Taiwan Infrastructure Report Q3 2009

Taiwan has been hit hard by the global economic downturn because of its reliance on export revenues. This has fed through into all sectors of the economy, including infrastructure. In BMI’s Q309 Taiwan Infrastructure Report, we are now forecasting a 15% y-o-y contraction in the real industry value in 2009, to reach a nominal value of TWD228bn (US$6.74bn). There has been limited activity in the country’s infrastructure sector, despite the government’s TWD483bn (US$14.4bn) stimulus package, which allocated a portion of funds to infrastructure development. In the transport sector a number of large passenger transport projects progressed. The Taichung Metro project was approved in April, with an increased budget of US$1.52bn, and construction is due to start in October 2009. Construction started in February 2009 on the US$3.5bn airport express train, which will link Taipei with Taoyuan International Airport. The opening up of shipping lines between Taiwan and China is proving beneficial to Taiwan’s port sector, with three major Chinese shipping companies – COSCO, China Shipping Container Lines and China Merchants Group – announcing plans in May 2009 to invest in Kaohsiung port, which is one of Taiwan’s largest. However, more information on this has not been released. In the utilities sector, the lack of clear policy guidelines and limited incentives for private investors in the wind sector was highlighted by Germany’s Infravest Wind Power which stated in April that it would withdraw its additional investment plans in Taiwan's wind power sector for these reasons. Karl-Eugen Feifel, chairman of Infravest, has stated that the company is suspending plans for a further investment of more than EUR500mn (US$667.95mn) over the next five years. The limited activity recorded across the sector highlights the decline in the construction industry over 2009 and is the reason for our aggressive revision of our forecasts for the construction industry. BMI is now forecasting a 15% contraction y-o-y, following a 4.2% contraction estimated in 2008. This contraction is attributable to a variety of factors. Most pertinently, we have revised our forecasting methodology, bringing closer alignment with real capital investment; this is forecast to contract by 15% y-o-y in 2009, feeding into our downward revision. In addition, limited investor appetite and ability combined with reduced demand for infrastructure as well as commercial and industrial property is limiting the number of new projects. Finally the government, suffering from reduced export revenues, a contraction in real GDP and a forecast 4.8% fiscal deficit in 2009, is unlikely to be able to prop up the sector beyond the existing stimulus package. Little evidence of these funds feeding through to activity in the sector has been measured thus far, so we believe it is unlikely to boost the sector until 2010, when growth will reach 5.86% y-o-y.