Still one of Asia’s fastest (1)

This year will start with the fight of the two water concessionaires, Manila Water and Maynilad, to survive the attack on their contracts. How that turns out will determine much of the speed of the “Build, build, build” (BBB) program, and of contracts with government generally. The government needs the private sector to participate. And if it shifts more and more to public-private partnerships (PPP), that will be even more critical.

This one case will set the tone for 2020. Water and power are going to be the issues of the year. Water—we could well run short of. The water companies are rushing some alternative sources. But with only one dam and lower-than-normal rainfalls, it’s going to be a close call. President Duterte has committed to a second dam, Kaliwa, but, as usual it’s being opposed and the courts are (slowly) considering it. So it’s unclear when it will get started, and it’s many, many years away from supplying any water.

Then there’s power. The country still needs to urgently develop more baseload plants to replace aging power plants, to meet the rising demand and to raise reserves to 25 percent. As of mid-2019, projects providing a total of some 6,400MW of new capacity have been approved, but it is estimated that at least 11,600 MW are needed over the medium term. To get these projects will mean maintaining a stable policy environment and complying with the letter and spirit of the law. Otherwise, we return to darkness.

On the power side, we’ll get through, but only just so. It will be close. And only if there are no major, unexpected breakdowns. This is a distinct possibility with aging plants. It’s 2021 we have to worry about; the effort to start building some 11,600 MW of power will be crucial in 2020.

Another critical issue to resolve is taxes. The Philippines has lost foreign direct investments to other countries in the region, as the numbers show. Vietnam got $12 billion in the first eight months of 2019, the Philippines only half, $4.5 billion. It’s certain that all remaining tax reform packages will pass, but when and in what final form is at the whim of Congress.

The return to PPP in the BBB program, as the economic team is now considering, is a welcome shift, one that makes sense. Universal Healthcare (UHC) is an admirable initiative of the government, one that governments all over the world are attempting. But it needs more massive funding than the current national budget can provide. So reducing the budgetary need for infrastructure could shift more funds to UHC in 2021.

What would also help is to get outside assistance in developing the design and terms of reference for projects. The government departments, principally the DOTr and the DPWH, just don’t have sufficient experienced personnel.

The ease of doing business law which is being implemented by the Anti-Red Tape Authority in conjunction with the DTI and DICT can be expected to have achieved some substantial improvement by year-end. The computerization and simplification of services are beginning. Where problem still remains is in bringing local governments on board. Too many just don’t have mayors and staff with the necessary training or inclination.

Traffic, the bugbear of us all, won’t improve much. Manila and Cebu traffic just won’t improve to any substantive degree. Metro Manila is the worst place to drive in, according to global navigation app Waze. The completion of Skyway Stage 3 — expected by the first quarter of 2020 — will reduce pressure on Edsa, but Edsa itself will remain an unsolved bottleneck. There are only a few other road improvements expected.

Where improvement is needed is in agriculture, where a new, experienced secretary has taken charge. But achieving the three- or four- percent growth needed will be a challenge. There is a great need to move to more profitable crops, but the agrarian reform impositions will remain a major hindrance to any real development of some of the more desirable crops.

To be continued.

[Email: wallace_likeitis@wbf.ph]