The Philippine infrastructure sector will continue to benefit as China, Japan and other developed countries compete for economic and political influence on the country through pledges of development assistance and investment, Fitch-owned BMI Research said in its latest report.
“Competition between China, Japan and other regional powers for economic and political influence will provide a boost to the Philippines’ infrastructure sector, as countries promise billions of dollars in development aid, preferential financing and private investment,” it said in a report released Tuesday.
BMI noted Japan’s 1-trillion yen pledge for the Philippines, which will be used for development assistance and private investment in the country over the next five years.
This comes just three months after President Rodrigo Duterte signed $24 billion worth of infrastructure and financing deals with Chinese banks and companies during a state visit last October, it added.
Although the deals with China are larger than the deals with Japan, the think tank believes it will still provide a sizable boost to the Philippine construction sector and help the government move towards its ambitious goal in infrastructure development.
On separate occasions, the administration’s economic team has mentioned a spending target of P8 trillion to P9 trillion on infrastructure during President Duterte’s six-year term.
“We believe that this also portends sustained competition between China, Japan and other regional players in offering favorable infrastructure deals to developing countries in Asia–a theme that is also playing out in countries like Bangladesh, Indonesia and Vietnam,” BMI said.
Japan as equalizer
Japanese investment reduces the risk posed by Chinese investments, according to BMI.
BMI previously said that more Chinese involvement in Philippine infrastructure development poses a risk of crowding out opportunities for other international and private players, especially as Chinese companies have an advantage in raising large sums of capital.
It said Chinese companies will continue to have a growing presence in the Philippines given their low existing level of participation and the significantly higher levels of investment pledges.
The think tank noted that five state-linked construction companies from China signed a memorandum of understanding with two Philippine consultancies in December to pursue an additional $100 billion worth of projects.
“We also note that many of the projects that Chinese companies have expressed interest in are quite large in scale,” it said, citing the $4.8-billion South Line of the North-South Railway Project, the $8.1-billion Manila Metro Line 5 and the $1.1-billion Mindanao Railway.
“Given their substantial government support, Chinese companies globally also have much higher risk tolerances, which would allow them to take on projects that other international or even domestic firms may be less willing to participate in,” BMI said.
Nevertheless, more aggressive outward investment from Japan will help reduce this risk, it said.
“Japanese firms have technological advantages and access to robust financing programs through organizations like the Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation,” the think tank noted.
BMI believes that such diversity will help keep the Philippine infrastructure sector attractive to wider foreign participant, but noted that the dominance of domestic conglomerates across the economy will remain a challenge for those looking to access project opportunities.