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International Business |​​NYT Now

Strained Infrastructure in Philippines Erodes the Nation’s Growth Prospects

By FLOYD WHALEYAUG. 3, 2014
 
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Barrier to Business in the Philippines




Barrier to Business in the Philippines

CreditJes Aznar for The New York Times        






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MANILA —  Chris Ibasan travels only about five miles to work each day in one of Manila’s business districts, but it is often a grueling two-hour commute that gets him into the office late.“My manager understands,” said Mr. Ibasan, a 24-year-old shipping company employee. “Everyone is late; even the managers are late for work.”From Mr. Ibasan’s perspective, the problem is simple.“There are too many people going to work, too many vehicles and not enough roads,” he said. “And taking the train is like lining up to see a movie star. You wait for hours.”But from an economist’s perspective, the problem is even larger. The 2.2 million vehicles a day that grind away on Manila’s crumbling road system cost the country 876 billion pesos a year, or more than $20 billion, in lost productivity and wasted energy, according to a recent study by the Japan International Cooperation Agency. That is a serious drain on an economy of about $250 billion.“Infrastructure in the Philippines — transport, energy and communication — is in a difficult state to say the least,” said Thierry Geiger, an economist with the World Economic Forum. “Year after year, when we ask business executives based in the country about the state of infrastructure, they say that it is improving. Yet it remains a major bottleneck.”
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Clogged roads in Manila cost the Philippines more than $20 billion in lost productivity each year, according to a recent study.

Credit
            Jes Aznar for The New York Times        


The Philippines has been one of the fastest-growing economies in Asia in recent years. The gross domestic product rose 7.2 percent in 2013, although it is expected to slow modestly this year while remaining above 6 percent, according to most regional economists. In addition to new, streamlined government spending processes and the paying down of public debt, much of the improvement in the economy is linked to the anticorruption efforts of President Benigno S. Aquino III.But the infrastructure problems now threaten to hold the Philippines back from reaching the next level, economically speaking, and improving its manufacturing base. Infrastructure problems have surpassed corruption as the leading economic obstacle, according to the most recent World Economic Forum competitiveness report, which is based on responses from people doing business in the country. Manila is plagued by power failures, chronic water shortages, an antiquated telecommunications system, deteriorating roads and bridges and a subpar airport.Terminal 1 of the Ninoy Aquino International Airport, for example, where most foreign air carriers serving Manila are based and where most foreign visitors to the country arrive, is often featured in lists of the world’s worst airports. In 2011, 2012 and again this year, parts of the airport’s ceiling collapsed, and recently the air-conditioning failed, leaving international travelers sweltering.In April, Mr. Aquino publicly apologized to travelers for the problem. During a World Economic Forum meeting in May, embarrassed airport officials had to use fans to cool things down.The infrastructure problems are felt in other ways as well. Many parts of the Philippines experience regular blackouts, but in the last few months the power failures have hit Manila as well. Energy officials say an insufficient number of power plants, combined with increased demand, is straining the country’s grid.Continue reading the main story
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Though power is unreliable, it is also among the most expensive in Southeast Asia, said Joms Salvador, secretary general of Gabriela, a women’s rights organization.“In Manila, if you don’t pay your electricity bill, they cut your power,” she said. “There is no safety net for the poor. To pay their power bill, families have to scrimp on food or take children out of school.”She said that women and children were hit hardest by the country’s poor infrastructure, particularly in areas without running water.“In metro Manila communities where we work, if there is no running water, then the women and the children have to fetch the water,” she said. “This is an added burden for them.”Mr. Aquino has repeatedly acknowledged the need to invest in infrastructure, noting in recent speeches that the government had increased spending in this area to 400 billion pesos this year, or about $9.1 billion, from 200 billion pesos in 2011.The main thrust of the infrastructure program involves public-private partnerships. The government has identified 57 projects, including a natural gas pipeline, airport improvements around the country, highways in Manila and surrounding areas and upgrades to the capital city’s commuter train system. Of those, none have broken ground, but seven contracts have been awarded, and officials say they hope at least that many more will be given out before Mr. Aquino leaves office in 2016.The stakes are high for the Philippines, said Frederic Neumann, a managing director and co-head of Asian economic research at HSBC.Mr. Neumann noted that the country was in what some economists call a demographic sweet spot, in which millions of young people will be entering the work force. That makes the country a competitive destination for investments in export-driven manufacturing, which have propelled many countries in East Asia to prosperity.“This is the Philippines’ moment,” Mr. Neumann said. “China has been extraordinarily competitive in the last 20 years, but it is now — with rising labor costs — moving toward other types of production. The Philippines has low labor costs. It could pick up where China leaves off.”But the country cannot benefit from manufacturing unless it provides the basic infrastructure, including reliable energy supplies and modern roads and ports, that foreign investors need, Mr. Neumann said. The service sector, including business-process outsourcing, has helped drive economic growth in the country, but it might not support the millions of young people entering the labor market.“To create jobs for these youngsters, you really need to have a vibrant manufacturing sector,” he said. “The service sector will not cut it on its own.”Richard Javad Heydarian, a foreign affairs and economics lecturer at Ateneo de Manila University, said that although corruption investigations might keep infrastructure funds from being pocketed, they could also paralyze spending.“The ensuing political infighting and nonstop investigations could dampen the momentum for sustained infrastructure development,” he said. “In short, the Aquino administration is confronting mammoth bureaucratic, temporal and political roadblocks in realizing its infrastructure development plans.”That is not good news for Gem Mallo, a 24-year-old call center employee who spends four to five hours a day commuting round trip from a Manila suburb to her job in the city center. She sets the alarm for 3:45 every morning in hopes that she can make it to work by 7 a.m.“I sleep for five hours and spend a few hours with my family, and then I’m back on the bus,” she said.


A version of this article appears in print on August 4, 2014, on page B3 of the New York edition with the headline: Strained Infrastructure in Philippines Erodes the Nation’s Growth Prospects.  Order Reprints| Today's Paper|Subscribe









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