Paving the Way for Better Infrastructure:
A Construction Industry Roadmap for 2010 and Beyond
- The construction industry is considered one of the most important sectors that contributes significantly to the country's economic output, generates considerable number of jobs, brings in large investments, and gains in foreign exchange earnings. Considering its multiplier effect, the industry enhances the growth of other industries directly supplying/servicing the industry.
- More importantly, the industry serves as a critical input to the development of infrastructure. There is no doubt that infrastructure is very important to a nation's economic growth and development, as well as competitiveness. It creates direct impact particularly on (1) the improvement of labor productivity, (2) reduction of cost of goods and services, (3) expansion of local and global market opportunities, and, ultimately, (4) alleviation of poverty and income inequality.
- The following illustrates the Philippine construction industry's substantial contributions to the economy:
1. Gross Domestic Product (GDP). For the past 40 years, it has accounted for about five percent (5%) of the economy's total output on average. In the last five (5) years, the percentage share of the Philippine construction industry to the country's Gross Domestic Product (GDP) has averaged around four to five percent (4-5%). Although below its 40-year average this year, a rising trend in construction output was still observed. In fact, despite the global recession, the industry remained to be strong and still posted a positive growth of ten percent in 2009, while other industries have contracted.
2. Investments. The construction industry has considerable contributions to the country's investments. The industry has generated more than 40 percent of total investments valued at around Php121.5 billion in 2009. Since 2005, these contributions were on an upward trend, majority of which came from the private sector. Last year, even with the global economic turmoil, the gross value in construction climbed to Php126 billion (Php58 billion from the private and public sectors, respectively).
3. Foreign Exchange Remittances. The industry also supplies modest foreign exchange earnings for the country, with a rising trend for the past six years in excess of US$100 million per year, except for the decline in 2008, recording only a total of US$87.5 million.
4. Job Generation. The industry generates a substantial amount of jobs for the economy. On the average, it supplies five percent (5%) of the total domestic employment annually (equivalent to around 1.9 million workers today). Employment levels posted a steady annual growth of two percent (2%) in the past decade. The industry also provides many jobs abroad, deployed construction workers in excess of 10,000 per year in the key markets of major Filipino construction companies not counting those employed directly by international construction companies and consultants.
- Dubbed as the "mother of all industries", it creates extensive linkages with other industries. Its growth and impact on the economy goes well beyond the direct contribution of building activities. It supports the materials sector by increasing demand for inputs such as cement, stone, ceramics, metals, wood, and steel among others. A group of professionals like architects, engineers, designers, and the like also depend on the industry. The benefits extend to important drivers of the economy such as manufacturing, real estate and housing, and services--most especially business process outsourcing (BPO), tourism and mining.
- Presently, a downward trend in several indicators of the performance of the construction industry has been evident. Given the importance of the construction industry to the economy, it is imperative to address the current issues that it faces. From US$87.5 million in 2008, a figure far down from the recorded high of US$232.4 million in 1983. In another case, a similar movement could be observed in the registration of overseas construction. From the high average of 161 registered overseas contractors from 1981 to 1984, the figure dropped to only 19 from 2000 to 2008. There are several opportunities today for the construction industry both locally and internationally. To be able to fully utilize these prospects, reforms must be introduced and embraced.
- Cognizant of the issues that the industry currently faces, the Philippine Constructors Association (PCA) builds on its two strategic thrusts. For overseas market, it seeks to promote exports of construction services and allied industries in lieu of construction manpower exports. For the domestic market, it advocates for the construction industry to participate in infrastructure development through the Public-Private Partnership (PPP) framework.
- In order to achieve these goals, much is still needed to be done for and by the construction industry. The PCA embarked on a bold initiative to develop a Roadmap aimed at strengthening, developing and enhancing the global competitiveness of the construction industry. The said Roadmap is focusing on three major areas: (1) Provision of Better Infrastructure through Improved Public-Private Partnerships (PPPs); (2) Strengthening of the Construction Industry Authority of the Philippines (CIAP); and (3) Improvement of Education for Construction Professionals and Upgrading of Skills Standards for Construction Workers.
- Since March 2010, the PCA, in partnership with Research, Education, and Institutional Development (REID) Foundation, conducted series of consultative workshops with various stakeholders from the private sector and the government to concretely identify the most salient issues and to provide specific and viable solutions to address them. To wit:
1. Providing Better Infrastructure in the Philippines through Public-Private Partnerships. In his first State-of-the-Nation Address, President Benigno "Noynoy" Aquino III explicitly made reference to Public-Private Partnerships (PPP) as the main engine for infrastructure development in the country. Such a strategy is quite timely: on one hand, the Philippine domestic capital market has sufficient funds for investments in infrastructure; on the other hand, local constructors now have the capability to undertake big-ticket infrastructure projects if provided with proper financing.
Moving forward, the PCA, together with stakeholders from the local financial sector--the Bankers Association of the Philippines (BAP) and the Investment House Association of the Philippines (IHAP) -- have formed the PPP Coalition that is committed to the promotion of the BOT/PPP framework in infrastructure development and assist the Government in: (1) promoting good governance through an open, transparent and competitive process in the provision of infrastructure; (2) jumpstarting the effective tendering of three Priority PPP Infrastructure Projects within the next 12 months; and (3) pushing for policy reforms.
Through focus group discussions among coalition members, where stakeholders from government such as the DPWH and the Office of the Court Administrator also participated, and roundtable sessions with development partners -- USAID, World Bank, ADB, AusAid, and JICA, the PPP Coalition was able to concretely identify the most salient issues surrounding PPP and provided practicable recommendations to address them.
The Coalition advocates for a comprehensive PPP reform program that includes the following measures:
a. Government must commit to a transparent and competitive process by promoting the solicited mode as the central tenet for procuring and implementing priority BOT/PPP infrastructure projects; unsolicited proposals must remain the exception. Such a commitment will send a strong signal to the market and investors that hte government is serious about promoting an open, transparent and competitive process for PPP projects. Previous experiences would show that projects procured through the solicited mode had: 1) lesser fiscal impact and risk exposure for government, and 2) higher probabilities for successful and timely implementation.
b. Government, in partnership with the Private Sector, to pilot three (3) "Ready-to-Go" PPP Infrastructure Projects, to be procured through a solicited process, and completed within the current Administration's term, as follows: LRT Line 1 South Extension, LRT Line 2 East Extension, and the North-South Cavite Expressway Phase 1. While these projects already have existing pre-feasibility and/or feasibility studies, updating and revalidation still need to be done to confirm commercial and financial viability. A fund must be created to finance the validation thru a revolving mechanism.
c. Government should implement a realistic timeframe and process flow for the procurement of PPP projects. The success of the government's initiative to streamline the approval process highly depends on the quality of projects prepared. Project identification, conducting feasibility studies, and preparation of project documents should be given priority as it can either delay or fast track the approval process.
d. Government should establish a Project Development Facility (PDF) to be used for financing feasibility studies for the pipeline of PPP projects. To sustain its commitment to promote PPP as the country's main engine for infrastructure development, Government must, in partnership with multilateral donor agencies, put up a Project Development Facility (PDF) to finance the development of feasibility studies of projects included in the government's list of PPP projects in the pipeline.
e. Government should introduce immediately policy reforms necessary to mitigate project risks and ensure the revitalization of PPP in the country. These are as follows:
i. Repeal the Joint Venture Guidelines and declare "Joint Venture" as a 10th variant under the BOT Law;
ii. Automatic granting of franchise to the winning proponent for toll road projects and limit the Toll Regulatory Board's (TRB)
basis for setting and adjusting toll rates on the predetermined formula agreed upon in the project contract;
iii. Amend the BOT-IRR to strengthen the rules that will promote the sanctity of contracts and clearly define indirect
guarantees vis-a-vis direct guarantees;
iv. Streamline negotiation and expropriation procedures for right-of-way acquisitions (ROWA) in infrastructure projects; and
v. Establish agency-level PPP units to assist implementing agencies in preparing project documents necessary for public tender.
2. Strengthen the Construction Industry Authority of the Philippines (CIAP). The CIAP is established with the primary task to promote, accelerate and regulate the growth and development of the construction industry in conformity with national goals. However, CIAP's implementation of its functions has weakened. Below are the general recommendations by which to improve CIAP, in keeping with the current stat of the construction industry.
a. Redirection of CIAP's vision and reinstatement of measures. There is a need for the redirection of CIAP to its
proper functions, focusing on its developmental, rather than regulatory, roles. As such:
i. CIAP, together with its boards, must be led by competent and industry-immersed officers to effectively perform its
ii. It is imperative to restructure CIAP and its boards towards a common vision, realigning the vision of each board to match
with the overall vision of CIAP. Specifically, this includes the following:
Firstly, the construction industry should review and align with the CIAP's Construction Industry Strategic Plan for
the 21st Century (CI21), drawn from a 1998 consensus of representatives from various construction sectors, intended to provide
a framework for the orderly and accelerated growth of construction and set the direction for all concerned sectors.
The CI21 is anchored on the shared vision of global players in a global environment, focusing on the attainment of infrastructure
development as well as global competitiveness in order to gain a respectable position in the international market.
Secondly, the construction industry must work together in providing specific programs and projects focusing on a
common vision and in supporting the development of a comprehensive construction industry roadmap, consistent with the
national development goals. Such programs and projects may include the following:
- Formulation of policies, standards, and global best practices;
- Dvelopment of a comprehensive and long-term development plan;
- Design and adoption of strategies to accelerate the development of the construction industry;
- Professional development in project management;
- Development of a comprehensive skills training program;
- Regularly monitor, research and study the construction industry;
- Development of programs and strategies for the optimum use of local construction materials;
- Development and maintenance of a construction industry information system; and
- Establishment of regional offices in key areas such as Northern Luzon, Central Luzon, Iloilo, Cagayan de Oro, and Davao.
Thirdly, the Construction Manpower Development Foundation (CMDF) is to revert to the lead of the CIAP. To focus on
its developmental role, the CMDF and the CIAP must be placed under the Industry and Investment Group (IIG) of the
Department of Trade and Industry (DTI), which is in-charge of the investment promotion in activities critical to the DTI's
trade and industry development program, rather than the Consumer Welfare and Trade Regulation Group (CWTRG), which is
in charge of enforcement of laws to protect consumers, consumer education, and formation of consumer groups.
iii. Reviewing and clarifying the functions of the different construction regulatory bodies must be achieved in order
to set specific parameters on the regulatory power of ch body.
b. Strengthening CIAP and its boards (PCAB, POCB, PDCB, CIAC, and CMDF). In support of the first recommendation,
the following are proposed in order to strengthen CIAP and its boards:
i. Strengthen the developmental roles especially in the areas of research and development (R&D), training, registration,
policy formulation, and long-term development plan.
ii. Focus on the accreditation of contractors and of testing centers rather than on business licensing in order to ensure not only
greater market coverage but, more importantly, quality management of Philippine construction in general.
iii. Revise criteria and requirement for classification of contractors in order to achieve the following: (1) consideration of
performance indicators in the classification of contractors; (2) adoption of international benchmarking; and
(3) standardization of requirements to actual practice.
iv. Place greater support for overseas sector, in alignment with the CI21, by promoting global competitiveness, reviving fiscal
incentives, marketing and export promotion, regaining competitive edge (through training and low-cost financing and
guarantees), and international benchmarking.
c. CIAP to generate more income. The income generated by CIAP is not sufficient to support its operations. As such,
the following measures are recommended:
i. Increase budget allocation to cover the implementation of industry development programs.
ii. Return to original intent of Presidential Decree which mandates CIAP to generate money for its own use.
iii. Co-organize training programs with PCA to generate additional revenues.
iv. Target local and foreign grants for project-specific development programs.
v. Pass a CIAP Board Resolution which allows for the establishment of the Construction Industry Development Fund (CIDF),
to be governed by a separate Board, to fund the development of the Roadmap.
d. CIAP to reach wider market coverage. To extend the market coverage of CIAP, the following measures are proposed:
i. Establish offices outside Metro Manila to service other regions like Northern Luzon, Central Luzon, Iloilo-Bacolod, Cebu,
Cagayan de Oro, and Davao.
ii. Conduct regular training programs to local government units and/or to national agencies regarding construction regulations
iii. Promote the export of construction services to key markets such as Guam, Dubai, Saudi Arabia, and Qatar.
iv. Include PCAB license as a requirement for insurance, among others, to help secure the existing market of CIAP.
v. As earlier mentioned, focus on the accreditation of contractors and of testing centers rather than on business licensing
in order to ensure not only greater market coverage but, more importantly, quality management of Philippine construction
3. Enhance Educational Programs and Skills Standards to Produce World-class, Highly Competitive Construction Professionals and Workers. There is a need to improve the educational programs and to upgrade the skills standards in order to ensure continuous supply of globally competitive construction professionals (e.g. architect, engineers, technicians, etc.) and highly productive workers.
To enhance educational programs for the construction professionals, the following measures are proposed:
a. Devise learning programs and offer financial assistance for education.
i. Offer a ladderized program for engineering to provide graduates a vocational or associate programs with a platform
to pursue higher education in engineering.
ii. Design appropriate continuing learning programs (e.g. "Advanced Course in Construction Management" or "MBA Program
with focus on Construction Management").
iii. Provide financial assistance for teachers and faculty members to obtain postgraduate degrees or other certifications that
will enhance their mastery in the engineering field.
iv. Offer incentives, fiscal or non-fiscal, to attract individuals to pursue careers in engineering.
b. Enhance elementary and secondary education by improving elementary and high school curriculum, among others.
c. Develop and implement a globally competitive and internationally recognized engineering curriculum, in concurrence
with the ongoing application for Philippine membership to Washington Accord.
i. Support the application to Philippine membership in the Washington Accord
ii. Train and orient engineering schools with regard to compliance with the Washington Accord
iii. Source for funds for implementation of a curriculum compliant with the Washington Accord
d. Strengthen industry-academe linkages by integrating into model OJT programs necessary skill-and competency-
enhancing trainings and by identifying and prioritizing Engineering Centers of Excellence to serve as pilot schools and
e. Revitalize the Construction Manpower Development Foundation (CMDF) as a pilot center for trainers' training.
i. Develop/upgrade curriculum for professionals in construction sensitive to the technological improvements of the time.
ii. Improve training tools & equipment (hardware & software) based on the requirements of the curriculum developed/upgraded.
iii. Develop Trainers Training Program (TTP) for the curriculum developed/upgraded.
iv. Pilot run of TTP at CMDF.
To make Filipino construction workers more competitive and productive, the following recommendations are proposed:
a. Revise training regulations of the industry.
i. Review, revise and update the training regulations developed by TESDA, particularly those that need technological updating
and develop new ones that have emerged as new requirements.
ii. Promote multi-skilling to encourage workers to develop themselves professionally in more than one skill trade. Review
compensation schemes for continuity of work.
iii. Harmonize skills with cross-industry coverage, as some skills are similar and utilized across subsectors.
iv. Review and improve assessment for construction workers.
v. Develop highly professional skilled workers.
b. Strengthen linkages between industry and vocational/technical training centers.
i. Revitalize trainers' and assessors' training program of CMDF. Revitalize, capacitate, and accredit other training centers.
Aside from CMDF, some of the institutions that offer vocational training for construction skills are National Polytechnic College
of Science and Technology, New Era University, Don Bosco Youth Training Center, Technological University of the Philippines,
University of Perpetual Help Rizal, and the Dual Tech Training Center.
ii. Conduct a study to determine demand and supply conditions of the construction industry, and establish a means for better
coordination between the industry and TESDA. The private sector needs to provide TESDA with information on the industry's
demand for skills, as TESDA need to provide the industry with information on available manpower. Registry centers may be a
viable way to profile the skilled workers per province/region.
- The Philippine construction industry, indeed, is of great importance to the country's economy. Its contributions spans extensively to other sectors of the economy. This significance provides enough incentive to develop it further in order to accelerate the country's economic growth.
- There are several opportunities by which the country can move forward with the help of the construction industry. The main recommendations specified in this Roadmap are critical to the development and enhancement of the industry's competitiveness, and require strong support from the government to realize this endeavor.
(Technical assistance from (REID) Research, Education and Institutional Development Foundation, Inc.)