Philippines hope of rebound this year on massive govt infra spending

Philippines hope of rebound this year on massive govt infra spending
Published: 12 January 2009

Plans for massive infrastructure spending to stimulate the economy in 2009 have given hope for the beleaguered cement industry to make a rebound this year and achieve a modest two-per cent growth.

Ernesto Ordonez, president of the Cement Manufacturers Association of the Philippines (Cemap), told the BusinessMirror that indications point to a negative growth in 2008 for the industry, just a year after it posted a strong 11-per cent expansion with sales of 13.1Mt in 2007.

This year, even with the prospects of stiff competition from imported cement that will come in at zero duties, Ordonez said they foresee a slight increase in sales to about 13.36Mt due to the uptake in government infrastructure spending. “We are cautiously optimistic because while the recession will hit us, the government has decided to give more budget for infrastructure, so we think there will be a slight increase,” he said.

 Traditionally, Ordonez said the government accounts for about 60 percent of infrastructure spending in the country, with the 2008 Department of Public Works and Highways (DPWH) budget pegged at P94.7 billion.

This year, the DPWH is seeking an appropriation of P112.37 billion. On top of this, the government is also asking Congress to include in the national budget a P300-billion economic-stimulus package. There is also the proposed P100-billion fund for pump-priming that will be put up by government financial institutions and businessmen.

“We are hoping that the private sector will respond to the government spending. If the private sector would be sluggish, the government should spend even more,” Ordonez said. He said the industry is not that worried with the imported competition because the domestic players believe they are very competitive in terms of quality and price. Their only worry, he said, is when the other countries would dump cement to the country, or sell to the Philippines at one-third of cement costs in their own respective markets.

Ordonez cited computations by experts which showed that to be able to sell at P140 per 40kg bag in the country—which is the price that the government wants—importers would have to get the landed cost of imported cement at P67 per bag.

This, he said, is premised on a freight cost of $20 per ton, 12-percent value-added tax, P10 transport cost per bag, P5 profit of the retailers and P2 margin of the wholesalers, all of which will be added to the landed cost before the cement is sold to the public.

The P67 landed cost, Ordonez said, is about one-third of the actual retail price of cement in Japan.