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CONSTRUCTION SECTOR

INDUSTRY ANALYSIS
Maria Francesca Balatay| Angelika Bondoc | Pons Anthony Closa | Janine Endaya | Cherlyn May Gatela

TABLE OF CONTENTS
I.

MACROECONOMIC ANALYSIS
A. GLOBAL ECONOMIC CONDITION
B. ASEAN ECONOMIC CONDITION
C. PHILIPPINE ECONOMIC CONDITION
. GDP BY CONSUMPTION EXPENDITURE SHARES
. GDP BY INDUSTRIAL ORIGIN
. POPULATION
. EDUCATION
. EMPLOYMENT
. INFLATION AND INTEREST RATES
. FOREIGN EXCHANGE
. GOVERNMENT BUDGET ALLOCATION
D.
CURRENT BUSINESS PHASE
E.
PHILIPPINE ECONOMIC OUTLOOK
II. INDUSTRY ANALYSIS
A. THE CONSTRUCTION INDUSTRY AND ITS RELEVANCE TO THE ECONOMY
B. SCOPE AND LIMITATIONS OF THE ANALYSIS
C. INDUSTRY SUBSECTORS
D. CONSTRUCTION INDUSTRY ACROSS THE GLOBE
E. CONSTRUCTION INDUSTRY IN ASIA
F. PHILIPPINE CONSTRUCTION INDUSTRY
. INDUSTRY PLAYERS AND PEERS
. SHARE OF CONSTRUCTION INDUSTRY TO GDP
. GROSS VALUE ADDED
. SHARE OF CONSTRUCTION INDUSTRY TO EMPLOYMENT
. INDUSTRY LIFE CYCLE
A. INDUSTRY OUTLOOK
B. PESTLE ANALYSIS
C. PORTERS FIVE FORCES ANALYSIS
III. CONCLUSION
IV . REFERENCES
V. APPENDIX

MACROECONOMIC
ANALYSIS

GLOBAL ECONOMIC CONDITION

Source: United Nations Department of Economic and Social Affairs

The global economy for the year 2015 saw a number of emerging and developing economies strengthen, while others were affected
by dropping commodity prices and by tightened financial conditions. Realignments such as rebalancing in China and geopolitical
tensions resulted to weak aggregate demand, falling commodity prices, increasing financial market volatility on major economies, and
declining capital flows to emerging and developing countries created significant uncertainty.
Global growth is anticipated to gradually improve in 2016 and 2017 at 2.9% and 3.2% respectively due to less restrictive fiscal and
easing of downward pressures on commodity prices, which will give confidence to investors and lift growth, mostly in commodity
dependent economies.
As such, global demand on construction industry can continue to have positive growth rates, as the needs of developing megacities
rapidly increase, and as urbanization and globalization accelerates.

ASEAN ECONOMIC CONDITION

Source: Inquirer

Source: Bangko Sentral ng Pilipinas

The Philippines posted the second-fastest economic growth


among the ASEAN in 2014, realizing a GDP of 6.1%. Over the
last five years, the Philippines has been in the top quartile of
economic growth in the ASEAN. This is mainly due to strong
economic fundamentals distinguished by low and stable
inflation rate and proper fiscal management in utilizing the
countrys savings.
However in 2015, it is evident that most ASEAN countries
faced a slower growth rate in terms of percentage change in
gross domestic product. This shows that Asia could expect a
slower economic expansion in the region.

Indonesias gross domestic product (GDP) in 2014


totaled $888 billion, with Thailand a far second at
$373 billion. Malaysia, Singapore and the Philippines
follow closely at $326 billion, $308 billion and $285
billion, respectively.

PHILIPPINE ECONOMIC CONDITION

GROSS DOMESTIC PRODUCT

In 2011, typhoons destroyed different parts of


the country. Agriculture slowed down to 2.5%
in the 4th quarter due to bad weather. To
prove that infrastructure projects are based on
anti-corruption
efforts,
the
Aquino
Administration in 2011 resulted in massive
delays that only one road project out of the
almost 10 in the list of Public-Private
Partnership (PPP) program was bid out.

The CAGR of the Philippine GDP is 5.86% for


the past five years. In 2015, the Construction
Industry accounted for 5% of the GDP making
it one of the most important industries along
with the Manufacturing and Agricultural
sectors

The gross domestic product (GDP) of 6.5% in


2015 could even be exceeded because of the
election year spending in 2016. However,
world economic conditions continue to be
uncertain and volatile, and less optimism is
warranted.

We can expect a higher percentage of GDP


from the Construction industry in 2016
because under the proposed P3.002-trillion
national budget. The government aims to
spend P766.5 billion for public infrastructure,
nearly 35 percent higher than this years
allocation of P569.9 billion.

Source: Bangko Sentral ng Pilipinas

THE PHILIPPINE ECONOMY

GDP BY CONSUMPTION EXPENDITURE SHARES

Source: Bangko Sentral ng Pilipinas

The country's GDP growth rate is at 5.8% in the


second quarter of 2015, which is higher than the
previous quarter at 5.0%. This increase in the GDP
growth was driven by increased Capital Formation
with 17.4% which contributed 3.1% to growth, and
Imports with 12.7%.

Government Final Consumption Expenditures rose to


9.4% in 2015 due to the increase in the disbursement
of major government expenditures under Maintenance
and Other Operating Expenses for the implementation
of projects and social protection programs.

Household
Final
Consumption
Expenditures
appreciated to 6.2% in 2015 from 5.4% in the previous
year. This was due to the sustained low inflation
environment and continuous decline in prices of
consumer goods and services available for
households.

THE PHILIPPINE ECONOMY

GDP BY INDUSTRIAL ORIGIN

(2015)

GDP growth in the 4th quarter of 2015 was driven


largely by the Services sector, which accelerated to
7.4% from 5.6% last year. Trade, Other Services
Real Estate, Renting & Business Activities exhibited
positive growth in this period.
Agriculture slowed to 0.2% from last years 1.6%
growth. This sector persists to be the biggest road
block in attaining a higher and more conclusive
growth.
Along with Agriculture, the Industrial sector also
slowed to 6.0% from 7.9% last year.

Sub-sectors of the
Industrial Sector (2015)

INDUSTRIAL SECTOR

Source: Bangko Sentral ng Pilipinas

Manufacturing remained as the biggest growth


driver of the Philippines GDP in the IndustrIal
sector comprising more than half of it.
Next to it is Construction, contributing 5.8% (at
constant prices) to the economy.
Turnover in both public and private sector
construction activities is seen to reach about P1.7
trillion.

Source: Bangko Sentral ng Pilipinas

THE PHILIPPINE ECONOMY

POPULATION

Source: Philippine Statistics Authority

According to the Philippine Statistics Authority, among the 101,995,876 of the Philippine population, 70.8% are part of the 1544 age group, wherein 50.62% are male and workers of the Construction industry typically belong. These age and gender
brackets in the Labor Force are considered because of the physical nature of the work in the said industry.

From the current population, the Philippines is expected to continue growing, reaching 128.1 million in 2030, according to the
2000 Census-based population projections.

THE PHILIPPINE ECONOMY

EDUCATION

Source: Philippine Statistics Authority

The required educational attainment of workers in the construction industry is lower than in most sectors with the
exception of the agricultural industry. The lower level of formal education in construction is due to its high proportion of
blue-collar workers who tend to be appointed based on skills and physical abilities.
Considering the Philippines Labor Force, 83% are College Undergraduates or have lower educational backgrounds and
they are the usual part of the workforce in the Construction Industry.

THE PHILIPPINE ECONOMY

EMPLOYMENT

Employment in the Philippines

Source: Trading Economics

A key characteristic of the labor market in the


Philippines is a fast growing labor force. Given the
sustained economic growth in 2015, more jobs and
opportunities were created for the labor force.
Employment has shown a positive trend and has
increased at least 2.4% between 2010 and 2014. In
2015, employment grew by 2.8% to 37.5 million from
36.4 million in the same period the previous year.

The Construction industry is among the top 5 in


providing employment for Filipinos when segmented by
Industry group accounting to 7.3% of the labor force,
with Mean Hours Worked of 44.8 hours per week.

Out of the estimated 66.6 million population, 41.9 million


persons were in the labor force in July 2015 of which
were in the age bracket of 15-44 years old.

THE PHILIPPINE ECONOMY

INFLATION AND INTEREST RATES

Source: Bangko Sentral ng Pilipinas

In 2010, the Philippines was affected by the crisis in the Eurozone


and sluggish performance of the US economy causing low
demand for Philippine exports. For this reason, the Monetary
Board had set the overnight borrowing rate at 3.5% in 2011 from
4.00% in 2010. A cut in interest rates boosted the demand for
loans, which in turn supported increase in consumption and
investments for the Construction industry. However, since lower
rates spurred demand, it has accelerated inflation in 2011 from
3.8% in 2010 to 4.7% the following year.

Due to signs of inflation pressures and


elevated inflation expectations, the Monetary
Board decided to raise interest rates to 4.00%
in 2014.

Due to the Boards assessment of manageable


inflation outlook and robust growth conditions,
BSP has decided to keep policy rates
untouched at 4.00%.

The Philippines' Inflation rate has a CAGR of


-18.10%. The low inflation rate in 2015 resulted
to steady prices.

Lower electricity rates and oil prices


significantly affected price movement of the
materials needed in the Construction Industry
such as cement, and paint due to lower
inventory and transportation costs. However,
when demand declines due to inflation, firms
tend to cut costs by cutting wage costs, or in
extreme cases, eliminating jobs which will
greatly affect workers in the Construction
industry.

THE PHILIPPINE ECONOMY

FOREIGN EXCHANGE

From 2012 to the first quarter of 2013, The


Philippine peso was getting stronger and has started
to weaken up until the first quarter of 2016. On a
year-on-year basis, the peso depreciated against the
2015 by 5.0% which

closed at P47.06/US$1, moving in tandem with most


Asian countries. The weakening of the peso is
mainly because of the uncertainty of the external
environment, particularly due to possible impact of

Source: Bloomberg

US dollar in 4th quarter of

the normalization of interest rates in the US and the


effect of the slowdown in the Chinese economy. A
rise in the exchange rate has a negative impact to
in purchasing of imported materials.

However, sustained inflows from Overseas Filipino


Workers remittances, foreign direct investments,
and the countrys gross international reserves,
provided support to the Philippine peso.

Source: Bangko Sentral ng Pilipinas

the construction industry because of increased cost

THE PHILIPPINE ECONOMY

GOVERNMENT BUDGET ALLOCATION


2016

2015

Source: Rappler

The Department of Education and the Department


of Public Works and Highways take up most of the
general appropriations for the year 2016. This is a
clear indication that the government is wisely
investing on its people, with the foresight of
supporting services that will keep serving their
needs in the long run.
The budget allocation is for this year in the amount
of P3.002 trillion is double the budget that President
passed in 2010, which was P1.645 trillion.

The 2015 budget supports the governments


commitment to enable poor Filipinos to own safe
and affordable homes through socialized housing.
The government allotted a bigger amount for high
impact
infrastructure
project
following
the
reconstruction of Yolanda-hit areas. NEDAs Dream
Plan composed of construction of Roads, Bridges,
Airports, Seaports, and Railways (extension)
continued to feed the local demand.

THE PHILIPPINE ECONOMY

CURRENT BUSINESS PHASE


Growth of the Philippine Stock Market

Source: Trading Economics


Source: Bangko Sentral ng Pilipinas

Source: Bangko Sentral ng Pilipinas

Economic indicators confirm that the Philippine economy is in the


expansion phase of the business cycle. Money supply and stock prices
were the leading indicators considered; these showed an increasing
trend for the past 5 years. From 2316.4 billion pesos in 2014, money
supply increased to 2667.4 billion pesos in 2015. In 2016, it is expected
for the Philippines Stock Market to trade at 7070.00 points by the end of
this quarter. In 12 months, it is estimated to trade at 6490.00.
Coincidental indicators such as GDP and Industrial Production also
showed an increasing trend for the past 5 years. In 2015, industry
production contributed 2537.8 billion pesos to GDP. Inflation rate,
another coincidental factor, declined at 1.4% in 2015. For the lagging
indicators, interest rate and employment rate were considered.
Employment showed a positive trend from 2010 to 2015 while the
interest rate remained stable at 4.0%. As money supply continues to
increase, interest rate will eventually decline for the next years. With
lower interest rates, firms will get better access to loans. Thus, this
favorable economic condition will drive growth of construction projects.

THE PHILIPPINE ECONOMIC OUTLOOK

Overall, the combination of these macroeconomic indicators shows that the Philippine economy sustained its
resilience despite the challenging 2015 global economic condition. The strong performance experienced was mainly
proceeding from a strong private demand, improvement in capital formation, and an increase in government spending.
According to World Economic Forum's (WEF) Global Competitiveness Index, the Philippines was able to improve
its rank from 52nd to 47th out of 140 countries worldwide during 2015. This supports the countrys reputation as a bright
spot in the Asia-Pacific region, making the country attractive to foreign investors. With this, Philippines is expected to
continue outpacing its neighbors into 2016. The World Bank (WB) projected the Philippine economy to grow on an
average by 6.4% in 2016, reflecting accelerated implementation of public-private partnership projects and spending
related to the May 2016 presidential election; and 6.2% in 2017 to 2018.

INDUSTRY
ANALYSIS

THE CONSTRUCTION INDUSTRY AND ITS RELEVANCE TO


THE ECONOMY

The construction industry plays a significant role in a countrys


economy. The activities of the industry are also essential to the
achievement of national socio-economic development goals of
providing shelter, infrastructure and employment. As an
investment-led sector, its importance is highly recognized by the
government. Government contracts with the Construction Industry
help develop infrastructure related to health, transport as well as
education sector. With this, it is clear that construction activities
affect nearly every aspect of the economy and that the industry is
vital to the continued growth of a country.

Construction is the one of the largest industries worldwide. It is


the overall maze of large organizations and small companies that
facilitate building of everything from the smallest shelter to large
structures. It is also a sector of national economy which engages
in preparation and improvements of land and construction,
alteration, and repair of buildings and structures.. It also
undertakes other related projects as its secondary activities such
as the provision of technical and engineering services as well as
the manufacture and trading of construction materials.

SCOPE AND LIMITATIONS OF THE ANALYSIS

The 2009 Philippine Standard Industrial Classification (PSIC) categorized the economic activity of construction industry as (1)
general construction, (2) civil engineering works, and (3) specialized construction activities for buildings. The industry also
covers new work, repair, additions and alterations, the erection of prefabricated buildings or structures on the site and also
construction of a temporary nature.

The 2009 PSIC only includes the aforementioned sub-sectors and classifies activities which are carried out not for later sale
of construction projects, but for their operation (e.g. buying, selling, or renting of real properties, manufacturing and retailing of
construction materials, and other manufacturing activities in these plants), as operational activities under industries such as
Real Estate and Manufacturing.

Given this, the analysis will be focusing on the three market segments as classified by the PSIC. Nevertheless, due to the
relatedness of the Construction industry to the Real Estate sector, the analysis will take into account the performance of the
Real Estate industry as supplementary information for further evaluation of Construction industry. Therefore, for the purpose of
this paper, all businesses that are engaged in any of the said activities, primarily or partially, would be considered as part of the
analysis.

CONSTRUCTION INDUSTRY SUBSECTORS


THE CONSTRUCTION INDUSTRY HAS THREE SUBSECTORS. NAMELY:

SUBSECTOR INSIGHTS ARE AS FOLLOWS:

There is high potential market,


but the sector is very volatile
because can be easily affected
it by changes in the local
environment

The highly capital intensive


activity on the subsector is in
relation with public investments.

The subsector is sustained by


new environmental regulations.
Companies tend to be small and
face difficulties in a market now
plagued by low household
spending

CONSTRUCTION INDUSTRY ACROSS THE GLOBE


INDUSTRY STRENGTHS

Infrastructure and housing development


projects provide numerous market opportunities
in developing countries

Positive impact of new


standards in mature markets

environmental

Well-established major players

INDUSTRY WEAKNESSES

The construction industry is set to remain sluggish. Presently, the


industry faces a major shift: production in emerging markets will
continue to grow; at the same time, advanced economies will
rebound.
The industry is considered risky, with negative outlook in most
countries observed due to its structural weaknesses, together with
long-term price burdens mean. Another reason for this is because
construction is composed of small firms with very high leverage
ratios, which means that there are longer payment terms in
comparison to other sectors.
Strong cyclicality and cross-country differences such as the
Recovery in the UK economy and low oil prices provide more
complexity to the industry.

Small companies with fragile financial


structures
(e.g. high leverage ratios) mainly
make up the industry, resulting in high exposure
to market fluctuation
Longer payment terms in comparison to other
sectors
Investments in infrastructure put on hold in oil
exporting countries due to low oil prices

CONSTRUCTION INDUSTRY IN ASIA

Due to its rapid recovery from the financial crisis,


Asia has become the largest construction
spending continent contributing 44% of total
value in 2013.

Countries with highest construction spending


in Asia include China, Japan, and India.

China, India, Vietnam were the top in terms of


growth rate.

In 2025, Oxford Economics predicts that


emerging and developing countries will take
on 60% of total global construction spending.

Source: FPT Securities Joint Stock Company

Infrastructure has the highest proportion in the industry value structure


coming in at 37%.

This is because transportation infrastructure is still limited to most


nations in the area since mostly are emerging or frontier markets.
Therefore, in the future, the experts agree that infrastructure
construction will enjoy the highest growth rate and be the more
profitable in comparison to the residential and industrial sectors.
Source: FPT Securities Joint Stock Company

THE PHILIPPINE CONSTRUCTION INDUSTRY


The Construction Industry is one of the most important sectors of the Philippine economy. It is responsible for the erection of buildings
and infrastructures, development of roads and bridges that are necessary for a well-functioning economic system. Output of the sector
allows less disruptions in transporting goods and services across the country. The industry continues to provide services that help not
only in building of structures and facilities, but also that of the nation.

The government makes it mandatory for all contractors


in the country to secure a license from the Philippine
contractors

Accreditation

Board

(PCAB)

before

engaging in construction activities in the country.

A total 7,944 contractors licenses were issued


as of April 2016.

6% were large-sized contractors (AAA & AA)

34% were medium-sized contractors (A & B)


contractors

The rest (C, D, Trade/E) composes the 60% of


the contractors.

Source: Philippine Contractors Accreditation Board

PUBLICLY LISTED
CONSTRUCTION COMPANIES

INDUSTRY PLAYERS

INDUSTRY PEERS

ASIABEST

GROUP
INTERNATIONAL INC.

INDUSTRY CONDITION

SHARE OF CONSTRUCTION INDUSTRY TO GDP

2012 saw government spending pick up from the


low levels seen in 2011, when governance reforms
slowed budget disbursements. Higher spending on
public infrastructure, alongside expansion in private
construction and investment in equipment, pushed
up fixed capital investment by 8.7%. The Industrial
sectors performance improved with construction
and utilities expanding, so that industry as a whole
accounted for one-third of GDP growth.

For 2013, construction was able to maintain its


solid growth. This is mainly due to the high demand
for housing and office space supported by low
interest
rates
which
encouraged
private
construction. With the government raising its
budget for infrastructure in 2013 and developing a
program to create publicprivate partnerships for
infrastructure
development,
construction
is
gathering some momentum.

An earthquake of magnitude 7.2 on the Richter


scale struck the central Philippines in October,
followed by Super Typhoon Haiyan in November,
destroying buildings, infrastructure, and livelihood.
With this, fixed investment increased by 11.7%,
accelerating from 2012 and adding significantly to
GDP growth. Construction contributed about onethird of this growth.

Source: Bangko Sentral ng Pilipinas

In 2010, the GDP growth was fueled by the recovery of


the Industrial sector, particularly in manufacturing,
where productivity rose by 16.2% from depressed
prior-year levels. Construction (17% of the sector)
expanded by 15.7% as a result of the benefits it
obtained from remittance inflows, among other causes.
The industry sector as a whole contributed 5.0
percentage points of the total 7.9% GDP growth.

INDUSTRY CONDITION

GROSS VALUE ADDED

Higher government spending was linked in part to


legislative elections in May. The government raised
spending on infrastructure together with relief efforts
following the natural disasters. Construction sustained
double-digit expansion, with increases in both the public
and the private sector. Industry sector as a whole
contributed more than 40% of the GDP growth.

Rehabilitation and reconstruction in areas hit by the natural


disasters did not have a significant impact on the economy
until late in 2014 and 2015. The direct and timely transfer
of national government resources to local governments
and affected communities had been hindered by highly
centralized national government systems. Also, regional
and local administrations have limited capacity to
implement reconstruction and rehabilitation programs.
These matters are being addressed, which could
accelerate work in the affected areas.

Construction is forecast to remain buoyant, though the


rapid growth in building approvals seen in recent years
started to cool in 2013. Private investment focuses on
offices, shopping malls, and housing, where demand is
strong. The government raised its infrastructure budget in
2014 to the equivalent of 3.0% of GDP for projects such as
constructing national roads and bridges, rail systems, and
ports to provide better access to the provinces.

Source: National Statistical Coordination Board

The Gross Valued Added (GVA) in Construction shows an


increasing trend from 2011-2015, which confirms that the
construction industry plays an important part in the
countrys economy. Private constructions account for a
greater share, mainly sourced from higher number of
residential units and commercial buildings. Public
constructions, on the other hand, are primarily sourced
from infrastructure projects of the government.

INDUSTRY CONDITION

SHARE OF CONSTRUCTION INDUSTRY TO EMPLOYMENT

Employment in the construction industry continues to


provide a significant level of employment in the
domestic economy. It is the second major employer
under the Industrial Sector with a total of 2.86 million
employees as of 2015, an increase of about 142,000
workers compared to a year ago. The growth is
evident with the increase in share of construction
industry to total employment in the economy from
6.6% in 2013 to 7.3% in 2015.

Source: Philippine Statistics Authority

General construction provides the highest employment


for the sector

235,755 workers were employed in Construction in


2013

General construction of buildings hired 97,408


laborers (41.3%)

Heavy and civil engineering employed 83,248


workers (35.3%)

Specialized construction activities hired 33,802


employees (14.3%)
Source: Philippine Statistics Authority

INDUSTRY CONDITION

SHARE OF CONSTRUCTION INDUSTRY TO EMPLOYMENT

Construction

industry

in

the

Philippines

is

mostly

composed of architects, construction manager, carpenter,


construction laborers, construction equipment operators;
electricians, masons among others.

There were 1,113 construction establishments with total


employment (TE) of 20 and over in the formal sector of the
economy in 2013.

411 or 36.9% are engaged in construction of buildings.

294 or 26.4% of these establishments were construction of


roads and railways

222

or

20.0%

are electrical,

plumbing

and other

construction installation activities

or

0.5%

establishments
Source: Philippine Statistics Authority

are

demolition

and

site

preparation

INDUSTRY LIFE CYCLE


RAPID ACCELERATION GROWTH
The

industry

cycle

of

the

construction

sector

is

currently

experiencing rapid growth. Major factors supporting this are the


following:

Increasing Demand. This increase in the share of


construction

industry

to

employment

leads

to

more

construction activities which manifests a strong demand for


construction industry.

Increasing sales and improving in profitability. With lower


costs and a significant increase in sales, most firms
particularly the top construction companies see an increase

Source: Philippine Stock Exchange

in sales and overall amount of profit they make. Firms like


EEI, MegaWide and Holcim are seen to grow at an
increasing rate. In addition to this, gross value added of the
construction industry showed an increasing trend from 2011
to 2015.

INDUSTRY LIFE CYCLE


RAPID ACCELERATION GROWTH

Cost reduction and lower prices. From the 1.5% Construction


Materials Retail Price Index (CMRPI) in the National Capital
Region (NCR), in February 2015, the price index of construction
materials dropped to -0.4% in February 2016 which further
validates that the industry is in the rapid acceleration stage
since firms are able to cut costs through economies of scale,
established routes to the market, and eventually lower their
prices in response to the growing competition that they are
likely going to face in order to achieve the desired increase in
the market share.

Source: Philippine Statistics Authority

INDUSTRY OUTLOOK

Firms in the construction industry are faced with an increasingly challenging, interlinked, and fast-changing marketplace,
where global economic uncertainty and complex geopolitical challenges exist. In spite of this, the industry is able to stay
resilient.

According to Oxford Economics, the global construction industry was


able to regain its growth momentum, with a 3.8% increase in growth
in 2015. It expects an average annual increase of 3.9% over the next
five years.

According to the Construction Intelligence Center Global 50,


construction industries in emerging markets are growing faster than
those in advanced economies. More than half of the worlds
construction output is attributed to firms in emerging markets and
their growth expected to continue in the next years. Emerging
markets are forecasted to have a 56% share in the global
construction output while posting a 5.3% annual expansion from

Source: FPT Securities Joint Stock Company

2016 to 2020. Particularly, the Asia-Pacific regions share is


forecasted to reach a share of 49% in 2020 from only 40% in the
year 2010.

INDUSTRY OUTLOOK

The performance of the Philippine construction


industry has been improving for the past years. The
gross value added by the industrys activities
increased in value posting a CAGR of 12.01% during
2009 to 2013. This growth was supported by public
investments in the infrastructure and residential
markets, which are expected to be the main growth
drivers of the industry. According to Asian
Development Bank (ADB), the local construction
industry is projected to record real growth of 8.5%
and 8.7% in 2016 and 2017 respectively, posting a
CAGR of 9.22% for years 2016 to 2020.

With expected aggressive spending from private


sector, residential and non-residential building
industry to expand at an average annual pace of
8.3% between 2016 and 2025 (compared to 6.4% for
the transport sector and 7.9% for the energy & utilities
sector). This consumer spending is expected to be
supported by a relatively stable monetary policy of the
government.

The growth in the industry will be supported and


sustained by Vision 2021 development plan,
population growth in certain segments of the
society,rapid urban expansion in Manila, public-private
partnership (PPPs initiatives). PPP projects will
continue over the months leading up to the
presidential elections in mid-2016.

Source: Central bank, National Statistics Coordination Board, BMI

Along with these, business process outsourcing comapnies


and an increase in the number of tourist arrivals will also
drive industry expansion. This will spur the construction of
more residential properties, roads, bridges, offices and
power plants. And consequently, improve the performance
of the industry.

INDUSTRY ANALYSIS

PESTLE Analysis
Political, Economic, Social, Technological, Legal, Environmental

POLITICAL

The positive outlook for Philippines' construction sector is supported by growth in public construction activity as the
government's Public-Private Partnership programme gains traction, as well as sustained momentum in private construction
activity.
The upcoming election in May 2016 will greatly affect government spending on infrastructure developments
The corruption issues of the Philippines regarding government infrastructure projects is an important political factor that
affects the construction industry of the country
-

Source: Department of Public Works and Highways

In a bid to further improve public infrastructure, raise


potential economic growth, and reduce poverty in the
country, fiscal agencies are pushing for higher
infrastructure spending in 2017. This will entail not only
allocating more funds to build quality infrastructure, but
also linking medium-term plan priorities to annual
budgetary considerations.
In 2015, the Philippines has tendered a large number of
PPP projects; a high volume of PPP projects are
expected as well in 2016. Before President Aquino
steps down in the mid-2016, around 15 PPP projects
are currently under procurement while around 10 more
are getting approval soon.
One of the strongest infrastructure pipelines in the
region of ASEAN belongs to the Philippines. This is
because of the number of public-private partnership
(PPP) projectsthat have been signed and are currently
being proposed

POLITICAL

RECENTLY AWARDED PPP PROJECTS


Muntinlupa-Cavite Expressway (Daang Hari - SLEx Link Road)
Project PPP for School Infrastructure Project (PSIP) Phase I
NAIA Expressway (Phase II) Project
PPP for School Infrastructure Project (PSIP) Phase II
Modernization of the Philippine Orthopedic Center (MPOC) Project
Automatic Fare Collection System Project
Mactan-Cebu International Airport Passenger Terminal Building
Project
LRT Line 1 Cavite Extension and O&M Project
Southwest Integrated Transport System (ITS) Project
Cavite-Laguna Expressway (CALAx) Project
South Integrated Transport System Project Bulacan Bulk Water
Supply Project

The proposed national budget for 2016 is P3.002-trillion


The government targets to spend P766.5 billion for public
infrastructure which is nearly 35% higher compared to last
year's allocation of P569.9 billion.
About 5% of the Philippine gross domestic product (GDP)
is going to be the budget allocation for next year and
greater than four times the P165 billion infrastructure
spending by the government in 2010. This was according
to the Department of Budget and Management
However, some specific local challenges or risks that the
country is facing towards sustaining its infrastructure
pipeline, which includes corruption and the upcoming
2016 presidential election.
The advent of a new administration can cause disruption
in the development. It can cause interruptions and delays
in infrastructure developments which can greatly affect the
construction
industry

ECONOMIC

The ASEAN Integration will enable easier movement of services, investment, capital and people which will greatly impact
the Construction industry because of growing demand for more and better infrastructures
Growth of other industries such as the Tourism industry, the Business Process Outsourcing (BPO) and the Mining industry
will also open more opportunities for the Construction industry

Companies based outside a member country are anticipated to set up headquarters in the country for expansion, following the
ASEAN Economic Community (AEC)s vision to establish a single market that will give way to a more open flow of capital across
borders and faster transportation of goods, services, and skilled labor, thus the need for more office, industrial, and residential
space to accommodate these businesses
The apparent need for more business spaces will boost the construction industry. Businesses in the industry will compete to
provide better commercial, industrial and residential establishments to support the booming economy.
Local construction firm giants led by EEI Corp. are keen on carrying out infrastructure projects in ASEAN countries.
Firms and engineers coming from the Philippines have established good track records in other parts of the world, mainly in the
Middle East, helping them gain confidence in taking on the ASEAN challenge
A unified Southeast Asia also means that tariffs on different products offered by the industry will be eliminated. In relation to this,
a higher disposable income is foreseen and this will equip consumers with more money to spend. So, the need for more
commercial spaces such as malls, retail complexes, and shopping establishments is expected to grow.
The implication of more industry players signifies an increased rate of construction activities as well.
A primary driver of the rise in demand for office spaces is the business process outsourcing (BPO) industry, as the country
remains to be among the most attractive locations for offshoring services.
The bright prospects of BPO industry will be able to have positive effects in the construction sector as it helps drive the growth
for commercial property space especially in the business districts of Makati, Bonifacio Global City and Mandaluyong.
Eton has finished more than 124,000 square meters of projects in Quezon City and Ortigas dedicated to BPO-IT buildings last
2015 and expanding further by an additional 200,000 square meters to be established this year until 2018.

SOCIAL

Emerging markets have strong population growth which will be reinforced by other demographic factors such as labour
mobility and demands for higher living standards that will be positive for construction, particularly the residential sector.
The majority of the population in the Philippines belongs to the working class who have the capacity to invest in
residential developments
This huge population has resulted to an increasing housing backlog

The majority of the population in the Philippines belongs to the working class. According to Philippine Statistics Authority, among the
101,995,876 of the Philippine population, 70.8% are part of the 15-44 age group. This is the portion of society who are about to start
their own families until those who are about to retire from their respective careers. People in this segment are also the ones who
usually start to invest in residential developments for they have the capacity to do so. OFWs, expatriates, and young professionals
are also driving the demand for real properties This increases the demand for construction sector particularly in the private
construction accounts.
Housing Backlog

Despite the annual increase in real estate developments, housing


backlog in the Philippines, which is a result of the higher demand
in the market than the supply, currently stands at 5.8 million.

Players in the industry sector say that housing backlog would


increase in the following years until 2030 if the demand for mass
houses in particular is not addressed.

The government will tap shelter agencies like the Pag-ibig Fund,
and the National Housing Authority to decrease the housing
backlog by 50% with an annual target of 350,000 housing units.

To achieve this, the government administration needs to


implement more PPP programs in order to use the underutilized
government lands.

TECHNOLOGICAL

The Department of Public Works and Highways (DPWH) noted that the country will be able to adapt some of the
Japanese latest techniques and trends on roads and bridge construction.

The Philippine Constructors Associations (PCA) gave way for the government to invest in quality projects to address
issues that the industry faces.

The Philippines considered technological innovations in infrastructure projects in collaboration with Japan International
Cooperation Agency (JICA). This imposed productivity and will

boost the nations economic growth through new

projects in the construction industry.


-

The construction and engineering technologies from Japan will help the Philippines build disaster-resilient infrastructures
that would mitigate the effects of climate change.

Private Construction subsectors also adapt innovation as cement manufacturers such as Holcim Group produced a
green sustainable solution for cement.

LEGAL

Philippine Overseas Construction Board (POCB) formulates policies for developing the Philippine overseas construction
industry and give grants to such businesses
Ownership of Foreign corporations is limited to 40%, protecting Filipino-owned Construction businesses

Under Section 3 of this PD, the CIAP shall exercise authority,


jurisdiction and supervision over the following agencies which shall act
as its implementing arms (IAs):
A.

Philippine Contractors Accreditation Board (PCAB) to


assume the functions of the abolished Philippine Licensing
Board for Contractors under RA 4566 (Contractors License
Law)

B.

Philippine Overseas Construction Board (POCB) to


formulate, policies, plans, programs and strategies for
developing the Philippine overseas construction industry;
regulate and control the participation of construction contractors
in overseas construction projects; and administer the grant of
incentives for Filipino overseas contractors.

C.

D.

Philippine Domestic Construction Board (PDCB) to


formulate, recommend and implement policies, rules,
regulations and guidelines and adjudicate disputes arising from
public construction projects.
Construction Manpower Development Foundation (CMDF)
to formulate an overall construction manpower development
plan and strategies and develop and implement manpower
training programs for the construction industry; among others.

IMPACT OF CIAPS IMPLEMENTING ARMS


ON CONSTRUCTION INDUSTRY
Under this Act, such other powers and duties affecting the
construction industry in the Philippines may limit the field and
scope of the operations of a licensed contractor

This acts as barrier to entry as the laws strictly filter new


entrants.
This will also lead to the development and
promotion of the overseas construction industry.

This may discourage firms to take on public construction


projects due to strict implementations of rules and regulations.

This may promote industry growth by enhancing product


quality. Support in Construction operations by borrowing from
financing institutions may also promote growth for the
construction industry.

ENVIRONMENTAL

Over the last decade, the Philippines is included on the top five countries that are most frequently hit by natural disasters
More severe sudden-impact events can generate more construction activities
Construction industry is central to the promotion of disaster resilience through building procurement, design,
construction, etc.

Annually, approximately 80 typhoons develop above tropical waters, of which 19 enter the Philippine region and six to
nine make landfall, according to the Joint Typhoon Warning Center (JTWC).
Typhoon Haiyan - known locally as Yolanda - which struck in 2013, was recorded as the strongest tropical cyclone ever
to make landfall anywhere in the world in recorded history. Over 14 million people were affected across 46 provinces with
their homes severely damaged or destroyed (550,000 houses destroyed and 580,000 houses severely damaged)
Most frequent disasters affect buildings, roads and other infrastructures
The Construction industry plays a key role in responding to disasters - dealing with collapsed and damaged buildings and
infrastructure and providing temporary shelter and services to affected communities - and also in post-disaster
reconstruction efforts
Government speeds up rehabilitation, construction, and recovery projects that will rebuild assets, restore supply change,
and strengthen capacity building
Construction will be one of the priority sectors in employment generation.
The first Philippine International Total Green Movement Exhibition and Conference happened last August 17-19, 2011.
The players in the construction industry lean towards environment friendly development project.
As government launched its massive infrastructure development program with nine major projects nationwide, the
National Economic and Development Authority (NEDA) said a million homes are set for construction in typhoon-hit areas
allowing the construction sector and its allied industries to have a banner year in 2014.
Construction products outside of Yolanda-affected areas are also expected to contribute to the growth this year.

INDUSTRY ANALYSIS

PORTERS FIVE FORCES


ANALYSIS

PORTERS FIVE FORCES ANALYSIS

CONCLUSION
Overall, firms in the local construction industry are faced with an increasingly challenging and fast-paced environment. In spite
of this, there is great anticipated positivity in the Philippine construction industry for the next years. However, these should be
matched by initiatives like increasing labor productivity through job opportunities in order to sustain the competitiveness of
firms.

The Philippine Construction industry is attractive because of the following reasons:

Many attractive opportunities due to long-term government contracts


Growth in certain population segments and urbanization which could lead to increase in housing backlogs
Computer technology and new building techniques which would enable companies to improve project implementation
A number of public-private partnership (PPPs) initiatives by the government
Environmental policy like climate change policy would imply investment spending on improved infrastructure

Nevertheless,

the

following

challenges

must

be

taken

into

consideration

to

Availability of funding to the projects being made available to the market


Quality of the regulatory framework
Increasing competition within the industry
Increase in material and labor prices due to strong demand for construction activities
Lack
of
successful
smooth
implementation
of
the

sustain

growth

infrastructure

prospects:

projects

APPENDIX
APPENDIX A - LEGAL MANDATES IN CONSTRUCTION INDUSTRY (CIAP)
EO No. 679 (Expanding the Composition of the Board of Directors of the Construction Industry Authority of the Philippines)
dated 21 April 1981 included the then Minister of the Public Highways and Minister of Public Works [now the Secretary
of the Department of Public Works and Highways (DPWH)] and the Minister of Transportation and Communications
[now the Secretary of the Department of Transportation and Communication (DOTC)] as members of the Authority.
EO No. 768 (Amending Further the Composition of the Board of Directors of the Construction Industry Authority of the
Philippines) dated January 19 1982 included the then Minister of Labor and Employment [now Secretary of
Department of Labor and Employment (DOLE)] and the President of the Philippine Contractors Association as members
of the CIAP.
EO No. 1008 (Creating an Arbitration Machinery in the Construction Industry Authority of the Philippines) dated 04 February
1985 created the Construction Industry Arbitration Commission (CIAC) as an arbitrary machinery for the construction
industry. Under Section 3 of this EO, the CIAC was placed under the administrative supervision of the PDCB.
EO No. 133 (Reorganizing the Department of Trade and Industry, its Attached Agencies, and for other Purposes) dated 27
February 1987 reorganized the Ministry of Trade and Industry into the DTI.
Presidential Decree (PD) No. 1167 - Overseas Construction Incentives Decree
The PD provided incentives for duly registered Filipino overseas contractors, i.e. (a) tax credit; (b) deduction from gross
overseas income; or at their option (c) pay one and one-half percent (1 %) tax on their overseas gross income.
PD No. 1746 - Creating the Construction Industry Authority of the Philippines
created the CIAP to promote, accelerate and regulate the growth and development of the construction industry in
conformity with national goals

REFERENCES

Asian Development Bank

Bangko Sentral ng Pilipinas

Business Environment: Philippines Euromonitor International

FPT Securities Joint Stock Company

Inquirerbusiness.com

International Monetary Fund

National Statistics Coordination Board

National Statistics Office

Philippine Construction Association Board

Philippine Disaster Report 2011- 2014 Citizens Disaster Center

Philippine Statistics Authority

Philippine Stock Exchange

Philippines Euromonitor International

rappler.co

Trading Economics

ukessays.com

United Nations

World Bank

www.bloomberg.com