On DBP as infrastructure bank

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INADEQUATE road networks, ports and seaports, transport systems and other infrastructure facilities have often been cited as major obstacles to economic growth in the Philippines.

Although the country is now being hailed as one of the fastest-growing economies in Asia, it remains a laggard when it comes to infrastructure development.

Based on the Global Competitiveness Report of the World Economic Forum (WEF), the Philippines has the worst infrastructure ranking among the original five members of the Association of Southeast Asian Nations (Asean-5).

The report, which covered 138 countries, ranked the Philippines No. 106 in terms of its infrastructure, far behind Singapore (No. 4), Malaysia (No. 16), Thailand (No. 71) and Indonesia (No. 81).

The low ranking is not surprising because government spending on infrastructure never reached the 5-percent-to-GDP threshold in the past 30 years.  Infrastructure spending averaged only 2.9 percent of GDP during the previous administration, according to the Department of Budget and Management (DBM).

The administration of President Duterte is committed to pursuing an aggressive infrastructure development program to boost the economy, generate employment and alleviate poverty.

The program involves heavy investments on infrastructure amounting to P8 trillion to P9 trillion from 2017 to 2022. For this year, the national budget is allocating P847.2 billion for infrastructure projects, equivalent to 5.3 percent of GDP, up from P756.4 billion (5.1 percent of GDP) in 2016.

I believe the proposal by the Department of Finance to reorient the Development Bank of the Philippines (DBP) into an infrastructure bank will be a significant contribution to infrastructure development in the country.

The move, according to Finance Secretary Carlos G. Dominguez III, will not require an amendment to the DBP’s name or charter, so it may be completed before the end of this year. It will be patterned after the Development Bank of Japan Inc. (DBJ), which is an infrastructure bank that provides project financing, particularly for energy and infrastructure.

Actually, infrastructure and logistics are two of the four major sectors being served by the DBP. The other three are small and medium enterprises (SMEs), social services and community development, and environment initiatives. Thus, re-orienting the DBP to become an infrastructure bank should be a smooth process.

As Dominguez said, it would only require declaring that infrastructure would be the bank’s major thrust. Making DBP an infrastructure bank will allow it to focus more on infrastructure projects, particularly in underdeveloped areas like Mindanao.

In addition, I believe that, as an infrastructure bank, the DBP will be able to help local contractors, many of which lack the capability to undertake big-ticket projects.

Building up the capability of local contractors will also help them, in the long run, to compete even in the overseas markets. So far, very few Philippine companies have been able to land construction contracts overseas, which are dominated by giant foreign companies.

Filipino contractors also often play second fiddle to foreign companies even in domestic infrastructure projects. Because these projects require huge capital, they have to be a partner with foreign companies that can cough up the required investment.

So, reorienting the DBP to become an infrastructure bank will achieve an extra benefit, in addition to bridging the country’s infrastructure gap: help Filipino contractors become world class.

 

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