Perhaps the most striking statistic that I saw during the economic briefing at our recent Supply Chain Outlook event was on the really bad performance of the construction sector in the last few quarters.
With a decline of 7.1 percent in the fourth quarter of last year, it is the main driver of the declining performance of our industrial sector, and greatly contributed to our dismal 3% gross domestic product growth in the quarter. The Philippine Statistics Authority notes that this slump is primarily led by a 41.9% drop in government investment in construction in the quarter – no doubt influenced by recent revelations on corrupt practices in the building of flood control projects, leading to closer scrutiny of existing and future projects, particularly at the local level.
It was also striking to see that this has happened once before – in 2011, during the presidency of Noynoy Aquino, when a similarly critical eye was cast on the procurement processes relating to government infrastructure projects. This meant a pause in public investment, which led to a shrinking of the construction sector, which led to more sluggish GDP growth.
A cynical eye – like mine, admittedly – would see the similarities and go, “do you mean corruption actually makes the economy grow?” That is the wrong message, of course, but it’s undeniable to see how continued investment in infrastructure makes our economy’s wheels go round. One obvious immediate effect is in employment to those working directly in the construction projects – the people under the contractors, so to speak. They can support their families with their wages, which in turn supports businesses and encourages production. And this is consumption that is not centered in a few regions, considering how there is investment – not always big-ticket projects, though – across the country. Admittedly it does make it easy to gloss over the fact that those higher up are pocketing more of that money and giving up the integrity of the infrastructure in the process, through substandard construction or materials, for example. If those projects actually exist, to begin with.
In the long term, these infrastructure projects lay the groundwork for further economic growth. Whether they are flood control projects reducing the impact of natural calamities, or new transport networks that chip away at travel times, or communications infrastructure advancing digitalization beyond urban areas, infrastructure lays the foundation for both the public and private sectors to grow investment, encourage consumption and put our economy in a more sustained growth trajectory. Construction timelines may be finite, but the entry of new opportunities will be further unleashed.
With all that in mind, it’s clear that the government has a very fine line to toe. It is necessary for public investment in infrastructure to continue. It is also important that whatever government invests in this actually goes to the projects rather than to the pockets of scrupulous officials and contractors. We know that this mess will take a long time to unpack, considering it has gone on for so long – and, again, we’re just talking about flood control projects here, and that barely scratches the surface if we’re thinking about all the other infrastructure projects the government has initiated – but the need to not just hold those who benefited accountable, but to instill a culture that prioritizes integrity over, say, luxuries and trips “for the ‘gram”, has to be treated with urgency.
It has been obvious over the last few months that consumer confidence has slumped in recent months, in light of these corruption revelations. There’s the Bangko Sentral’s consumer confidence index we discussed a few columns ago; now we have less enthusiastic economic activity, reflected in our most recent statistics. That is something we can resolve relatively quickly – for starters, consumption will still continue no matter what. But without the support that only strong infrastructure can bring, this may also collapse. Higher logistics costs, less choice, and lower quality of products will dampen consumer confidence further.
The government should go beyond political point-scoring and be very much serious when it comes to addressing this corruption scandal. But, considering what we know, this does feel like a truly tall order.
BOD changes: SCMAP has named Jennifer Alcano of Maersk Contract Logistics as its new vice president until the end of 2026. She assumes the position after XVC Logistics’ Pierre Carlo Curay was elevated to the presidency, after the retirement of previous president Dennis Llovido. In addition, two new directors have been named: Sierra Basmayor-Ng of Unilever Philippines and Clarisse Castillo of Kenvue. Voting for the now vacant position of treasurer will commence among the Board of Directors in the coming days.
Henrik Batallones is the marketing and communications director of SCMAP, and editor-in-chief of its official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.
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