The Philippines: Improving port ability

The Philippines government has announced plans to step up spending on transport infrastructure, with upgrades to existing ports and the development of new maritime cargo handling facilities to be given priority.

On September 25 the transportation secretary, Manuel Roxas II, stated that the government intended to make use of official development assistance (ODA) to help fund major infrastructure projects, particularly those related to his own agenda. Utilising ODA would give the government access to cheaper funding with repayments scheduled over a longer period of time, he said.

“The predisposition of the Department of Transportation and Communications (DoTC) is to do all heavy infrastructure via ODA,” Roxas told local media. “The funding would be cheaper since it would be ODA funding as compared to the private sector, which would be subject to bank rates of about 6-7%.”

While Roxas’ latest announcement highlighted plans to roll out new rail and airport projects, he has in past statements flagged the importance of increased investments in the country’s ports. In early September, during a visit to China with President Benigno Aquino III, Roxas said the government intended to invest heavily in upgrading port facilities across the country, in part to assist in developing trade and tourism with Beijing.

Indeed, Roxas said up to $6bn would be dedicated to port and aviation infrastructure over the next six years, in line with the president’s desire to see better connections between the country’s islands and to ease the movement of people, products and trade.

Along these lines, at a meeting with the Makati Business Club in early October, Roxas laid out the DoTC’s Ph426bn ($9.8bn), five-year plan aimed at revitalising the country’s fledgling transport infrastructure. The programme will be welcomed by many, including economists who have been concerned that the slow roll-out of new projects is one of the causes for sluggish GDP growth.

A recent report by Amsterdam-based ING Bank claimed that government underspending is limiting GDP expansion, with the slow pace of state funds being pumped into the economy undermining overall economic growth by some 1.8% for the first half of the year. In early September global lender HSBC also reduced its full-year GDP projections for the Philippines. Citing a fall in government spending, the bank cut its forecast from 5.2% to 4.3% growth for 2011, down from the 2010 figure of 7.3%.

While the government had plans to launch $16.8bn worth of infrastructure projects this year and the next, many of them maritime and transport sector related, lengthy delays in calling new tenders and reviewing development programmes that were begun under the previous administration have put the brakes on the process. These hold-ups are affecting the government’s spending programme and cooling GDP growth.

The country’s underdeveloped port network continues to be a major obstacle to future economic growth, which will remain true unless further investments are made. In its most recent report on global economic competitiveness, released in early September, the World Economic Forum (WEF) ranked the Philippines 123rd globally in terms of the quality and efficiency of its port infrastructure. This was below the ratings for both road and air infrastructure and fell well short of the overall international ranking of 75th out of the 142 nations assessed.

While investments may be somewhat slow in coming, plans to improve the nation’s maritime infrastructure should take priority when funding begins to flow more freely. In a move that could see the Philippines’ maritime freight capacity given a significant boost, Cebu Ports Authority (CPA) has dusted off a scheme – put on the backburner almost a decade ago – to develop a new offshore port facility in northern Cebu. The $471m project, off the coast between the towns of Consolacion and Liloan, would involve the construction of a large-scale container handling facility, in part to divert some of the excess demand from the increasingly stretched Cebu International Port.

According to CPA’s general manager, Dennis Villamor, officials of the DoTC and the Japan International Cooperation Agency met in late August to discuss the project, and a proposal for the port’s construction is expected to be presented to the National Economic and Development Authority soon. The original plans to develop the port, floated in 2002, had been shelved due to a lack of demand, but capacity limitations at Cebu International have led to renewed interest in the proposal.

“It was only recently, in 2010, that we thought we would revisit the proposal because of the problem on traffic management, capacity and volume accommodation,” Villamor said in early September.

The various plans to improve port facilities, combined with projects to increase the road and rail networks, will take time to get off the ground, and the Philippines’ WEF infrastructure rating could for some time remain in the lower half of the international table. However, if the government can find a way to fast-track spending into transport infrastructure, existing bottlenecks will start to be addressed and the country will be better placed to maximise its logistics potential.