Strong rebound in PH construction seen

The Philippine construction sector is likely to rebound strongly this year, driven by transport infrastructure, particularly rail and road development, think tank Fitch Solutions said.

The local construction industry is seen to grow by 24.2 percent this 2021 and 16.1 percent in 2022, outpacing the growth of the overall economy.

Downside risks remain, however, due to the resurgence of COVID-19 infections from the more contagious Delta variant and heightened containment measures, which may temper the sector’s recovery this second semester, Fitch Solutions said in a recent report.

The Philippines’ construction sector grew by 25.7 percent year-on-year in real terms in the second quarter, posting one of the highest construction growth rates in its history, albeit this was largely due to the low base seen in the same period last year when lockdown protocols in the country were at their tightest.

Nonetheless, Fitch Solutions said this signified a very strong market recovery as this had been achieved despite localized lockdowns across the market in recent months.

“We stress that infrastructure remains at the core of the Philippine government’s plans to revive the economy, and will support our near-term growth outlook,” the think tank said.

In the 2021 national budget, the allocation for the Department of Public Works and Highways increased by 61.3 percent to P695.7 billion or 15.4 percent of the P4.506-trillion budget.

The Department of Transportion’s budget also rose by 4.4 percent to P87.9 billion.

Fitch Solutions noted that as of end-July, government expenditures linked to these two departments had already reached P427.03 billion and P31.73 billion, respectively.

This budget is expected to continue increasing in 2022, with P1.1805 trillion proposed for infrastructure and the “build, build, build” program, which Fitch Solutions expects to remain a key policy driving investments in the construction sector.

The Duterte administration has also approved 80 percent of its flagship infrastructure projects under the “build, build, build” program, aiming to revitalize the pandemic-stricken economy, the research noted.

Majority of the 112 projects included in the program are transport projects, with others focused on information and communications technology infrastructure, water resources and urban development. Of these, 51 projects are under construction or project implementation, 31 projects are under pre-construction status, while the rest are pending approval.

“We expect transport infrastructure, particularly rail and road development, to be the key driver of infrastructure and construction growth in the Philippines over the coming years. This will be supported by a robust pipeline of projects across all transport sub-sectors, which has continued to expand rapidly. We note that a majority of recent project approvals and a large portion of project activity were within the transport sector as well,” Fitch Solutions said.

One notable project, Fitch Solutions said, was the South Commuter Railway Project (PNR Calamba), for which the Asian Development Bank (ADB) has committed a $1.75 billion funding.

The project is part of the larger $14.9-billion North South Commuter Railway Project-PNR Clark Commuter Rail Project, and is scheduled to be completed in 2025.

“Based on our infrastructure key projects database, transport projects account for nearly 75 percent of the total value of the Philippines’ infrastructure project pipeline, at approximately $118 billion, with rail projects alone accounting for 33 percent,” Fitch Solutions said.

While road projects do not rank as highly as rail or airport projects in terms of total value, Fitch Solutions also noted that the government budget was strongly focused on expanding and improving road networks.

“Road projects on average also require a much lower level of investment than rail or airport projects. We expect a large number of smaller-scale road projects (that may not be captured in our database due to its small value) to be available as business opportunities over the next decade, boosting the value of the sector. Investment in road infrastructure is needed given the country’s expected population growth over the next decade, as well as economic growth which is expected to average above 6 percent annually through 2030,” Fitch Solutions said.

“Given these factors, we expect heavy investment into the roads sub-sector, with existing roads being upgraded and repaired to enhance safety and with the current road network being expanded.” //30