The Manila Times – Philippines Infrastructure
Philippines 2021: Steering Towards the
Golden Age of Infrastructure
Distinguished guests, ladies and gentlemen.
Good afternoon and let me begin by thanking the Manila Times for inviting me for this important discussion on Philippines Infrastructure. A renewed emphasis on infrastructure in the Philippines is an opportunity to support further growth while addressing the more complex issues of poverty and inclusion.
The impact of infrastructure on economic and social development is well documented in East Asia and around the world. Access to reliable, high-quality, efficient and affordable infrastructure services is a critical factor in reducing poverty and inequality, promoting economic growth and creating jobs. At the same time, for some of the global population, especially the world’s poorest, limited access to basic physical assets such as roads, piped water supply, power generation and electricity distribution remains a significant constraint on human health, quality of life, education, and employment, in urban as well as in rural areas.
I would like to share some international experience in infrastructure development, including from China, which is a country that has placed a lot of emphasis on developing a system for infrastructure delivery during the past three decades. This is also a country I know personally, having lived and worked there for several years. While China’s size, population,its economic and government structure is very different from the Philippines and therefore its infrastructure needs are not the same, and also recognizing that China has faced and continues to face significant challenges in its infrastructure sector, some important similarities do exist between the countries, such as the rapid pace of urbanization coupled with the ongoing need to provide economic opportunities to a geographically dispersed rural population, many of whom are poor.
As the overall story of China’s infrastructure program is well known, I won’t repeat it here but rather I would like to focus today on a few of “the how’, or “soft-side” aspects of China’s success in infrastructure delivery. How did they get this done? These are issues that the World Bank has also identified as being very important in the Philippines in our recent Philippines Urbanization Review. China’s approach has played a useful role there and could be emulated in the Philippines during the implementation of the government’s “Build, Build, Build” program.
The three areas I will discuss today are the following: first, the benefits of a strong, multi-layered national, regional and local spatial planning system to support and enable the infrastructure program; second, decentralization of much of the responsibility for infrastructure provision to regional and local governments to promote both innovation and a more integrated approach within and between geographic localities; and third, a long-term commitment to strengthening capacity for infrastructure service delivery, especially at the local level.
Strategic and spatial planning that is coordinated at the national, regional and local levels has undoubtedly been one of China’s strengths. Planning starts at the national level, with a five-year planning system that defines national development goals and sets strategic national targets in a similar way as the Philippines Development Plan does here. However, in China, the Five-Year Plan is accompanied by a series of other, still strategic, but more focused development plans and initiatives. An example of this is the National Plan on New Urbanization (2014-20) which was adopted to provide strategic guidance to the development of an overall system of cities in China, and to address challenges facing Chinese cities, such as urban sprawl, aging population, low housing affordability in large cities and exacerbated pollution. This plan identified several strategic urban agglomerations that are expected to be the main engines of economic growth in the future, including the Jing-Jin-Ji (Beijing-Tianjin-Hebei) megalopolis expected to house more than 110 million people, most of whom will be urban residents. In another initiative, the Yangtze River Economic Belt has been planned as an economic corridor along the Yangtze River through the heartland of China’s agricultural and resource-rich areas with environmental protection as its key development priority.
China needed to develop such diversified spatial economic development strategies to manage one of its key development challenges – which is also well-known to us in the Philippines – that is, the over-concentration of economic development and population in a small number of large urban areas, leading to significant pressure on existing cities and a hollowing out of population and stagnating poverty in remote rural areas. Such “middle level” spatial plans provide practical guidance to national, regional and local authorities to ensure infrastructure provision is appropriate and coordinated, and to help in the prioritization of available financing. In China, these strategic plans are accompanied by more granular spatial planning at the regional and local levels that translate the overall development goals for the area into an industrial, infrastructure and human development strategy for each specific locality, for example, a city or town.
In the Philippines, as I mentioned earlier, the overall development goals for the country are very well established through the Philippine Development Plan. In addition, some cities and localities have developed local land use or urban development plans, however, as identified in the World Bank’s Philippines Urbanization Review, in many localities these plans are either not yet completed, or out of date. Moreover, in most areas there is still a “missing middle” – that is, a strategic spatial plan that connects the PDP with local spatial plans, guiding the government’s provision of trunk infrastructure, and enabling efficient and well prioritized investment at the local level. A good example of where this has been done is MINDA’s plans for economic growth corridors in Mindanao designed to promote regional development of the island. Such experience could be expanded and replicated in other parts of the country.
A second driver of China’s success in infrastructure has been the decentralization of responsibility and decision making to local governments that started in the early 1980s. Decentralization has encouraged local experimentation, competition for resources and economic development opportunities between cities, and motivated local initiatives through a performance system that rewarded local leaders’ success against national development goals. Decentralization has also been accompanied by a fiscal system that has allowed local governments a certain level of autonomy over the resources needed to fulfil their responsibilities, a relatively stable system for the financing of infrastructure – especially for large-scale investments that take several budget cycles to be implemented, and access to medium and long-term debt financing. Of course, the challenges of China’s financial system are well known, including its over-reliance on land financing and debt and the absence of a property tax, and reforms are underway to address these issues. In the Philippines, while a property tax system is in place, it is outdated and under-valued and few local governments have sufficient fiscal capacity to independently undertake major infrastructure projects, making them reliant on national government for transfers, and dependent on the annual budgeting cycle. An overhaul of this system – both the division of responsibilities for infrastructure provision and the system to finance it, could provide a positive boost to the Philippines infrastructure program.
Of course, it is important to emphasize that decentralization is not easy – it requires a solid policy environment established by the national government, and for local governments to have sufficient capacity to plan, finance and deliver their infrastructure programs. China has continuously reformed and innovated its policy environment for infrastructure delivery over the past three decades. This includes policies relating to the fiscal system and public financial management as well as urban planning and environmental and social protection, to name just a few. This ongoing reform of the policy environment has allowed the country to respond to emerging challenges, as well as incorporate new innovations and global and national imperatives such as climate change into its infrastructure program. We are pleased to see several important policy reforms now underway in the Philippines, including the ongoing taxation reform, that will help to expand fiscal revenue needed for the planned infrastructure scale-up. But other policy reforms are well overdue, including establishing a national urban development framework, and a strengthened land administration system.
Local capacity is a key constraint in the Philippines and has also been a major constraint in China. To address this, local governments in China have invested in their own planning and implementation capacity supported by regional and local planning and design organizations. Development partners have also played an important role over a long period of time, as pilot projects were chosen to test new ideas and develop capacity at the local level – and a “learning by doing” approach through project preparation and implementation has strengthened capacity in planning, engineering, procurement, and environmental and social safeguards.
Moreover, the capacity building effort has not stopped at local government, it has also targeted local planners, designers and contractors. For example, simple yet effective techniques have been employed such as presenting and discussing engineering designs prior to the bidding process so more contracting firms could submit qualified proposals. Universities and other educational institutions have been encouraged and supported to establish centers for teaching and research on key issues that support the country’s infrastructure program, including: environmental management; social safeguards, land acquisition and resettlement; and dam safety, to name a few. Over time, these educational programs have produced a cadre of well-qualified professionals, many of whom now either work with local or regional governments, or are available to them through consulting services.
The Philippines is on an exciting path that gives infrastructure investment the necessary priority. The “Build, Build, Build” program creates an opportunity for the country to not only build infrastructure assets, but to also create a strong and well-capacitated system for infrastructure delivery, including at the local level, that can provide the basis for the Philippines infrastructure program long into the future. At the World Bank, we are looking forward to continuing our relationship with the Philippines, including on infrastructure provision, and through that, supporting the country’s goals of inclusive growth, poverty reduction and shared prosperity.
Thank you very much for your attention