Foreign Exchange and Its Impact on Construction Costs

The Philippine construction industry is very much affected by the exchange rates, especially the fact that the construction materials, equipment, and technologies are largely imported.

When the Philippine Peso is devalued on the exchange rate with other major currencies, the price of imported materials goes up accordingly, and as a result, project cost also increases. If the Peso is devalued in relation to the US dollar, costs for such materials as steel, cement admixtures, mechanical equipment or some of the technology can rise considerably.

How Foreign Exchange Affects Cost Estimations

When calculating the budget for construction, currency movements must be accounted for with respect to the cost of imported materials.

The Guidebook includes adjustments for currency exchange rates, particularly where there is a significant depreciation of the Peso. For example:

Prices on imported heavy machinery, such as cranes, excavators or special purpose tools are routinely indexed to the US Dollar.

Prices of common metals such as copper, aluminum and steel for construction are the most volatile in the global market. The user is advised to monitor the price movement of these materials.

This guidebook does not guarantee any of the unit prices due to this volatility.

Fuel such as gasoline, diesel and kerosene are also highly affected by foreign exchange swings. Fuel affects the cost of operating heavy equipment thus the reader is advised to monitor and update their assumptions as needed.

We caution the reader in making hedges and guesses on the foreign exchange scenarios unless he has the capacity and knowledge on this matter. We advise that contingencies be put in place to address the risk of forex deviations.