Published On: Fri, Jun 5th, 2015

Airport delay highlights Philippine infrastructure gap

epa03920218 Aircrafts are seen parked at the Manila's international airport, Philippines, 23 October 2013. Around 74 domestic flights have been cancelled at the Ninoy Aquino International Airport (NAIA) due to the maintenance of its radar system, according to Civil Aviation Authority of the Philipppines (CAAP). The CAAP stranded passenger to rebook with no penalties or get full travel fund. EPA/FRANCIS R. MALASIG

The Philippines’ hopes of underpinning the country’s heady economic development through infrastructure investment have received a fresh setback after the announcement that a proposed $10bn international airport to serve Manila would not be put out to tender before President Benigno Aquino leaves office next year.

The fast-growing economy is in dire need of modernisation, with its main airport a particular focus of concern as demand soars. Manila’s existing airport has one primary runway for international flights and a secondary one for smaller aircraft, and struggles to cope with roughly 500 arrivals and departures a day.

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Until last year the Ninoy Aquino International Airport held the unenviable title of worst airport in the world for three years in a row, according to an annual ranking by travel website

Analysts say the government’s difficulties in rolling out its public-private partnership programme raise questions over the country’s long-term economic performance.

Last week, figures released by the central bank showed the Philippine economy growing at its slowest pace since 2012. Gareth Leather, an economist at Capital Economics, says policy makers should consider other options to support growth.

“A host of recent PPP [Public Private Partnership] projects seem to have been hit by delays and given the fairly healthy fiscal position there is scope for the government to pay for these projects rather than get involved in bureaucratic PPP.”

According to the Philippine Public Private Partnership Centre’s website, a total of nine projects have been awarded, with 45 at various stages of planning.

HSBC describes the gap in infrastructure spending in the Philippines as “huge”, given the country’s rapidly growing population.

But institutional investors face a tough battle to get access to the domestic market amid complaints that a handful of dynastic local family groups receive the bulk of PPP contracts.

James Cameron, head of project and export finance for Asia-Pacific at HSBC, says current policy makes for an unpredictable investment environment. “Risk allocation and foreign ownership restrictions differentiate the Philippine market, providing additional challenges for foreign partners.”

The Philippines is not alone in facing an infrastructure crisis. The Asian Development Bank warns that poor infrastructure, if left unchecked, will stymie the transition of countries from low-cost to high-value economies.

In countries such as India and Indonesia, targeted investment in power, transport and energy will be a large determinant of future economic performance and current comparisons illustrate the scale of the task.

The Asean bloc has less than 11km of road and 0.27km of rail per 1,000 people, compared with 200km of road and more than 5km of rail in OECD countries, the Paris-based institution estimates.

Given Asean’s imminent integration, policy makers will need a different strategy if they are to entice the private sector to participate in funding. So far governments have shouldered the bulk of costs but with HSBC estimating infrastructure in Asia could require $11tn of investment over the next 15 years, that role looks unsustainable.

Bringing institutional investors on board will require reform of the region’s capital markets and the support of multilateral institutions. The China-backed Asian Infrastructure Investment Bank looms large and analysts predict future investment decisions will have an increasingly political dimension.

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