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Philippine Institute Policy Notes for Development Studies Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas ISSN 1656-5266 No. 2010-13 (November 2010)

Investing in local roads for better mobility of people, goods, and services

Gilberto M. Llanto The has made a relatively significant improvement in transport and logistics performance as shown in Table 1, being currently ranked 44th out of 155 countries in logistics performance, which is an improvement Recent literature have documented the over its 65th rank in 2007. While this critical role played by efficient transport and performance is certainly an achievement, it logistics in trade facilitation.1 The World Bank pales, however, in comparison with those of (2010) stresses that efficient transport and neighboring ASEAN countries such as Malaysia logistics performance is essential for countries and Thailand. to compete in the global marketplace as traders need to be able to move goods and services If the Philippines wants to exploit opportunities across borders on time and with low transaction in global markets, it would therefore have to do costs. better. For example, in the export of agricultural

______Exporting countries, which have been able to 1 X. Clark, D. Dollar, and A. Micco, Port Efficiency, Maritime effectively address both border (e.g., tariffs) Transport Costs, and Bilateral Trade, NBER Working Paper 10353 (Cambridge: National Bureau of Economic Research, and behind border issues (e.g., transport and 2004). logistics), have been able to exploit new and PIDS Policy Notes are observations/analyses written by PIDS researchers on cer- bigger markets opened by globalization and tain policy issues. The treatise is holistic in approach and aims to provide useful trade liberalization. These new opportunities in inputs for decisionmaking. the global markets necessitate an intensified The author is Senior Research Fellow at the Institute and Professorial Lecturer at focus on making transport and logistics much the National College of Public Administration and Governance, University of the more efficient. Philippines. The views expressed are those of the author and do not necessarily reflect those of PIDS or any of the study’s sponsors. 2

Table 1. Comparative logistics performance index, z Onerous government regulations and public East Asia, 2007 and 2010 monopolies that increase the cost of interisland Country 2010 LPI Rank 2010 LPI Score 2007 LPI Rank 2007 LPI Score transport.

Singapore 2 4.09 1 4.19 Japan 7 3.97 6 4.02 An important dimension of transport China 27 3.49 30 3.32 infrastructure is the network of roads that Malaysia 29 3.44 27 3.48 Thailand 35 3.29 31 3.31 provide a physical link to various communities, Philippines 44 3.14 65 2.69 to urban and rural areas, to the national capital Vietnam 53 2.96 53 2.89 Indonesia 75 2.76 43 3.01 region and other regions, and that enable Memo item Germany: 4.11 Singapore: 4.19 people and goods to move on time and with low rank 1 rank 1 transaction costs. Source: World Bank (2010) This Policy Notes highlights the importance of commodities from Mindanao, major logistical investing in regional (local) roads and directs bottlenecks such as the following should attention to the critical role of local immediately be addressed:2 government units (LGUs) in improving the local z Limited market information available to road network, which is a chief attraction for farmers and traders, arising from poor investors. telecommunications facilities; z Limited transport services in rural areas, Why focus on local roads? where locally manufactured ‘jeepneys’ and Infrastructure is a driver for sustained growth. animal-drawn carts carry produce over bad rural Recent studies find that infrastructure has a roads; positive and significant effect on growth in z Inefficient shipping; and regional incomes, and regions with better 3 ______infrastructure have had higher growth rates. An 2 J. Arnold and T. Villareal, Philippines Logistics Study (World ADB study has identified the inadequacy of Bank, 2002). infrastructure as a binding constraint to 3 G. Llanto, Infrastructure Development: Experience and Policy Options for the Future ( City: Philippine Institute for Philippine growth.4 And within infrastructure, Development Studies, 2004); L. Basilio and D. Gundaya, The expensive and unreliable electric supply and Impact of Collective Public Infrastructure on Regional Income Disparities, unpublished undergraduate thesis (Quezon City: inefficient transport network are the two most University of the Philippines, School of Economics, 1997). 4 Asian Development Bank (ADB), Philippines: Critical critical constraints for the Philippines. Development Constraints, Country Diagnostic Studies (Mandaluyong City: ADB, 2007); G. Llanto, Infrastructure, Chapter 6 in Diagnosing the Philippine Economy: Toward Local roads are an important element of the Inclusive Growth, edited by D. Canlas, M.E. Khan, and J. transport network. Available data for the Zhuang (London: Anthem Press, 2009); G. Llanto, Infrastructure and Regional Growth, Chapter 10 in The Philippines indicate that the National Capital Dynamics of Regional Development: the Philippines in East Region (NCR) had 7.3 kilometers of roads per Asia, edited by A. Balisacan and H. Hill (Cheltenham, UK: Edward Elgar, 2007). square kilometer of land area whereas Northern

PN 2010-13 Policy Notes 3

Mindanao, the region with the second highest maintenance and construction of good quality road density, had only 1.2 kilometers. And while local roads. Poor road quality, according to the 97.9 percent of roads in the NCR were paved, World Bank, results in intercity freight rates only 35 percent of those in the next best-off that are 50 percent higher than in Thailand or region road-wise, Central Luzon, were paved. Vietnam,6 and is due to the low proportion of Caraga had the lowest road density per square paved roads, the low proportion of roads in kilometer while the Autonomous Region of good or fair condition, and how they function Muslim Mindanao (ARMM), the lowest paved as a network.7 road ratio. What should local governments do? Local road investments work for growth and z Raise more local revenues. Weak local fiscal poverty reduction in local areas. An empirical capacity has hamstrung the provision of local study finds that investing in road improvements public goods such as good roads. Local and the construction of high-quality roads at governments should therefore launch a vigorous the regional (local) level, particularly in revenue mobilization campaign, which may provinces, municipalities, and barangays is more involve plugging tax leakages, explaining to the beneficial to the region than investments in the public the cost of local development, and even national road network alone.5 The integration of raising local taxes. peripheral areas with the rapidly growing urban z Use local revenues to produce local public nodes such as San Fernando City (Pampanga), goods that serve the people, not a few vested Cabanatuan City (Nueva Ecija), Metro Cebu, groups. People will be convinced to support Metro Iloilo, Davao, and General Santos cities, government efforts to raise revenues once they among others, fundamentally depends on an experience an improvement in public services, efficient road network. The link provides rural e.g., police protection, good traffic economic agents with access to urban markets, management, and quality local roads that do technologies, and modern inputs. not function as parking spaces for errant jeepneys. A good example of a serious neglect An acute underinvestment in good committed by a local government is its failure quality local roads ______Sadly, there has been an acute underinvestment 5 Llanto (2007), ibid. The national government takes care of constructing national roads while local government units in good quality local roads. Compared with (provinces, cities, and municipalities) are in charge of local investments in other devolved activities and roads. 6 World Bank, Philippines Transport for Growth: an sectors, local government investments in Institutional Assessment of Transport Infrastructure, Report infrastructure have remained insignificant. No. 47281-PH (2009). 7 See World Bank (2009), ibid., which states that the key questions in transport infrastructure are not about the Both national government and LGUs cannot number of facilities but their effective capacity, the quality of services they can provide, their location, and how they ignore this fact of underinvestment in work as a network (p.11).

PN 2010-13

Policy Notes 4

to rid a recently widened street in Quezon City low-transaction costs movement of people, cargo, of illegal parking by jeepneys and tricycles. and general commerce. Local citizens did not pay for said road’s z Conduct an audit of past utilization of the improvement only to have it used by some Road Funds for more effective and efficient use. groups exclusively for their parking needs. Introduced in 2001, the Motor Vehicle User’s z Improve procurement for local roads. Charge (MVUC) was to be used for road National government and local governments maintenance, safety, and vehicle pollution should coordinate in providing local control. In the last four years, the MVUC special governments with the capacity for project fund for national road maintenance has identification and development, and improving amounted to around P4 to P6 billion a year. road construction through competitive Going by the high frequency of road accidents procurement practices. in the country, very poor road maintenance, and z Ensure that local roads form part of an the air pollution contributed by thousands of efficient road network. Key to having an dilapidated smoke-belching jeepneys and buses efficient road network are planning and that ply the main thoroughfares of Metro coordination of the road network among Manila, conducting an honest and intensive concerned government agencies. However, audit of the Road Funds is therefore an nothing will come out from the planning and important first step toward having good quality coordination if, as already mentioned, local roads and transport in the country.8 governments tolerate the conversion of roads into parking spaces, or when portions of the Concluding remarks road are used as location for microbusinesses As in any endeavor aimed at facilitating trade (e.g., vulcanizing shops) and amusement (e.g., and movement of people, investing in quality basketball courts in several streets in Metro local road networks requires strong political will Manila). Roads should serve the purpose for not only at the national level but more which they were built—to ensure on-time and importantly at the local level. There are constraints to overcome and barriers to demolish as outlined in this Policy Notes. Being able to address them, even one step at a time, For further information, please contact will however lead to tremendous rewards in The Research Information Staff terms of economic outcomes for the country.  Philippine Institute for Development Studies NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati City ______Telephone Nos: (63-2) 894-2584 and 893-5705 8 Fax Nos: (63-2) 893-9589 and 816-1091 By law, all public and private vehicles have to pass an emissions test conducted by the Land Transportation Office E-mail: [email protected]; [email protected] prior to registration. However, air pollution in , The Policy Notes series is available online at http://www.pids.gov.ph. Reentered especially EDSA, , and España Street in Manila is as second class mail at the Business Mail Service Office under Permit No. PS- among the worst in the region courtesy of thousands of 570-04 NCR. Valid until December 31, 2010. smoke-belching jeepneys and buses, which should not have been allowed on the streets.

PN 2010-13 Policy Notes