Challenges and opportunities for urban development in the Philippines

Published On: 8 March 2016

For Asia 2025, an Asia House publication launched on March 8, the Chairman and Chief
Executive Officer of Ayala Corporation Jaime Augusto Zóbel de Ayala plh contributed his
thoughts on the challenges and opportunities for urban development in the Philippines.

Urbanisation has been a significant phenomenon globally, and has potentially been a
key contributor to progressive development. Over the last half-century, the world has
become increasingly urbanised. In East Asia, over 50 per cent of people live in cities and,
today, the whole of Asia is home to more than half of the world’s megacities. This trend
is expected to continue, with 75 per cent of today’s world population projected to be
living in urban areas in the next 35 years. This is an exponential increase from the 1950s
when the total population was only 2.5 billion.

The Philippine experience sees nearly half of the population residing in urban centres,
with almost 25 per cent in the capital alone. Massive urban sprawl across the south and
east ends has expanded the metropolis into the Greater Manila Area. This expanded
metropolitan area has a population of about 25 million, or a quarter of the country’s
total population. Over the past two decades, regions within and adjacent to Metro
Manila have sporadically grown without proper planning, with their capacities unable to
keep up with a growing urban population.

This has led to a host of infrastructure, health, environmental and social problems,
including traffic congestion, burgeoning informal settlements, disaster vulnerability, and
threats to water and food security. A JICA study1 cited how traffic congestion currently
robs Filipinos of up to US$55 million a day. The study further noted that, if no
intervention takes place, this amount is projected to increase to over US$130 million a
day.

Clearly, much needs to be done in infrastructure development. Based on the World

Bank’s estimates, the Philippines would need to hit spending levels of at least 5 per cent
of GDP in infrastructure projects to catch up with its Southeast Asian neighbours. Our
average infrastructure expenditure since 2009 has only been 2.2 per cent of GDP.

Risks and opportunities

Cities are the main centres of consumption, resource use, congestion, and waste. Eleven
of the 20 most polluted cities, and 15 of the 20 most vulnerable cities to rising sea
levels, are in Asia.
Despite all these problems, cities are the growth drivers of most economies, particularly
when one looks at clusters of cities. Urban density can actually be a positive contributor
on many fronts. It is usually accompanied by lower poverty incidence, increased
productivity, and steeper economic growth. This is true across the board, and even more
so as the city size grows. The high concentration of industries and services in highly
urbanised cities has attracted job-seekers to relocate in droves to find employment and
gain better access to education, healthcare and overall quality of life.

Urban density creates critical mass, attracts diversity, and makes possible the ‘creative
combustion’ that brings life, new ideas, entrepreneurial vigour, and an innovative verve
to urban communities. Today, when people think of places to live, work, invest, or visit,
they think not so much of countries; they think of cities.

Decisive interventions are imperative at the city level

However, it is important to manage the ‘quality of that density’. Cities like Metro Manila
need to ensure that urban growth is supported by adequate infrastructure, such as
adequate power, water, roads, transport systems, flood control, and waste management,
to name a few.

In response, private sector groups, such as the APEC Business Advisory Council (ABAC),
have been pushing for the trend towards sustainable, competitive, and liveable cities.
ABAC is of the belief that cities can achieve resilience if they will elevate their
competitiveness level in key indicators, such as transportation and infrastructure,
technology readiness, health and safety, environment, and ease of doing business. This
initiative can be a potentially viable long-term solution to mitigating the impact of
climate change. However, more work clearly needs to be done and cooperation and
synergies between the public and private sectors will be integral to taking this initiative
forward.

Aside from hard infrastructure, we need to ensure that the right level of governance,
urban management and planning is in place to support Metro Manila. I believe there is a
need for the creation of a central institution that would spearhead a cohesive and
strategic planning and execution of a national urban agenda – from land use and urban
planning to infrastructure development while ensuring the sustainability and resilience
of the cities. While the local government units continue to do their part in addressing
the challenges, the lack of an integrated urban management framework and execution
falls short in enabling seamless connectivity across the whole spectrum.

Greater private sector participation in urban development

Since a developing country such as the Philippines would have significant constraints
investing in capital assets for infrastructure, public services, and even disaster
management, the government has increasingly involved the private sector in providing
these services to address these challenges without straining public finances or
burdening the population with higher taxes.

The private sector, for its part, has, over time, made significant strides in helping to
augment the Philippines’ urbanisation challenges, particularly in the areas of transport,
communication, property development, and disaster management. Much more needs to
be done and I believe the private sector can still intensify its role in helping to develop
more liveable communities within and outside the metropolis that encourages
decongestion and improves the standard of living significantly.

At Ayala, for instance, we have been pushing to improve our existing townships into
more sustainable developments and building new integrated mixed-use projects of
different scales, both within and outside Metro Manila. To date, we have over 8,000
hectares of strategic land bank, out of which we have 16 large-scale, mixed-use
developments across the Philippines. In each of the cities that we have presence in, we
work hand in hand with the local government in planning and building key
infrastructure requirements around our developments, including access roads,
pedestrian walkways, and water distribution.

Another example is how the build-operate-transfer law enacted in the 1990s has paved
the way for private sector participation in sectors critical to economic growth,
particularly in power generation, telecommunications, transport infrastructure, and
water utilities.

Ayala has been an active participant in some of the Philippines’ landmark Public-Private
Partnership (PPP) initiatives. In 1997, Ayala won the country’s first PPP programme,
which was water privatization for the east zone of Metro Manila. Over the last 18 years,
Manila Water has greatly improved water distribution in the east zone, driving down
non-revenue water to 11 per cent and bringing water to 99 per cent of the households
in the area. Today, Manila Water is a leader in the water sector, not only in Manila, but in
other parts of the country, as well as in Southeast Asia.

Similarly, we took part in the government’s liberalization efforts of the

telecommunications sector also in the 1990s and established Globe Telecom. From a
virtual monopoly back then, the telecommunications industry today has spawned a host
of entrepreneurial activity and ‘cottage industries’ in various mobile content and
services. More importantly, the vast improvement in the telecommunications
infrastructure has given rise to the business process outsourcing industry, currently one
of the main growth engines of the country.

More recently, the government has started a PPP programme that includes several
potentially impactful transport infrastructure projects in rail, toll roads, and airports. This
should create an ecosystem that is conducive for urban success.

From what we have seen in the Philippines, good public governance is crucial for
implementing successful PPPs. Multiple stakeholder participation and access to
information for informed dialogues are important, starting from the planning process to
the implementation.

Since the auctions under the PPP framework are conducted in a considerably fair and
transparent manner, the projects have attracted great interest from both local and
foreign investors, including the Ayala Group.

Broadening access to serve communities

It is also worth noting how business groups in the Philippines are increasingly
broadening access to products and services that touch on basic needs to a much larger
segment of society. In addressing our urbanisation challenges, it is essential that we aim
for progress that is felt across all segments of the population. From our own personal
experience at the Ayala group, we have, over time sought ways to provide products and
services that meet a broader set of needs, at varying price points. We believe our
businesses can play a role, in some measure, in providing practical and realistic solutions
to address some of the challenges confronting the broader society given that we
participate in industries that touch on basic human needs – housing, banking,
telecommunications, water distribution, and, more recently education. These are just a
few examples of what we call ‘shared value’.

Overall, we have seen that these initiatives can create social inclusivity while yielding
attractive returns, and creates a more holistic developmental approach to communities
and to addressing challenges of growth and urbanisation. This has driven us as a group
of companies to seek creative and innovative ways to broaden access to our products
and services with a view towards meeting the needs of a large segment of unserved
communities, particularly those at the base of the economic pyramid.

Supporting the implementation of this core value is our group-wide sustainability policy.
This covers operations, products and services, the supply chain, our human resource
practices, community involvement, and our overall management approach. We have
started benchmarking the Ayala Group against global sustainability indices and best
practices, and we have implemented a comprehensive 360 degree framework to
monitor key sustainability indicators and metrics that we focus on.

Conclusion

In summary, the sustained economic growth and urban sprawl have resulted in
overcapacity in infrastructure and increased vulnerability to disasters. However,
population density per se is not the problem. In addition to hard infrastructure, we need
to ensure that the right level of governance, urban management and planning is in
place to support Metro Manila. I believe there is need for the creation of a central
institution that would spearhead a cohesive and strategic planning and execution of a
national urban agenda, where clear accountabilities are defined. Second, there is a
growing importance for government and private sector collaboration to address some
of the key urbanisation challenges, particularly in critical sectors such as infrastructure
and shared value creation.

As a final note, as this unprecedented positive environment taking place in the

Philippine economy is poised to continue in the next few years, it is imperative that we
act together to intensify our efforts to address the rapid urbanisation. I believe that to a
large extent, this entails collaborative efforts across multiple sectors – the government,
the private sector, the civil society, and multilaterals. This, combined with a healthy
sharing of expertise and best practice among peers, can well fortify our efforts in dealing
with urbanisation challenges.