ON COLLABORATION AND PARTNERSHIP: REINFORCING THE PHILIPPINE CONSTRUCTION INDUSTRY
Keynote Address delivered by
Executive Director Cosette V. Canilao
during the General Membership Meeting of the
Philippine Constructors Association (PCA)
Oakwood-Premier Joy-Nostalg Center, Manila
#17 ADB Avenue, Ortigas Center, Pasig
28 June 2012
The distinguished Board of Directors of the Philippine Constructors Association.
PCA officers led by your president Augusto F. Manalo and Executive Director Lito Madrasto
PCA members and our partners in the construction industry.
Ladies and gentlemen.
A very pleasant day to everyone. When I got the invite to speak before your General Membership Meeting, of course, I said yes. I wanted to speak before the construction industry’s leaders and opinion makers and share with you personally what the PPP program of government has gained, what is in store for the infrastructure industry, specifically for the construction sector, the challenges that I think the sector faces and how the PCA and the PPP Center can collaborate to help accelerate the nation’s growth through a stronger infrastructure development agenda.
PPP Program as a Development Agenda of Government
Under the Aquino administration, infrastructure development is identified as a major sector that will buttress the Philippine economy echoed in the Philippine Development Plan.
Based on the country’s development agenda, infrastructure projects will be pursued in three different schemes — via projects or programs under the national budget, through the official development assistance and through public private partnerships, under the ppp program.
In the two years since its revitalization in 2010, the PPP program has garnered a tremendous amount of support from the private sector, PCA being one of the ardent supporters. The initial offerings of PPP projects that were introduced by our implementing agencies for collaboration generated an encouraging response from the private sector. This positive development in the country’s infrastructure development agenda mirrored the continuing confidence of investors both local and foreign to the country’s viability as a strong investment destination. Today there are 23 projects in the PPP pipeline. This number continues to expand as both national and local government agencies produce feasible projects that have passed the rigors of project development and selection.
Our successes have not gone unnoticed in the international financing communities. Credit rating institutions have upgraded the Philippines status several times in the last year. We are now just a notch away from the coveted investment grade. While we are not quite there yet, the interest from investors have not waned and in fact has consistently enjoy immense support and attraction.
The formula for the PPP program’s success is essentially a product of the Administration’s unequivocal commitment to good governance and the continuing work being done by Implementing Agencies with the support of the PPP Center to structure and package PPP projects that are transparent, and commercially viable.
We see these early successes as inspiring incentives to work even harder to bring the benefits of progress in the infrastructure industry to real growth that redound to improved lives.
The PPP program is where open and collaborative efforts between the private sector and government ensure that PPP projects go well, proving an atmosphere that encourages confidence, commitment and innovation.
With all the positive investment buzz that the PPP program has attracted and government’s full commitment to transparency and good governance, now is the perfect time to maximize the opportunities present and address the challenges that keep us from our goal of growth.
Addressing Challenges, Maximizing Opportunities
According to the National Statistical Coordinating Board, during the first quarter of 2012, the fastest growing sectors, based on the gross value added to the country’s GDP, are electricity, gas and water supply at 8 percent, manufacturing at 5.7 percent and construction at 3.6 percent.
In the third quarter of last year, the construction sector was the under performer with a negative 7.1 growth rate.
Despite the encouraging turn around by the construction sector this year, we need to understand what the challenges were and plug in the solutions that we can provide at this point.
The uncertainty of the global market did strike a negative chord not only in the construction sector but for most of the other sectors and economies as well. The drop in demand for residential and office segments, under spending in infrastruction, deferred pipeline projects, and the absence of new large scale projects contributed significantly to last year’s construction slump.
Add to that is the existing cost pressure due to the availability of construction materials, the lack of innovation in terms of technology, high competition among first tier and second tier players, and the entry of new foreign contractors.
In challenges lie opportunities. While the continuing down trend in the global markets beyond our control, there is much that we can actually change and mitigate in our own backyard.
With the focus on the Philippines as a viable destination for investments in infrastructure, specifically through PPP, foreign investors will naturally gravitate to where the opportunities are. See this as an opportunity for collaboration. Leverage your knowledge, expertise and capital as premium commodities for business partnerships. Take on the role of investor. Your experience in the field of construction is invaluable, and will prove particularly interesting to foreigners doing business for the first time in the Philippines. The PCA can use its significant network of partners and investors to develop strategic alliances between our local contractors and foreign investors. The government has also lined up infrastructure and project finance events this year which we intend to use as business matching opportunities to encourage more players. The PCA should participate and take advantage of these opportunities.
Learn, adopt and advocate the PPP process of structuring and financing projects. Here is an area of collaboration between the PPP Center and the PCA that can be explored and readily implemented. We can provide you workshops and focused trainings that will cater specifically for contractors, the same way that we train our local governments on the PPP process.
Take advantage of available alternative modes of financing, by tapping the capital market or public bond financing. Capital markets are not necessarily in the top of mind of local investors mainly because there is not enough information on the bond market on the part of both public and private sectors giving off the impression that bond execution is difficult. There are significant advantages to using capital market— which PCA members should look at. We can help in exploring and putting together workshops with the Investment House Association of the Philippines (IHAP) for PCA.
Innovation as a driver of productivity
Another opportunity that we urge you to maximize is innovation. Whether we are ready or not we find ourselves in a knowledge-based economy where knowledge is a tool that drives productivity. The rules and practices that worked in an industrial economy may no longer be viable today. There is a compelling need to re-engineer our knowledge resources and expertise. This is particularly true for the construction sector. And it is the duty of those in the industry to validate these resources and rules to make it more efficient, responsive and relevant to the stringent requirements that the industry face today.
It is time to keep in step with the rest of the world. We cannot afford to use the same methods that have worked in the past decades. Technological advancement will prove crucial in a company’s success, setting it apart from the rest. In undertaking PPP projects, one of the critical requirements in the selection of investors is that government demands from its private partners to introduce new technologies to accelerate delivery while ensuring public safety. Most of the time, our potential partners lack the awareness and expertise tobring in applicable innovations. Then there is the fear of “being the first to try something different.” Because of this reluctance, innovation more often falls on the wayside and contractors who have not taken advantage of technological innovation are left behind at bidding time.
Clearly, under the PPP program of government, the opportunities for bigger gains and better investments are at hand. However, you have the responsibility to strengthen this industry by exploring new avenues of growth, introduce innovations and intensify collaborative measures to bring about the positive growth that each of us envisioned to achieve.
And for us in government, our commitment to give you the support you require to succeed. Our intention is to conduct our business in a way that not only meets the expectations of our partners. We will continue to conduct business with transparency and integrity, coupled with the accountability that is our covenant with our people. This is what we mean by good governance and it is what will guide us in our responsibility as public servants and what we want from our partners.
Thank you very much to the PCA for this opportunity to be with you today.