Philippines: Infrastructure Investment: UK Opportunities – February 2014
British Embassy Manila
The Philippine Government aims to increase the country’s low infrastructure spending to 5% of GDP by 2016. Over £2bn projects recently approved. But procurement processes remain slow and bureaucratic with restrictive rules for foreign bidders. There will be more opportunities for UK companies, primarily in partnership with local private sector where strong partnerships with UK business are forming.
Infrastructure investment in the Philippines has routinely lagged behind that of its ASEAN neighbours at below 3% of GDP. Foreign companies cite poor infrastructure as a barrier to investment and growth. Nevertheless, there have been recent improvements, with infrastructure spending rising from just over £2bn in 2011 to almost 4bn last year and the Government aiming to increase spending by 5% of GDP, or £12.5bn by 2016.
Some recent developments seem positive. Shortly before Christmas, the National Economic Development Authority approved seven major projects in the airport, rail and water sector worth over £2bn. Two other Public Private Partnership (PPP) projects, a new orthopaedic hospital and the redevelopment of the country’s second airport, were also awarded to bidders
A number of UK companies have been successful in winning business, including as transaction advisers, architectural consultants, technology partners and suppliers of machinery (the last in particular in the renewable energy sector). Partnerships are being established with the major local conglomerates. Companies such as Shell, Arup, Mott Macdonald and Parsons Brinkerhoff are already here whilst other majors, are in the process of commercial negotiations that could see them enter the market in a substantial way.
Despite this, public procurement is a long process with a number of approval processes. The flagship PPP programme, launched in 2010, is only now beginning to get off the ground. Restrictive bidding rules, including a 40/60 restriction on foreign participation in some sectors, are coupled at times with procedural and risk averse approach to tender evaluation. The reconstruction effort following Typhoon Haiyan, ‘emergency’ procurements will require competitive tenders but details on these are awaited.
We have seen UK companies disqualified on what might be considered minor technicalities. This has not always been limited to foreign bidders; on some occasions, every single bidder (including locals) were disqualified. Whilst the Government’s crack-down on corruption is very much welcomed, there is an an environment in which only a small number of people are empowered to make decisions. Opportunities for UK Business
Opportunities can and do exist to win business here and it is in our interests to pursue them. There is a strong pipeline of major projects. Reconstruction funds will offer additional opportunities, particularly any tenders that are carried out by the World Bank and Asian Development Bank. UKTI has a scheme tailored to the aid sector.
The majority of wins will be in partnership with the local conglomerates or regional firms from Korean and Japanese, which are both well-established and have better access to projects. UK expertise is valued: UK companies are already working in close partnership with local companies in sectors such as water supply and airports. For equipment suppliers, a local distributor is all but essential both to access the necessary relationship networks and to comply with local procurement rules.
Overall, the Philippines is improving as a place to do business with the private sector but the public sector is very challenging. If the right partnerships can be found, UK firms should do well: access to decision makers is easy and what the UK is offering is in demand. Some of the problems are endemic and others are a response to genuine efforts by the government to reduce corruption.
There is a growing realisation that infrastructure investment is essential to improve the country’s underlying competitiveness. It is difficult to see how the current growth rate of 7.2% can be sustained without the underpinning investment – already, key parts of the national infrastructure, notably airports and energy, are showing the strain. Infrastructure is also essential for turning growth in to jobs and taking people out of poverty.
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