Abstract
Our core scenario is cautiously positive about the trajectory of construction
industry growth in the
Philippines, despite the global economic downturn.
After real sector growth of 5.8% in 2007, we estimate
that the sector will
have expanded by 3.7% in real terms in 2008, while we forecast real sector
growth of
5.1% in 2009.
While late Q3 and Q4 saw significant new
projects announced by both the private and public sector, the
global
economic downturn provides risks to our core scenario. The Philippines is
heavily exposed to the
external headwinds, both in terms of the private
sector and the public sector. The fiscal deficit in the first
nine months
of 2008 registered a whopping PHP53.4bn (US$1.1bn), way beyond a target of
US$745mn.
This overshoot means that the government may yet be forced to
curtail significantly its spending on
public infrastructure projects, in
order to pare its deficit and retain the confidence of investors in its
debt.
Meanwhile, the continued very high level of risk aversion among
banks and other providers of capital
could force significant private
sector operators to shelve their plans for construction projects in the
Philippines.
Chief among confirmed investments is a US$1bn logistics
centre to be built in Clark Freeport by Kuwait
and Gulf Link Investment
Co; The Philippines' authorities endorsed US$110mn of new road and power
transmission projects in mid-October; and additionally, late September saw
Filinvest Land submit a plan
to invest US$1.7bn in commercial and
residential units in Cebu City.
We introduce detailed analysis of the
operations of First Philippine Balfour Beatty (FPBB) and EEI
Corp. Both
firms appear relatively well insulated against the global downturn. FPBB has
the support
offered by a weighty (and profitable) parent, while EEI Corp
has significant overseas operations and
maintained a good order book even
as the downturn began to bite. Public sector contracts across a wide
range
of markets provide significant support.
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