Market Report, "Philippines Infrastructure Report Q3 2016", published

From: Fast Market Research, Inc.
Published: Fri May 27 2016

The outlook for Philippines' construction sector remains positive, but the presidential election will weight on construction activity, which has led us to downgrade our forecast for the construction sector in 2016 - with growth now expected to be 7.5%.Latest Updates And Structural TrendsOur outlook for Philippines' construction industry remains positive and we forecast real growth of 7.5% and 8.9% in 2016 and 2017 respectively. The presidential election poses downside risks to our outlook as it will result in project delays and could lead to a review or even cancellation of planned and ongoing development projects. The victory of Mar Roxas, Grace Poe and Miriam Defensor-Santiago would most likely bring continuity in terms of PPP projects, whereas that of Jejomar Binay and Rodrigo Duterte would bring change.The approval by the House of Representatives of the Bill 6331, known as the PPP Act, which will institutionalise and strengthen the PPPs, bodes well for the long-term growth of the construction sector by providing greater investor protection and incentives.The bid submission deadline for five regional airport projects and the Davao seaport project was rescheduled from March 28 to an unspecified date. The postponements pose downside risks to these projects as it is not clear whether they will remain a priority for the new administration.We expect water infrastructure will outperform in 2016 and 2017, with the Philippines-based Maynilad Water Services' allocation of more than USD120mn to expand its wastewater treatment capacity and sewerage coverage in the country in 2016, illustrating the trend.We believe the residential sector construction will be supported by strong structural growth fundamentals for housing a large and young growing population and rising middle income class, while continuous expansion of the tourism industry, coupled with efforts by the government to reinvigorate its gaming and leisure industry, will support the non-residential sector.Risk/Reward IndexThe Philippines scores 52 out of 100 in our latest Asia Pacific Infrastructure Risk/Reward Index, up from 51.7 in the previous quarter, which places the country 17th out of 21 countries in the region.The country receives below average scores for Country Rewards and Industry Risks, which indicates multiple issues restricting the attractiveness of the Philippines' infrastructure industry relative to its regional peers.Although there are a respectable number of companies operating in the country, a lack of transparency plagues the sector, impacting negatively on international and domestic tenders, and harming competitiveness. As a result, the Philippines scores just 35.0 out of 100 for Industry Risks, a score significantly lower than the regional average of 61.

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