Philippine Infrastructure and Connectivity: Challenges and Reforms

• Published date: 01 July 2016
• Date: 01 July 2016
• DOI: http://doi.org/10.1111/aepr.12141
• Author: Gilberto M. Llanto

Philippine Infrastructure and Connectivity:

Challenges and Reforms

Gilberto M. LLANTO†

PhilippineInstitute for DevelopmentStudies

The Philippineshas performed creditablywell in the past few years.Ensuring better infrastructureand

connectivity is crucial in attaining inclusive growth. This will require substantial investments in

infrastructure. Variousreforms to address the infrastructure lack wereimplemented but there isscope

for more reforms: improving fiscal space, reforming budgetary processes, improving public-private

partnerships (PPPs) and the regulatory environment, and better policy coordination to address

problems of connectivity and infrastructure. The Philippines has to continuously improve the

governance framework, ensure stability and predictability of policies and regulations. Better

coordinationamong a diverseset of governmental infrastructure bodies,and also between government

and the private sectoris needed to address infrastructure bottlenecks.

Key words: connectivity, infrastructure, infrastructure finance, information and communications

technology, public-private partnership

JEL codes: H54, O18

1. Introduction

There is a great need to improve inter-island connectivity within the Philippines and

connectivity with other countries, especially those of East Asia and the ASEAN. Stronger

external and inter-island connectivity will enable it to take advantage of trade, investment,

and growth opportunities in this dynamic region, thereby fostering inclusive growth.

Connectivity is a function of geography and it is a major challenge for the Philippines, an

archipelago of 7,107 islands, with the main population centers and economic activities in

three major islandgroupings of Luzon, Visayasand Mindanao. This will requiresubstantial

investments in infrastructure. Poor and inadequate infrastructure is a critical development

constraint in the Philippines (Canlas et al., 2007) with adverse impacts on growth and

poverty reduction. Infrastructure provision has been quite a struggle and it remains as a

major policy priority by the government.

The author thanks Ma. Kristina Ortiz for research assistance; Hal Hill, Jin Wakabayashi, and

participants in the Conference organized by Asian Economic Policy Review for their constructive

and helpful comments.

†Correspondence: Gilberto M. Llanto, Philippine Institute for Development Studies, 18F Three

Cyberpod Centris, North Tower, EDSA corner Quezon Avenue, Quezon City, NCR, Philippines,

1100. Email: gllanto@mail.pids.gov.ph

doi: 10.1111/aepr.12141 Asian EconomicPolicy Review (2016) 11, 243–261

©2016 JapanCenter for EconomicResearch 243

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Drawing strength from past and present reform efforts and better governance, the

Philippineshas performed creditably wellin the recent past after yearsof a boom-bust cycle

of performance since the postwar period. In 2014, gross domestic product (GDP) grew in

real terms at 6.1 percent, and in 2015, most recent forecasts put it at around 5.7 percent,

which is respectable considering the prolonged weaknesses in the global economy, the

slowdown in exports, and volatiliy in international capital markets.

The crucial question is whether the Philippines can sustain its relatively high growth

performance or lose momentum and lapse into a low growth path. To sustain growth,

making substantial investments in infrastructure and connectivity will make a lot of

difference.

The Philippineshas implemented variousreforms to address the infrastructure lack,but

it will take time to produce infrastructure that will be at par with those of neighboring

countries in quality and adequacy. There is scope for more serious efforts in improving

fiscal space, reforming budgetary processes, improving public-private partnerships (PPPs)

and the regulatory environment, and ensuring better coordination among government

agencies to address problems of connectivity and infrastructure.

The rest of the paper is structured as follows. Section 2 discusses the status of

infrastructure and connectivity in the Philippines with particular mention of new types of

infrastructure (information and communications technology (ICT) and e-commerce) that

have created new linkages and opportunities for the economy. Section 3 provides a

summary of recent research findings on the impact of connectivity and infrastructure on

the economy. Section 4 discusses the challenges of infrastructure provision, with particular

focus on PPP arrangements. Section 5 concludes.

2. Philippine Infrastructure and Connectivity

A comparison with other ASEAN countries and the three East Asian economies of China,

Korea and Japan showsthe Philippines lagging behind in major indicators of connectivity,

access, and quality of infrastructure (Tables 1 and 2).

The Philippineshas a lower road density (kilometerof road per 100 square kilometer of

land area) than other ASEAN countries, but with relatively similar quality of road

infrastructure (measured by paved road ratio). With respect to quality of port infrastructure,

the Philippines, an archipelagic country with a score of 3.5 falls behind Thailand, Indonesia

and Vietnam. The average score for port quality for the Asia-Pacific region is 3.8 (Llanto

et al., 2015). In terms of the quality of air transport infrastructure, the Philippines is behind

comparator countries, being below the average quality of air transport infrastructure score

of 4.3 in the Asia-Pacific region (Llanto et al., 2015). In rail transport infrastructure, the

Philippines scored 2.3 and in electricity supply 4.2.

An importantmeasure of connectivityis the liner shipping connectivityindex. The liner

shipping connectivity index captures how well countries are connected to global shipping

networks. It is computed by the United Nations Conference on Trade and Development

(UNCTAD) based on five components of the maritime transport sector: the number of

ships, their container-carrying capacity, the maximum vessel size, the number of services,

Infrastructureand Connectivity Gilberto M. Llanto

244 ©2016Japan Center for EconomicResearch