Challenges and opportunities for urban development in the Philippines

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.

Jaime Augusto Zóbel de Ayala PLH is the Chairman and Chief Executive Officer of Ayala Corporation

Ayala Corporation has subsidiaries and affiliates in real estate development, telecommunications, banking and financial services, electronics manufacturing, water distribution, automotive dealerships, business process outsourcing and overseas real estate investments.

Jaime Augusto Zóbel de Ayala is a member of various international and local business and socio-civic organisations, including the JP Morgan International Council and Mitsubishi Corporation International Advisory Committee.

For further information on Asia 2025, or if you are interested in working with Asia House on a future publication, please email Samantha Deave, samantha.deave@asiahouse.co.uk.