You know the Philippines is facing some serious problems when neighbors like Singapore and Hong Kong continue to excel in the world’s ranking of most competitive countries, while the Philippines has slipped to last place in Asia.
There is a host of reasons that could be blamed, and one is the huge infrastructure backlog that preempts cost-effective trade between regions and provinces, and exacerbated by the lack of government funds to address the challenge.
The Philippines continues to invest poorly in power, roads and water. Recent accounts have indicated the infrastructure investments are less than three percent of gross domestic product when ideally it should be at least five percent to be able to boost employment and have a dent on economic expansion.
An indication of this problem’s severity is when you see companies like the highly profitable San Miguel Corp., a monopoly in its sector, and reinvented Metro Pacific Investments Corp. eagerly seeking to put up power plants, build sea and airports and roads, and even operate toll systems.
San Miguel, for instance, thinks it makes sound business sense to sell its traditional core businesses in the food and packaging sector in order to invest in heavy industries, including mining, hoping to earn triple that of its discarded businesses.
Good thing that in the above cases, the enthusiasm of San Miguel and Metro Pacific in helping alleviate the country’s infrastructure shortage presents opportunity for the economy to expand even with the seemingly insurmountable fiscal and debt problems of government.
Last choice
But still, decades of underinvestment in infrastructure – largely because of government’s fiscal constraints since the late 80s – have led to a situation that has discouraged foreign inflows, leaving the Philippines as the investment choice of last resort.
This is frustrating for a country who was the first in the region to pass a build-operate-transfer law, legislated the most ambitious power sector reform law, and successfully passed on to the private sector one of the largest water concessions in the region.
Power generation and transmission miseries
This $164-billion economy in Southeast Asia plunged to a recession in the 1990s when massive electricity shortages that usually lasted as long as half a day sent factories and businesses to a halt.
This had prompted the government, with no funds at hand, to contract electricity supply to so-called independent power producers under a take-or-pay proviso, eventually leading to too much electricity capacity that led to higher prices.
Since then, businessmen and government have both been disinclined to build new power plants, turning a blind eye to the fact that the economy has continued to grow despite past regional and global financial crises.
In the era before the industry was deregulated, power prices had become too vulnerable on political expediency. Highly subsidized pricing had led to the accumulation of debt for state utility National Power Corp., a legacy that continues to hound our current high power price levels.
This year, at the height of the dry season, the power industry once again had to resort to rotating brownouts. This problem will be expected to worsen in two years time because no new power plants are being constructed or are being eyed for construction in the immediate future.
What would it take to build new ones? Market-determined power rates, true competition and a lot of incentives probably; but until all these becomes a reality, power infrastructure will surely be one major headache for this new administration.
Lest we forget, generation is just part of the power problem. Investments in the transmission sector are also needed to expand the high-voltage network, and the current transmission operator won’t likely do that if it won’t get a tariff to fund these requirements.
Costly and nerve-wracking road traffic congestion
Traffic congestion in the roads is another big problem. A World Bank study once monitored its cost in the Philippine capital. When ideally an efficient and adequate road network should be promoting growth, the lack of it costs the economy P100 billion a year based on 1996 prices, or around 4.6 percent of gross domestic product.
When we have infrastructure investment at less than 3 percent of GDP, the impact of road congestion on the economy further compounds the problem.
Lately, we’ve seen how aggressive San Miguel and Metro Pacific have been in offering to build and operate toll roads, most of which aim to decongest Metro Manila and at the same time connect the capital to provinces nearby in order to extend economic expansion to the countryside.
Metro Pacific for instance recently submitted an unsolicited proposal to connect the North and South Luzon expressways. At a cost of P17 billion, the connector-road will decongest the capital by providing an alternative to C-5 and EDSA.
Decades ago, private business taking on road projects in exchange for toll rates might seem excessive. But as a nation trying to keep up with its neighbors, we’re now seeing signs of motorists and even businesses ready to pay more, albeit reluctantly, in exchange for more efficient roadways.
Another P-Noy challenge
Infrastructure investments in the country, especially in the past decades, have been met with issues of corruption and inability to recover cost. Remember a power plant being returned by the winning bidder to the government or a water concession having the same fate?
With the government not in a position to finance the infrastructure we need, the most it can do is to commit to a credible regulatory framework that would balance the interests of investors and the public. Is the Aquino administration up to that challenge?
Collegiate basketball
The 2010 collegiate basketball season is in full swing with the opening this weekend of the National Collegiate Athletic Association (NCAA), the oldest league in the country. Nine teams are competing for the much coveted senior basketball crown currently being held by San Sebastian College-Recoletos Golden Stags.
The top four NCAA teams are also looking at an automatic entry to the Sweet 16 Finals of the PCCL 2010 Philippine Collegiate Championship games. The fifth and sixth placers will have to pass thru the zonal qualifying rounds to earn seats in the finals.
Visit www.CollegiateChampionsLeague.net for more details about the 2010 Philippine Collegiate Championship games.
Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.