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Infrastructure: A bigger battle than the war on drugs

I’m a young entrepreneur who has been living happily in the Philippines for about three years. My modest contribution to the economy has been an outlay of about 10 million pesos setting up my business and life. On top of that I employ 15 people, all of whom I have trained myself — they are all now equipped to start their own business or find other employment.

No one I employ earns less than 25k a month. In the provincial area where I live the usual employment options are picking rice, working at the market or a fast food joint or going abroad. Locals who can find jobs earn between 5-6,000 pesos a month, if they’re lucky.

I’ve also purchased a reasonably large property where I live with my wife and daughter. It’s important to me that they are both proud of where they’re from. They now have wider horizons than the Philippines, and could live in places where it would be far easier to prosper. However, I want my daughter to grow up understanding the importance of making a positive contribution in life, not turning your back on things when they get difficult.

I understand that this country has problems, but the approach that’s being taken is upside down and totally lopsided. It amazes me that so many people are so solidly behind it. If you’re a citizen of the Philippines and you’re reading this, you’re probably from a strata of society that got at least a basic education, you’re probably urban, most probably doing better than most of your countrymen. You’re also young, probably in your 20s. (The median age of the Philippine Internet user is 24.)

How access to information and technical knowledge has an inherent wealth bias

If you’re reading this on a non-mobile internet connection (i.e. you’re subscribed to ADSL or Fiber) you’re a member of a very elite group — less than 10% of the population have terrestrial broadband. That means that fewer than one in 10 have unmetered internet access. Of that tiny number of people, 80% are subscribed to low tiers in the 1-3 mbps range.

These figures suggest a pretty low level of computer skills in the country. I know from my experience of training staff that the most basic knowledge needed to be a fully contributing member of today’s workforce just isn’t there.

Internet penetration is part of the solution to this, but it has to be reliable. You see, even that 20% of the 10% of people with access to what anyone else on the planet would call “reasonably fast” connections experience regular outages. The unreliable electricity grid doesn’t help either.

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Without fixing this reliability issue — and not just in metro areas — the country will never be properly competitive. Without access to reliable internet the population will remain stuck in low-skilled and low-income pursuits like subsistence farming and fishing.

Would you like a real world example?

As a result of problems with internet connectivity and the electrical grid this week, my 15 staff spent the last four days without work. The clients that they work for, doing things like handling inbound phone calls, working social media marketing efforts and other administrative tasks, have contracts that require 99% uptime, or they don’t pay.

So, for the last four days my business lost a lot of money. The team, of course, still got paid — the loss is mine to bear. That’s comes with taking the profits when they’re there and it’s an accepted cost of doing business.

However, it set me thinking just how long I’d be able to sustain such a situation before I gave up, closed the doors and outsourced my contracts. The time frame I arrived at was 7-10 business days. That doesn’t sound like long, but such a sustained outage would be as far as I could go before losing contracts.

I’m sure some will say that I’m taking advantage of a low-cost, English speaking workforce, and that these trials and tribulations come with the territory. Let’s not forget there are other low-cost, English speaking workforces in the region. Some countries even give tax breaks and financial incentives to foreign entities, and can provide uptime guarantees.

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Take Malaysia for example. While the costs of employment would be marginally higher, training costs and timeframes would be lower, as would the cost of lost business. How do I know this? I’ve been involved in setting up companies there in the past.

So, why stay?

A reasonable question. I persist because I love the country, I have a family connection here (an extremely important one) and I know that I’m making a positive impact on the community.

That said, I’ve been involved in setting up companies around Asia and there are better choices I could make operationally. There comes a point where the emotional connections take a back seat and it becomes about survival — as a business owner it’s my responsibility to make the right choices for the shareholders (being myself, my wife and my daughter in this case).

It’s at that stage that everyone here loses their jobs. I wrap up the company in the Philippines and either on-sell or outsource my contracts. In such an event it’s highly likely my family and I would never return to the country — and we’d almost certainly never invest here again. The costs of relocating, the hassle of shifting contracts, the expense of setting everything up again and the knowledge that the country’s infrastructure problems had already caused us that level of pain would make sure of that.

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People are already pulling out

I’m personally aware of two operations of similar size that have already decided to pull out. Within the next few weeks 52 people will be out of work in Benguet. The company’s owners have already spoken to me about on-selling or outsourcing their businesses to me. I declined, not because I can’t handle it, but because I’m afraid I may be doing the same thing within the next year if infrastructure reliability isn’t improved. I did, however, broker an arrangement with a friend based in Penang — so those jobs have gone to Malaysia, along with over two million dollars a year. A drop in the ocean for Malaysia, but one hell of a big deal to a small community in the Philippines.

How many other small players like us are spread throughout the country? I don’t have those statistics but I know of at least five within a 100km radius. Then consider the one-man bands who rely on similar outsourced contracts for survival. How many more people would be able to provide services outside the metro areas if these infrastructure problems didn’t exist?

What could be the positive impact of this on the country and economy? Tremendous. The poverty that underpins the drug problem would be hugely relieved. Why do people turn to crime and addiction?
Overwhelmingly, because they have no other options. Provide those options and you’re starting to get somewhere. Neglect to provide those options and responsibility for the problems lands squarely at the door of those who could improve infrastructure.

The new administration has paid lip service to these issues, but has spent more time and money fighting drugs than looking at the issues that motivate foreign capital to stay offshore. Things like improving internet reliability have been discussed, but there’s been no action (or even plan of action) so far. The apparent solution to electrical reliability has been to mull over  the reopening of a defunct nuclear plant which is smack bang on a fault line (let’s ask the Japanese about that, shall we).

There is a solution, but it involves consensus and institutional change

An easier and faster way to bring about change would be to force power companies to use poles that don’t rot, install wiring properly and get their assets into a state where they don’t have to get turned off every time the wind gets up.

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What is the best way to do that?

Pass a law requiring them (in this case TRANSCO) to compensate consumers and/or pay a fine to government when they have unplanned outages. As a part of the same legislation set a limit on how many planned outages per year there can be and their duration. It would not take long before the infrastructure was not only getting improved but we might even start seeing some redundancy!

 

What about internet reliability? How is it possible to encourage a monopolistic cartel to provide a reliable service? The first step is to stop saying “if you guys don’t sort yourselves out and fix this then I will allow competition”… instead, start allowing competition.

Problem solved. Get Axiata in here, get Telstra in here and legislate an exception to the foreign company ownership requirements to make it happen. Even better, legislate the foreign company ownership laws right out of existence while you’re at it. Once those floodgates open you’ll have billions of dollars in capital fighting to reach a largely untapped market of over 100 million people.

Does this mean that internet access may become more expensive? Sure, maybe. What would probably happen is that foreign companies would embark on their own infrastructure installations. The likes of PLDT probably won’t bother and the current players would eventually either be forced to drop their prices or improve their infrastructure.

That’s how competition works and why it’s a good thing. In order to have the country’s infrastructure self heal, all that needs to happen is the passing of a few laws. None have yet been tabled in spite of the hard line the president is apparently taking with those responsible for the country’s internet woes.

Of course it goes way beyond electricity and internet connectivity, but they are two crucial areas, particularly to my business. How about fixing the country’s flooding problem? Particularly in Manila. Easier said than done, you say?

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Singapore used to flood horribly, it gets more rainfall (2,340mm) each year than Manila (2,061mm). How did they fix their flooding problem? They installed a system of storm drains that got the water off the roads and out to sea. What will fixing the flooding do? Apart from public health it will also stop the city from grinding to a standstill every time it gets a little wet. It will do a huge amount to improve the traffic situation during the wet season.

Then, there’s the airport issue

Speaking as a frequent flyer who has dealt with some pretty bad border infrastructure in far flung places, the airport situation (and I’m not just talking about NAIA) is nothing short of an international laughing stock. I fail to understand why the nation is looking at a high speed rail link from Subic to Clark when they should be looking at a link between Clark International Airport and NAIA first.

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That would go a long, long way to fixing some of the traffic problems that NAIA brings with it, as well as making Clark a satellite of NAIA. It would certainly do a lot more to drive growth than connecting Subic with Clark. That said, there’s no reason that this link can’t be added later. I just don’t understand why it’s a priority.

Of course, as anyone who has been in the Philippines, particularly Manila, for more than 15 minutes knows, traffic is a huge problem. There are a couple of things that I think could help.

First off, stop the number coding scheme. Stop it now. The only thing that coding achieves is forcing those who can hardly afford to run one car to not use it one day a week, while everyone else just buys a second vehicle that’s coded for a different day.

Second, make the heavily congested areas and thoroughfares into public transport only. No private vehicles allowed on EDSA, period. Taxis, buses, UV Express and Jeepneys only. Fix the damn MRT, and when I say I fix I mean make it safe, get it air-conditioned, buy more trains, connect public transport interchanges to it and police it.

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Public transport interchanges, now there’s an interesting idea.

Anyone who has been to Hong Kong will be familiar with them, also Kuala Lumpur for that matter. Here’s the idea. Your urban rail network connects with your urban bus networks which in turn connect with your national bus and train networks and it’s all connected to your airports. Malaysia’s approach to resolving congestion on Kuala Lumpur’s highways during holiday periods is to have one incoming regional bus station to the north and another to the south. All connected by trains, taxis and local transport.

When you take a bus into Manila at the moment where you end up depends on who owns the bus. If you had that high speed train running from Clark to NAIA (and it was properly subsidised so it didn’t cost any more than a bus) then you could run all the southbound buses into a custom designed transport interchange in Clark.

You then funnel people onto the trains (obviously you need to do some capacity and frequency planning here) and not only cut the length of the journey but remove all that traffic from the NLEX and the northern part of Manila. You do something similar to the south, with a reliable rail link (an extension of the Clark NAIA line) going to, say, Alabang. Any buses coming from South Luzon are funnelled into the Alabang terminal then people use other urban forms of transport (preferably not road based) to continue their journey through the capital.

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I’d also say it would be a good idea to extend the MRT from Magallanes into a station inside the NAIA, very few people take a private vehicle to the airport in London or Singapore for instance, because the urban rail network is faster, more efficient and cheaper. This also takes care of connecting the people who are incoming from Alabang and Clark on the high speed rail links straight into the metro rail network.

All that leaves is getting people to ferry ports. This is achieved by further extending the MRT to the pier complex. I know the concepts that I’ve covered in this article are expensive, well some of them are, but they will work and there are examples all over the world for us to follow. They are calling the upcoming phase “the golden age of infrastructure”.

A ‘golden age’ of (failed) infrastructure?

I had a look at the big projects that are included in the big infra push. Here’s an example; a Manila-Clark railway is being considered, which is great. But instead of a view to turn Clark into a fully fledged satellite terminal (or even pushing 100% of low-cost traffic to Clark) they are “asking for the co-operation of airlines to move turboprop services.”

They have the capacity to take a 787 at Clark Airport, that’s a wasted opportunity. Also, as you read further through the plan, it goes on to say that connectivity at the Manila end to NAIA will involve Skyway Three and the connector road. That sounds to me like the rail link is going to stop just short of the airport. This doesn’t make any sense.

These things are all important, and it’s essential that they are planned and implemented properly. Look at the North Luzon Railway debacle, the National Broadband Network scandal and the deplorable state of the Manila domestic transport system. The last thing we need now is another slew of failed, delayed and half-baked projects — if that’s the way this washes up, then things can only get worse.

 

1 Comment on "Infrastructure: A bigger battle than the war on drugs"

  1. Simon J Gibson | November 18, 2016 at 8:48 pm |

    A very well written article. I ‘retired’ here from the UK last year. We have stopped flying from my home in Panay to Manila because of the hassle of getting in and out of Manila airport and the huge amount of wasted time sat in traffic. My idea was to set up a small business here relying on a good internet connection but this will not happen. Firstly our electrical supply is too unreliable and secondly we have a limited wi-fi connection and cannot get a second connection to boost our access to data. As there is only a single supplier in our area it is a monopoly service so prices are very high, higher than I paid in the UK with unlimited usage. I gain from extra leisure time but the local people I would have employed will remain unemployed.

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