The State of Infrastructure

The state of infrastructure is of vital importance from an economic and social development point of view. By any measure, we need to significantly improve the quality and coverage of our physical infrastructure in the country. Global competitiveness rankings underscore how important the quality of infrastructure plays a role among investors’ decisions.

Over the last two decades, the Philippines has presented a mixed picture of infrastructure successes and failures. Unfortunately, this has also created the impression of a vicious cycle where people (and investors) cannot see results, which leads to no support for infrastructure, which then leads to deteriorating services. The challenge is to convert this vicious cycle into a virtuous cycle and create a more uniform picture of consistent successes.

Given today’s fiscal condition, this will require public-private sector partnerships which, in turn, will require government institutions to address key business environment issues as identified by the World Bank in a recent report on the Philippines. These key issues were identified as the “four C’s”: inadequate Cost recovery, high Corruption, insufficient Competition, and the low Credibility of institutions. Unless we address these issues and engage in better public-sector planning, it will be difficult to attract the private capital so necessary for financing these projects.

Because of the low level of infrastructure spending as a percentage of GDP, the Philippines has lagged behind its neighbors in the region in terms of economic growth rates. More worrisome, other countries that used to lag behind are quickly catching up and poised to overtake the country. The Philippines will have to create bankable, market-oriented infrastructure projects in order to attract private investors.

The gravity of this situation cannot be overstated. Given a growing population and a large public-sector deficit, there are simply less resources available from the government to meet the infrastructure needs of the future. Yet, if we do not meet those needs, the country will be doomed to slide even farther down the development ladder.

Last May, the Makati Business Club (publisher of Philippine Business) teamed up with the Knowledge Institute (a unit of SGV) and the World Bank to organize a conference on public-private partnerships in infrastructure. This issue features some of the views presented at that discussion. Philippine Business extends its appreciation to the Knowledge Institute, the principal organizer of the conference, for access to its conference proceedings and photographs.