Last updated on August 14th, 2018 at 01:18 am
President Duterte’s ‘Build, Build, Build’ (BBB) project, an ambitious infrastructure program that will see US$ 180 billion being spent over the next decade towards building much needed roads, dams, bridges, airports, seaports and more in the Philippines is expected to push Philippines’s infrastructure spending from 6.3% of GDP this year to 7.3% by 2022 helping close the infrastructure gap between the Philippines and other countries; in the World Economic Forum’s latest Global Competitiveness Index, the Philippines ranks 97th out of 137 nations in terms of infrastructure ranking, lagging behind most of its Southeast Asian neighbors according to the World Economic Forum’s latest Global Competitiveness Report.
The latest World Economic Forum’s Executive Opinion Survey also revealed that inadequate supply of infrastructure is considered to be the second most problematic factor for doing business in the Philippines (inefficient government bureaucracy was rated as the number one problematic factor for doing business).
Philippines’s infrastructure challenge and the government’s ‘Build, Build, Build’ initiative which aims to usher in a “golden age of infrastructure” opens numerous avenues for business and investment for locals as well as foreigners. Business and investment opportunities in Philippines’s ‘Build, Build, Build’ program is attracting foreign investor interest, with the country enjoying record high FDI in 2017 which reached US$ 10.05 billion, a 21% YoY increase. Direct equity investment for local companies which made up 32% total FDI inflows, increased 26% YoY, much of which were channeled towards electricity, gas, steam and air-conditioning supply; construction; manufacturing; and real estate activities.
Numerous opportunities exist for local and foreign players in areas such as design engineering, cement and construction equipment, noteworthy opportunities are discussed below.
At about 212 kilograms per person (as of 2014), Philippines has one of the lowest per capita cement consumption compared to its ASEAN counterparts, and is about half the global average per capita cement consumption. However, that figure is set to improve as President Duterte’s Golden Age of Infrastructure which includes building six airports, 32 roads and bridges and a number of other developments such as bus rapid transits, industrial estates, and seaports drives domestic cement demand which is estimated to exceed 40 million metric tons by 2021, according to estimates from the Philippines’s Department of Trade and Industry. This is about double the quantity of Philippines’s current cement consumption which stood at 25.9 million metric tons in 2016.
This is a growth opportunity for cement firms such as LafargeHolcim, Cemex Holdings Philippines, Republic Cement and Eagle Cement Corporation. These four cement industry players account for about 80% and 82% of total clinker and cement domestic production, respectively.
German industrial giant Thyssenkrupp AG (ETR:TKA) expects its Philippines revenues to rise three-fold as a result of the country’s BBB initiative with much of that being driven by cement.
Cement producers are actively building capacity to capture a share of the country’s anticipated increase in cement demand. As of December 2016, the Philippine cement industry has an estimated annual clinker and cement capacity of 20.6 and 28.63 million tons, respectively, according to the 2017 Cement Market Report. The Philippine cement industry is estimated to need over 10 million tons of additional cement capacity to meet domestic cement demand until 2025. Unless local cement manufacturers increase capacity, the Philippines will have to fill the deficit through imports.
According to BMI Research, Philippines’s construction industry is forecast to expand at an average real rate of 9.8% between 2017 and 2026, and the firm expects Philippines to be one of the fastest growing construction markets in Asia, which is expected to create heavy demand for construction equipment such as cranes, excavators and other heavy machinery, an opportunity companies such as Korean automotive firm Hyundai, Swedish auto firm Volvo, American heavy machinery giant Caterpillar (NYSE:CAT) among others are aiming to capitalize on.
Hyundai Heavy Machineries dominates Philippines’s excavator market and is expanding capacity to participate in the government’s BBB program.
Volvo Construction Equipment, the second largest player in Philippines’s excavators market according to a 2016 report by Ken Research is aiming to supply construction equipment as well as trucks, and buses to help with the program.
American heavy machinery giant Caterpillar is bullish on heavy machinery opportunities from the BBB initiative such as supplying excavators.