CHAPTER 4

INFRASTRUCTURE MANAGEMENT

Chapter 4: Infrastructure Management

Lesson Outcomes:
At the end of the term, the students should be able to;

1. Understand the meaning of Infrastructure management

2. Identify the types of public infrastructure
3. Understand the advantages and disadvantages of public infrastructure investment

Introduction

The Philippines is made up of more than 7,100 islands, making infrastructure

maintenance and development of its roads, rails, bridges, ports, and airports a continual
challenge, as they are the lifeblood for the transport of goods and services for nearly120 million
residents, and are essential to the country’s continued economic growth.

In the decade since the global economic crisis, the Philippine economy has rebounded
with strong growth rates (6.8 percent in 2016) and stable inflation. Foreign direct investment
overall has grown steadily since 2010.v

The country’s debt is rated within the range of BBB (investment grade) by all major
international ratings agencies, a shift from even four years ago when its debt was classified as
“junk.” The manufacturing, agriculture, and tourism industries have helped to drive this growth
and attract the investment.

Unfortunately, deteriorating transportation infrastructure will hamper future growth.

According to the World Economic Forum, the country is well behind other nations in the
ASEAN region. The quality of its roads, ports, rails, and airports is trailing that of Malaysia,
Thailand, and Indonesia.

This translates to billions of dollars in lost productivity, reduced regional competiveness,

less foreign direct investment, and declining tourism as infrastructure declines still further. On
the plus side, however, the government has pushed to make infrastructure investment a national
priority and has pledged greater funding over the next decade, with oversight of the National
Economic Development Authority (NEDA), whose chairman is the country’s president.

Infrastructure Management is the planning, design, delivery and control of the basic facilities,
structures, equipment, services and information technologies that serve as a foundation for
economic activity.

What is Public Infrastructure?

Public infrastructure refers to infrastructure facilities, systems, and structures that are developed,
owned, and operated by the government. It includes all infrastructure facilities that are open to
the general public for use.
Infrastructure includes all essential systems and facilities that allow the smooth flow of an
economy’s day-to-day activities and enhance the people’s standard of living. It includes basic
facilities such as roads, water supply, electricity, and telecommunications.

Examples of Public Infrastructure

1. Transportation infrastructure – Bridges, roads, airports, rail transport, etc.

2. Water infrastructure – Water supply, water resource management, flood management,
proper sewage and drainage systems, coastal restoration infrastructure.
3. Power and energy infrastructure – Power grid, power stations, wind turbines, gas
pipelines, solar panels
4. Telecommunications infrastructure – Telephone network, broadband network, WiFi
services
5. Political infrastructure – Governmental institutions such as courts of law, regulatory
bodies, etc.; Public security services such as the police force, defense, etc.
6. Educational infrastructure – Public schools and universities, public training institutes
7. Health infrastructure – Public hospitals, subsidized health clinics, etc.
8. Recreational infrastructure – Public parks and gardens, beaches, historical sites, natural
reserves

Types of Infrastructure

1. Soft Infrastructure

Soft infrastructure refers to all the institutions that help maintain a healthy economy. These
usually require extensive human capital and are service-oriented toward the population. Soft
infrastructure includes all educational, health, financial, law and order, governmental systems
(such as social security), and other institutions that are considered crucial to the well-being of an
economy.

2. Hard Infrastructure
Hard infrastructure comprises all the physical systems that are crucial to running a modern,
industrialized economy. It includes transport systems such as roads and highways and
telecommunication services such as telephone lines and broadband systems.

3. Critical Infrastructure

Critical infrastructure makes up all the assets that are defined by the government as being crucial
to the functioning of an economy. It includes assets used for shelter and heating,
telecommunication, public health, agricultural facilities, etc. Examples of such assets: natural
gas, drinking water, medicine.

Financing of Public Infrastructure

Public infrastructure is financed in a number of ways, including publicly (through taxes),

privately (through private investments), and through public-private partnerships.

1. Taxation

Public Infrastructure may be financed through taxes, tolls, or metered user fees. Since public
infrastructure is open for use by the general public, the general public pays for the infrastructure
facilities through taxes.

2. Investments
Public infrastructure tends to require high-cost investment projects, the returns on which are also
extremely high. Sometimes, private companies choose to invest in a country’s infrastructure
projects as part of their expansion initiatives.

For example, a power and energy company opts to build railways and pipelines in a country
where it wants to refine petroleum. The investment benefits both the company and the domestic
economy.

3. Public-Private Partnerships (PPPs)

Public-private partnerships (PPPs) are best described as a partnership or an arrangement between

two or more private organizations and the public sector. A public-private partnership is the most
popular means of financing large public sector projects. It helps to spread risks and makes the
economy prosperous by bringing in investment opportunities, opening up employment
opportunities, and increasing the standard of living.

Public Infrastructure Investment

Public infrastructure investments are financed by the government by employing

distortionary funds collected from various sources like taxes, charges, cess, etc. The value of
investments is measured on the basis of policy process critical inputs, cost function, and
aggregate productions. Investment in infrastructure is the tool of anti-recessionary fiscal policy.
When the country’s economy struggles, public economists and politicians, emphasize greater
infrastructure spending as it forms a stimulus for the growth of the economy. However, there is
little practical evidence that proves investment as positive for the economy. Hence there is a
disconnection between political rhetoric and economic reality. Government spending is based on
the Keynesian economics assumption that when the economy is unproductive, it can be revived
back to its full capacity by using public expenditures. Specifically to infrastructure, the
government spends with the belief that involuntarily unemployed persons can be employed to
public infrastructure jobs and receives income, which aids in promoting growth.

Such investments demand high-cost investment projects, which also yields higher returns.
Hence along with the government, some private companies also opt to invest in public
infrastructure projects in order to expand their own business. Such investments are beneficial for
both companies as well as the economy.

Importance

Public infrastructure is important for faster economic growth and inclusive growth that is
shared by the majority of the country. It helps in the alleviation of poverty and reduction in
income distribution inequality. The expansion in its facilities such as roads and road transport,
rural electrification, irrigation promotes agriculture growth and also helps in setting up of agro-
processing industries, which in turn help farmers in fulfilling their requirement of fertilizers, raw
materials, and various other inputs at a feasible rate. Roads help them bring their produce to the
market on which huge profits can be earned. Essential social services like health care and
education, when provided through it also helps in boosting the economy and reaching to the last
person in the community helps in providing equal distribution of services. Adequate
infrastructure facilities also help in expanding trade not only within the country but also promote
foreign trade via improvement in ports and airports.
Advantages

 Helps in ensuring required investment into the public sector and better management of
public resources.
 Public services provided through public infrastructure ensures a higher quality of services
and timely provisions of these services for the public.
 The cost of investment projects are predetermined and are implemented in due terms that
help in eliminating unforeseen expenditures.
 Private sector expertise is utilized in implementing infrastructure projects that help in
delivering a high quality of infrastructure.
 Initial investments in such projects are financed by the public sector and later recovered
by the community as the project profit.
 It helps in boosting the employment rate of the economy as it employees various
unemployed persons for building infrastructure projects at sustainable wages.
 It connects households across all the cities, towns of the country, ensuring a better quality
of opportunities such as healthcare, education, employment, and broadband networks,
etc.

Disadvantages

 Time taken by it to complete is much more than those with private infrastructure.
 The scope of innovation in public infrastructure projects is very low. Public projects do
not come up with innovation in ideas and designs rather follow the old school process in
implementing the project.
 Chances of corruption are more in these projects as the money allotted for the project
may not be wholly used for the project rather gets channelized in between various public
departments that are involved in the implementation of the project.
 Quality in public infrastructure gets compromised as the main aim of the government is
just to provide the service irrespective of the quality and the standard being delivered by
the institutions and infrastructure.

Activity

1. Discuss the importance of public infrastructure management. (10pts)

References

milkeninstitute.org (2021, March 29). Retrieved from

https://milkeninstitute.org/sites/default/files/reports-pdf/112817-Philippines-Infrastructure-FIL.pdf

wallstreetmojo.com (2021, March 29). Retrieved from https://www.wallstreetmojo.com/public-

infrastructure/

corporatefinanceinstitute.com (2021, March 29). Retrieved from

https://corporatefinanceinstitute.com/resources/knowledge/economics/public-infrastructure/