Philippine infrastructure open to foreign companies though risks weigh — BMI

FOREIGN FIRMS looking for good infrastructure deals will find the Philippines attractive, Fitch Group’s BMI Research said in a note, even as it flagged operating and political risks as key dampers.

“The Philippines’ construction industry has among the most favorable regulatory frameworks for private and foreign investment in Asia, including robust PPP laws and ambitious infrastructure spending initiatives,” BMI said in its July 31 note, titled: “Industry Trend Analysis — High Rewards Held Back by Operating and Political Risks,” referring to public-private partnerships (PPP).

“However, the country’s poor operating and political risk environment limits the attractiveness of the fast-growing market.”

BMI ranked the Philippines ninth best out of 21 economies in the region and 25^th out of 105 nations globally, citing a large industry, expectations of faster economic growth and a “ballooning” pipeline of projects that rides on the current government’s spending push.

Moreover, BMI noted that “laws and regulations in the Philippines are relatively permissive toward private and foreign participation in the construction and infrastructure sector, making it easy to enter the market.”

“The country’s public-private partnership program has also been ranked as among the best in the world from a regulatory perspective,” the report read.

Economic managers have unveiled a grand P8.4-trillion spending plan for publicly funded projects over the next six years to mark the country’s “golden age” of infrastructure that is expected to propel economic growth to as fast as 7-8% up to 2022 from a 6.2% average in 2010-2015.

Despite these ambitious goals, BMI said the opportunities remain hampered by structural deficiencies and politics.

“In practice, however, the Philippines’ infrastructure sector is dominated by family-controlled and politically linked conglomerates, posing a significant barrier to entry,” the research group said.

It added that Chinese firms — expected to ride the current administration’s political slant towards Beijing — “are… likely to outbid other foreign firms, thanks to their lower operating cots and government backing.”

Socioeconomic Planning Secretary Ernesto M. Pernia said in a roundtable discussion with ����ý last week that projects considered for Chinese official development assistance include the P285-billion 653-kilometer south line of the North-South Railway Project that will link Metro Manila and Legazpi City, Albay; P10.857-billion New Centennial Water Source-Kaliwa Dam Project designed to be Metro Manila’s new water source and the P2.7-billion Chico River Pump Irrigation Project in Cagayan and Kalinga.

“The Philippines continues to score poorly on its political and operational risk indicators,” BMI added. “Domestic logistics remains challenging, especially between different islands.”

Mr. Pernia said last week that the government is looking to trim the PPP procurement process to an average of 15 months from the current 30-month period, alongside plans to pursue “hybrid” arrangements for projects that will use state funds and foreign aid as well. Bidding periods will be trimmed to three months and only one rebidding will be allowed for projects, Mr. Pernia said.

Security concerns — particularly over a bloody anti-narcotics war that has earned censure from the West and the prolonged battle with Islamic militants for Marawi City — also “depress” the Philippines’ appeal to investors, BMI said in its note. — Melissa Luz T. Lopez