan added.

The Marcos dynasty also has a reputation for corruption. Observers of Philippine politics worry that such corruption could cloud the next administration.

“Marcos Jr comes from a known kleptocratic family that flourished during the martial law years through crony capitalism. Hence, he is not expected to do much work to stop corruption and in fact, he may very well worsen it.”

The Philippines ranks poorly on global corruption assessments, coming in 117th out of 180 countries on the most recent ranking by Transparency International. Parts of the Philippine electorate appear to have accepted the stubborn presence of corruption in government and business.

Though Duterte took office depicting himself as a swashbuckling outsider who would pull the plug on corruption, the same elite has retained control of Philippine business, according to analysts.

Josh Kurlantzick, a senior fellow for Southeast Asia at the Council on Foreign Relations said that Duterte never really intended to root out the old power networks, and he thinks there is a degree of resignation now.

Meanwhile, the basic needs of much of the population go unmet. According to the Sustainable Development Goals Fund, substantial numbers of people suffer water scarcity and lack access to basic sanitation, putting them at risk of water-borne disease.

A report by the World Health Organization and UNICEF found that just 47% of Filipinos had access to safely managed drinking water in 2020, a slight improvement from 46% in 2015. The country’s infrastructure challenges are connected to large-scale rural-to-urban migration, as many Filipinos leave the countryside to seek jobs in large cities, particularly Metro Manila, causing severe traffic gridlock that results in exorbitant commuting times and delays in the transport of goods to points of sale.

Investment in digital infrastructure
The International Finance Corporation (IFC) announced an additional $8.3 million in direct equity investment in EdgePoint Infrastructure (EdgePoint)—a tower platform with operations in Indonesia and Malaysia—to support the company’s entry into the growing Philippines tower market, improving mobile connectivity for people and businesses.

The investment will increase mobile network capacity and create a competitive market for tower collocations in the country. IFC’s investment in EdgePoint is part of a larger investment in digital infrastructure assets across emerging markets managed by affiliates of DigitalBridge Group, a leading global digital infrastructure investment firm. IFC’s investment involves the acquisition of more than 2,900 towers from the Philippines Long Distance Telecoms Company (PLDT) through a sale-leaseback transaction and the construction of additional new build-to-suit towers.

“This equity investment in EdgePoint marks a significant milestone in digital development in the Philippines, paving the way for more people and businesses to have access to mobile services,” said Isabel Chatterton, IFC’s Regional Industry Director for Infrastructure Asia and the Pacific.

“With the Philippines poised to grow, strong consumer demand and a vibrant labour market will undoubtedly lead to even greater calls on telecom services. This investment will help meet future needs, which is vital as digital connectivity is so fundamental to helping ensure people and businesses can flourish”, he added.

The quality of mobile connectivity in the Philippines is lacking due to pervasive network congestion. The country ranks 95th out of 142 countries for mobile internet download speed. The number of mobile subscribers per tower—a measure of network congestion—is comparable to that of low-income countries and more than three times above the average of countries in the East Asia and Pacific region. Such capacity challenges are compounded by limited access to reliable electricity for mobile towers—an estimated 5% of towers in the Philippines are expected to be located in off-grid areas.

Suresh Sidhu, EdgePoint’s Chief Executive Officer, and Founder said that his company is committed to building a world-class operation and expanding next-generation connectivity solutions, bridging the digital divide in the Philippines, and creating new job opportunities in the sector. “The Philippines telecoms sector has tremendous potential, and we look forward to being part of its future,” he added.

About IFC
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In the fiscal year 2021, IFC committed a record $31.5 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of the COVID-19 pandemic.

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