SECOND QUARTER 2018 PHILIPPINE REPORT CONSTRUCTION MARKET QUARTERLY UPDATE TABLE OF CONTENTS MARKET SUMMARY 1 The Philippine Economy 1 Foreign Direct Investments 2 Philippine Construction 3 CONSTRUCTION MARKET ACTIVITY 4 Construction Market 5 Activity Cycle COMMODITY PRICE TRENDS 6 Metal Prices 6 Steel Reinforcements 6 Crude Oil Prices 6 MATERIAL PRICE TRENDS 7 Retail Price Index 7 Currency Exchange Rates 7 CONSTRUCTION PRICES 8 PROFESSIONAL SERVICES 9 The Lerato Tower 3 Makati City MARKET SUMMARY THE PHILIPPINE ECONOMY Philippine Economy Grows by 6.8% in Q1 2018 The Philippine economy grew by 6.8 percent in the first quarter of 2018. This was faster than the growth recorded in the same quarter of 2017. PHILIPPINES IN FIGURES Manufacturing, Other Services, and Trade were the Population 105.8M main drivers of growth for the quarter. Among the (as of First Quarter 2018) major economic sectors, Industry recorded the fastest growth at 7.9 percent. This was followed by Services with a growth of 7.0 percent. Agriculture Gross National Income 6.40% also grew at a slower pace of 1.5 percent. (as of First Quarter 2018) Net Primary Income increased to 4.3 percent Gross Domestic Product 6.80% during the quarter. Meanwhile, Gross National (as of First Quarter 2018) Income (GNI) posted a growth of 6.4 percent, faster than previous year’s growth of 6.3 percent. Inflation Rate 4.50% With the country’s projected population reaching (as of April 2018) 105.8 million in the first quarter of 2018, per capita GDP grew by 5.1 percent. Meanwhile, per capita Total Exports $5.51B GNI and per capita Household Final Consumption (as of March 2018) Expenditure grew by 4.7 percent and 4.0 percent, respectively. Total Imports $8.12B (as of March 2018) GROSS DOMESTIC PRODUCT Year-on-Year Growth Rates (%), Balance of Trade $-2.61B Q1 2016-2017 and Q1 2017-2018 (as of March 2018) 8 Employment Rate 94.50% 7 (as of April 2018) 6.8 6 6.7 6.5 5 Unemployment Rate 5.50% (as of April 2018) 4 3 Underemployment Rate 17.0% 2 (as of April 2018) 1 Labor Force 60.90% 0 Participation Rate Q1 2016 Q1 2017 QQ11 2018 (as of April 2018) Data source: PSA Data source: PSA Rider Levett Bucknall | Construction Market Quarterly Update 2018 Second Quarter 1 MARKET SUMMARY FOREIGN DIRECT INVESTMENTS Committed FI Reached P14.2B in TOTAL APPROVED FOREIGN Q1 2018 INVESTMENT BY COUNTRY OF INVESTOR Total foreign investments (FI) approved in the first First Quarter 2018 quarter of 2018 by the seven investment promotion agencies (IPAs), namely: Board of Investments (BOI), Clark Development Corporation (CDC), Philippine Economic Zone Authority (PEZA), and Subic Bay Japan 55.3% Metropolitan Authority (SBMA) as well as the Authority UK 10.9% of the Freeport Area of Bataan (AFAB), BOI-Autonomous Netherlands 6.2% Region of Muslim Mindanao (BOI-ARMM), and Cagayan Singapore 4.0% Economic Zone Authority (CEZA) amounted to PhP 14.2 USA 3.9% China (PROC) 3.0% billion. This was 37.9 percent lower compared with the South Korea 2.8% PhP 22.9 billion approved in the same period last year. Australia 2.3% Taiwan 2.2% Among the top investing counries, during the quarter, Japan topped with PhP 7.9 billion accounting for 55.3 percent of the total FI commitments. United Kingdom and Netherlands came in second and third pledging PhP 1.5 billion and Php 878.5 million, or 10.9 percent Data source: PSA and 6.2 percent of the total approved FI, respectively. Manufacturing bested all other industries as it stands to TOTAL APPROVED FOREIGN receive 64.1 percent of total FI pledges or PhP 9.1 billion. Administrative and Support Service Activities came in INVESTMENT BY INDUSTRY First Quarter 2018 second with investment commitments valued at PhP 1.80 billion, or 12.7 percent of the total FI. Real Estate Activities followed with PhP 1.81 billion, or 12.6 percent of the total FI. In terms of location, majority of the approved foreign investments in the first quarter of 2018 would be Manufacturing 64.1% intended to finance projects in CALABARZON Admin and Support 12.7% amounting to PhP 7.4 billion or 52.0 percent. This was Real Estate 12.6% followed by the National Capital Region with PhP 3.2 billion or 22.5 percent, and Northern Mindanao with PhP 1.6 billion or 11.5 percent. Approved investments of foreign and Filipino nationals in the first quarter of 2018 grew by 52.3 percent, nearly PhP 185.0 billion from PhP 121.5 billion in the same period last year. Filipino nationals shared PhP 170.8 billion worth of investments pledges or 92.3 percent of Data source: PSA the total approved investments during the quarter. Foreign and Filipino projects approved by the seven IPAs in the first quarter of 2018 are expected to generate 33,704 jobs. This is 38.4 percent lower compared with previous year’s projected employment. Out of these anticipated jobs, 66.9 percent or 22,535 jobs would come from projects with foreign interest. Rider Levett Bucknall 2 Construction Market Quarterly Update 2018 Second Quarter | MARKET SUMMARY PHILIPPINE CONSTRUCTION 60 50 Public 40 30 GROSS VALUE ADDED IN Private 20 CONSTRUCTION GVA 10 0 Q1 2015 - Q1 2018 at Constant 2000 -10 Prices, in Percentage -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 Gross Value Added (GVA) refers to the total payment to factors of production, namely: wages, interest, profits and rents. It also includes capital consumption Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 allowance and indirect taxes. It is also estimated by 2015 2015 2015 2015 2016 2016 2016 2017 2017 2017 2017 2017 2018 deducting from gross value of output the sum of Public -13.9 30 54.2 36.4 35.9 31.3 17.6 17.3 2.1 12.2 12.7 21.1 25.1 non-factor cost such as raw materials and supplies, containers and packing materials, fuel, advertising Private 10.2 10.8 3.3 7.0 7.6 8.7 17.8 4.8 13.6 0.6 0.7 1.7 6.8 and other non-industrial overhead cost. GVA 5.1 18.8 9.6 11.6 11.2 11.8 16 9.7 9.7 4.3 4.0 4.3 9.3 Data source: PSA Construction Industry Grows by 9.3% The Construction industry grew by 9.3 percent in the first Construction, which accounted for 20.8 percent of total quarter of 2018 with increases posted by both Private construction investments, expanded by 25.1 percent. Construction and Public Construction. The growth was Moreover, Private Construction, which accounted for slower compared with the 9.7 percent growth recorded 79.2 percent, grew by 6.8 percent. This was slower in the previous year. compared with the 13.6 percent growth in 2017. Investments in Construction grew by 10.1 percent in the first quarter of 2018, albeit slower compared with the 11.3 percent growth in the previous year. Public Construction Activities Rose by NUMBER OF CONSTRUCTION PROJECTS BY TYPE 2.6% First Quarter, Year 2017 and 2018 Construction activities in the country rose by 2.60 30000 25,362 25,670 percent in the first quarter of the year according to the Q1 2018 = 36,002 25000 preliminary data released by the Philippine Statistics Q1 2017 = 35,101 Authority (PSA). Total number of constructions reached 20000 36,002 during the quarter compared to 35,101 recorded 15000 in the same period in 2017. 10000 The surge in construction activities was driven by 5,587 4,997 5000 3,760 3,055 higher building permits approved from non-residential 1,293 1,379 construction and additions to existing structures. Non- 0 Residential Non-Residential Additions Alterations and residential buildings climbed by 11.8 percent from 4,997 Repairs last year to 5,587 this year. The growth was brought Data source: PSA about by the increase in number of constructions of the following: commercial buildings recorded 20.2 On the other hand, residential construction projects percent; and institutional buildings with 13.3 percent. declined by 1.2 percent to 25,632 from 25,670 reported Moreover, combined number of alterations and repairs during the same period in 2017. The following residential of existing structures increased by 23.1 percent from projects showed decrements in number: single-type 3,055 recorded last year to 3,760 this year. houses posted 1.0 percent and apartment/accessoria with 4.9 percent. Rider Levett Bucknall | Construction Market Quarterly Update 2018 Second Quarter 3 MARKET SUMMARY PHILIPPINE CONSTRUCTION TOP 5 REGIONS WITH Region IV-A 8,199 THE HIGHEST NUMBER OF CONSTRUCTION PROJECTS Region VII 4,333 First Quarter 2018 Data source: PSA Region III 3,589 NCR 2,890 Region I 2,762 02000 4000 6000 8000 10000 Region IV-A (CALABARZON) led the list of the top spots with 2,890 projects or 8.0 percent of the total and five regions with the highest number of construction 2,762 projects or 7.7 percent of the total, respectively. projects from January to March 2018. The region recorded 8,199 construction projects or 22.8 percent of Cavite, Cebu, and Batangas led the list of top 10 the total. Region VII (Central Visayas) ranked second provinces in terms of the number of construction with 4,333 projects or 12.0 percent of the total.