I watched Jaime Augusto Zobel de Ayala (JAZA), Chairman & CEO of Ayala Corporation, on television being interviewed by Mr. Coco Alcuaz, host of ANC’s Business Nightly TV program. The interview with Mr. Zobel was made on the sidelines of the World Economic Forum (WEF) on East Asia held in Manila, but was aired and/or replayed a week later in late May or early June.
Without doubt, I wholeheartedly agree with JAZA that we, the Filipino people, should savor, relish and enjoy that the WEF Summit was being held here in Manila for the first time. There were more than 600 delegates coming from 30 countries that included government and business leaders, as well as those from the academe and civil society. In hindsight, the Filipino organizers of the WEF perhaps could have requested out of national interest for a one-week moratorium from the press on negative news and commentaries.
What also caught my attention during the interview was when Mr. Zobel commended the Secretary of the Department of Public Works & Highways (DPWH) for the increased expenditures in public infrastructure, which he believes will be good for the economy. Indeed, increased sales of cement, steel bars, sand and aggregates and other materials together increased consumption of construction workers and employees (including allied industries) would translate to a higher Gross Domestic Product (GDP).
As early as April 2013, DPWH Secretary Rogelio “Babes” Singson had announced in a meeting with the Management Association of the Philippines (MAP) that the national government would spend 5 percent of its Gross Domestic Product (GDP) on infrastructure.
The World Bank East Asia & Pacific Economic Update Report released on April 5, 2014 said that huge amounts of public infra spending will keep the Philippine growth high.
The report said that significant additional spending on infra is crucial to for the national government to meet its target of 8.5 per cent growth in 20016. Thus, the Aquino administration will raise public infra spending from 2.5 per cent to 5.0 per cent of GDP.
A common mistake is the belief that increased expenditures for public works will translate to much higher economic growth and employment generation. This is not necessarily true, especially in the Philippines. Why? Public works projects of the DPWH are always obscenely overpriced. This will be between 50 to 100 percent overpriced! Thus, the expected increase in expenditures from the project costs do not really happen. Public funds just end up in the pockets of corrupt DPWH and other government officials.
A good example is the DPWH project in Guagua, Pampanga which cost P200 million for two short bridges (25 meters), drainage, and riprap for slope protection for the banks of the estero. This would not cost more than P100 million, but the project cost became double at P200 million.
One possible explanation is that the phantom Japanese consulting firm may have charged as much as P45 million ($1M) for their services. The dubious project received funding from the Japan International Cooperation Agency (JICA), which explains why there is a Japanese consultant attached when such services are not even needed.
(GMA News TV Investigative Documentaries featured the despicable DPWH project last Thursday, June 19, 2014.
There will be a replay on Sunday, 22 June 2014. I was invited to analyze and comment on the anomalous DPWH as Executive Director of the Citizens Infrastructure Integrity WatchDog or InfraWatch for short.)
Another example is the construction of the 93.8 km four-lane Subic-Clark-Tarlac Expressway (SCTEX) that was obscenely overpriced at P35 billion. I have it on good authority that SCTEX was built at a cost at least P5 billion more than the real price because the notorious JICA that provided 78 percent of the funding through an ODA loan, wanted almost everything used to be obtained from Japan, including the cement to be used!
Another reason is because the public works projects are not really needed and will not help the economy because they will not serve any purpose except to spur economic activities and to feed the pockets of corrupt government officials and their favored contractors. It is not like new roads and bridges that are really needed to spur economic activities are being built. The same for damaged or detriorated highways being repaired and restored.
Likewise, DPWH projects more often than not are constructed of substandard quality and do not adhere to design specifications of concrete from its compressive strength to thickness, which is supposed to be 12 inches, but often less by three inches or at least 25 per cent short.
For instance, there is no value in demolishing the well-paved MacArthur Highway (Manila North Road) in Pampanga, Tarlac and Pangasinan so that it can be concreted again! Of what use are the increased expenditures in public infrastructure when the project will perform the same function as before and there is no added value to the finished project.
Like there is no value in widening the MacArthur Highway when the additional lanes are not being used due to lack of traffic volume with NLEX, SCTEX and TPLEX in place.
There are also obstructions like concrete, wooden and steel posts and trees, and other road hazards on the additional lanes that deter motor vehicles from passing there. I have seen additional lanes built beside canals (two meters wide) where vehicles can fall!
Thus, increased expenditures in public infrastructure will not necessarily translate to expected GDP growth and job creation. The expectations of people like Mr. Zobel and the WB Chief Economist may be inflated and/or unrealistic.
What matters in public works projects is not the total value, but on whether they are really needed, not excessively overpriced and built properly according to correct designs and specifications.