Build, Build, Build

The country needs infrastructure—and China has the cash to fund it.

- Yuwa Hedrick-Wong

THE PHILIPPINES’ SHORT-TERM economic outlook has dimmed. According to government data, real GDP growth weakened in the second quarter to 5.5%, the slowest pace in four years, while growth in domestic demand dropped to a sluggish 2.4%. The country’s fiscal deficit, meanwhile, reached 3.2% of GDP in 2018, up from 2.3% in 2016. This downbeat outlook, however, masks a deep and potentially powerful reboot of the Philippine economy that could set the country on a stronger and sustainable growth path for years to come.

The game changer is investment, especially in infrastructure, and in particular infrastructure investment from China. For decades, the Philippines underperformed compared with its neighbors in East and Southeast Asia. Foreign direct investment (FDI) was chronically low, infrastructure inadequate and crumbling, and the manufacturing sector underdeveloped.

The Philippines suffers from congested ports, overcrowded airports, inadequate rail and road connections, and cities choked with traffic. Weak investment is partly to blame, but so is bureaucratic inertia and weak government execution. Combined, they have stunted infrastructure development, placing a constraint on growth, and significantly, deterring expansion of the manufacturing sector.