Fitch unit bullish on railway, construction sectors in Philippines

MANILA, Philippines — Fitch Solutions Macro Research is bullish about the construction industry and railway subsectors in the next two years amid the administration’s massive infrastructure buildup.

In its latest industry analysis, the research arm of Fitch Ratings upgraded its growth forecasts to 10.9 percent this year and 10.5 percent in 2020 for the construction sector.

It also raised the forecasts for the railway sector to 9.1 percent for 2019 and 8.6 percent in 2020.

“We have made upward revisions to the Philippines’ construction industry and railway subsector forecasts for 2019 and 2020 to reflect positive progress of the Metro Manila subway project,” Fitch Solutions said.

It said relative political stability, a healthy project pipeline and growing foreign direct investments are factors supporting our positive outlook for the Philippine transport sector in the next five years.

Public-private partnerships (PPPs) remain an important tool in the expansion of the transport sector, although numerous risks will hinder the use of this type of contract, Fitch Solutions said.

The growth of the country’s construction sector would be fueled by positive progress made on Phase I of the Metro Manila Subway project worth $7 billion. 

The project, the largest of President Duterte’s Build Build Build program, covers 25 kilometers from Mindanao Avenue in Quezon City in the north to the Manila International Airport.

It will be partially financed by a $985 million loan disbursed by the Japan International Cooperation Agency.  Construction is expected to commence in the first quarter of 2019.

“We currently hold a positive outlook for the Philippines’ transport sector in the next five years. We believe relative political stability within the country will be a plus for the sector as policies enacted by the current government will benefit from continuity over the next few years,” Fitch said.

It added the sector would be exposed to a smaller degree of political and election risks in the short term as President Duterte is scheduled to step down after the 2022 general elections.

The country is home to a large pipeline of transport projects, which spans across different sub-sectors.

According to our key projects database, there are 64 transportation projects in the pre-construction phase, accounting for more than 75 percent of the total value of construction projects in the pipeline.

Another factor is the decision of the recent administration to ease ownership restrictions for foreign contractors in selected construction projects to 40 percent from 25 percent in a bid to improve the country’s competitiveness.

Major transportation projects in the pipeline include the $14 billion new Manila International Airport project of diversified conglomerate San Miguel Corp. and

Incheon International Airport Corp., the $3.7 billion Makati City subway project of Philippine Infradev Holdings Inc. (IRC) and the 73-kilometer Metro Cebu expressway project, among others.