Infra sector seen to sustain growth

The infrastructure sector stands to gain as China, Japan and other economic powerhouses in the region vie for closer cooperation with the Philippines under the Duterte administration’s “independent” foreign policy, the Fitch Group’s BMI Research said.

“Competition between China, Japan and other regional powers for economic and political influence will provide a boost to the Philippines’ infrastructure sector, as countries promise billions of dollars in development aid, preferential financing and private investment,” BMI said in a Jan. 16 report titled “Philippines-Competition for Regional Influence will Boost Infrastructure.”

BMI Research noted that last week, the Japanese government pledged 1 trillion yen or about P434 billion in official development assistance and private investment in the next five years, on the occasion of Japan Prime Minister Shinzo Abe’s visit here.

It further noted that last year, President Duterte signed $24 billion in financing and infrastructure deals with Chinese firms during his state visit to China, where he also announced an economic and political “separation” from the United States, a long-time ally.

Last Sunday, the government reported that the Duterte administration had attracted close to P1 trillion in ODA from China and Japan in its first seven months in office.

“Although the deals with China are several times larger than the deals with Japan, we believe it will still provide a sizable boost to the Philippines’ construction sector and help Duterte move toward his ambitious P7-trillion infrastructure spending goal. We believe this also portends sustained competition between China, Japan and other regional players in offering favorable infrastructure deals to developing countries in Asia—a theme that is also playing out in countries like Bangladesh, Indonesia and Vietnam,” BMI Research said.

As such, BMI Research expects the Philippine infrastructure sector to sustain growth until 2021, with over 10-percent expansion to an industry value of more than P400 billion five years from now.

While the seeming tug-of-war between economic giants China and Japan would balance the heightened risk from heavily relying on the mainland, BMI Research noted that the dominance of homegrown conglomerates would make it difficult to ramp up foreign investment in infrastructure.

“We previously highlighted a risk that increased Chinese involvement in the Philippines’ infrastructure sector poses a risk of crowding out opportunities for other international and private players, especially as Chinese companies have an advantage in raising large sums of capital. More aggressive outward investment from Japan will help reduce this risk, as Japanese firms have technological advantages and access to robust financing programs through organizations like the Japan International Cooperation Agency and the Japan Bank for International Cooperation,” BMI Research said.