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Construction sector: key contributor to PHL growth, 'mother of all industries'

Published on Thursday, 29 August 2013 20:09 [ ]
Written by Janica Monick Riego

THE importance of the construction sector on the country’s economy cannot be understated, especially for developing countries like the Philippines. Its strong performance urbanizes an area, making it more economically productive and efficient. It brings in investments, generates jobs, foreign-exchange remittances, and enhances the growth of other industries.

The development of essential infrastructure, considered a sign of economic progress, will not materialize without the efforts of the construction sector. Through the sector, there is an expected improvement of labor productivity, reduction of cost of goods and services, and expansion of local and global market opportunities.

The impact of the construction sector to the country’s economy was made evident in the first quarter of 2013, when Philippine gross domestic product (GDP) growth surpassed expectations and reached 7.8 percent. The National Statistical Coordination Board (NSCB) cited the construction sector as one of the key contributors to the better-than-expected economic performance of the country.

The sector was regarded as the strongest performer during the period, registering a staggering 32.5-percent growth from the previous quarter’s 18.4 percent. It contributed a total of P175 billion to GDP in January to March. Construction’s strong performance and that of manufacturing made the industry sector the main driver of the country’s  economy in the first quarter.

According to the Philippine Constructors Association’s (PCA) Country Report for the first quarter of 2013, the construction sector provided the largest contribution to industry growth, next to manufacturing.

Regarded as the “mother of all industries,” the construction sector is allied with other industries. It covers a very broad range--from small-scale residential structures to large-scale industrial facilities, roads, bridges, seaports and steel structures, among many others. It also affects the growth of industries such as tourism, mining, and business-process outsourcing (BPO).

However, unlike other industries, construction-driven GDP growth does not have any effect on inflation rate because construction is not a component of inflation computation. This allowed the country to enjoy a low-inflation environment despite the strong GDP growth in the first quarter.

According to the PCA, the construction sector is likely to grow 8 percent for the rest of 2013. The sector will be driven by the roll out of public- and private-sector projects.

Government spending on infrastructure, for one, increased by 35 percent in the first five months of 2013. In January to May, public spending for infrastructure projects reached P104.6 billion, compared to P77.2 billion last year.

The Department of Budget and Management said the government has also increased its spending on other capital outlays, which is largely attributed to the sizable current and prior years’ payables due to contractors of infrastructure projects and suppliers of equipment.

The increase in spending for infrastructure projects pushed the government’s total disbursements to P751.2 billion at the end of May 2013, a 12.4-percent increase from the total disbursements recorded in the same period last year.

Among the significant allocation this year is a dedicated budget for tourism infrastructure pegged at P12 billion this year and P17 billion next year. The money will be used for road constructions to link tourist destinations to major highways. This is to improve the travel experience of tourists in the Philippines.

To further drive up the country's economy, the government plans to increase infrastructure spending in 2014. For 2014, the government is targeting to spend P213.5 billion for the development, construction and rehabilitation of the country’s national roads and bridges. The figure is 40 percent higher than the allocation this year.

The expected implementation of large-scale public-private partnership projects is also expected to prop up GDP and also boost the performance of the construction sector.

“Increasing activities in these growth drivers would result in more civil construction works such as office buildings, roads and bridges, facilities for utilities, and the like,” the PCA said.

“Moreover, it is expected that public construction will continue to boost the sector in the next three years as the Department of Public Works and Highways rally will be sustained to garner more than P600-billion capital outlays by the end of 2016,” it added.

However, foreign businessmen had warned that the delay in launching other infrastructure projects could slow growth. Projects that have been put on hold are the Automated Fare Collection System for Metro Rail Transit and Light Rail Transit —a P1.72-billion deal to design and operate a smart card system for the elevated railway lines—and the P17.5-billion Mactan-Cebu International Airport deal.

Aside from a target of increased government spending, private projects are also seen to sustain the sector's growth.

The PCA said that demands and investments in building developments, such as housing and industrial, will continue to rise and further boost the construction sector's expansion.

Private construction projects has reached 24,400 in the first quarter of 2013, 71.7 percent of which were residential-type, 12.4 percent were non-residential, and the remaining 15.8 percent were additions, alterations and repair of existing structures. Around 26 percent of total number of projects was undertaken in Region 4A (Calabarzon).

The PCA said in its country report that the second quarter of 2013 appears to be better than the first considering the inflation rate; robust consumer spending; and the sustained increase in the government's investment and spending on key infrastructure projects.

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