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Economy

Building boom breathes new life into Philippine industries

Materials makers stepping up to meet government's infrastructure ambitions

Eagle Cement is building a new line at its plant near Manila.

MANILA -- Once a regional laggard in manufacturing, the Philippines is now experiencing a boom in its materials sector as a San Miguel-related company and other big names boost output in response to major infrastructure projects announced by President Rodrigo Duterte.

Eagle Cement is adding a third line to its plant to the north of Manila. The expansion, slated to come online at the beginning of 2018, will boost the company's output capacity by roughly 40% to 7.1 million tons a year.

The cement maker, chaired by San Miguel chief Ramon Ang, also debuted on the Philippine Stock Exchange in May and is building a plant in Cebu.

Eagle Cement is the sole supplier for the Metro Manila Skyway Stage 3 highway project and MRT-7 rail project, both run by local construction company EEI. It aims to supply its products to EEI's other projects as well.

The Republic Cement group, under major conglomerate Aboitiz Equity Ventures, has also announced plans to spend $300 million to expand its plants in Luzon and Mindanao.

Getting in on the trend

New players are also eyeing the space. DMCI Holdings Chief Financial Officer Herbert Consunji in June announced the group will be entering the cement business, calling it a new pillar for growth. DMCI is investing more than $300 million to build a factory near a coal mine operated by its subsidiary, taking advantage of the limestone resulting from the mining process.

Duterte has proclaimed a "golden age of infrastructure," with plans to invest more than 8 trillion pesos ($155 billion) in roads, railways, airports and other facilities by 2022. And the industrial sector has begun rising to the challenge.

Domestic cement production came to about 23 million tons and imports to 3.7 million tons in 2016, according to the Philippine Board of Investments. Meanwhile, demand is expected to reach anywhere from 47 million tons to 72 million tons by 2025. Even if all companies meet their expansion targets, there could still be a shortage of up to 37 million tons. The government plans to encourage further investment through tax incentives.

Steel makers are also stepping up. SteelAsia Manufacturing told local media that it will spend $1 billion, including on an electric furnace, which will be used to produce rebar and steel sheet. A stronger steel sector will also bolster the government's campaign to attract more manufacturers to the country.

Treacherous road ahead

Still, Duterte's infrastructure campaign faces some uncertainties. Highlights include plans for the country's first subway system in Manila, which could reduce the 2.4 billion pesos in economic losses caused by traffic congestion daily, as well as a railway out of the capital. But both are slated for completion after Duterte's remaining time in office.

The biggest issue is funding. Duterte visited Japan and China after taking office, and secured a total of $33 billion in economic assistance. He will also borrow from the Asian Development Bank and other institutions. The rest will come from the government's coffers, making it imperative that he implement reforms to boost tax revenue.

Meanwhile, the government also will need to ease regulation on foreign capital to encourage more companies to set up shop in the Philippines, while keeping the country's elite in check. One misstep could deal a heavy blow to hopes for the infrastructure campaign.

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