Main Drivers of Growth

The continued favorable condition of construction in Q2 2007 was driven by prioritized infrastructure projects that are strategic and critical to stimulate trade and investments in the economy. These projects include: 1) RORO ports and the highways connecting them; 2) the roads and rail system to decongest Metro Manila; 3) the Subic – Clark Highways; 4) highways that are catalytic to development in Luzon, Visayas and Mindanao; and 5) roads and airports to tourism hubs. The Medium–Term Philippine Development Plan (MTPDP), 2004-2010, states that “the RORO system to transport produce from Mindanao, through the Visayas to Luzon has reduced travel time by 10 hours, and reduced cost by 40 percent for passengers and 30 percent for cargo.“

As noted in the 2007 State Of the Nation Address (SONA), “A 10-wheeler truck used to pay P32 thousand from Dapitan to Batangas now only pays P11 thousand. Fresh fish that cost P20 thousand a ton to move now cost P14 thousand.”

Meanwhile, the roads and airports to tourism hubs serve as gateways to regional centers and major tourism centers.

Further, the creation of “Super Regions” which aims to stimulate and spread economic growth across the country, served as a major catalyst for growth in the sector. The five “Super Regions” are the following: 1) North Luzon Agribusiness Quadrangle (NLAQ), 2) Metro Luzon Urban Beltway (MLUB), 3) Central Philippines, 4) Mindanao, and 5) Cyber Corridor.

Based on the 2007 State of the Nation Address (SONA) Technical Report dated July 2007, the priority infrastructure projects in the Super Regions are the following:

1. North Luzon Agribusiness Quadrangle (NLAQ) is the investments on agribusiness in order to support the country’s drive towards increased food production and agricultural productivity. The following are the priority projects currently being constructed: (a) the building of 600 kilometers of Farm-to-Market road, of which 200 kilometers have been completed. This is North Luzon’s share of the 3000 kilometers targeted for the whole country with a total allocation of P3.30 billion; (b) the P7.86-billion Agno River Irrigation Project, which will provide year-round irrigation to 34,450 has. of land benefiting 28,000 farm families in 17 municipalities and cities of Pangasinan: (c) the Banaoang Pump Irrigation Project, costing P2.58 billion will provide irrigation in the 1st district of Ilocos Sur: the Casecnan Multi-Purpose Irrigation and Power Project is a P5.8-billion irrigation project, which will generate a total service area of 82,020 hectares benefiting 49,130 farmer families; (d) the improvement of the Mount Data-Bontoc-Banaue sections of the Halsema Highway, costing P1.78 billion will decrease the travel time from Baguio to Bontoc from 6 hours and 30 minutes to 3 hours: (e) the upgrading and concreting of Bontoc-Tabuk-Tugeugarao Road will reduce the travel time from Bontoc to Tuguegarao from 5 hours and 30 minutes to 3 hours; (f) the P471.4 million upgrading of Poro Point International Airport in San Fernando, La Union will make accessibility to and from San Fernando, La Union easier from Southeast Asian countries and the rest of the country: (g) the rehabilitation of Casiguran Airport costing P15 million provides an easier, faster, safer means of transportation to and from Manila to Casiguran: (h) the construction of the P49.77 million Dingalan Port Passenger Terminal Building in Aurora which will serve as an alternative mode for land transportation in case of obstruction posed by mudslides from the nearby mountains: (i) and the on-going P400 million development and rehabilitation of Port of Irene which will enhance regional development of the North Luzon Agribusiness Quadrangle.

2. The Metro Luzon Urban Beltway (MLUB) is considered as the top magnet for industry and investment of the country. This includes Metro Manila (NCR), which contributes more than 30 percent to the Philippine economy.

On-going construction projects in the MLUB are: (a) the Subic Bay Port Development Project, costing P6.91-billion is modernization project of the Subic Port which involves the rehabilitation of existing facilities (e.g., container terminal), construction of a new terminal, and the installation of gantry cranes; (b) the Lucena Port Project which involves the construction of a passenger terminal building and the concrete paving of a back-up area worth P65.37 million; (c) the P32.86-million reconstruction of the Cawit Port in Boac, Marinduque which will strengthen Ro-Ro links to Marinduque and (d) the P898.33-million Batangas Port Development Project, which once completed will be able to accommodate Panamax and post-Panamax size vessels and an estimated cargo volume of approximately 3 million tons annually.

In addition, two airports to boost MLUB’s accessibility to foreign travelers and cargo are being constructed. These are: (e) the improvement of the Diosdado Macapagal International Airport (DMIA), costing P59.06 billion, which aims to transform the airport into the best international logistics and services center in the Asia-Pacific Region and (f) the NAIA International Passenger Terminal 3, worth US$500 million, which involves the completion and operation of a new international passenger terminal on the 63.5-hectare site of the Villamor Air Base with a capacity of 13 million passengers per year.

To speed up travel, to connect North and South Luzon and to close the LRT and MRT loop, the P6.98 billion Northrail-Southrail Linkage Project Phase 1 started the groundbreaking of the Caloocan-Alabang section while relocation is ongoing in the Alabang-Calamba section.

Fig. 2 Gross Regional Domestic Product At Constant Price, 2004 – 2006

Industry/Sector	GVA At Constant Prices (in '000 Php)			% Distribution (to Total Phil)
	2004	2005	2006	2004	2005	2006
Philippines	1,154,295	1,002,598	1,276,435	100.00	100.00	100.00
AFF	226,418	23,100	239,837
Industry	382,419	396,882	414,931
Services	545,458	582,616	621,667
Metro Manila (NCR)	360,892	387,752	414,293	31.27	38.67	32.46
AFF	1.00	1.00	1.00	0.00	0.00	0.00
Industry	128,738	135,618	143,007	33.66	34.17	34.47
Services	232,153	252,133	271,285	42.56	43.28	43.64

Source: GRDP, NSCB, as of July 2007

3. The Central Philippines, which is endowed with unique natural wonders, white sand beaches, rich coastal and marine resources, varied provincial cultures and historical land marks and warm & friendly people is envisioned to be our tourism super region.

To provide the means to travel to this area, priority construction projects that have been finished are: the P8.76 billion New Iloilo Airport Development Project in Cabatuan and Sta. Barbara in Iloilo; the P6.38 billion New Bacolod-Silay Airport located in Silay City, Negros Occidental; the P290 million Dumaguete Airport in Negros Oriental; the P3.6 billion Bohol Circumferential Road; the P59.76 million Jagna Port Development Project in Bohol; the P99.92 million Maasin Port in Southern Leyte; the P1.08 billion Taytay-El Nido Road in Palawan; and the P1.2 billion Mandaue-Consolacion Bridge in Cebu.

Other airports that are currently undergoing construction in Central Philippines are: the P105 million Kalibo Airport in Aklan; the 142 million Guiuan Airport in Eastern Samar; the P58 million Siargao Airport Project in Surigao del Norte; the P303 million San Vicente Airport Development Project in Northern Palawan; the P1.25 billion Busuanga Airport Project in Coron Island, Palawan; the P303 million Kabankalan Airport in Negros Occidental; and the P2.87 billion Panglao International Airport in Bohol.

Aside from airports, RORO ports are currently being constructed as well like the P92.46 million Sibunag Port Development Project in Guimaras; the P77.59 million Mambajao Port in Camiguin; the P17.6 million Limasawa Port Project in Southern Leyte; the P23.6 Bogo Port in Cebu; the P52.82 million Naval Port Development Project in Biliran; the P49.10 million Maripipi Port in Biliran; the P134.34 million Esperanza Port in Masbate; the P96.47 million Aroroy Port Development Project in Masbate; the P125.39 Claveria Port in Burias Island, Masbate; and the P117.15 million Pantao Port in Libon, Albay.

Lastly, on-going road construction projects across Central Philippines include: the P34.04 million project of 2.28 km Metro Iloilo Radial Road in Jaro, Iloilo City; the P2.08 billion Panay Island Development Road Network; the P2.31 billion construction of the 9.45 km Cebu North Coastal Road; the P3.21 billion construction of El Nido-Bataraza-Rio Tuba Road in Palawan; and the construction of P50.88 billion Southrail Project from Calamba, Laguna to Matnog, Sorsogon.

4. Mindanao Region is considered as the country’s food basket because of its large fertile land areas and evenly distributed tropical climate that makes it suitable for year round crop production. Of the 3 – billion pesos spent for 3000 kms of farm to market roads, 1000 km are earmarked for Mindanao as the government aims to further harness the competitive advantage in agribusiness of the region. Major infrastructure projects being prioritized are the: P210 million Dakak-Dapitan Road Project, the P100 million Dinagat Island Road Network, the P1.326 billion Sibuco-Siraway-Siocon-Baliguian-Gutalac Coastal Road in Zamboanga del Norte and the P6.52 billion Surigao-Davao Road Project.

The following airports are currently being constructed: the P250 million Butuan Airport in Agusan del Norte, the P85 million Cotabato Airport, the P115 million Dipolog Airport in Zamboanga del Norte, the P5.39 billion Laguindingan Airport in Misamis Oriental, the P515.76 million Pagadian Airport in Zamboanga del Sur, the P257 million rehabilitation of Zamboanga Airport in Zamboanga del Sur, the P574.23 million Port of Cagayan de Oro in Misamis Oriental, and the P396.09 million Davao Port in Sasa, Davao City.

5. Lastly, the Cyber Corridor is home to numerous cyber service providers from Baguio City down to Davao City that supply expert service in various field of ICT like business process outsourcing (BPO), contact centers, animation, medical and legal transcription with high infrastructure facilities being invested by private sector companies in the country in order to provide better operations and services towards their clients across the globe.

According to AT Kearney, a top Netherland-based consulting firm, the Philippines Cyber Corridor ranks 8th in the 2007 survey of preferred Information and Communication Technology (ICT) destinations in the world. For 2006, the ICT industry has brought in P3.6 billion, employing 244,000 ICT-skilled workers nationwide. In 2007, the sector expects to generate revenue of P5.2 billion and employ 403,400 ICT workers. This target can be met with the expansion of the Cyber Corridor by identifying potential locations outside Metro Manila for ICT investors.

Past Performance

Looking back at the performance of construction a decade ago, the favorable performance in the 2nd half of 1997, was not sustained due to the Asian financial crisis. Construction grew by 8.5 percent, 18.1 percent, and 7.6 percent in Q2, Q3, and Q4 of 1997, respectively. It slowed down to 1.1 percent in Q1 of 1998 but plummeted by 7.9 percent, 16.9 percent and 14.9 percent in Q2, Q3, and Q4 of 1998, its worst performance in 10 years. It was during the 3rd quarter of 1998 that the GDP declined by 0.7 percent due to a number of reasons – the decreased demand for Philippine exports and the low investment confidence in the country and the region as a result of the financial crisis, among others.

Beginning Q1 of 1999, the industry gradually recovered, attaining a 5.2 percent growth in Q3 1999, the highest growth achieved after the Asian financial crisis. The growth momentum was sustained until the rest of 2000 with the government’s pump-priming activities in the economy.

However, in Q1 to Q4 of 2001, construction industry plunged to 14.3 percent, 3.3 percent, 5.5 percent and 2.6 percent growth, respectively, due to the political turmoil which wracked the country.

Starting 2002, the construction industry picked up and remarkably recovered to its booming performance in recent years. It accelerated its pace beginning 2006, posting a double digit growth of 10.7 percent growth in Q1 2006; followed by 4.0 percent, 8.3 percent, and 7.6 percent growth, in Q2, Q3, and Q4 of 2006, respectively and of course including the 20.0 percent growth in Q1 2007 and 21.0 percent growth in Q2 2007, the highest in 10 years.

What Lies Ahead

Aside from public infrastructure, Construction is currently also getting a big boost from Foreign Direct Investments (FDI) such as $1 billion Hanjin Shipbuilding Facility in Subic, said to be the largest in the world; $1 billion Texas Instruments (TI) microchip plant; and the sustained demand for infrastructure for the BPO industry.

The private sector participation and the government’s intensified efforts to promote a favorable macroeconomic condition through a balanced budget, tax reforms, improved revenue performance in order for the government to mobilize funds for critical infrastructure projects in the countryside and the timely settlement of due and demandable claims for completed projects strongly indicate that the growth can be sustained for the coming quarters.

If plans do not miscarry then, the Construction industry may even surpass its current performance for the rest of the year.

 

¹ GVA of Construction at constant prices is derived by deflating the estimates at current price (base 1985 prices) by a composite deflator consisting of prices of labor, materials and other value added

 

Related Link:

National Accounts of the Philippines (NAP)