Cost Increases Expected for Infrastructure Projects, Economists Remain Vigilant

Local economists have cautioned that infrastructure projects could be met with cost increases and delays as the ongoing war in Eastern Europe is seen to prompt a shortage of construction materials. Given the circumstances, certain projects in the pipeline may no longer be pursued should the Russia-Ukraine conflict go on, according to University of Asia and the Pacific (UA&P) economist Cid Terosa.

“The war in Eastern Europe will cause supply shortages and price increases in the following construction materials: aluminum, petrochemical and plastics, steel, nickel, copper, coal, and tin,” explained Terosa. “It will raise costs of ongoing projects, but it could put on hold projects in the pipeline.”

Ramon Clarete, former dean of the University of the Philippines School of Economics, echoed similar sentiments and further noted that construction materials may be sourced elsewhere but at higher costs. India is faced with the same circumstances, leading the country to cut metal production due to a coal shortage.

“India is anticipating a slump in world demand for metals due to slowing down of economic growth due to the war in Eastern Europe and the possibility that it spreads to become a third world war not to mention nuclear,” said Clarete. Former Socioeconomic Planning Secretary Romulo Neri also added that the continued price hikes in oil will, likewise, increase infrastructure costs.

The government, however, already has mechanisms to adjust costs, affirmed Neri as he draws from his experience at the National Economic and Development Authority (NEDA). “NEDA is used to getting requests for project cost increases. In fact, there are too many of them,” added the former Socioeconomic Planning Secretary, who expects that the next administration may be met with such requests.

Current Socioeconomic Planning Secretary Karl Kendrick Chua also weighed in on the discussion, noting that the impact of the ongoing conflict on infrastructure will most likely be limited. Chua believes that food and energy prices stand to be affected the most by the Russia-Ukraine conflict.

“Since inflation is estimated around 4 percent by BSP, I do not expect cost increases since usually infra cost factors already moderate inflation,” Chua pointed out. “It (the impact) depends on how slow or fast the war resolves.”

Source: BusinessMirror