CORPORATEContents BRIEFSJune 2018
THE MONTH’S HIGHLIGHTS I.T. UPDATE WORD FOR WORD 51 PH digital competitiveness COMMENTARY drops SPECIAL REPORTS 53 DICT tie-up with Transco, NGCP for broadband plan 20 POLITICAL BUSINESS CLIMATE INDEX
CORPORATE BRIEFS
20 SWS: Filipinos still unaware of INFRASTRUCTURE Federalism 22 Ombudsman indicts Aquino over DAP, Abaya for MRT 65 NAIA Consortium to obtain controversy original proponent status 26 66 WESM starts independent operation
THE ECONOMY 67 Korean firms eye $4.4 Bn in PH energy projects
26 1.5Mn in net new jobs created CONGRESSWATCH in 1H18 45 29 Business, consumer 71 Duterte signs mental health confidence down on higher law inflation 73 House approves 32 BSP raises policy rates anew ‘Telecommuting’ bill 32 Government to sell $1B in 74 Lawmakers support BSP Samurai bonds Charter amendments
77 Asia Pacific Executive Brief BUSINESS 95 Asia Brief contributors 65 45 Pledged investment drops in 1Q2018 48 Harnessing the disruptive force of Industry 4.0 through connectivity
MINING 71
49 Mining sector to slowdown in 2018 Online To read Philippine ANALYST online, go to wallacebusinessforum.com
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Philippine ANALYST June 2018 Philippine
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● To read Philippine ANALYST online, go to wallacebusinessforum.com ● For information, send an email to [email protected] or [email protected] ● For publications, visit our website: wallacebusinessforum.com the month’s highlights 1
Political Business
PRESENT DEVELOPMENTS PAST DEVELOPMENT SWS: Filipinos still unaware of Federalism Pledged investment drops in 1Q2018 Federalism continues to be an unfamiliar and unpopular concept The total foreign investment pledges to the 7 investment for most Filipinos, a recent survey of the Social Weather Stations promotion agencies (IPAs) significantly decreased by 37.9% in (SWS) showed. This poses a huge challenge to President Rodrigo 1Q2018. This is the lowest data reported in 8 years since the Duterte’s grand vision of overhauling the country’s political P13.8 billion recorded in 2Q2010. (see story on p45) system and shift it to a federal form before the end of his term in 2022. (see story on p20) FUTURE DEVELOPMENT Ombudsman indicts Aquino over DAP, Abaya for MRT Harnessing the disruptive force of Industry 4.0 through controversy connectivity Ombudsman Conchita Carpio-Morales has found probable cause Compared with the previous industrial revolution, the 4th to indict 2 high-ranking officials from the previous administration Industrial Revolution is evolving at an exponential rather than – Former President Benigno Aquino III and Former Department a linear pace, and digital connectivity is the key to harness its of Transportation (DOTr) Secretary Joseph Emilio Abaya – over full potential. (see story on p48) 2 separate controversial cases that occurred during their term. (see story on p22) Mining
Economy FUTURE DEVELOPMENT Mining sector to slowdown in 2018 PRESENT DEVELOPMENTS The Philippines’ mining sector is seen to slow down this year due 1.5Mn in net new jobs created in 1H18 to the impact of Tax Reform for Acceleration and Inclusion (TRAIN) The April 2018 (2nd quarter) labor force survey reported that on mining operations, self-imposed closures, and uncertainty employment had reached 40.87 million, an increase of 570,000 in policies, the Mines and Geosciences Bureau (MGB) said. It over a 12-month period. But the January 2017 to January 2018 was also reflected on the low value of the country’s metallic (see story on p49) net job creation of 2.41 million meant that, on the average, production in 1Q2018. 1.49 million in net new jobs were created in 1H2018. The 2nd highest during the 21st century after the 1.69 million posted IT Update in 2016. (see story on p26) PRESENT DEVELOPMENTS Business, consumer confidence down on higher inflation PH digital competitiveness drops Business confidence has continuously drifted down since reaching its 3rd highest point in 4Q2015, while consumer confidence The Philippines continues to be lackluster in terms of digital dipped from their year-ago levels, according to the Bangko competitiveness performance. This is according to International Sentral ng Pilipinas (BSP) expectations survey conducted in Institute for Management Development’s (IMD) latest report 2Q2018. (see story on p29) and released in the country with its local partner, the Asian Institute of Management Rizalino S. Navarro Policy Center for BSP raises policy rates anew Competitiveness. (see story on p51) The Bangko Sentral ng Pilipinas (BSP) or central bank raised its DICT tie-up with Transco, NGCP for broadband plan policy rates for the 2nd time this year on June 20 in an effort to temper inflationary pressures. (see story on p32) Despite the initial dispute, the Department of Information and Communications Technology (DICT) has partnered with the FUTURE DEVELOPMENT National Grid Corporation of the Philippines (NGCP) and the National Transmission Corporation (TransCo) for the utilization of Government to sell $1B in Samurai bonds spare optical fiber to boost the implementation of the National The government plans to float $1 billion worth of yen- Broadband Plan (NBP). (see story on p53) denominated bonds, or more popularly known as Samurai bonds, sometime in the 3rd or 4th quarter of this year, its third fund- raising exercise in the international capital market in 2018. (see story on p32)
Philippine ANALYST June 2018 2 the month’s highlights
Infrastructure CongressWatch
PRESENT DEVELOPMENTS PRESENT DEVELOPMENTS NAIA Consortium to obtain original proponent status Duterte signs mental health law The group of the country’s 7 conglomerates that offered to rehabilitate the Ninoy Aquino International Airport (NAIA) is set to President Rodrigo Duterte has signed a landmark legislation on obtain original proponent status (OPS) for its proposal following mental health which intends to protect the rights and welfare of a recommendation made by the Department of Transportation both mental health patients and professionals. (see story on p71) (DOTr). (see story on p65) House approves ‘Telecommuting’ bill WESM starts independent operation The House of Representatives has approved on 3rd and final reading the Telecommuting Act which allows private sector The wholesale electricity spot market (WESM) is now under an employees to work outside the office through telecommuting. independent market operator (IMO), nearly 20 years after the Its counterpart measure at the Senate has also been approved Electric Power Industry Reform Act of 2001 (EPIRA) mandated on 3rd and final reading. Both bills are now up for bicameral its transition to an IMO. (see story on p66) committee approval. The proposed measure’s ultimate goal is to promote employees’ right to work-life balance and flexible FUTURE DEVELOPMENT work arrangement. (see story on p73) Korean firms eye $4.4 Bn in PH energy projects FUTURE DEVELOPMENT Four Korean firms plan to invest a total of $4.4 billion in various energy projects in the Philippines. (see story on p67) Lawmakers support BSP Charter amendments Lawmakers are pushing for the swift passage of a bill amending the charter of the Bangko Sentral ng Pilipinas (BSP) or central bank. The proposed bill strengthens the country’s monetary authority and gives the central bank more flexibility in regulating and managing the Philippines’ financial system. Once enacted, the measure would broaden the central bank’s examination authority to include banks’ and quasi-bank’s subsidiaries and allow full flexibility to enable the BSP to conduct risk-based supervision. (see story on p74)
Philippine ANALYST June 2018 CORPORATE BRIEFS 3
wordfor word
“Let me underscore that great countries do not need strongmen. They need strong institutions. Great men eventually perish, but great institutions outlast them all.”
Ombudsman Conchita Carpio-Morales on the importance of institutions such as the Office of the Ombudsman.
“We cannot afford a war at this time because it will result in a massacre. I am not prepared to lose my soldiers and policeman for a simple adventurism. If I do that, either I am inviting trouble within my country or the military and police will oust me.”
President Rodrigo Duterte on the criticisms against his administration’s response to Chinese militarization at the West Philippine Sea
“For us to leapfrog and to be in the top 20 percent in 2020, we cannot do these incremental changes. We really have to think differently, change mindsets. We need drastic changes and forget and scrap old ways of doing things.”
DTI Secretary Ramon Lopez on the country’s ranking in the Ease of Doing Business Survey of the World Bank.
“If China successfully solidifies its presence within its 9-dash line, the Philippines will lose effective control over its exclusive economic zone, which is larger than the land area of our country. This is why China’s encroachment on Philippine territories is the most serious external threat to our country since the Second World War.”
Vice President Leni Robredo on China’s continuous militarization in the West Philippine Sea.
“Heads will roll. Big names, small names, past and present. There will be no sacred cows.”
Health Secretary Francisco Duque III on the alleged billion-peso irregularity in the DOH’s barangay health stations project.
“I have to be consistent with my position that quo warranto is not the proper way to remove a sitting member of the Court. So I don’t want to benefit from the decision to which I disagreed.”
Acting Chief Justice Antonio Carpio on declining any nomination for chief justice.
“Help is here. No longer shall Filipinos suffer silently in the dark. Mental health issues will now cease to be seen as an invisible sickness spoken only in whispers. Finally.”
Senator Risa Hontiveros on the signing of Philippine Mental Health bill into law.
“Even they indicated that this might be the beginning of our invasion. Please allow me to be blunt: It’s nonsense. We have never thought of going to war with our good neighbor, our good friend that is the Philippines.”
Chinese Ambassador to the Philippines Zhao Jianhua on claims that the recent landing of a Chinese government plane in Davao City is a threat to the country’s sovereignty.
Philippine ANALYST June 2018 4 COMMENTARYCOMMENTARY
Political Ain’t broke
f it ain’t broke, don’t fix it. Jun Abaya, as former Secretary of the Department of Transportation and Communications, could have well taken that to heart. MRT-3 was working just fine until they decided to “save money” and shift Ifrom a proven, competent maintenance supplier to a highly questionable one (page 22). Former President Benigno Aquino III, and his Department of Budget and Management (DBM) Secretary Butch Abad avoided one, simple step — and ended in trouble.
The Ombudsman, Conchita Carpio-Morales has indicted both groups for violation of their responsibility.
Mr. Aquino’s case is fairly simple. The Constitution mandates that the national budget be approved line-by-line by Congress. And cannot be unitalerally altered. However, what Aquino and Abad did is something we in business would do without a thought. They moved funds from projects that weren’t moving, or were unprofitable to more deserving ones. The problem is they didn’t ask the approval of Congress before doing it. Had they, there’d be no problem. They didn’t so there is.
Adding to their pain is that they released P50 million to Senators while they were impeaching former Chief Justice Renato Corona. They claim innocent release for identified programs and projects. It’s a damning timing coincidence that Morales wants investigated in court.
For Mr. Abaya (his predecessor Mar Roxas is not included), it came down to not renewing the maintenance contract with Sumitomo-Mitsubishi and awarding it to a newly-formed corporations that was not technically legally or financially capable to do the job. The disaster of MRT-3 since then comes from this maintenance shift by Mr. Abaya. The riding public are unlikely to complain at Morales action.
Morales was appointed by Aquino so this is an independence of action that speaks well of her. She retired July 26.
Philippine ANALYST June 2018 6 COMMENTARY
Political What is it?
WS says 75% of adult Filipinos don’t know what federalism is (page 20). I guess their education wasn’t too well-rounded. What’s amusing is that SWS asked what was their opinion on it, then measured it. They found that 37% agree with Sit, and 29% disagree. Needless to say, awareness was higher the higher the education. And Muslims were more aware — that comes from the desire to be independent that the Bangsamoro Organic Law is addressing.
But the bottom line is, does it matter? Frankly, it doesn’t, at least not yet. The public isn’t involved in the review of the constitution, which is where federalism will be addressed. It’s politicians, leaders in society, activists who’ll be the deciders. The public are only called in at the end, to vote.
That’s one of the greatest weaknesses of democracy—people not knowing the issue they are voting on, look at Brexit. Or not knowing the people, try Trump. So, education is needed before the plebiscite on a new constitution — if it gets that far. Still likely, but less certain than it was given the growing questions on what federalism would entail including its political and financial costs. The President hasn’t changed his stance, so the pressure will remain, but more and more are questioning it.
Philippine ANALYST June 2018 COMMENTARY 7
Business Going the wrong way NNo, not what jeepneys do, but what the digitalization of the country is doing, or not doing more correctly. Former President Benigno Aquino III, after endless persuasion and badgering, finally in his last weeks signed into law the creation of a Department of Information and Communications Technology (DICT). Since then, under Pres. Rodrigo Duterte, such a Department has been formed, manned and put into operation. And it has achieved much within its own sphere. But its own sphere is not enough, all departments must cooperate, including Local Government Units (LGUs).
Therein lies much of the problem. Too few in government are ready to throw paper away and move fully on-line. You, too often, still need a paper form, or receipt even when you do transact on-line.
The International Institute for Management Development (IMD) has ranked the Philippines 56th amongst 63 countries, and 3rd last in Asia for digital competitiveness (page 51). That is DOWN 10 places from a year ago when obviously it should be up. The country, equally obviously, is not getting its act together.
The new Ease of Doing Business law passed this month should help — if it is forcefully fully implemented (see my column Hope to reality). However much more than this needs to be done.
But there’s much more, the worst factor was Technology at 58 (from 51), the investment is just not happening. And the people aren’t there, they’ve gone into law.
Not unexpectedly, communications technology (62nd up a bare one from being the worst) and internet bandwidth speed (61) were terrible. But what surprised me was that the Capital sub-factor, the effectiveness of banking and financial service and availability of venture capital, dropped from 29 to 43. I’m not aware of anything that has happened that would justify this. Venture capital may be a bit difficult to get, but otherwise the Philippines has a sound, healthy banking and finance system.
The future is digital, the Philippines isn’t adequately preparing for it.
Philippine ANALYST June 2018 8 COMMENTARY
Congresswatch Stay home You sometimes wonder. Do politicians understand human activity? They are about to pass a bill (page 73) that allows employees to work from home. Good, given today’s horrendous traffic, with 4 or more hours lost daily just commuting it makes great sense to stay home. It also recognizes the presence of the internet, you just don’t have to be physically present any more now.
So, allow employees to work from home where the type of work allows, is very sensible. But it sets conditions, one of the silliest is to pay for overtime and nighttime work. Firstly, how would you know if they worked? The temptation to cheat would be enormous. Secondly, why would you set fixed 9-to-5 terms if you’re at home? Surely the solution is extraordinarily simple, did they do the job? Performance should be the measure of payment. That doesn’t need a law.
They are required to have the same or equivalent workload and performance standards set as are required of those in the office. Why on earth does that need a law? Surely, management can decide in this, they may require quite different work from home workers, and why not? As long as a fair salary is paid, and that is determined as it is for office workers by needing to pay a salary that will get people to work for you.
As a responsible manager I wouldn’t do it, but an employee might be quite willing to receive less for the same job given the convenience and comfort of staying home. And given the less cost — no transport, no outside meals to pay for, or attractive clothes (who cares what you wear at home).
The law insists you must receive appropriate training. Why on earth would you employ someone, and not train them? Does that really need a law?
The Department of Labor and Employment is mandated to plot-test the program for 3 years.
Am I missing something here, why does where a worker works need a law. I have employees working from home right now. In my business, where you are doesn’t matter, what you do does. It doesn’t need a bureaucratic law.
Philippine ANALYST June 2018 10 SPECIAL REPORT
75 trucks
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 28 June 2018
hat’s how much garbage people left behind after the Black Nazarene procession in January. They Tcan bring their food and drinks, but they can’t take the containers home. I’m sure Christ would be horrified. This is a national disease. Everywhere you go there’s rubbish, there’s filth. There’s a cesspool. We have people, Christians no less, who couldn’t (let me be blunt) give a shit about their environment, and others.
Wherever you go overseas, the first thing that strikes you is how clean the cities are. The first thing that strikes you as you exit Ninoy Aquino International Airport is how filthy Manila is.
But there are a few exceptions. Puerto Princesa is one I know of, and I’m sure there are a few more— “few” the operative word. A survey by the environmental group Greenpeace ranks the Philippines the “third-worst polluter of the world’s oceans” after China and Indonesia.
If we do not change our ways, soon there will be more plastic in the ocean than fish. That’s according to United Nations Secretary General Antonio Guterres, who warned: “Every year, more than 8 million tonnes [of plastic] end up in the oceans. If present trends continue, by 2050 our oceans will have more plastic than fish.”
Let’s start at school. If the parents don’t care about proper waste disposal, maybe the more idealistic and caring kids could be taught about it. But let’s not wait till they become responsible adults; let’s also not give up on the existing adults. Let’s turn them into responsible citizens now.
I wrote about this way back in 2012, and several times since, with no impact. In my May 19, 2016 column “A clean Philippines”, I said: “Declare a clean Philippines campaign”. There was no reaction—until now. Senate President Tito Sotto has expressed great interest in the concept, and said he will suggest it for Quezon City to adopt as a model.
Philippine ANALYST June 2018 SPECIAL REPORT 11
We could start a Cleanliness Program by doing what Rwanda did: have a “Clean Up Day”. We have far too many holidays, so adding another day off isn’t too desirable. But for a greater cause, it’s worth doing. Let’s have one day where everyone goes out to clean their neighborhood. It’s a dramatic way to get cleanliness into the mind of the public.
A key action that could result in major change is providing enough garbage bins—basurahan—around. Where are they? Even in malls, I have to search for them. Elsewhere, they just don’t exist. Companies will provide them freely, if they could put their ads on them. And let’s have a competition, too, for the most artistic ones. Give our poorly treated artists a little recognition.
Companies will bid aggressively to be the garbage collectors. And if Congress has any sense, it will reverse the poorly thought out Clean Air Act (RA 8749) and allow the use of incinerators, as long as the emissions are below internationally accepted limits. Properly designed incinerators can be clean. Let engineers design them, instead of politicians blocking them.
This newspaper’s editorial last week (June 21) raised the issue, too; maybe it’ll have more impact than I seem able to achieve. As it pointed out, all that trash—the equivalent of 400 truckloads in just one clean- up—also creates flooding. If you were stuck on EDSA last Friday, as I was for 2 hours unmoving, wouldn’t you demand people to stop clogging our waterways?
But it’s not only the careless user who is culpable, it’s the supplier, too, as the editorial explained. Almost everything we buy today is in a plastic blister pack or sachet. Nestle has addressed this, not by moving to another product (that doesn’t readily exist) but by reusing the plastic. It shreds the material and makes it into, would you believe, hollow blocks that are said to be stronger than the rubbishy ones you buy here. (I can show you walls where the hollow block has disappeared, with only the cement poured into its holes remaining.)
You can send your empty sachets and buy hollow blocks from Green Antz, the social enterprise that is spearheading this recycling.
Let’s have a competition, with prizes. Filipinos love competitions and worship prizes. The cleanest barangay, the cleanest town, the cleanest city, the cleanest province will be recognized. Then an overall winner will be chosen. An annual gala night with prizes and videos and stars will be held. And the President will hand out the awards.
And let’s have families who are given conditional cash transfers spend a day or two a week to earn that handout by doing community service cleaning up and beautifying their community.
Cleanliness is next to godliness, isn’t it?
Philippine ANALYST June 2018 12 SPECIAL REPORT
Health is wealth
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 21 June 2018
hy is it that we all agree that good health is essential (you can’t do much when you’re sick), yet Wwe don’t give it the attention it must have? Universal health care, the goal of administrations in all countries, has been very rarely achieved. And availing of it for free, or at least at affordable rates, remains very much a dream.
Here, it’s no different. PhilHealth, the primary source of paying for health services, is poorly managed, badly run and seemingly unable to efficiently handle the funds allocated to it. In 2016 (latest official data available), because of the sin taxes, PhilHealth garnered an additional P31 billion, giving it a total of P134.8 billion (on the back of P103.8 premium contributions collected in 2016) to spend on 93.4 million beneficiaries. The PhilHealth 2016 report showed that P101.8 billion was spent on reimbursements or payment of services. That left P33 billion unspent.
Many hospitals are in poor shape and undermanned. They need more equipment. The good hospitals are privately run; only a handful of government hospitals are good in any way.
Then there’s medicine and the ability to pay for them. That’s the key phrase — “ability to pay.” It’s not the price, it’s “can I afford it?”
The answer, too often, is “no”. But, while we don’t want to pay for medicines, it’s a forced necessity. So the solution clamored for is to force lower prices, but that isn’t the solution. It may lead to lower prices for a while, but it will lead to no new drugs in the future.
You may die of cancer, but your kids won’t—if the pharmaceutical companies can spend the billions of dollars necessary to find a cure. But those billions have to come from somewhere, and they come from the prices of drugs today. We are paying for better health for our children, even better health for us.
Philippine ANALYST June 2018 14 SPECIAL REPORT
Simply forcing a reduction in prices doesn’t work. It was tried during the Arroyo administration when a law was passed. Five years later (September 2013), a study was conducted by the Philippine Institute for Development Studies (PIDS) funded by the Department of Health. Titled “The Impact of Cheaper Medicines Act (CMA) on Households in Metro Manila: A Qualitative Study”, it was principally written by Dr. Eleonara de Guzman.
The study stated: “The Cheaper Medicines Act does not seem to have resulted in significantly reducing the financial burden of medicine costs among households. Respondents from all socioeconomic classes claimed that their expenditures for medicines were still heavy. The law has had little effect on low income respondents (Class DE) who rarely buy branded medicines, but avail themselves of free medicines from government health centers or purchase low-cost generics.”
Despite that failure, there’s a new attempt by Rep. Ferjenel Biron to pass a law to again control prices. If passed, it would likely fail as well. Why would a manufacturer sell at a loss or no profit here, when he can sell at a profit somewhere else? He’ll just withdraw the drug from the Philippine market. And don’t say the manufacturers are being heartless; it’s not their role to be philanthropic. They’d soon go into bankruptcy if they did much of that.
Blame the politicians who want to get reelected through popular decisions, regardless of the feasibility of their promises.
The solution to drug prices is already here. It’s generics. You can buy generics at a fraction of the cost of branded drugs. Or you can turn to PhilHealth. Since the poor can’t afford drugs at any price, such drugs must be given free. That’s where PhilHealth comes in; it can buy in such huge volumes that it can negotiate very favorable prices.
Which brings me to the inoculation hysteria over Dengvaxia created by irresponsible people. You can put the head of the Public Attorney’s Office at the top of the list, but there’s also the media looking for headlines. And some politicians wanting the same.
Well, Dengvaxia works. What is particularly damning about those people is that their irresponsibility has led to the known deaths of 12 kids. Kids whose moms wouldn’t let them be vaccinated for measles because of the scare created over Dengvaxia.
No drug is perfect; all drugs have some side effects in some people to varying degrees. In some cases, people can die from taking a particular drug. What you have to look at is the numbers. Emotionalism should play no part. Dengvaxia and other vaccinations save far more people from illnesses and deaths compared to the few that succumb to their unintended side effects.
Philippine ANALYST June 2018 SPECIAL REPORT 15
Strictly limit NFA’s role
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 14 June 2018
here have been growing complaints about inflation, how everything is costing more and people are suffering. TYet one simple thing we in the economic world have been complaining about for years remains unresolved. Every Filipino eats rice, large amounts of it at every meal, every day. Some restaurants even offer unlimited rice to lure more customers (a very unhealthy thing to do). An average Filipino consumes about 110 kilos of rice a year versus the global average of 65 kilos, almost double.
And the price of rice has risen, some 9% just this year. The cheapest rice costs P39 per kilogram. In Thailand it costs P19 per kg, in Vietnam P17 per kg.
Filipinos are being penalized by a policy based on 2 wrong precepts: An estimated 2.4 million rice farmers should be protected over about 104 million Filipinos who eat the staple, and that the Philippine government knows best how to manage the sale of rice.
Rice is not efficiently grown in the Philippines. It’s much more expensive to grow it here. Data from the Philippine Statistics Authority reveal that an average Filipino rice farmer shells out P12 to P13 to produce a kilo of rice. In Vietnam, it’s P6 to P7 per kilo, and P8 to P9 per kilo in Thailand and India.
The basic problem is the National Food Authority (NFA). It should not be involved in controlling the market; it does a lousy job, as its more than P160-billion debt abundantly demonstrates. We, the people, will have to pay that debt.
The NFA’s functions need to be rationalized. It’s been more than adequately proven that free, open markets work best. If we allowed open entry of rice, Filipinos could pay what the Thais or Vietnamese do.
But to be realistic about it, that’s a bit too drastic. So imposing a reasonable tariff would be a reasonable compromise. If that were done, rice prices, according to the National Economic Development Authority, could fall by P7 per kg. You’d pay between P30 to P32 per kg. I’m not too worried about putting some rice growers out of business, they can move to other more profitable, high-yielding crops.
Philippine ANALYST June 2018 16 SPECIAL REPORT
To do that legally, we need the Rice Tariffication bill filed by Sen. Ralph Recto, which would strike out the provision in Republic Act 8178 or the Agricultural Tariffication Act that exempts rice from tariffication. The bill would also remove the commercial functions of NFA, thus barring the agency from selling rice. The agency would then just focus on ensuring that the country has sufficient buffer stock.
The bill also mandates the creation of a Rice Competitiveness Enhancement Fund (RCEF) that would be generated out of the tariff revenues of rice imports. The RCEF would support rice farmers, particularly those that will be displaced by the removal of the quantitative restriction (QR). The fund would also finance programs that will modernize the rice industry and hence improve production efficiency.
Sen. Recto noted that about 17% of palay harvest is lost to inadequate post-harvest facilities and practices every year, resulting in wastage of about 2.5 million metric tons of rice. That volume is sufficient to cancel annual rice imports, or meet Metro Manila’s annual rice demand.
Its counterpart bill has been filed at the House of Representatives. Unfortunately, both measures are still pending with their respective committees. President Rodrigo Duterte should certify the measure as urgent.
Lower prices will help the one group we most want to support, the poor. Some 31% of the daily food spending of the poorest 20% of Filipino households is set aside for rice. A P7 saving would lead to a dramatic improvement in their lives. It would lessen malnutrition as kids get more rice, or consume more fish, fruits and vegetables that their families can’t otherwise afford.
Lower rice prices will play a crucial role in reducing the ranks of Filipinos living below the poverty line. At present, about 21% of the population is poor, way higher than Indonesia’s 10.6%, Thailand’s 10.5% and Vietnam’s 9.8%. Cheaper rice would enable more people to purchase other necessities.
Doing this would also reduce the inflation to below 4% by the latter part of 2018. It’s a no-brainer. Getthe government out of the market. Congress can do it with one simple act. Pass the Rice Tariffication bill now, and give consumers a break.
Philippine ANALYST June 2018 18 SPECIAL REPORT
TRAIN is not to blame
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 7 June 2018
People are worried about the rising prices of things they buy—and it is a concern. But the Tax Reform for Acceleration and Inclusion (TRAIN) Law is not the primary reason. So blaming TRAIN or, worse, Pcanceling it won’t reduce inflation. It certainly won’t roll back prices. It would just result in a lack of the infrastructure and better social services we urgently need.
It might seem I’m harping too much on TRAIN, but this is a major reform that has to be done. Quite simply, it will make the Philippines a more attractive place to invest. That will mean more jobs, and more money to pay for better jobs.
Because of TRAIN, there will come a time when you’ll be able to get to work in under an hour. With TRAIN, government can afford free education for your kids, and healthcare for you and your family. Without TRAIN, it can’t, or must go into debt that will threaten the country’s fiscal stability. To stop TRAIN now would be a mindless mistake.
TRAIN only added 0.4 percentage points to the 4.5% inflation in April; that’s when people started to complain about rising prices. But those who have a job and earn P250,000 and below per year now pay no tax, when before they did. Those earning more now pay less, and so can afford some higher prices.
The poor buy very little, and almost all of what they buy is not taxed under TRAIN. To cover the little that is impacted, they now get P200 per month to cover that increase. That costs the government P2.5 billion.
Rice accounts for around a fourth of the poor’s budget — a significant portion. And the price of rice has gone up by around 10% compared to prices a year ago. That (or a miniscule amount at most) was not due to TRAIN. It was due to the National Food Authority’s admission of low rice inventory, which raised unnecessary panic and, with it, prices. If the NFA can be taken out of the trading of rice, as I’ve long argued, and a reasonable tariff applied in an open market, the price of rice will go down.
Philippine ANALYST June 2018 SPECIAL REPORT 19
Fish is in short supply due to weather-related factors that contributed to low productivity, so prices have risen. Vegetables, meanwhile, account for 5 to 7% of the poor’s budget. All these products are exempt under TRAIN. As is 3-in-1 coffee, which most of them consume.
Their electricity comes under the lifeline program. Poor households consuming less than 100 kwh per month don’t pay as they are subsidized by the government.
The energy department has already made arrangements with oil firms to provide discounts to public utility vehicles, while the transportation department is finalizing guidelines for subsidies and vouchers for franchised public vehicles. They need to move faster on this, though.
TRAIN has, indeed, increased the cost of some things. Cigarettes, for instance (which raised P3.7 billion toward a better life for all of us). But are we going to complain about that? Or sugary drinks (at P2.5 billion)?
The only one that can be questioned is fuel. The TRAIN Law applied an excise tax of between P2 and P3 on gas and diesel. The real blame, though, lies with international oil prices and the depreciating peso. These have caused crude oil prices to rise by P7 to P10 per liter — triple the impact of TRAIN.
The poor don’t spend directly on gas or diesel. They walk, or might use public transportation. There have been no fare increases for tricycles or jeepneys, although there are calls for such fare hikes.
Let’s put the blame where the blame lies: international price movements, supply shortages and unscrupulous, even heartless traders using TRAIN as an excuse.
Don’t get me wrong, I’m as sympathetic as anyone to the plight of the poor. And I’ve fought for their betterment for years. But I also look at facts dispassionately. I try to avoid emotionalism. The facts are that the poor are not negatively impacted by TRAIN, except in a very minor way.
As for the rest of us, inflation has always been among the top concerns of the public, regardless of the inflation rate. But net incomes have risen to help cover that rise.
The bottom line is, almost everyone will benefit from TRAIN as the infrastructure we desperately need gets built. Even in the short term, the poor get their cash transfer, and the middle class gets more take- home pay.
Stopping TRAIN won’t solve anything.
Philippine ANALYST June 2018 20 POLITICAL
SWS: Filipinos still unaware of Federalism Federalism continues to be an unfamiliar and unpopular concept for most Filipinos, a recent survey of the Social Weather Stations (SWS) showed. This poses a huge challenge to President Rodrigo Duterte’s grand vision of overhauling the country’s political system and shift it to a federal form before the end of his term in 2022.
ased on the SWS 1Q2018 Survey, only 1 out of 4 (25%) adult Filipinos nationwide know what the federal system Bof government is all about. The remaining 75% are not aware of it and only learned out about it during the conduct of the survey. Net support for federalism was “very strong” +35 among those who previously knew it compared to the “neutral” -2 among those who did not know it prior to the survey. Overall, the sentiment of Filipinos on federalism is “neutral.” Only 37% of Filipinos agree with federalism (14% strongly agree while 23% only somewhat agree), 29% disagree with it (17% strongly disagreed while 12% somewhat disagreed), and 34% were undecided on the issue, yielding a net agreement score of +7 (% agree minus % disagree). The low awareness of the federal form of government is reflected across the country. In terms of geographic distribution, In terms of religious affiliation, awareness on federalism the highest awareness was recorded in Mindanao at 37%, was highest among Muslims at 51%. This supports the earlier followed by Metro Manila at 28%, Visayas at 22%, and Balance finding that federalism awareness was highest in Mindanao Luzon at 20%. As expected, a “very strong” agreement on since 93% of the entire Islamic population of the country resides federalism was also received in Mindanao at +43. However, in this island. This was followed by Iglesia ni Cristo (INC) the net sentiment was “neutral” for the rest of the county with (37%), other Christian groups (32%), and Catholics (22%). Metro Manila at +7, Visayas at +2, and Balance Luzon at -8. Net support for a federal form of government was “very Awareness on federalism was also found to increase with strong” among Muslims at +47. However, this system the level of educational attainment. The highest awareness of government was not so well received among other was recorded among college graduates at 53%, followed religious groups which recorded neutral net scores – other by high school graduates (26%), non-elementary graduates Christian groups at +9, Catholics at +4, and INC at +2. (17%), and elementary graduates (16%). Net support on federalism was also “moderately strong” among college graduates at +27 but it was “neutral” with the rest of the group.
Only 1 out of 4 (25%) adult Filipinos nationwide know what the federal system of government is all about. The remaining 75% only found out during the survey.
Philippine ANALYST POLITICAL June 2018 POLITICAL 21
Overall, the net sentiment of Filipinos on federalism is +7 which is considered “neutral.”
Awareness on federalism was also found to increase with the level of educational attainment.
Results of the SWS survey proves that the Duterte administration still has a lot to be done when it comes to educating the public about federalism.
DETAILS OF THE 1Q2018 SWS SURVEY
ABOUT THE SURVEY: According to the metrics used by SWS, net agreement with +50 and above are considered “extremely strong;” +30 to +49 as “very strong;” +10 to +29 as “moderately strong;” +9 to -9 as “neutral;” -10 to -29 as “moderately weak;” -30 to -49 as “very weak;” and -50 and below as “extremely weak.”
The SWS poll was conducted from March 23-27, 2018 through face-to-face interviews of 1,200 adults aged 18 years and above nationwide. It has a sampling error margins of ± 3% for national percentages, and ±6% for Balance Luzon, Metro Manila, Visayas and Mindanao.
Philippine ANALYST POLITICAL June 2018 22 POLITICAL
Notably, the SWS also identified the relationship between agencies with low levels of obligations as of June 2012. Filipinos’ opinion on federalism and their trust and satisfaction with According to the resolution, Mr. Aquino and Former Budget Pres. Duterte. Those who have much trust in Pres. Duterte (76%) Secretary Florencio Abad showed a “joint purpose and design have “very strong” support for a federal system of government to encroach on the powers of Congress by expanding the at +17 but those who have little trust (10%) have “moderately meaning of savings” to fund programs under DAP. It added weak” agreement to federalism at -26. Filipinos who are that the former President cannot escape accountability since undecided with their trust in the President have also “moderately without his approval, NBC 541 would not have been issued. weak” support on the proposed system of government at -19. Ombudsman Morales explained that Mr. Aquino gave Filipinos who are satisfied with Pres. Duterte’s performance his approval through the marginal notes he wrote on (70%) also has “very strong” approval of federalism at several expenditure items and approval page, showing +19 while those who are dissatisfied have “moderately that a discussion happened between the 2 officials and weak” support on the proposed system. There is also not the mere reliance of a superior on a subordinate. “moderately weak” support on federalism among Filipinos Introduced in October 2011, the DAP was a reform who are undecided with the President’s performance. intervention which tapped on the President’s power to use Aside from the war against illegal drugs and criminality, savings and unprogrammed appropriations to fund high impact a shift to a federal system of government is one of the pillars programs and projects on infrastructure and social services. of Pres. Duterte’s campaign and agenda for the nation. From 2011-2013, Mr. Aquino approved 116 programs and Proponents of federalism argue that the current unitary projects worth P144.38 billion to be funded through DAP. system of government produced uneven economic growth and The Aquino administration implemented DAP to development across the regions of the country since resources address slow public spending and consequently, slow and power are largely concentrated in “Imperial Manila.” economic growth. Notably, from January-September 2011, Time is critical for Pres. Duterte and his allies since they government disbursements decreased by 7.3% year-on-year target to hold the plebiscite for the draft federal constitution and shrank below target by 16.1%. This resulted to a slow being crafted currently by the 22-member Consultative economic growth of 3.6% in the first 3 quarters of 2011. Committee chaired by Former Chief Justice Reynato Puno, However, DAP became a controversial subject in 2013 during the midterm elections in 2019. Once approved, a 3-year after Senator Jinggoy Estrada revealed in a privilege speech transition period will commence with the elections of new that some 20 senators received at least P50 million funds set of public officials under the new system slated on 2022. each for the conviction of former Chief Justice Renato However, the results of this recent SWS survey proves Corona during his impeachment trial. Mr. Abad confirmed that the Duterte administration still has a lot to be the release of funds to legislators but argued that it came from done when it comes to educating the public about the the DAP to fund programs and projects they have identified. concept of federalism, let alone explaining its benefits Interestingly, the revelation of DAP came during and pitfalls. The government cannot ask an uninformed the height of the Priority Development Assistance Fund public to vote on an unfamiliar concept such as federalism. (PDAF) or pork barrel scandal which implicated several Massive changes to the political, economic, and social system legislators. DAP was likened to the pork barrel scheme. of the country such as this federalism project requires a careful and This led several groups to file petitions before the Supreme transparent process. And it starts with a conscious and determined Court (SC) to question the constitutionality of DAP. In effort from the government to educate its citizens about this proposal. 2014, the SC declared 2 acts under DAP as unconstitutional: a. Declaration of unutilized appropriations as savings; and Ombudsman indicts Aquino over DAP, Abaya b. Transfer of savings from the Executive branch to augment the appropriations of offices outside the Executive. for MRT controversy Meanwhile, the Ombudsman also charged Former DOTr Sec. Abaya and 16 other former officials and private respondents Ombudsman Conchita Carpio-Morales has found probable of graft for the violation of Section 3(e) of Republic Act (RA) cause to indict 2 high-ranking officials from the previous 3019 or the Anti-Graft and Corrupt Practices Act in connection administration – Former President Benigno Aquino III and with the controversial MRT-3 maintenance contract (see Table Former Department of Transportation (DOTr) Secretary on List of Indicted Individuals over MRT deal controversy). Joseph Emilio Abaya – over 2 separate controversial cases Based on the findings of the Special Panel of Investigators, that occurred during their term. Sec. Abaya and other officials gave unwarranted benefits, advantages, and preferences to the MRT-3 maintenance The Ombudsman charged Mr. Aquino of usurpation contractor, Busan Joint Venture (JV), which turned out to be of legislative powers under Article 239 of the Revised an ineligible and unqualified entity (see Chart on Timeline: Penal Code (RPC) in connection with the Disbursement Awarding of the MRT-3 Maintenance Contract). Busan JV is Acceleration Program (DAP) controversy. The case will the entity composed of Edison Development and Construction; be filed before the Sandiganbayan (anti-graft court). Tramat Mercantile Incorporated; TMI Corporation, Inc.; Castan The case against Mr. Aquino stemmed from the alleged Corporation; and Busan Universal Railways, Inc. (BURI). unlawful issuance of National Budget Circular (NBC) It was also concluded that Busan JV was not technically, No. 541 which authorized the implementation of DAP legally, and financially capable to undertake the P3.8 billion, worth P72 billion coming from unobligated allotments of 3-year maintenance deal. This constituted a clear violation of Philippine ANALYST POLITICAL June 2018 24 POLITICAL
The Ombudsman charged former President Benigno Aquino III of usurpation of legislative powers over the P72 billion Disbursement Acceleration Program controversy.
LIST OF RESPONDENTS OVER MRT DEAL CONTROVERSY PUBLIC OFFICIALS PRIVATE RESPONDENTS
Former DOTr Sec. Joseph Emilio Abaya Former DOTr Undersecretary Edwin Lopez Eldonn Ferdinand Uy of Edison Development and Construction Former DOTr Undersecretary Rene Limcaoco (Head of Negotiating Team) Elizabeth Velasco of Tramat Mercantile Inc. Former DOTr Undersecretary Catherine Jennifer Francis Gonzales Belinda Tan of TMI Corporation, Inc. (Vice-Head, Negotiating Team) Brian Velasco of Castan Corporation Former MRT3 General Manager Roman Buenafe Antonio Borromeo from Busan Universal Rail, Inc. Former Assistant Secretary for Procurement Camille Alcaraz Jun Ho Hwang from Busan Universal Rail, Inc. MRT3 Bids and Awards Committee Vice Chairperson Ofelia Astrera Elpidio Uy from Busan Universal Rail, Inc. Attorney Charissa Eloisa Julia Opulencia Engineering Division Chief Oscar Bongon Engineer Jose Rodante Sabayle.
Source: Office of the Ombudsman
LIST OF RESPONDENTS OVER MRT DEAL CONTROVERSY COMPONENT APPROVED BUDGET BUSAN JV’S OFFER DURATION Maintenance of the MRT-3 System P2.27 billion P1.96 billion 3 years General Overhauling of 43 units of Light Rail Vehicles (LRVs) P1.01 billion P907.37 million 3 years Total replacement of the Signaling System P900 million P888 million 2 years Additional Maintenance Works P67.94 million P51.76 million 6 months Total Approved Budget for the Contract P4.25 billion P3.81 billion
Source: Office of the Ombudsman; DOTC-MRT3 Maintenance Contract
The Ombudsman indicted former Transportation Secretary Joseph Emilio Abaya and 16 other officials and private respondents of graft in connection with the anomalous MRT-3 maintenance contract.
Philippine ANALYST POLITICAL June 2018 POLITICAL 25
TIMELINE: AWARDING OF MRT-3 MAINTENANCE CONTRACT
January 2016 The DOTr, December MRT-3, and 2015 October 28, Busan JV MRT-3 BAC 2015 entered into a October 21, issued contract for Negotiating 2015 Resolution 14 the long-term March 2015 Team recommendin maintenance Three firms declared g the project contract. MRT-3 BAC January submitted Busan JV as be awarded to issued 2015 their the sole entity Busan JV Resolution proposals to pass Sec. Abaya 002, including eligibility on issued a recommeding Busan JV technical and Special Order the resort to financial creating the Negotiated documents MRT-3 Bids Procurement evaluation. and Awards Committee
Source: Office of the Ombudsman
Section 53 of the Revised Implementing Rules and Regulations Investigators also found out that Busan JV given with (RIRR) of RA 9184 or the Government Procurement Reform several favorable concessions. First is the amendment of the Act which specifies that in a negotiated procurement, the original net worth requirement of P1 billion. Notably, net worth procuring entity (the DOTr in this case) should negotiate of Tramat in 2014 was only P1.9 million while Edison has with a technically, legally, and financially capable contractor. P383.5 million, both firms are clearly below the prerequisite. The MRT-3 Bids and Awards Committee (BAC) resorted Also, the Busan JV also did not include a Bill of Quantities to the process of negotiated procurement, or the direct (BOQ) for the overhauling of the 43 Light Rail Vehicles and negotiation of a contract with a supplier, contractor or total replacement signaling system components of the contract. consultant, through the issuance of Resolution No. 002. The resolution asserted that Mr. Abaya, as then DOTr Secretary,
This comes after the 2 initial biddings for the maintenance has the authority and responsibility to oversee and regulate the contract of MRT-3 conducted by the DOTr in October 2014 actions of the DOTr officials involved in the procurement of the and January 2015 failed due to non-submission of bids. MRT-3 maintenance contract, particularly given the scale of its
One of the irregularities in the deal is the failure of the impact to the public and the billion-peso budget involved. This is potential joint venture partners of Busan JV to enter into why the awarding of contract to Busan JV despite the irregularities a Joint Venture Agreement (JVA) as compliance to the showed how Mr. Abaya fell short of “the required competence rules. Only Edison Development executed the “Statement expected of him in the performance of his official functions.” to enter Into a Joint Venture.” The Ombudsman In the same resolution, the Ombudsman also dismissed explained that this should have been a ground to disqualify 6 the plunder complaint against Mr. Abaya, Former DOTr
Busan JV since it lacked an eligibility requirement. Sec. Mar Roxas, and 7 other former Cabinet officials as the In addition, the DOTr allowed Busan JV to submit a complainants showed no evidence that they accumulated Certificate of Registration of BURI as a Special Purpose ill-gotten wealth of at least P50 million from the contract. Company (SPC), instead of submitting a valid JVA. What made Notably, these rulings were issued barely a month before it more controversial is that then DOTr Assistant Secretary for Ombudsman Morales completes her 7-year term and eventually Procurement and Chairperson of the BAC Camille Alcaraz was step down from office in July 26. She was appointed by the one who wrote the Securities and Exchange Commission Mr. Aquino to head the anti-corruption body last July 2011. (SEC) to facilitate registration of Busan JV as an SPC. Critics of the Ombudsman argue that she resorts to selective justice during her term and chooses to protect allies from the previous administration. These 2 rulings show otherwise.
Philippine ANALYST POLITICAL June 2018 26 ECONOMY
1.5Mn in net new jobs created in 1H18 The April 2018 (2nd quarter) labor force survey reported that employment had reached 40.87 million, an increase of 570,000 over a 12-month period. But the January 2017 to January 2018 net job creation of 2.41 million meant that, on the average, 1.49 million in net new jobs were created in the 1st half of 2018. The 2nd highest during the 21st century after the 1.69 million posted in 2016.
he unemployment rate was recorded at 5.5% in the 2nd quarter, or 2.38 million unemployed, worse than the 1st Tquarter’s 5.3% or 2.34 million without jobs. This was due in part to the fact that unemployment is at seasonal high during the 2nd quarter, this being the period when new graduates and students on summer break seek jobs. Compared to the same period last year, the results were better, as the unemployment rate then was 5.7% and the absolute number of unemployed was 2.44 million. Labor force participation rate (LFPR), or the percentage of persons of working age who joined the labor market, dropped to 60.9% in April 2018 from 61.4% in April 2017, indicating that the jobless would have been more than the 2.38 million unemployed (it would have been 2.6 million) if LFPR was maintained at last year’s 61.4%. Nonetheless, the average LFPR was 61.6% in 1H18, slightly better than 61.4% in 1H17, reflecting an increasing number of people eager to Employment in the industrial sector improved significantly, look for jobs. And an increasing number of them finding jobs. rising to an average of 18.9% of total employment in the 1st half of The underemployment rate, or the percentage of employed 2018 (2nd quarter 2018: 19.7%) or 8.05 million from 17.9% or 7.46 wanting to work longer hours or still seeking better jobs, million in the 1st half of 2017 – a gain of nearly 600,000 jobs. The however, continued to worsen and averaged 17.9% in 1H18, service sector accounted for 56.2% (23.05 million) of employment much higher than 16.2% in 1H17. This could mean that while in 1H18, a 12-month gain of 720,000; whilst the agricultural sector jobs became increasingly plentiful, some of the workers were contributed 25% (9.77 million), down from 25.8% (10.52 million). not satisfied with the new jobs created. But offsetting this was the decline in unpaid members working in family farms or business, by 530,000 to 2.17 million in 1H18 from 2.7 million in 1H17, as more wage and salary work became available.
Employment in the industrial sector improved significantly, rising to an average of 18.9% of total employment in the 1st half of 2018
Philippine ANALYST ECONOMY June 2018 28 ECONOMY
RESULTS OF THE LABOR FORCE SURVEY 2018 2017 1ST ½ AVE. APRIL JANUARY 1ST ½ AVE. APRIL JANUARY Labor Force Participation Rate (%) 61.6 60.9 62.2 61.1 61.4 60.7 Size of Labor Force (M) 43.67 43.25 44.10 42.43 42.74 42.13 Employed (M) 41.31 40.87 41.76 39.82 40.30 39.35 Unemployed (M) 2.36 2.38 2.34 2.61 2.44 1.29 Unemployment Rate (%) 5.4 5.5 5.3 6.2 5.7 6.6 Underemployment Rate (%) 17.9 17.8 18.0 16.2 16.1 16.3
Employed by Class of Worker (% Share) Wage & Salary Workers 62.7 63.8 61.7 62.0 61.3 62.8 Self-Employed w/o Paid Employee 27.4 27.2 27.7 27.7 28.2 27.2 Employer, Family-owned Farm or 3.7 3.7 3.6 3.7 3.7 3.7 Business Worked w/o Pay in Own Family 6.1 5.3 6.9 6.5 6.7 6.3 Farm or Business
Employed by Sector (% Share) Agriculture 25.0 23.9 26.0 25.8 26.1 25.5 Industry 18.9 19.7 18.1 17.9 18.5 17.4 Services 56.2 56.4 55.9 56.3 55.4 57.1 Source: Philippine Statistics Authority (PSA), Labor Force Survey
NET JOB CREATION (MILLION)
2000
1500
1000
500
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H 2018 -500
-1000
Source: Philippine Statistics Authority (PSA), Labor Force Survey
Philippine ANALYST ECONOMY June 2018 ECONOMY 29
Business, consumer confidence down on also a weakening from 13.6 in 2Q17; while the consumer outlook higher inflation index for the next 12 months dipped slightly to 23.1 in 2Q18 from 24 in 1Q18, and dramatically from 34.3 in 2Q17. Higher Business confidence has continuously drifted down since prices of goods were blamed for denting household sentiment. Nonetheless, the indices remained positive, which reaching its 3rd highest point in the 4th quarter of 2015, meant there were more optimists than pessimists. The while consumer confidence dipped from their year-ago positive numbers observed only since the 3rd quarter levels, according to the Bangko Sentral ng Pilipinas (BSP) of 2016 or at the start of the Duterte administration. or Central Bank expectations survey conducted in the 2nd The consumer outlook index on current economic condition quarter of 2018. was down sharply to 5.7 in 2Q18 from 26.6 in 2Q17, although it was slightly better than the flat value (-0.1%) recorded The overall business confidence index for the current in the 1st quarter of this year. The consumer outlook index quarter reached 39.3% in 2Q18, almost steady from 39.5% on current family financial situation was also down to 0.2 in 1Q17, but down from 43% in 2Q17. The index measures from 4.4, albeit also an improvement over -1.3 in 1Q18. The the difference between the percentage of companies which consumer outlook index on current family income dropped believed the economy improved and the percentage of those to 5.5 in 2Q18 from 8.3 in 2Q17; it was 6.6 in 1Q18. The which perceived the economy to have worsened during overall consumer confidence index, which posted a significant the quarter. The index has been on a gradually declining decline from the same period last year but gained over path since posting a 9-quarter high of 51.3% in 4Q15. the previous quarter, is a composite of these three indices. Rising inflation – due to the passage of the Tax Reform Nonetheless, more consumers have expressed their intent of for Acceleartion and Inclusion (TRAIN) Law, the increase spending higher amount of money in the next quarter. The index of world crude oil prices, and the peso depreciation – on the amount of expenditures was recorded at 36.3 in 2Q18, only is said to have affected the outlook of business on the down slightly from 37.1 in 1Q18, but up from 29.3 a year ago. economy, as this meant constrained consumer spending. The percentage of households who considered the The business sentiment was also less optimistic for the next current quarter as a good time to buy fell to 30.7% in 2Q18 quarter, with the index dropping to 40.4 in 2Q18 from 47.8 in from 33.9% in 2Q17 (an all-time high). It was also down 1Q18 and 42.7 a year ago. Again, higher commodity prices and from 31.6% in 1Q2018. Over the next 12 months, 11% of lower consumer demand were cited as reasons for the decline. households in 2Q18 signified their intent to buy consumer Overall consumer confidence index for the current quarter was durables, motor vehicle and/or house and lot, down from 3.8 in 2Q18 from 1.7 in 1Q18, but down from 13.1 (the highest the all-time high of 12.3% recorded in 2Q17 but a recovery index on record) in 2Q17. Consumer confidence index for the from 10.1% in 1Q18 (lowest since the 4th quarter of 2016). next quarter was steady at 8.7 in 2Q18 from 8.8 in 1Q18, but
Source: Bangko Sentral ng Pilipinas (BSP)
Rising inflation – due to the passage of the Tax Reform for Acceleartion and Inclusion (TRAIN) Law, the increase of world crude oil prices, and the peso depreciation – is said to have affected the outlook of business on the economy, as this meant constrained consumer spending.
Philippine ANALYST ECONOMY June 2018 30 ECONOMY
Source: Bangko Sentral ng Pilipinas (BSP)
Philippine ANALYST ECONOMY June 2018 32 ECONOMY
BSP raises policy rates anew Gov’t to sell $1Bn in Samurai bonds
The Bangko Sentral ng Pilipinas (BSP) or Central Bank The government plans to float $1 billion worth of yen- raised its policy rates for the 2nd time this year on June 20 denominated bonds, or more popularly known as Samurai in an effort to temper inflationary pressures. bonds, sometime in the 3rd or 4th quarter of this year, its 3rd fund-raising exercise in the international capital market The BSP rates were adjusted by 25 basis points (bps), in 2018. lifting the overnight reserve repurchase rate up to 3.5%. The overnight lending rate was also raised to 4%, whilst the A delegation led Department of Finance (DOF) Secretary overnight deposit rate is now at 3%. The previous adjustments Carlos Dominguez visited Tokyo to brief potential investors occurred on May 10, when the rates were also hiked by 25 bps. on the state of the Philippine economy on June 19, one of the The action was prompted by concerns of inflationary conditions for the bond float, and met with Japanese banks to expectations remaining elevated for 2018, with the adjustments work out details of the planned float. The necessary approvals are aimed at containing further boosts to inflation resulting from the also being secured in Japan. The government expects the bond anticipated wage and price increases. The prevailing volatility of issuance to occur either in September or October of this year. the exchange rate – it closed at P53.48 on June 20 – “potentially This will be the country’s 3rd global bond issuance this adds to the inflation dynamics,” according to the central bank. year, the 1st having been conducted in January involving Moreover, rising world oil and commodity prices due to the sale of $2 billion worth of 10-year dollar-denominated robust global demand conditions, and the “normalization” bonds, while the 2nd was the issuance of Rmb 1.46 billion of monetary policy (which means increases in global interest (P12 billion) of the 3-year Chinese currency-denominated or rates) in affluent economies including the U.S. are added panda bonds in March. Finance officials are hoping the spread factors for the elevated domestic inflationary expectations. for the samurai bonds would be as narrow as those obtained The adjustment in the central bank policy rates are intended for the dollar bonds and panda bonds, at 37.8 basis points to send the signal that monetary authorities will safeguard and 35 basis points, respectively, over benchmark treasuries. macroeconomic stability amid the threats from rising This will also be the 2nd time that the government will world commodity prices and monetary tightening abroad. issue yen-denominated debt papers, with the 1st floated The BSP, however, has conceded that its inflation target of in 2010. The previous float was Y100 billion in 10-year 2-4% in 2018 will be breached. It is now looking at an average private placement at a 2.32% coupon rate. Japan Bank for of 4.5% this year. In the first 5 months, the annual headline International Cooperation (JBIC) guaranteed 95% of the inflation averaged 4.1% (May: 4.6%). But it expects the general amount of issuance through its Market Access Support price increase to return to the original target range of 2-4% in Facility, which assists Asian countries access international 2019, with the average set at 3.3%. Nonetheless, the BSP will capital markets following the global financial crisis of 2008. closely monitor developments and will consider further interest This time, the 2nd bond float won’t have the guarantee of any rate adjustments if the previous hikes appear to be insufficient Japanese institution, which would mean lower financing costs. to induce inflation to return to the targeted band for 2019. At least 5 Japanese banks have been tapped for the planned The central bank, though, expects inflation to start coming issuance. These are Mitsubishi UFJ Financial Group, Nomura down within the 3rd quarter of this year. The forecast of 4.5% Holdings, Inc., Mizuho Bank Ltd., Sumitomo Mitsui Banking for 2018 and 3.3% for 2019 reflects a slight upgrade from the Corp. (SMBC) and Daiwa Securities Group, Inc. The banks expect previous revision of the target on observation that inflation strong demand for the Philippine Samurai bond issue, given the appears to be poised for a slowdown earlier than expected. country’s strong economic performance and policy to build more infrastructure. Market analysts believe it will be oversubscribed. It’s not clear, however, how the government will use the proceeds of the bond sale. Japanese banks and investors have expressed interest in participating in the Duterte administration’s “Build, Build, Build” program, but DOF Sec. Dominguez said the country’s infrastructure program is The adjustment in the central bank policy already sufficiently funded. Official development assistance rates are intended to send the signal (ODA) at concessional terms has been secured from China that monetary authorities will safeguard and Japan, and government revenues have been boosted macroeconomic stability amid the threats by the passage of the 1st phase of tax reforms (TRAIN-1). from rising world commodity prices and monetary tightening abroad. This will be the country’s 3rd global bond issuance this year.
Philippine ANALYST ECONOMY June 2018 ECONOMIC INDICATORS 33
INFLATION HITS 5.2% IN JUNE INFLATION RATE (%), BY COMMODITY, 2012=100 Headline inflation rate for June increased to 5.2% from 4.6% last May. This figure RECREATION is higher than the 2.5% recorded in June 2017. The result exceeded the central TRANSPORT COMMUNICATION bank’s 4.3% to 5.1% estimate for the month. Inflation during the month was the AND CULTURE highest since October 2011. This was attributed to higher annual rate posted in 2018 2017 2018 2017 2018 2017 the heavily-weighted food and non-alcoholic beverages index. Meanwhile, the Jan. 4.5 2.4 0.3 0.1 1.5 1.9 inflation for the National Capital Region (NCR) and Areas Outside NCR (AONCR) were at 5.8%% and 5.1%, respectively. Feb. 5.8 2.8 0.2 0.2 1.4 1.8 March 4.6 2.6 0.3 0.2 1.4 1.8 April 4.9 3.2 0.3 0.3 1.5 1.5 PRICE INDICES BY COMMODITY - JUNE 2018 May 6.2 2.7 0.3 0.2 1.5 1.3 CPI WHWHOLESALE RET RETAILAIL June 7.1 2.4 0.4 0.2 1.4 1.2 (2006=100) (1998 = 100) (2000=100) July 3.8 0.2 1.2 2018 2017 2018 2017 2018 2017 Aug. 4.4 0.3 1.4 Jan 114.1 146.8 251.3 239.9 181.0 179.0 Sept. 4.8 0.3 1.4 Feb 114.9 147.2 253.3 241.7 181.9 177.9 Oct. 4.2 0.4 1.5 Mar 115.5 147.5 252.0 239.6 182.2 177.8 Nov. 4.4 0.4 1.6 April 116.1 147.8 253.29 239.4 182.0 177.5 Dec. 2.4 0.4 1.5 May 116.1 147.8 237.7 175.8 June 116.8 147.9 234.7 175.7 INFLATION RATE (%), BY COMMODITY, 2012=100 Jul 148.3 236.9 175.2 Aug 148.8 239.0 176.4 RESTAURANTS AND EDUCATION MISCELLANEOUS GOODS AND Sept 149.5 240.6 175.0 SERVICES Oct 149.9 242.9 174.9 2018 201 2018 2017 Nov 150.6 244.4 175.3 JJan. 2.3 1.8 2.2 2.2 Dec 151.1 246.4 174.8 Feb. 2.3 1.8 2.5 2.1 March 1.8 1.8 3.0 1.7 INFLATION RATE (%), BY COMMODITY 2012 = 100 April 1.8 1.8 3.4 1.5 FOOD AND NON- ALCOHOLIC May 1.8 1.8 3.7 1.5 CLOTHING AND ALCOHOLIC BEVERAGES AND FOOTWEAR June 4.0 2.2 3.6 1.7 BEVERAGES TOBACCO July 2.3 2.1 2018 2017 2018 2017 2018 2017 Aug. 2.3 2.2 Jan. 4.8 3.4 12.2 5.6 1.9 2.8 Sept. 2.3 2.4 Feb. 4.4 4.1 16.9 6.0 2.0 2.8 Oct. 2.3 2.6 March 5.5 4.0 18.6 6.4 2.0 2.9 Nov. 2.2 2.9 April 5.9 4.2 20.0 6.3 2.2 2.7 Dec. 2.2 3.0 May 5.7 3.7 20.5 6.1 2.2 2.3 June 6.1 3.5 20.8 6.2 2.2 2.1 INFLATION RATE July 3.3 6.2 2.1 PHILIPPINES METRO MANILA OUTSIDE MM Aug. 3.5 6.3 1.9 2018 2017 2018 2017 2018 2017 Sept. 3.6 6.4 2.0 Jan. 3.4 2.7 4.7 3.0 3.1 2.7 Oct. 3.6 6.8 1.9 Feb. 3.9 3.3 4.7 3.6 3.7 3.2 Nov. 3.2 6.1 1.8 March 4.3 3.4 5.2 4.0 4.1 3.3 Dec. 3.5 6.4 1.8 April 4.5 3.4 5.2 3.9 4.3 3.3 May 4.6 3.1 4.9 3.7 4.6 2.9 INFLATION RATE (%), BY COMMODITY, 2012=100 June 5.2 2.7 5.8 3.1 5.1 2.7
FURNISHING, July 2.8 3.8 2.6 HOUSEHOLD HOUSING, WATER, Aug. 3.1 4.0 2.8 EQUIPMENT ELECTRICITY, GAS HEALTH AND ROUTINE Sept. 3.4 4.7 3.0 AND OTHER FUELS MAINTENANCE OF Oct. 3.5 4.9 3.0 THE HOUSE Nov. 3.3 4.9 2.8 2018 2017 2018 2017 2018 2016 Dec. 3.3 4.6 2.9 Jan. 2.8 1.8 2.2 2.3 2.1 2.6 Feb. 2.6 2.9 2.5 2.3 2.1 2.6 March 2.9 4.0 2.7 2.5 2.4 2.8 April 3.0 3.6 2.8 2.4 2.8 2.5 May 3.0 3.6 2.9 2.3 2.2 2.4 June 4.6 2.1 3.0 2.1 3.0 2.4 July 2.2 2.0 2.4 Aug. 2.8 1.8 2.4 Sept. 3.8 1.8 2.3 Oct. 4.0 1.8 2.2 Nov. 4.2 1.8 2.2 Dec. 3.8 1.9 2.2
Philippine ANALYST ECONOMIC INDICATORS June 2018 34 ECONOMIC INDICATORS
TREASURY BILL RATE PESO AVERAGES TO P53.048 IN JUNE PESO-DOLLAR GROSS INTL 91-DAY, WAIR IN EXCHANGE RATE Peso weakens to P53.048:$1 average in June from the P52.195:$1 average in RESERVES (US$B) PERCENT PERIOD AVE. May. The peso started against the dollar in June at P52.554 on June 1. The peso (US$B) ended at its weakest at P53.522 on June 29. The strongest peso close was on 2018 2017 2018 2017 2018 2017 June 7 at P52.360. Jan. 81.82 81.38 50.51 49.74 2.277 1.889 Feb. 80.43 81.44 51.79 49.96 1.335 2.306 March 80.51 80.89 52.07 50.28 3.010 2.374 April 79.61 82.02 52.10 49.86 3.422 2.347 PHP: US$ EXCHANGE RATE -44 May 79.20 82.18 52.19 49.86 3.407 2.177 -45 June 81.32 53.05 49.85 2.526 2.094 -46 July 81.07 50.64 2.164 -47 Aug. 81.73 50.87 2.152 -48 Sept. 81.35 51.01 2.060 -49 Oct. 80.42 51.34 1.958 -50 Nov. 80.31 51.04 1.074 -51 Dec. 80.157 50.39 0.000 -52 -53 91-DAY T-BILL RATE AVERAGES 3.407% IN JUNE J'15M M J S NJ'16M M J S NJ'17M M J S NJ'18M M The Bureau of Treasury (BTr) capped the issuances for the 91-, 182- and 364-day Treasury bills (T-bill) during the 4 auctions conducted in June 4, 11, 18 and 25. Total bids for the government securities reached an average of P33.96 billion, but the BTr only awarded P12.05 billion. The 91-day T-bills fetched an average auction rate of 3.41%, unchanged from the average in May. The 182- and 364- GROSS INTERNATIONAL RESERVES day debt papers, meanwhile, yielded an average rate of 3.87% and 3.18% same 87 from the month before. 86
85 91-DAY T-BILL RATE 84 3.5 83 3 82
2.5 81
2 80
1.5 79 J'15 A J O J'16 A J O F M A N F 1
0.5
0 J'15M M J S NJ '15M M J S NJ '16M M J S NJ'17M M J S NJ'18M M
BSP BANK REFERENCE RATES PESO EQUIVALENT PER UNIT OF FOREIGN CURRENCY- AS OF JUNE O1, 2018 Ave. Ave. Change Australian dollar 39.77 38.74 2.6 Bahrain dinar 139.22 137.29 1.4 Brunei dollar 39.15 38.66 1.3 Canadian dollar 40.56 40.27 0.7 E.M.U. euro 61.46 62.05 (1.0)
Hong Kong dollar 6.70 6.59 1.7
Indonesian rupiah 0.0038 0.0037 2.7 Japanese yen 0.48 0.47 2.6 Kuwaiti dinar unquoted unquoted unquoted Saudi Arabian rial 14.01 13.80 1.6 Singaporean dollar 39.30 38.80 1.3 Swiss franc 53.32 51.93 2.7 Thai baht 1.64 1.64 0.1 UAE dirham 14.31 14.09 1.6 UK pound 69.91 70.45 (0.8) US dollar 52.55 51.73 1.6
Philippine ANALYST ECONOMIC INDICATORS June 2018 36 ECONOMIC INDICATORS
BALANCE OF PAYMENTS - JAN-DEC 2017 GROWTH SELECTED INTEREST RATES (IN % PER ANNUM) 2017 2016 (IN US$M) RATE % Peso Deposit Rates (Junr 25-29, 2018) AVE. 2 WEEKS AGO Current Account (2,518) (1,199) 110.0 Saving Deposits 2.50 2.50 Goods and Services (31,695) (28,506) 11.2 Time Deposits Export 83,804 73,938 13.3 below 1 year 2.76 2.75 Import 115,499 102,444 12.7 1 - 2 years 2.06 2.06 Goods (41,191) (35,549) 15.9 Over 2 years 2.54 2.52 Credit: Exports 48,199 42,734 12.8 Dollar Deposit Rates (June 25-29, 2018) Debit : Imports 89,390 78,283 14.2 Saving Deposits 0.24 0.23 Services 9,496 7,043 34.8 Time Deposits Credit: Exports 35,605 31,204 14.1 60 days and below 0.89 0.85 61-90 Days 1.02 1.03 Debit : Imports 26,109 24,160 8.1 91-180 Days 1.15 1.14 Income 3,094 2,579 20.0 181 days and above 1.29 1.18 Credit: Receipts 10,511 9,556 10.0 Bank Lending Rates (June 25-29, 2018) Debit : Disbursments 7,417 6,977 6.3 All Maturities 4.53 3.95 Current Transfers 26,083 24,728 5.5 High 7.04 6.93 Credit: Receipts 26,826 25,411 5.6 Low 4.45 4.36 Debit : Disbursments 742 684 8.6 Treasury Bill Primary Rates (June 25, 2018) CAPITAL AND FINANCIAL ACCOUNT (2,151) (4,830) (55.5) 91 days 3.404 3.323 Capital Account 57 62 (8.7) 182 days 3.937 3.714 Credit: Receipts 90 77 17.5 364 days 4.566 4.324 Debit : Disbursments 34 15 127.7 Money Market Rates (June 25-29, 2018) Financial Account (2,208) 175 (1,361.6) Promissory Note 3.87 3.36 Direct Investment (8,110) (5,883) 37.9 Commercial Papers w/o recourse 3.65 3.51 Debit: Assets, Residents Investment abroad 1,939 2,397 (19.1) Manila Reference Rates (June 25-29, 2018) Credit : Liabilities, Non-residents Investment MRR 60 N.I. N.I. 10,049 8,280 21.4 in the Phil MRR 90 N.I. N.I. Portfolio Investment 3,889 1,480 162.7 MRR 180 N.I. N.I. Debit: Assets, Residents Investment abroad 3,093 1,216 154.3 Source : BSP Key statistical Indicator Credit : Liabilities, Non-residents Investment (796) (264) 201.9 GOV'T FISCAL PERFORMANCE- JANUARY - MARCH 2018 in the Phil DATA YEAR-AGO GROWTH RATE Other Investment 2,064 4,610 (55.2) (in Php M) (in Php M) (%) Debit: Assets, Residents Investment abroad 2,001 2,746 (27.1) I. Revenues 619,793 532,389 16.4% Credit : Liabilities, Non-residents Investment (63) (1,864) (96.6) Tax Revenues 558,711 479,989 16.4% in the Phil NET UNCLASSIFIED ITEMS (610) 892 (168.4) Non-Tax Revenues 61,082 52,390 16.6% OVERALL BOP POSITION (863) (420) 105.4 Grants 0 10 -100.0% II. Expenditures 771,964 615,362 25.4% III. Surplus/Deficit -152,171 -82,973 -83.4% IV. Financing 145,871 87,446 66.8% Domestic Financing 84,559 57,667 -46.6% Foreign Financing 61,312 29,779 105.9% V. Change-in-Cash -61,875 50,458 222.6%
TOTAL EXTERNAL DEBT DATA YEAR-AGO GROWTH RATE AS OF MARCH 2018 (in $ M) (in $ M) (%) By Type of Debt 73,196 73,805 -0.8% Medium and Long-term 60,349 58,744 2.7% Short-Term 12,847 15,061 -14.7% By Borrower 73,196 73,805 -0.8% Banking System 17,793 18,705 -4.9% Public Sector 35,370 33,556 5.4% Private Sector 20,033 21,543 -7.0% By Institutional Creditor 73,196 73,805 -0.8% Banks & Other Financial 21,025 24,931 -15.7% Institutions Suppliers 3,430 3,067 11.8% Multilateral 13,009 12,375 5.1% IBRD 5,079 4,899 3.7% IMF 0 0 #DIV/0! ADB 6,073 5,799 4.7% Bilateral 11,557 11,212 3.1% Bondholders/Noteholders 22,135 20,544 7.7% Others 2,039 1,677 21.6%
Philippine ANALYST ECONOMIC INDICATORS June 2018 ECONOMIC INDICATORS 37
JANUARY-APRIL 2018 TOTAL TRADE AT $13.84 Bn MERCHANDISE IMPORTS -JANUARY-APRIL 2018 (in US$ million ) Total merchandise trade in April 2018 stood at $54.11 billion, up 3.38% from the 2018 2017 % CHANGE $52.34 billion recorded in the same period in 2017. The trade deficit widened year- on-year to $12.2 billion compared to 2017’s $7.66 billion. Merchandise exports for CAPITAL GOODS 11,095 9,727 14.1 the January to March period were down by 6.2% year-on-year to $20.96 billion from Telecom eqpmt & elec's eqpmt 5,170 4,275 20.9 $22.34 billion in the same period in 2017, while merchandise imports increased by 10.5% to $33.16 billion from $30 billion in 2017. Power generating & spec'd eqpmt 2,840 2,467 15.1 Office and EDP machine 1,035 1,012 2.3 For April 2018, total trade increased by 8.8% to $13.84 billion from $12.73 billion last year. Export revenues decreased by 8.5% to $5.1 billion from $5.6 billion. On the Transport 817 815 0.2 other hand, import payments increased by 22.2% to $8.7 billion from $7.1 billion. Others 558 542 3.0 The top 3 exports for April were: Electronic Products (total receipts of $2.98 RAW MATERIALS & INTER. GOODS 12,885 11,898 8.3 billion, up 5.5% year-on-year, and accounting for 58.2% of the total exports revenue); Components/Devices (Semiconductors) ($2.24 billion, up 5.3%); and Other Semi-processed raw materials 11,747 10,583 11.0 Manufactured Goods ($316.78 million, down 2.1%). Unprocessed raw materials 1,138 1,315 (13.5) Meanwhile, the top 3 imports were: Electronic Products (with a total import bill of MINERALS, FUELS & LUBRICANTS 3,714 3,374 10.1 $2.24 billion, up 15.2% year-on-year, and accounting for 25.7% of the total import bill); Components/Devices (Semiconductors) ($1.52 billion, up 11.4%); and Transport Crude petroleum 1,432 1,226 16.8 Equipment ($975.74 million, up 31.4%). Others 1,785 1,706 4.6 CONSUMER GOODS 5,273 4,843 8.9 Non-durable 2,334 2,148 8.7 Durable 2,939 2,695 9.1 FOREIGN TRADE SPECIAL TRANSACTION 189 158 19.8 8700 TOTAL IMPORTS 33,155 30,000 10.5
7700 MERCHANDISE EXPORTS - JANUARY-APRIL 2018 (in million US$) GROWTH 6700 2018 2017 RATE % 5700 Total Agro-Based Products 1,188 1,696 (30.0) Coconut Products 485 758 (36.0) 4700 Sugar and Products 36 57 (36.6) 3700 Fruit and Vegetables 423 578 (26.8) J'15 M M J S N J'16 M M J S N J17 M M J S N J'18 M Fish, Fresh or Preserved of which: shrimps 120 150 (20.2) and prawn EXPORT IMPORT Forest Products 71 36 98.2 Mineral Products 1,426 1,279 11.5
MERCHANDISE BALANCE OF TRADE - IN US$ MILLIONS Copper Metal 401 361 11.0 EXPORTS IMPORTS SURPLUS/(DEFICIT) Petroleum Products 86 116 (26.2) Manufactures 17,655 18,749 (5.8) 2018 2017 2018 2017 2018 2017 Electronic Products 11,749 11,378 3.3 Jan. 5,219 5,130 8,356 7,444 (3,317) (2,314) Garments 256 548 (53.4) Feb. 4,659 4,782 7,725 6,511 (3,065) (1,728) Textile Yarns / Fabrics 71 74 (4.2) March 5,510 5,579 8,118 7,882 (2,608) (2302) Furniture & Fixtures 92 120 (23.6) April 5,115 4,805 7,141 6,857 (2,026) (2,052) Chemicals 383 732 (47.6) May 5,489 8,242 (2,754) Machinery & Transport Equipment 1,703 1,827 (6.8) June 4,913 7,060 (2,147) Iron and Steel 35 42 (16.8) July 5,285 6,931 (1,646) TOTAL EXPORTS 20,955 22,344 (6.2) Aug. 5,507 7,918 (2,411) Sept. 5,594 7,509 (1,915) Oct. 5,366 8,211 (2,845)
Nov. 4,963 8,744 (3,781)
Dec. 4,721 8,738 (4,017)
Philippine ANALYST ECONOMIC INDICATORS June 2018 38 ECONOMIC INDICATORS
NATIONAL ACCOUNTS - 1ST QUARTER 2018 PERCENTAGE DISTRIBUTION OF TOTAL FAMILY EXPENDITURE YEAR -AGO YEAR-AGO EXPENDITURE GROUP 2015 2012 GROSS NATIONAL INCOME 2017 LEVEL GROWTH Total Family Expenditures (in millions) 4,883 4,125 (at constant prices) 2,605.3 2,448.9 6.4% Percent 100.0 100.0 (at current prices) 4,762.7 4,356.5 9.3% Food Expenditures 41.9 42.8 GROSS DOMESTIC PRODUCT (at constant prices) 2,145.6 2,008.4 6.8% Alcoholic Beverages 0.5 0.6 (at current prices) 3,918.3 3,570.7 9.7% Tobacco 1.1 0.9 GNP (at constant prices) by Expenditure Clothing and Footwear 2.4 2.4 Shares Furnishings, household equipment 2.5 2.8 1. Household Final Consumption Expenditure 1,476.0 1,397.2 5.6% and routine household maintenance a. Food and Non-alcoholic beverages 571.1 546.0 4.6% Health 3.7 3.7 b. Alcoholic beverages, Tobacco 14.7 16.4 -10.5% Housing, water, electricity, gas and other fuels 20.1 20.7 c. Clothing and Footwear 17.9 17.4 2.9% Transportation 6.2 7.5 d. Housing, water, electricity, gas and 169.8 157.5 7.8% other fuels Communication 2.2 2.7 e. Furnishing, household equipment and 79.3 73.7 7.6% Recreation and culture 0.8 1.4 routine household maintenance Education 3.8 4.1 f. Health 36.6 34.6 6.0% Accomodation Service 0.2 0.2 g. Transport 146.8 144.3 1.7% Miscellaneous Goods and Services 6.3 6.6 h. Communication 80.8 75.2 7.5% i. Recreation and Culture 34.8 32.9 5.7% Other Expenditure 3.1 3.7
j. Education 48.3 44.1 9.6% Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2012 k. Restaurants and Hotels 73.1 68.0 7.6% l. Miscellaneous goods and services 202.7 187.2 8.3% 2. Government Final Consumption 236.7 208.5 13.6% Expenditure UNEMPLOYMENT/UNDER EMPLOYMENT RATES 25 8 3. Capital Formation 704.9 626.5 12.5% 4. Exports 1,256.0 1,182.5 6.2% 20 5. Imports 1,548.6 1,416.6 9.3% 15 GNP (at constant prices) by Industrial Origin 7 1. Agriculture 184.8 182.1 1.5% 10 2. Industry Sector 741.3 687.0 7.9% 5 a. Mning & Quarrying 20.2 19.3 4.5%
b. Manufacturing 533.8 494.4 8.0% 0 6 c. Construction 122.5 112.0 9.3% J12 A J O J13 A J O J'14 A d. Electricity, Gas and Water 64.9 61.2 6.0% UNDEREMPLOYMENT UNEMPLOYMENT 3. Service Sector 1,219.5 1,139.3 7.0% a. Transport., Comm., Stor 164.5 154.6 6.4% b. Trade, Repair of Motor Vehicles, 331.0 311.9 6.1% OFW DEPLOYMENT ‘000 Motorcycle & Household Goods 2000 c. Financial Intermediation 165.3 153.7 7.6% 1800 d. Real Estate, Renting & Business 234.6 224.1 4.7% 1600 Activities 1400 e. Public Administration & Defense: 83.1 73.4 13.2% Compulsory Social Security 1200 1000 f. Other Services 241.0 221.6 8.8% 800 600 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
LABOR AND EMPLOYMENT 2016 2017 2018 JAN APR JUL OCT JAN APR Total labor force (000) 42,134 42,737 48,834 43,719 44,098 43,248 Labor force parcitipation (%) 60.7 61.4 69.6 62.1 62.2 60.9 Employment (%) 93.4 94.3 94.4 95.0 94.7 94.5 Unemployment (%) 6.6 5.7 5.6 5.0 5.3 5.5 Underemployment (%) 16.3 16.1 16.3 15.9 18.0 17
Philippine ANALYST ECONOMIC INDICATORS June 2018 40 philippinephilippine regional regional update update
NCR – NATIONAL CAPITAL REGION (METRO MANILA)
DPWH PREPARES FOR DELPAN-PASIG-MARIKINA EXPRESSWAY The Department of Public Works and Highways (DPWH) is preparing the terms of reference for the feasibility study, as well as the estimated budget for the contract of the Delpan-Pasig-Marikina expressway. The project covers the construction of a 24.72-kilometer elevated expressway. It will start in Delpan, Manila, pass through Makati, and end at Marcos Highway in Marikina through the Pasig River. The project is intended to help decongest traffic in Metro Manila, and is expected to provide an alternative route to Central Business District in Makati City.
OTIS BRIDGE TO BE REPAIRED WITHIN 9 MONTHS According to the Department of Public Works and Highways (DPWH), the repair of the old and damaged Otis Bridge in Manila will take about 9 months. Notably, the 60-year-old bridge was closed on the back of a damage on its girder and concrete deck. DPWPH National Capital Region director Melvin Navarro said that the repair of the bride is urgent and the DPWH will closely work with the contractor “to make sure they will work non-stop.”
METRO MANILA FLOOD CONTROL PROJECT NOW IN THE PIPELINE The $500-million Metro Manila flood control project, with its bidding process set to begin in July, is set for construction in 4Q2018. According to the World Bank (WB), the designs for the first 5 pumping stations have been finalized by the Department of Public Works and Highways. Notably, about 36 pumping stations will be modernized, while 20 new ones will be constructed. The project intends to improve upstream waste catchment areas within the 11,100-hectare land area of Manila, Pasay, Pasig, Mandaluyong, San Juan, Caloocan, Valenzuela, and Quezon City. The WB and China’s Asian Infrastructure Investment Bank will each provide $207.6 million while the City of Manila will fund $84.8 million of the project cost.
REGION II – CAGAYAN VALLEY
CEZA EYED AS SILICON VALLEY OF ASIA The Cagayan Economic Zone Authority’s (CEZA) Cagayan Special Economic Zone and Freeport could become the Silicon Valley of Asia – similar to the area in California where technology giants were born. This is due to the CEZA becoming a haven for offshore financial technology companies and a block chain hub. Notably, CEZA administrator and CEO Raul Lambino said at least 21 offshore financial technology firms engaged in block chain and crypto currency operations had already signed up with CEZA. He added that these companies could bring around P2 billion worth of investment in the next 2 years.
OSS FACILITY TO BE CONSTRUCTED FOR VIZCAYA FARMERS A P4-million Organic Seed Storage (OSS) will be constructed in Barangay Tapaya, Bagabag, Nueva Vizcaya, to boost organic agriculture in the province. According to Department of Agriculture (DA) regional director Lorenzo Caranguian, the facility, which will be developed inside the Nueva Vizcaya Experimental Station of the DA, will provide panting materials for organic agriculture practitioners in Cagayan Valley. The OSS will also serve as a repository of organic seed for farmers’ use.
P95-MN ROAD TO BE CONSTRUCTED IN WEST VIZCAYA A P95-Mn road will be constructed from Ambaguio’s Poblacion to the public market in Bayombong in Nueva Vizcaya. The project covers the completion of a 7.8-kilometer-long and 6.10-meter(m)-wide provincial road, made up of 0.2-m thick, plain concrete slab, 70 lineal m of 900-millimeter diameter reinforced concrete pipe culverts, and 321.8 lineal meters of stone masonry. The fund came from the Conditional Matching Grant of the Department of Interior and Local Government. On the other hand, the project was awarded to construction firm Delta Earthmoving Inc. Once completed, it is envisioned to ease transportation to the covered areas.
Philippine ANALYST June 2018 philippine regional update 41
REGION IV-A – CALABARZON
700-M SECTION OF LAGUNA LAKE HIGHWAY EXTENSION UNVEILED A two-lane extension of the Laguna Lake Highway, formerly known as the C-6 Dike Road, has been inaugurated by the Department of Public Works and Highways (DPWH). According to the DPWH, the new 700-meter road “consists of a 2-lane concrete road with a 2-m-wide planting strip and drainage.” The project also involves the construction and widening of 3 bridges – Napindan Bridge, Barkadahan Bridge, and Tapayan Bridge. Notably, the extension means that a total of 6.7 kilometers (km) of the 10.7-km Laguna Lake Highway project has already been completed. DWPH Secretary Mark Villar explained that “aside from the increasing mobility, this project acts as an armored elevated dike protecting Taguig City against possible flooding.”
REGION V – BICOL REGION
CAMARINES SUR LAUNCHES NEW CAPITOL PROJECT The provincial government of Camarines Sur, headed by Governor Miguel Luis Villafuerte, unveiled the province’s new Capitol building to be built in the municipality of Pili. The building is estimated to cost around P500 million, which will be sourced from the provincial government’s funds. Moreover, it is expected to break ground within 18-24 months. Based on the proposal, it will cover a 4-storey building with a covered parking area, a multi-purpose lobby, a set of administrative offices, and a governor’s quarters. The capitol project is part of the local government’s strategy to become a technologically-advanced province.
VIRAC AIRPORT INAUGURATED The newly-improved passenger terminal of the Virac Airport in Catanduanes has been launched after a 2-year delay. According to the Civil Aviation Authority of the Philippines (CAAP), “the ground floor and 2nd floor pre-departure areas have been expanded, and the arrival area in the ground floor has also been rehabilitated.” In addition, the P39-million upgrade of the terminal has resulted to an increased passenger capacity to 300 from 100.
REGION VI – WESTERN VISAYAS
STPS TO BE REQUIRED IN BORACAY ESTABLISHMENTS Sewage treatment plants (STPs) are now mandated in establishments in Boracay, based on a memorandum released by the Department of Environment and Natural Resources (DENR). Establishments (i.e. hotels and resorts) with 50 rooms and above must have their own STP, while those with 49 rooms and below must have a clustered, if not a separate STP. DENR Secretary Roy Cimatu said that once an establishment fails to comply with the order, notices of violation or closure orders will be issued.
REGION VIII – EASTERN VISAYAS
EASTERN VISAYAS ECONOMY SLOWS TO 1.8% Eastern Visayas’ economic growth slowed to 1.8% in 2017, from 12.8% in 2016. Meanwhile, investment in the region fell to P534 million from P807 million. National Economic and Development Authority regional director Bonifacio Uy explained to members of the Regional Development Council that more efforts must be done to address bureaucratic red tape, which is obstructing investment into the region. However, Mr. Uy said that despite the slowdown in 2017, he was optimistic it would bounce back this year through infrastructure development and institutional reforms.
Philippine ANALYST June 2018 42 philippine regional update
GRDP % REAL GRDP Growth LANDAREA GRDP PER CAPITA (P) REGIONAL ECONOMY POPULATION ('000) PERSON / sq km (PM at current prices) Rate (sq km) at Current prices Region 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Philippines 14,480,720 13,322,041 8.7 5.4 103,242.0 101,562.3 300,000 344 339 140,260 131,171 Metro Manila 5,521,581 5,043,597 9.5 8.0 12,788 12,652 619 20,659 20,439 431,778 398,650 Cordillera 242,620 234,583 3.4 1.5 1,815 1,784 19611 93 91 133,675 131,530 Administrative Ilocos Region 450,667 409,098 10.2 4.0 5,200 5,136 12974 401 396 86,667 79,653 Cagayan Valley 250,984 236,832 6.0 -1.0 3,547 3,498 28265 125 124 70,759 67,707 Central Luzon 1,304,479 1,187,307 9.9 3.1 11,264 11,099 22014 512 504 115,810 106,975 Calabarzon 2,143,550 2,059,548 4.1 2.3 14,394 14,127 16644 865 849 148,920 145,786 Mimaropa 210,822 204,849 2.9 -4.4 3,153 3,089 29620 106 104 66,864 66,309 Bicol Region 307,279 282,760 8.7 6.8 6,148 6,032 18139 339 333 49,980 46,876 Western Visayas 597,275 549,753 8.6 9.4 7,812 7,704 20794 376 371 76,456 71,356 Central Visayas 966,897 867,163 11.5 5.4 7,568 7,447 15885 476 469 127,761 116,448 Eastern Visayas 312,493 271,915 14.9 5.1 4,620 4,537 23253 199 195 67,639 59,930 Zamboanga Peninsula 295,451 277,208 6.6 7.9 3,830 3,765 17046 225 221 77,141 73,634 Northern Mindanao 577,665 517,649 11.6 6.6 4,782 4,707 20496 233 230 120,800 109,981 Davao 640,602 565,205 13.3 9.0 5,058 4,963 20357 248 244 126,651 113,881 Socksacksargen 386,793 355,960 8.7 1.4 4,690 4,599 22436 209 205 82,472 77,396 Autonomous Region of 103,932 99,576 4.4 -5.0 3,801 2,717 33511 113 81 27,343 36,653 Muslim Mindanao CARAGA 167,629 159,038 5.4 3.3 2,772 3,707 21412 129 173 60,472 42,903
RATE OF INFLATION FOR ALL INCOME HOUSEHOLD IN THE PHILIPPINES BY REGION (2006=100) COMMODITY GROUPS-ALL ITEMS
JAN FEB MAR APR MAY JUNE Philippines 3.4 3.9 4.3 4.5 4.6 5.2 Metro Manila 4.7 4.7 5.2 5.2 4.9 5.8 AOMM 3.1 3.7 4.1 4.3 4.6 5.1 CAR 2.3 2.6 2.9 3.3 3.8 3.9 I Ilocos 3.1 3.9 4.4 4.8 4.8 5.7 II Cagayan Valley 2.8 3.8 4.3 4.3 4.5 4.9 III Central Luzo 1.9 2.2 2.8 2.4 2.6 3.0 IV-A Southern Tagalog 3.0 3.5 3.6 3.9 4.0 4.7 IV-B Southern Tagalog 3.3 3.2 3.8 3.6 4.3 4.1 V Bicol 3.1 3.9 5.2 5.5 6.4 6.9 VI Western Visayas 3.9 4.4 4.8 5.3 5.5 6.1 VII Central Visayas 3.0 3.8 5.2 5.8 6.0 6.4 VIII Eastern Visayas 4.0 4.3 5.7 5.4 5.8 6.3 IX Western Mindanao 3.9 4.9 5.9 6.1 6.1 6.7 X Northern Mindanao 3.4 3.8 4.3 4.0 4.4 4.9 XI Southern Mindanao 4.4 4.1 4.1 4.3 5.0 5.4 XII Central Mindanao 4.8 4.9 4.8 5.2 5.4 5.9 Caraga 2.6 2.7 2.8 3.2 3.0 3.6 ARMM 5.3 6.0 6.1 5.9 6.1 7.7 NIR- Negros Island Region
a/ - excludes the province of Negros Occidental b/ - excludes the province of Negros Oriental c/ - consists of provinces of Negros Occidental and Negros Oriental
Philippine ANALYST June 2018 philippine regional update 43
EMPLOYMENT RATE BY REGION (%) 2016 2017 2018
APR JUL OCT JAN APR JUL OCT JAN APR
PHILIPPINES 93.9 94.6 95.3 93.4 94.3 94.4 95.0 94.7 94.5 Metro Manila 92.3 93.5 94.1 91.5 92.8 92.1 93.9 92.2 93.6 Cordillera CAR 95.8 95.0 95.4 93.9 95.9 96.6 96.3 96.4 96.7 1-Ilocos Region 92.5 94.6 94.6 91.3 89.6 91.8 91.8 93.3 92.7 2-Cagayan Valley 96.9 96.5 97.0 95.0 96.8 97.7 97.9 95.8 97.7 3-Central Luzon 92.9 93.8 94.3 93.3 93.3 92.9 94.0 94.6 94.6 4A-Calabarzon 92.5 92.4 93.8 91.8 92.9 93.0 94.3 93.3 93.4 4B-Mimaropa 95.9 95.7 95.8 93.1 95.3 96.0 96.2 96.0 94.8 5-Bicol Region 96.2 96.0 95.7 94.8 95.9 95.5 95.4 96.0 95.1 6-Western Visayas 93.4 94.7 97.1 94.0 94.2 95.3 94.4 95.1 94.6 7-Central Visayas 94.6 94.9 94.9 95.4 94.6 95.3 95.9 94.2 94.3 8-Eastern Visayas 94.1 95.5 97.0 93.6 96.2 96.0 96.3 96.3 95.4 9-Zamboanga Peninsula 95.8 95.2 97.4 95.4 97.5 95.5 95.7 96.6 95.8 10-Northern Mindanao 94.6 93.9 95.9 94.5 94.6 94.3 95.3 97.0 94.9 11-DAVAO 94.7 95.7 96.4 94.1 95.1 95.3 96.0 95.3 94.6 12-SOCCSKSARGEN 93.8 96.5 96.7 95.7 95.7 96.1 96.6 96.2 95.1 CARAGA 94.0 95.5 96.4 91.5 95.3 96.3 96.3 96.0 95.8 ARMM 96.7 97.1 96.3 95.7 97.4 96.8 96.2 97.4 95.8 Negros Island Region 94.7 96.0 96.0 94.7 94.6 96.7 0.0
UNEMPLOYMENT RATE BY REGION (%)
(NEW DEFINITION) 2017 2018
APR JUL OCT JAN APR JUL OCT JAN APR
PHILIPPINES 6.1 5.4 4.7 6.6 5.7 5.6 5.0 5.3 5.5
Metro Manila 7.7 6.5 5.9 8.5 7.2 7.9 6.1 7.8 6.4 Cordillera CAR 4.2 5.0 4.6 6.1 4.1 3.4 3.7 3.6 3.3 Ilocos Region 7.5 5.4 5.4 8.7 10.4 8.2 8.2 6.7 7.3 Cagayan Valley 3.1 3.5 3.0 5.0 3.2 2.3 2.1 4.2 2.3
Central Luzon 7.1 6.2 5.7 6.7 6.7 7.1 6.0 5.4 5.4
Calabarzon 7.5 7.6 6.2 8.2 7.1 7.0 5.7 6.7 6.6
Mimaropa 4.1 4.3 4.2 6.9 4.7 4.0 3.8 4.0 5.2
Bicol Region 3.8 4.0 4.3 5.2 4.1 4.5 4.6 4.0 4.9
Western Visayas 6.6 5.3 2.9 6.0 5.8 4.7 5.6 4.9 5.4
Central Visayas 5.4 5.1 5.1 4.6 5.4 4.7 4.1 5.8 5.7
Eastern Visayas 5.9 4.5 3.0 6.4 3.8 4.0 3.7 3.7 4.6
Zamboanga Penisula 4.2 4.8 2.6 4.6 2.5 4.5 4.3 3.4 4.2
Northern Mindanao 5.4 6.1 4.1 5.5 5.4 5.7 4.7 3.0 5.1
DAVAO 5.3 4.3 3.6 5.9 4.9 4.7 4.0 4.7 5.4
SOCCSKSARGEN 6.2 3.5 3.3 4.3 4.3 3.9 3.4 3.8 4.9
CARAGA 6.0 4.5 3.6 8.5 4.7 3.7 3.7 4.0 4.2
ARMM 3.9 2.9 3.7 4.3 2.6 3.2 3.8 2.6 4.2
5.3 4.0 4.0 5.3 5.4 3.3 0.0
Philippine ANALYST June 2018 44 philippine regional update
FLOOR AREA OF PRIVATE BUILDING CONSTRUCTION (IN ‘000 SQM) 2016 2017 1Q 2Q 3Q 4Q TOTAL 1Q 2Q 3Q 4Q Philippines 6,457,988 9,435,967 7,589,967 7,033,436 30,517,358 7,675,349 7,116,728 7,100,348 7,742,007 Metro Manila 1,899,171 3,212,773 1,494,606 1,682,913 8,289,463 1,659,041 1,372,041 1,402,644 1,465,576 Cordillera CAR 63,315 80,672 61,065 93,602 298,654 64,077 92,835 61,655 140,901 1-Ilocos Region 255,836 353,220 263,674 272,434 1,145,164 330,769 385,555 304,590 351,017 2-Cagayan Valley 160,911 120,498 129,658 126,078 537,145 159,383 167,979 155,729 167,003 3-Central Luzon 710,112 883,333 729,360 723,769 3,046,574 1,465,406 840,467 914,000 922,758 4A-Calabarzon 1,166,790 1,764,378 1,484,351 1,404,843 5,820,362 1,587,715 1,543,630 1,572,800 1,537,423 4B-Mimaropa 81,889 89,244 318,349 101,843 591,325 101,329 139,858 94,094 73,754 5-Bicol Region 139,913 137,395 141,403 91,017 509,728 107,401 129,166 133,401 132,779 6-Western Visayas 297,058 527,350 422,940 258,443 1,505,791 336,606 303,770 306,251 464,799 7-Central Visayas 452,915 816,950 931,013 664,753 2,865,631 522,102 676,137 653,403 859,791 8-Eastern Visayas 175,027 256,751 316,283 342,686 1,090,747 236,776 248,948 193,728 250,920 9-Zamboanga Penisula 112,218 99,595 105,717 99,052 416,582 117,122 91,663 138,460 71,873 10-Northern Mindanao 193,352 244,973 227,828 199,263 865,416 211,791 279,649 258,761 259,257 11-DAVAO 321,868 409,866 524,490 405,925 1,662,149 369,634 460,300 505,672 497,389 12- SOCCSKSARGEN 172,638 179,805 113,845 176,488 642,776 133,683 204,397 186,406 237,187 CARAGA 87,590 68,479 130,048 98,670 384,787 85,279 71,191 123,197 82,887 ARMM 476 2,968 6,544 1,831 11,819 6,253 6,074 3,041 253 NEGROS ISLAND 168,909 187,717 188,793 289,826 833,245 180,982 103,068 92,516 226,440
VALUE OF PRIVATE BUILDING CONSTRUCTION (IN ‘000) 2016 2017
1Q 2Q 3Q 4Q TOTAL 1Q 2Q 3Q 4Q
Philippines 74,617,863 116,928,599 77,177,521 82,447,378 351,171,361 76,605,109 75,857,888 72,122,966 81,698,269 Metro Manila 31,158,227 56,282,006 20,164,590 30,250,710 137,855,533 23,797,737 21,968,117 20,401,933 22,703,945 Cordillera CAR 655,622 823,306 626,297 1,233,256 3,338,481 752,506 1,224,308 701,635 1,710,049 1-Ilocos Region 2,194,230 3,103,706 2,367,822 2,337,656 10,003,414 3,047,626 3,496,467 2,791,199 3,297,694 2-Cagayan Valley 1,193,907 956,873 1,036,258 1,881,884 5,077,921 1,299,953 1,566,665 1,485,435 1,529,547 3-Central Luzon 5,900,398 7,982,808 7,612,215 6,118,769 27,614,190 9,571,088 6,881,120 7,368,354 7,807,708 4A-Calabarzon 13,000,848 19,090,690 13,354,793 13,705,084 59,151,415 16,503,515 14,122,546 14,100,014 13,756,282 4B-Mimaropa 838,752 830,977 4,346,889 921,404 6,938,023 817,756 1,895,860 830,665 618,395 5-Bicol Region 1,094,848 1,180,726 1,557,243 709,662 4,542,479 1,179,749 1,203,782 1,371,260 1,401,565 6-Western Visayas 3,592,460 5,577,893 3,574,850 2,274,085 15,019,289 2,818,257 2,445,827 2,932,971 4,977,507 7-Central Visayas 3,922,172 8,434,309 9,035,558 7,628,136 29,020,175 4,717,904 8,212,707 6,585,383 9,285,085 8-Eastern Visayas 1,390,109 2,059,661 2,511,175 3,034,334 8,995,279 2,557,449 2,181,840 1,760,197 1,938,677 9-Zamboanga Penisula 900,508 563,922 714,349 707,593 2,876,372 719,811 586,919 866,057 726,776 10-Northern Mindanao 1,838,712 2,314,978 1,781,264 1,559,005 7,493,958 1,630,825 2,070,825 2,348,093 1,935,309 11-DAVAO 3,734,614 3,761,314 4,956,999 3,884,258 16,337,184 3,863,873 4,851,501 5,286,471 5,494,043 12-SOCCSKSARGEN 1,291,284 1,350,955 903,191 1,438,997 4,984,426 1,101,388 1,595,535 1,320,981 1,971,530 CARAGA 616,129 467,276 934,224 710,502 2,728,131 617,420 553,064 1,082,679 662,435 ARMM 3,793 17,998 42,082 38,443 102,316 21,468 34,954 8,195 3,176 NEGROS ISLAND 1,290,619 2,130,201 1,657,723 4,013,601 9,092,143 76,605,109 965,849 881,443 1,878,546
Philippine ANALYST June 2018 45 BUSINESS
Pledged investment drops in 1Q2018 Total foreign investment pledges to the 7 investment promotion agencies (IPAs) significantly decreased by 37.9% in 1Q2018. This is the lowest data reported in 8 years since the P13.8 billion recorded in 2Q2010.
ata from the Philippine Statistics Authority (PSA) showed that foreign investment commitments to the DIPAs amounted to 14.2 billion in 1Q2018, lower than the P22.9 billion registered in 1Q2017. The PSA data covered pledges approved by the IPAs, namely Board of Investments (BOI); Clark Development Corp. (CDC); Philippine Economic Zone Authority (PEZA); and Subic Bay Metropolitan Authority (SBMA). Also included are Authority of the Freeport Area of Bataan (AFAB); BOI-Autonomous Region of Muslim Mindanao (BOI-ARMM); and Cagayan Economic Zone Authority (CEZA) In terms of total approved foreign investment by country of investor, Japan was the Philippines’ largest foreign investor with P7.9 billion in committed investment. It accounted for more than half (55.3%) of the total foreign investment pledges in 1Q2018. This was followed by United Kingdom (P1.5 billion); Netherlands (P878.5 million); Singapore (P571.7 million); and U.S. (P558.4 million). By industry, the manufacturing industry received the Despite the unfavorable results, the BOI remains positive largest amount of foreign investment commitment. It that investment projects and business activities will continue to posted P9.1 billion in investment pledges – 64.1% of the pour in citing the strong macroeconomic fundamentals and the total foreign investment pledges. The administrative and solid optimism and confidence of international investors who are support service activities industry followed with P1.8 billion, unfazed by external factors. Trade Secretary and BOI Chairman then the real estate activities industry with P1.79 billion. Ramon Lopez said that “what further makes the Philippines Meanwhile, Region IV-A – CALABARZON – received the attractive are plans of the Duterte administration to ramp biggest foreign investment commitment, wherein it received up infrastructure spending that is seen to increase economic more than half (P7.4 billion) of the total foreign investment activities, the country’s demographic dividend and high-skilled, pledges. The National Capital Region (P3.2 billion), and Region fast-learner workforce, and the strategic location of the country, X – Northern Mindanao – (P1.6 billion) followed the list. which can serve as a gateway to the rest of the ASEAN market.” According to the PSA, there were around 22,500 jobs expected to be generated on the back of the pledged investments. This is 30.4% lower than the estimated 32,400 generated in 1Q2017.
Philippine ANALYST BUSINESS June 2018 46 BUSINESS
Foreign investment commitments to the 7 investment promotion agencies in the Philippines sharply decreased to 14.2 billion in 1Q2018, lower than the P22.9 billion registered in 1Q2017 – the lowest data reported in 8 years since the P13.8 billion recorded in 2Q2010.
TOTAL FOREIGN INVESTMENT PLEDGES 25
20
15
10
5
0 in billion pesos 2017 2018
TOP 5 COUNTRIES OF FOREIGN INVESTMENT PLEDGES
558.4 571.7
878.5
U.S. Singapore Netherlands United Kingdom 1,543.3 Japan
7,860.9
Philippine ANALYST BUSINESS June 2018 47 BUSINESS
TOTAL FOREIGN INVESTMENT PLEDGES – TOP 3 INDUSTRIES
1.79
Manufacturing
1.80 Administrative and Support Service Activities Real Estate Activities
9.10
TOP 5 COUNTRIES OF FOREIGN INVESTMENT PLEDGES
558.4 571.7
878.5
U.S. Singapore Netherlands United Kingdom 1,543.3 Japan
7,860.9
What further makes the Philippines attractive are plans of the Duterte administration to ramp up infrastructure spending that is seen to increase economic activities, the country’s demographic dividend and high-skilled, fast-learner workforce, and the strategic location of the country, which can serve as a gateway to the rest of the ASEAN market.
Philippine ANALYST BUSINESS June 2018 48 BUSINESS
Harnessing the disruptive force of Industry The PDS is primarily anchored on improving connectivity – 4.0 through connectivity especially in unserved and underserved areas – with the other 2 goals following afterwards. However, there is a longstanding issue Compared with the previous industrial revolution, the 4th of slow internet connection in the country. Based on the June 2018 Ookla Speedtest Global Index, the Philippines ranked 100th out of Industrial Revolution is evolving at an exponential rather 124 countries in terms of mobile data speed. The country was also than a linear pace, and digital connectivity is the key to ranked 83rd out of 133 countries in terms of fixed broadband speed harness its full potential. (see table on Speedtest Global Index June 2018 ASEAN countries). To address the country’s issues on internet connectivity, Industry 4.0, also regarded as the 4th Industrial Revolution, the government has implemented several policy reforms. builds on the fusion of technologies that combines the online world One of these is the development of the National Broadband and the world of industrial production where smart technology Plan (NBP) in 2016, which would provide free public Wi- and real-time data is utilized to increase productivity and Fi access in selected public places, as well as improve the reduce costs. It is also characterized by disruptive technologies country’s overall internet speed (see May-June 2017 article: that change the business environment and socio-political DICT launches the NBP). It also intends to improve public landscapes of countries and economic regions as the world moves service delivery through quick processing of business permit towards technology that does not recognize national borders. applications. Moreover, through faster internet connection, the The 4th industrial revolution comes with a plethora of implementation of the National ID System will be more effective. technologies that disrupt, transform, and recreate industries. According to the report of the Asian Institute of Management’s And, it does not wait for those who cannot adopt readily. The Rizalino S. Navarro Policy Center for Competitiveness, the private Philippines is already taking advantage of this digital boom sector equally plays an important role in the PDS through capital through the Philippine Digital Strategy (PDS). The PDS is investment. The NBP enables existing and upcoming internet a conscious effort which intends to achieve the following: and telecommunications providers to penetrate underserved hh improve connectivity; and underserved areas with limited or no internet connectivity. hh ensure security; and hh empower people.
PHILIPPINES’ STRENGTHS – WORLD COMPETITIVENESS YEARBOOK 2018
MOBILE INTERNET FIXED BROADBAND COUNTRY RANK RANK DOWNLOAD MBPS DOWNLOAD MBPS
GLOBAL AVERAGE 23.54 - 46.25 - Brunei 15.20 87 (+2) 14.84 92 (-) Cambodia 14.70 91 (-6) 13.27 99 (-) Indonesia 10.85 106 (-) 14.76 93 (-2) Laos 14.85 89 (+6) 12.59 103 (+3) Malaysia 18.36 71 (+2) 26.20 58 (-) Myanmar 24.47 54 (-) 8.21 118 (-) Philippines 13.70 100 (-4) 17.98 83 (-) Singapore 53.53 4 (-) 180.57 1 (-) Thailand 14.17 95 (+2) 46.06 36 (+1) Vietnam 20.76 66 (+2) 25.80 59 (+3) Source: www.speedtest.net
The June 2018 Ookla Speedtest Global Index ranked the Philippines 100th out of 124 countries in terms of mobile data speed, and ranked 83rd out of 133 countries in terms of fixed broadband speed.
Philippine ANALYST BUSINESS June 2018 49 BUSINESS
The private sector equally plays an important role in the PDS through capital investment.
Presently, the Department of Information and Communications Technology (DICT) signed a tripartite agreement with the MINING, OIL, & GAS National Grid Corporation of the Philippines (NGCP) and National Transmission Corporation (TransCo) to utilize the fiber optics network in the transmission grid (see June 2018 Mining sector to slowdown in 2018 article: DICT tie-up with TransCo, NGCP for broadband plan). The private sector is also encouraged to participate in The Philippines’ mining sector is seen to slow down this public-private partnerships (PPP) for the improvement and year due to the impact of Tax Reform for Acceleration and deployment of broadband technologies. Specifically, firms can Inclusion (TRAIN) on mining operations, self-imposed participate in the establishment of the Philippine Integrated closures, and uncertainty in policies, the Mines and Infostructure (PhII). It is a P77.9-billion project that details Geosciences Bureau (MGB) said. It was also reflected on the the country’s ideal network architecture to provide speedy low value of the country’s metallic production in 1Q2018. and affordable internet by 2020. The NBP’s coordination strategy on the PhII intends to minimize implementation According to the MGB, the value of metallic mineral products costs and public disruption from physical construction. in 1Q2018 reached P22.51 billion, a 6.05% decline from P23.96 billion in 1Q2017. The weaker performance of the mining sector was attributed to the overall production shortfall of most mining companies. MGB also noted that given the pressing issues in the local minerals sector, the“outlook for 2018 is quite lackluster.” The MGB expects that the string of mine suspensions related to environmental-related issues and mine imposed non-operations, as well as the unfavorable weather conditions and maintenance status (that clearly dominated the production scene in 2017) will likely to spill over this year. “It is important to note that mine output in 2017 was generally sluggish, and it was only due to the improved metal prices that the industry was able to remain upbeat. This is generally the case in 1Q2018,” MGB explained. However, mineral analysts are projecting that metal prices will gain more ground this year given the strong global demand and production shortfall.
Philippine ANALYST BUSINESS June 2018 50 BUSINESS
Outlook for 2018 is quite lackluster for the mining sector.
Aside from metal prices, other market forces that will value went up by 10% to P5.25 billion from P4.79 billion. The have an impact on the overall performance of the local mining growth was attributed to the upbeat copper price during the period industry in 2018 and in the coming years include the price of at $3.12 per pound from $2.60 per pound, a $0.52 increase. fuel, foreign exchange rate, and the implementation of TRAIN. In terms of metal prices, nickel price increased by Of the total metallic production value in 1Q2018, gold 27.06% to $5.83 per pound in 1Q2018 from $4.58 per accounted for 47% (P10.52 billion); followed by direct shipping pound, an improvement of $1.24 per pound. The average of nickel ore and mixed nickel-cobalt sulfide with 29% (P6.46 price of the gold also grew by 9.14% to $1,329.89 per billion); copper with 23% (P5.25 billion). The remaining troy ounce from $1,218.54 per troy ounce in 2017, while 1% (P270 million) came from the consolidated output of silver price declined to $16.74 from $17.41 per troy ounce. silver, chromite and iron ore (see Figure on % Contribution The MGB emphasized that the overall performance of the of Metals to Total Metallic Mineral Production in 1Q2018). minerals sector will hugely depend on the policy directions that In terms of production, gold’s output was down to 5,279 the government will be pursuing in order to realize the sector’s kilograms (kg) (P10.52 billion) from 6,167 kg. (P12.16 billion). potential towards a long-term and stable policy environment. It was lower by 888 kg. and P1.65 billion in volume and value. Presently, the MGB is focused on strengthening the Meanwhile, the direct-shipping nickel ore posted low progressive rehabilitation and temporary restoration production for 1Q2018. It was attributed to the wet weather regulations and implementation, as well as on minerals condition that usually prevails in the areas of Dinagat, and metal-led industrialization initiatives. The government Agusan and Surigao Provinces. The MGB explained that is also streamlining application procedures and initiating nickel mining operation, being surface mining, is always interagency coordination of regulatory agencies in mining vulnerable to the weather condition. To date, out of the projects. It is also prioritizing community relations 20 nickel mines that operate in the said provinces, 12 programs and final land use options of mineral lands. reported zero production for the 1st quarter of the year. The weak performance of the mining sector is an indication The production of copper was also down by 3% (2,355 dry that the mining firms are still uncertain about the country’s mining metric tons in mine output) to 69,839 dry metric tons from 72,194 environment. If this will continue throughout this year, the dry metric tons. Despite the decrease in production volume, its country will be missing out on potential investment in the sector.
% CONTRIBUTION OF METALS TO TOTAL METALLIC MINERAL PRODUCTION IN 1Q2018 Silver, chromite, iron ore 1% Copper 23%
Gold 47%
Direct shipping Nickel ore and Mixed Nickel- Cobalt Sulfide 29%
Source: Mines and Geosciences Bureau (MGB)
Philippine ANALYST BUSINESS June 2018 51 BUSINESS
The overall performance of the minerals sector will hugely depend on the policy directions that the government will be pursuing.
I.T. UPDATE
PH digital competitiveness drops factor was ranked 52nd from 43rd place, while the Technology was the lowest-ranked factor at 58th from 51st place in 2017. The Philippines continues to be lackluster in terms of The country’s poor ranking in terms of Technology was digital competitiveness performance. This is according to attributed to the decline of the following sub-factors: International Institute for Management Development’s hh Regulatory Framework sub-factor, particularly the Starting (IMD) latest report and released in the country with its a Business and Enforcing Contracts indicators, where the local partner, the Asian Institute of Management Rizalino Philippines ranked 61st; S. Navarro Policy Center for Competitiveness. hh Technological Framework sub-factor, specifically the communications technology (62nd) and Internet bandwidth Based on the 2018 World Digital Competitiveness data, speed (61st) indicators; the Philippines’ digital competitiveness ranking dropped hh Capital sub-factor dropped from 29th to 43rd, largely due to 10 spots to 56th place in 2018 from 46th place in 2017 a decline in perceptions about the effectiveness of banking among 63 countries worldwide. The report showed that and financial services and the availability of venture capital. the country’s regulatory environment contributed to its overall low score of 53.37 index. The drop in the digital IMD World Competitiveness Center Director Arturo Bris rankings also reflects the Philippines’ drop in the 2018 World said the Philippines would have to make an improvement in Competitiveness Yearbook (WCY) Rankings (see April-May investment in technology. He added that the country should also 2018 article: PH competitiveness drops 9 notches in WCY 2018). improve its regulatory framework by strengthening ease of doing The U.S. topped this year’s World Digital Competitiveness business and facilitating innovations in digital technologies. ranking. It was followed by Singapore (2nd), Sweden (3rd), Meanwhile, the Philippines was placed as the 3rd lowest Denmark (4th) and Switzerland (5th). Countries included in the in terms of digital competitiveness when compared to its Asia- top list were mostly European countries, while Singapore was Pacific neighbors, trailing behind Singapore, Hong Kong, the only Asian country in the top list. Meanwhile, Venezuela Australia, South Korea, Taiwan, and New Zealand. The country (63rd), Indonesia (62nd), Mongolia (61st), Peru (60th), and ranked 12th followed by Mongolia and Indonesia (see Figure on Colombia (59th) were the least-competitive countries on the list. 2018 Asia-Pacific Countries Digital Competitiveness Ranking). The IMD’s World Digital Competitiveness measures the The IMD report revealed that the majority (29) of countries performances of the 63 countries’ using 50 indicators categorized in the study experienced an improvement in their level of digital under 3 factors: competitiveness this year. About 40% (26 countries) show a hh Knowledge – the know-how necessary to build and adapt decline, while only 8 economies remain in the same position. The to new technologies; IMD added that several countries are experiencing an “adaptive imbalance” or a mismatch between high levels of training and hh Technology – the overall country setting that enables education, and the attitudes toward embracing digitalization; digital technologies to develop; and among these economies, IMD noted Austria, Malaysia, and Russia. hh Future Readiness – the level of preparedness of the Based on the current ranking of the Philippines, the country to exploit and adapt to digital transformation. country should be more aggressive in developing its digital The Philippine digital competitiveness in 2018 posted the technologies and policies in order to compete with other biggest drop in ranking in the past 5 years. (see Figure on countries. Yet with the recently approved Ease of Doing PH Competitiveness and Digital Ranking). Across the factors Business Act, the Philippines is expected to improve its monitored, only the Knowledge factor improved by 3 spots from ranking in global competitiveness surveys and attract 53rd to 50th place this year. Hence, the country’s future readiness more foreign direct investments (FDI) into the country.
Philippine ANALYST BUSINESS June 2018 52 BUSINESS
The drop in the digital rankings reflects the PH’s drop in the 2018 World Competitiveness Yearbook (WCY) Rankings.
TOP 10 COUNTRIES IN 2018 WORLD DIGITAL COMPETITIVENESS RANKING 2018 RANK COUNTRIES 2017 RANK RANK CHANGE 1 USA 3 2 Singapore 1 3 Sweden 2 4 Denmark 5 5 Switzerland 8 6 Norway 10 7 Finland 4 8 Canada 9 9 Netherlands 6 10 United Kingdom 11 Source: IMD World Digital Competitiveness 2018
Source: IMD World Digital Competitiveness 2018
PH digital competitiveness in 2018 posted the biggest drop in ranking in the past 5 years.
Philippine ANALYST BUSINESS June 2018 53 BUSINESS
2018 Asia-Pacific Countries Digital Competitiveness Ranking 0 10 20 30 40 50 60 70 80 90 100
99.422 Singapore 1 93.134 Hong Kong, SAR 2 90.226 Australia 3 87.983 Korea Rep. 4 86.19 Taiwan 5 84.534 New Zealand 6 82.17 Japan 7 80.631 Malaysia 8 74.796 China Mainland 9 65.272 Thailand 10 57.066 India 11 53.369 Philippines 12 48.056 Mongolia 13 45.776 Indonesia 14
Source: IMD World Digital Competitiveness 2018
The Philippines would have to make an improvement in investment in technology.
With the recently approved Ease of Doing Business Act, the Philippines is expected to improve its ranking in global competitiveness surveys and attract more foreign direct investments (FDI) into the country.
DICT tie-up with Transco, NGCP for Meanwhile, Mr. Almeda has expressed NGCP’s broadband plan commitment to serve the country with its partnership with the DICT and TransCo. NGCP also welcomed this Despite the initial dispute, the Department of Information and opportunity to take part in the National Broadband Plan of the government that will address the long withstanding Communications Technology (DICT) has partnered with the issue of the Internet connection quality of the country. National Grid Corporation of the Philippines (NGCP) and Under the agreement, the DICT has the right to use and/ the National Transmission Corporation (TransCo) for the or access in certain spare Fiber Optic Cores (FOCs), vacant utilization of spare optical fiber to boost the implementation lots, tower space and related facilities of the NGCP, the of the National Broadband Plan (NBP). current concessionaire of the (TransCo)-owned grid. The total length of the dark fiber network is 6,154 kilometers, The tripartite agreement was signed by DICT acting secretary spanning from Luzon to Mindanao. These dark fiber Eliseo Rio Jr., NGCP chairman and CEO Anthony Almeda, lines are currently used by Transco and NGCP to monitor and TransCo president and CEO Melvin Matibag last June their electricity distribution points around the country. 8. The agreement came after several disagreements between With this development, DICT Undersecretary Dennis NGCP and TransCo on who has the right to utilize the dark Villorente said that the period in the run-up to the actual fiber (see Apr-May 2018 article: Transco, NGCP to be part of implementation of the NBP will be shortened, noting that the dark broadband plan). Mr. Matibag said that the partnership was 7 fiber assets will serve as the network backbone with the proposed years in the making. “Coming to this agreement, we had a lot Luzon Bypass Infrastructure (LBI). As a result, the deployment of arguments and disagreements, but despite all of these things, of fiber optic cables will be accelerated, Usec. Villorente added. we are all here together to sign the agreement,” he added. Philippine ANALYST BUSINESS June 2018 54 BUSINESS
The dark fiber assets will serve as the network backbone with the proposed Luzon Bypass Infrastructure (LBI).
About $2.6 billion worth of government resources will the U.S. and Asia. Facebook will also provide the Philippine be saved once the 2 major broadband projects are completed government with a bandwidth of at least 2 million Mbps (or as well as time and manpower. At the same time, it will also 2-terabyte per second (Tbps) in exchange for using its facility. help address the need for faster and more affordable Internet The LBI is projected to be completed by the end of 2019. (see connectivity in the country. Sec. Rio also said it could now Nov-Dec 2017 article: Gov’t to build its 1st cable landing stations). reach even the most remote areas in the Philippines. Sec. The tripartite agreement between the DICT, TransCo and Rio explained that the goal of the agreement was also to NGCP will boost the implementation of the country’s NBP. bring down the cost of the internet while bolstering coverage. It also shows the Duterte administration’s goal to improve The utilization of the dark fiber was part of an agreement of the country’s internet speeds, which will have an impact on the government with social media giant Facebook in November enhancing the business and investment climate of the Philippines. 2017. Facebook will construct and operate a submarine cable system that will land in the cable stations on the east and west coasts of Luzon. The cable will pass through LBI as well as provide direct connections from Luzon to Internet hubs in
Philippine ANALYST BUSINESS June 2018 55 BUSINESS
LIST OF BOI-REGISTERED PROJECTS JUNE 2018
PROJECT COST EQUITY INDUSTRY ACTIVITY (IN PHP MILLION) LOCAL/FOREIGN
ELECTRICITY, WATER, AND GAS Producer of coconut methyl ester (CME) and glycerin in Jasaan, Misamis Bio Renewable Energy Ventures, Inc. 1,806.0 100% Filipino Oriental
60% Filipino Mackay Green Energy, Inc. Producer of charcoal briquette in Pantabangan, Nueva Ecija 176.9 30% British UK 10% American
ELECTRONICS
60% Filipino Hardware Labs Performance Systems, Inc. Producer of pc desktop radiator 3.5 40% Chinese PROC
MISCELLANEOUS MANUFACTURE
Diaz Chicken Dressing Plant, Corp. Operator of "AAA" dressing plant 62.1 100% Filipino
OFFSHORING AND OUTSOURCING
Barkero Inc. Website/platform development 2.5 100% Filipino
Emapta Philippines, Inc. Business process outsourcing services-Remote staffing services 43.5 99.99% Australian
NXTLVL Agri Technology Inc. Software development services 291.0 100% Filipino
Hearsay Inc. Call center operations 13.2 99.99% American
REAL ESTATE AND PROPERTY DEVELOPMENT
Developer of economic and low-cost mass housing project (AdDU Homes 91% Filipino Realty Investments Incorporated 171.2 Loyola Heights - Horizontal) in Davao 10% Various
Developer of economic and low-cost housing project (Alegra Heights Batch Borland Development Corporation 81.4 100% Filipino A - Horizontal) in Bulacan Developer of economic and low-cost housing project (Tamara Subdivision Borland Development Corporation 269.6 100% Filipino Batch A - Horizontal) in Cavite Developer of economic and low-cost housing project (Bria Calamba Phase Bria Homes, Inc. 414.0 100% Filipino 1 - Horizontal) in Calamba City
Developer of economic and low-cost mass housing project (Lessandra Communities Quezon, Inc. 157.7 100% Filipino Quezon Phase 2 Subd - Horizontal) in Tayabas City, Quezon
Developer of economic and low-cost housing project (Monte Royal Masaito Development Corporation 408.0 100% Filipino Subdivision) in Imus, Cavite Developer of economic and low-cost housing project (Solana Casa Real - Solanaland Development Inc. 289.6 100% Filipino Horizontal) in Bacolor, Pampanga Developer of economic and low-cost mass housing project (Pacifictown- Pacifictown Property Ventures, Inc. 297.2 100% Filipino Conchu - Horizontal) in Cavite TRANSPORT SERVICES
Mabuhay Maritime Express Transport, Inc. Domestic shipping operator 598.6 100% Filipino
83% Filipino Operator of air transport services with the acquisition of 1 aircraft Cebu Air, Inc. 2,367.9 17% Foreign (A 321CEO #3 (various)
83% Filipino Operator of air transport services with the acquisition of 1 aircraft Cebu Air, Inc. 2,367.9 17% Foreign (A 321CEO #2) (various)
83% Filipino Operator of air transport services (Routes) Manila-Cebu-Manila; Manila- Cebu Air, Inc. 2,367.9 17% Foreign Iloilo-Manila; Manila-Davao-Manila; and Manila-Zamboanga-Manila (various) Operator of air transport services with new acquisition of 1 aircraft - A321 Philippine Airlines, Inc. 3,174.8 99.92% Filipino NEO Aircracft No. 1 Operator of air transport services with new acquisition of 1 aircraft - A321 Philippine Airlines, Inc. 3,174.8 99.92% Filipino NEO Aircracft No. 2 Operator of air transport services with new acquisition of 1 aircraft - A321 Philippine Airlines, Inc. 3,174.8 99.92% Filipino NEO Aircracft No. 3 Operator of air transport services with new acquisition of 1 aircraft - A321 Philippine Airlines, Inc. 3,174.8 99.92% Filipino NEO Aircracft No. 4 Operator of air transport services with new acquisition of 1 aircraft - A321 Philippine Airlines, Inc. 3,174.8 99.92% Filipino NEO Aircracft No. 5 TOTAL 28,063.5
Philippine ANALYST BUSINESS June 2018 56 BUSINESS
PEZA APPROVED PROJECTS -3rd QUARTER 2017 EQUITY INDUSTRY ACTIVITY ZONE LOCAL/FOREIGN APPAREL AND TEXTILE MANUFACTURES
ZOOT SQUAD PHILIPPINES Manufacture of apparel and other goods 100% - American CARMELRAY INDUSTRIAL PARK II - SEZ
CHEMICAL AND CHEMICAL PRODUCTS
PILIPINAS KAO, INC. Manufacture of HCA (Hexyl Cinnamic Aldehyde) 100% - Japanese JASAAN MISAMIS ORIENTAL - SEZ
SOLDERCOAT NARITA PHILS. INC. Manufacture of tin plate and tin ball 99.99% - Japanese LAGUNA TECHNOPARK - SEZ
ELECTRONICS
50% - Spanish Development and manufacture for motorcycle GPS devices/ ATGLOBAL ELECTRONICS MFG., CORP 34% - Filipino LAGUNA TECHNOPARK - SEZ tracking systems 16% - Chinese Produce RF, Microwave and Millimeter wave devices, LIGHT INDUSTRY & SCIENCE PARK AUTOMATED TECHNOLOGY (PHIL.) INC. components, subsystems and systems, discrete & 100% - Caymanian I - SEZ semiconductor products CALAMBA PREMIERE INTERNATIONAL BAEK GEUM PHILIPPINES CORP. Increase the production capacity of its radar detector project 100% - South Korean PARK - SEZ BELTONTOTOKU PHILIPPINES, INC. Manufacture of coil parts (non-HDD project) 99.99% - Hong Kong CARMELRAY INDUSTRIAL PARK II - SEZ
BELTONTOTOKU PHILIPPINES, INC. Manufacture of electronic components for medical devices 99.99% - Hong Kong CARMELRAY INDUSTRIAL PARK II - SEZ FIRST CAVITE INDUSTRIAL ESTATE BOJIE MANUFACTURING CORPORATION Manufacture of Seasonal Lights 100% - Taiwanese - SEZ Manufacture of BH17 ink cartridge, Mini17 multi-function FIRST PHILIPPINE INDUSTRIAL PARK BROTHER INDUSTRIES (PHILIPPINES), INC. 100% - Japanese printer, and mold parts - SEZ CALAMBA PREMIERE INTERNATIONAL CLAYMOUNT ASSEMBLIES PHILIPPINES, INC. Manufacture of GE and Nessus cables 99.99% - Dutch PARK - SEZ 99.99% - South DANAM PHILIPPINES, INC. Assembly of PHASEO (ABL) - regulated power supply CAVITE ECONOMIC ZONE Korean Manufacture of V7 and V8 Dyson Digital Motors (DDMs) and V7 DYSON ELECTRONICS PTE. LTD. 100% - Singaporean CARMELRAY INDUSTRIAL PARK II - SEZ and V8 Vacuum Cleaners
49% - Australian Assembly of components for LCD related products such as air- ELECSYS MFG CORP. 49% - Filipino CAVITE ECONOMIC ZONE conditioning, controllers, modem, etc. 2% - South Korean
FITC LED LIGHT MANUFACTURING CO. AND Production of wiring harness for electronic and electrical 99% - Filipino CAVITE ECONOMIC ZONE GENERAL SERVICES CORP. devices
FIRST PHILIPPINE INDUSTRIAL PARK FORT WAYNE WIRE DIE (PHILIPPINES), INC. Manufacturing of rough drill 99% - American - SEZ CALAMBA PREMIERE INTERNATIONAL II-VI LASER ENTERPRISE PHILIPPINES, INC. Engage in fiber-optic components 99% - Dutch PARK - SEZ INTEGRATED MICRO-ELECTRONICS, INC. Interchangeable lens assembly 100% - American LAGUNA TECHNOPARK - SEZ LIGHT INDUSTRY & SCIENCE PARK IONICS EMS, INC. Manufacture of PCBA for fan motor for servers (Inlet Portion) 98.12% - Filipino I - SEZ
Manufacture of semiconductor devices, power modules, KAIFA TECHNOLOGY (PHILIPPINES), INC. 99.99% - Hong Kong LIMA TECHNOLOGY CENTER - SEZ integrated circuits, printed circuit board, and assembly parts
FIRST PHILIPPINE INDUSTRIAL PARK KINPO ELECTRONICS (PHILIPPINES), INC. Manufacture of hair dryer 99.99% - Singaporean II - SEZ MAY & CHRISTE PHILIPPINES INC. Manufacture of electric bell CARMELRAY INDUSTRIAL PARK II - SEZ
Software development, electronics circuit designing and MDS CIRCUIT TECHNOLOGY, INC. 99.99% - Japanese ASIAN STAR BUILDING Printed Wiring Board designing using computer
MURAMOTO AUDIO-VISUAL PHILS., INC. Manufacture of automotive camera cleaner 100% - Japanese MACTAN ECONOMIC ZONE Manufacture and/or assembly of camera module devices, parts 99.98% - South NOBLELINK INC. CAVITE ECONOMIC ZONE and accessories Korean P. IMES CORP. (PHILIPPINE INTERNATIONAL MANUFACTURING AND ENGINEERING IC Card vending and Collecting Unit (ICVC) Assembly 99.99% - Japanese CAVITE ECONOMIC ZONE SERVICES CORP.) P. IMES CORP. (PHILIPPINE INTERNATIONAL MANUFACTURING AND ENGINEERING LED lighting fixture 99.99% - Japanese CAVITE ECONOMIC ZONE SERVICES CORP.) P. IMES CORP. (PHILIPPINE INTERNATIONAL MANUFACTURING AND ENGINEERING Spring brush assembly 99.99% - Japanese CAVITE ECONOMIC ZONE SERVICES CORP.) Manufacturing and testing of smart grid-array photovoltaic QFLEX PHILIPPINES INC. 100% - Filipino LAGUNA TECHNOPARK - SEZ modules
Testing and taping of micro electro-mechanical systems (MEMS) 65% - Singaporean PEOPLE'S TECHNOLOGY COMPLEX ROHM ELECTRONICS PHILIPPINES, INC. sensors 35% - Japanese - SEZ
Philippine ANALYST BUSINESS June 2018 57 BUSINESS
TAKANE ELECTRONICS (PHILIPPINES), INC. Manufacture of various types of wire harness 99.99% - Japanese CARMELRAY INDUSTRIAL PARK II - SEZ
FOOD AND BEVERAGE MANUFACTURES BUKIDNON AGRO-RESOURCES EXPORT DEL MONTE PHILIPPINES, INC. Production of peeled, cut fresh frozen pineapples 99.99% - Panamanian ZONE Engage in the processing of ripe cardava banana and other FIRST PANABO TROPICAL FOODS CORP. 100% - Filipino ANFLO INDUSTRIAL ESTATE tropical fruits FURNITURE AND FIXTURE
VASACRAFTS COMPANY INC. Manufacture of furniture and accessories 99.97% - Swedish MACTAN ECONOMIC ZONE II - SEZ
IT AND IT-ENABLED SERVICES Engineering and architectural design services, consultancies, SANYUTECHNOS PHILIPPINES INC. 99.99% - Japanese 6788 AYALA AVENUE BLDG. etc. MACHINERY AND EQUIPMENT
Designing, manufacturing, installation, calibration and FIRST PHILIPPINE INDUSTRIAL PARK MECHATRO TECH PHILIPPINES, INC. 99.99% - Hong Kong maintenance of industrial robotics and automation machinery - SEZ
NIKKOSHI PHILIPPINES CORPORATION Manufacture of energy harvesting (EH) generator 99.99% - Japanese LAGUNA TECHNOPARK - SEZ
METAL INDUSTRIES 99.94% - South JIN-HUNG TECHNOLOGY PHILS. CORP. Manufacture of bracket sealing GOLDEN MILE BUSINESS PARK - SEZ Korean Manufacture and fabrication of machinery components, FIRST CAVITE INDUSTRIAL ESTATE TEAMQUEST TECHNOLOGY INC. automotive and aerospace components; PCB and BIB (burn-in 100% - Filipino - SEZ board) assembly and wire harnessing TECHNIK SUPERIOR METAL PRESS PRODUCTS Manufacture of metal press products 100% - Filipino CAVITE ECONOMIC ZONE INC. MISCELLANEOUS MANUFACTURES
Mounting process for spectacles (corrective lens and frame) 70% - Dutch FIRST PHILIPPINE INDUSTRIAL PARK EHS LENS PHILIPPINES INC. and accessories 30% - Filipino - SEZ
PAPER AND PAPER PRODUCTS LIGHT INDUSTRY & SCIENCE PARK LINOCRAFT PRINTERS PHILIPPINES INC. Manufacture of packaging materials and printing services 99.99% - Malaysia III - SEZ OFFSHORING AND OUTSOURCING
ALTEGRA HEALTH PHILIPPINES, INC. Business process outsourcing (BPO) services 99% - Dutch E-SQUARE I.T. PARK AMAZON OPERATION SERVICES PHILIPPINES, Call center operations 99.99% - American CBP-IT PARK INC. APPEN SERVICES PHILIPPINES Software development services 100% - Australian SUNTECH IPARK
ASTREYA PHP Business process outsourcing (BPO) services 100% - American E-SQUARE I.T. PARK AXA SHARED SERVICES CENTRE PHILIPPINES Software development services 99.99% - Hong Kong GT TOWER INTERNATIONAL INC. BLUEPRINT BUSINESS SOLUTION BPO CORP. Business process outsourcing (BPO) services 100% - Filipino MACTAN ECONOMIC ZONE II - SEZ BOEHRINGER INGELHEIM BUSINESS SERVICES Business process outsourcing (BPO) services 99.99% - German AEON CENTRE PHILIPPINES, INC. CASSAVA CONSULTANCY SERVICES, INC. Business process outsourcing (BPO) services 100% - Malaysian ONE GLOBAL PLACE
CBE COMPANIES PH, INC. Business process outsourcing (BPO) services 99.99% - American W FIFTH AVENUE COGNIZANT TECHNOLOGY SOLUTIONS Call center operations 99.98% - American NORTHGATE CYBERZONE PHILIPPINES, INC. COGNIZANT TECHNOLOGY SOLUTIONS Call center operations 99.98% - American THE PARAGON CORPORATE CENTRE PHILIPPINES, INC. CONCENTRIX DAKSH SERVICES PHILIPPINES Business process outsourcing (BPO) and call center operations 99% - Dutch BRIDGETOWNE CORPORATION CONCENTRIX DAKSH SERVICES PHILIPPINES Business process outsourcing (BPO) and call center operations 99% - Dutch THE MACTAN NEWTOWN CORPORATION CONTEXTA GLOBAL, INC. Call center operations 99.99% - American UNIONBANK PLAZA
CONVERGYS PHILIPPINES INC. Call center operations 100% - Australian SM CITY CLARK IT PARK
CTC BPO INC. Business process outsourcing (BPO) services 99.99% - Taiwanese JY SQUARE I.T. CENTER III
CTC BPO INC. Business process outsourcing (BPO) services 99.99% - Taiwanese MABUHAY I.T. PARK 96% - Australian EMAPTA VERSATILE SERVICES INC. Business process outsourcing (BPO) services 3% - Filipino 6780 AYALA AVENUE BLDG. 1% - Japanese EZY SERVICE CENTRE CORPORATION Business process outsourcing (BPO) services 100% - Singaporean ROBINSONS-EQUITABLE TOWER GIANT INTERNATIONAL SOFTWARE STATION Software development services 100% - Chinese BAGUIO CITY ECONOMIC ZONE INC.
Philippine ANALYST BUSINESS June 2018 58 BUSINESS
ING BUSINESS SHARED SERVICES B.V. Business process outsourcing (BPO) services 99% - Dutch E-SQUARE I.T. PARK
INGRAM MICRO PHILIPPINES BPO LLC. Business process outsourcing (BPO) and call center operations 100% - American MCKINLEY HILL CYBERPARK
92% - Hong Kong KMC MAG SOLUTIONS, INC. Business process outsourcing (BPO) services V-CORPORATE CENTRE 6% - American;2%
92% - Hong Kong KMC MAG SOLUTIONS, INC. Business process outsourcing (BPO) services CYBER SIGMA 6% - American;2%
LEGALMATCH PHILIPPINES, INC. Business process outsourcing (BPO) services 99.92% - American FLB CORPORATE CENTER
LIZARDBEAR TASKING INC. Business process outsourcing (BPO) services 99.8% - American TWENTY-FOUR SEVEN MCKINLEY
LOGISCALE, INC. Business process outsourcing (BPO) services 99.99% - Dutch 6780 AYALA AVENUE BLDG. MERCEDES-BENZ GROUP SERVICES PHILS., Business process outsourcing (BPO) services 99.99% - German CLARK - SEZ INC. NNIT PHILIPPINES INC. Software development services 99.99% - Danish 2251 IT Hub
OAMPI INC. Call center operations 99.98% - American 6780 AYALA AVENUE BLDG.
OPERATIONS HUB CONTROL, INC. Business process outsourcing (BPO) services 99.99% - Emirati E-SQUARE I.T. PARK
PHILIPPINE COMMUNICATIONS MANAGEMENT 64% - Filipino Knowledge-based and computer-enabled support services CEBU I.T. PARK S.E. ASIA INC. 36% - Japanese
RAPIDVISA PHILIPPINES INC. Business process outsourcing (BPO) services 99.97% - American CEBU I.T. PARK
REALPAGE (PHILIPPINES) INC. Business process outsourcing (BPO) services 99.99% - American CBP-IT PARK
SATELLITE OFFICE SOLUTIONS PTY. LTD. Business process outsourcing (BPO) services 100% - Australian E-SQUARE I.T. PARK
SATELLITE OFFICE SOLUTIONS PTY. LTD. Business process outsourcing (BPO) services 100% - Australian UPTOWN BONIFACIO
SATELLITE OFFICE SOLUTIONS PTY. LTD. Business process outsourcing (BPO) services 100% - Australian V-CORPORATE CENTRE
TALENTSCOUT, INC. Business process outsourcing (BPO) services 98% - American E-SQUARE I.T. PARK
TANDA WORKFORCE SOLUTIONS INC. Development of cloud/internet-based software system 99.36% - Singaporean OCTAGON I.T. BLDG.
TCL.ONLINE SERVICES INCORPORATED Call center operations 99.99% - Hong Kong NORTHGATE CYBERZONE IT-enabled, Business process outsourcing (BPO) and call center TECHNOGLOBAL TEAM, INC. 99.99% - Hong Kong ECOTOWER operations TSD GLOBAL PHILIPPINE BRANCH Call center operations 100% - American MCKINLEY HILL CYBERPARK
VIATECHNIK INC. 3D modelling and software development services 99.99% - American DPC PLACE BUILDING
WESERV SYSTEMS INTERNATIONAL, INC. Business process outsourcing (BPO) services 99.99% - Singaporean CBP-IT PARK
WNS GLOBAL SERVICES PHILIPPINES, INC. Call center operations 99.99% - Dutch CAPELLA IT CENTER
OTHER BUSINESS SERVICES
Site Hosting Services/provision of building space, electric, data APEX 5678 ROCKWELL, INC. 99.99% - Hong Kong CYBERSCAPE ALPHA and telecommunications connections etc.
APEX C SIGMA, INC. Offer Site Hosting operations to KMC Mag Solutions, Inc. 99.99% - Hong Kong CYBER SIGMA Engage in the precision engineering & machining solutions and MAKINO PHILIPPINES INC. 99.99% - Singaporean LAGUNA TECHNOPARK - SEZ services REAL ESTATE ANFD PROPERTY DEVELOPMENT
AGC REALTY CORPORATION Additional warehouse facility 100% - Filipino SUNTRUST ECOTOWN TANZA
BL CBP VENTURES, INC. Construction of an IT building as Latitude Corporate Center 100% - Filipino CBP-IT PARK Establish, operate, and maintain a factory/warehouse building CONCORD FACILITY PROVIDER INC. 100% - Filipino LIMA TECHNOLOGY CENTER - SEZ as Concord Building 1
60% - Filipino FIRST PHILIPPINE INDUSTRIAL PARK JEDIC REALTY PHILIPPINES CORPORATION Additional warehouse building (Building No. 2) 40% - Chinese - SEZ
60% - Filipino CAVITE TECHNOPARK-SPECIAL LIANDUN ECOZONE PROPERTIES CORP. Establish, operate, and maintain a factory/warehouse building 40% - Chinese ECONOMIC ZONE
MEGA STAR INT'L DEVELOPMENT 60% - Filipino Establish, operate, and maintain 1-unit warehouse building LIMA TECHNOLOGY CENTER - SEZ CORPORATION 40% - Chinese
MESCO PROPERTY PROVIDERS, INC. Construction and management of 2 factory buildings 100% - Filipino LIMA TECHNOLOGY CENTER - SEZ
P E O COMPANY, INC. Operate a factory/warehouse building 100% - Japanese GATEWAY BUSINESS PARK - SEZ
PANORAMA PROPERTY VENTURES CAVITE TECHNOPARK-SPECIAL Establish, operate, and maintain a 4-unit warehouse facilities 100% - Filipino INCORPORATED ECONOMIC ZONE
Philippine ANALYST BUSINESS June 2018 59 BUSINESS
75% - Filipino CAVITE TECHNOPARK-SPECIAL PLATINUM ECOZONE REALTY CORP. Establish, operate, and maintain a warehouse building 25% - Chinese ECONOMIC ZONE
PRIMARY PROPERTIES CORPORATION Construct, operate and manage a 2-storey warehouse building 100% - Filipino MACTAN ECONOMIC ZONE
SCL REALTY CORPORATION Establish, operate and maintain a warehouse facility 100% - Filipino CEBU LIGHT INDUSTRIAL PARK - SEZ
55% - Filipino CAVITE TECHNOPARK-SPECIAL SNS ECOZONE PROPERTIES CORP. Construct, manage and operate a factory/warehouse building 45% - Chinese ECONOMIC ZONE
Additional project to operate and maintain an existing 2-storey LIGHT INDUSTRY & SCIENCE PARK STANCREST REALTY CORP. 100% - Filipino warehouse facility I - SEZ
Establish, operate, and maintain 2 units factory/warehouse 60% - Filipino LIGHT INDUSTRY & SCIENCE PARK TORN YANG PHILS INC. buildings 40% - Taiwanese IV - SEZ
UNIQUE FORMOSA, INC. Establish a factory/warehouse facilities 99.99% - Seychellois LIMA TECHNOLOGY CENTER - SEZ
RECYCLING AND WASTE MANAGEMENT
Engage in collecting, segregating, recycling and packaging of 96% - Chinese CHUN WAH ENTERPRISES CORPORATION LAGUNA TECHNOPARK - SEZ various plastic and electronic scrap 4% - Filipino
RUBBER AND PLASTIC PRODUCTS
ACRO PACKAGING CORPORATION Manufacture of packaging materials and other related products 100% - Filipino VICTORIA WAVE - SEZ FIRST CAVITE INDUSTRIAL ESTATE DELFINGEN PH-CAVITE INC. Manufacture of plastic and related components primarily 99.99% - Singaporean - SEZ LIMATECH PRECISION PLASTIC CORPORATION Manufacture of various plastic injection products 100% - Filipino LIMA TECHNOLOGY CENTER - SEZ Manufacture and processing of styropor products - packing SUMOPAK INDUSTRIAL CORPORATION 100% - Filipino LIMA TECHNOLOGY CENTER - SEZ materials FIRST PHILIPPINE INDUSTRIAL PARK YAMAICHI SEIKO PHILIPPINES INC. Manufacture and assembly of data cartridge project 99.99% - Japanese II - SEZ STORAGE AND WAREHOUSING
ALIBATA LIMITED - MANILA BRANCH Warehousing/logistics support services 100% - Hong Kong LAGUNA TECHNOPARK - SEZ LIGHT INDUSTRY & SCIENCE PARK ARMSTRONG WESTON ASIA INC. Warehousing and logistics services 99.99% - Singaporean III - SEZ FIRST PHILIPPINE INDUSTRIAL PARK COLORBEST TECHNOLOGY LTD. CORP. Warehousing/logistics support services 99.99% - Hong Kong - SEZ FIRST CAVITE INDUSTRIAL ESTATE DELFINGEN PH-CAVITE INC. Warehousing/logistics operations 99.99% - Singaporean - SEZ ECOZONE LOGISTICS SOLUTIONS EXPRESS Warehousing/logistics support services 100% - Filipino CAVITE ECONOMIC ZONE INC. FURUKAWA SANGYO KAISHA PHILIPPINES, Warehousing/logistics support services 99% - Japanese GREENFIELD AUTOMOTIVE PARK - SEZ INC. G4MANNA IMPORT-EXPORT MARKETING Warehousing/logistics support services 100% - Filipino VICTORIA WAVE - SEZ INCORPORATED CALAMBA PREMIERE INTERNATIONAL KC N A PHILIPPINES INC. Warehousing/logistics support services 100% - South Korean PARK - SEZ WIT-JAPAN CORPORATION Warehousing/logistics support services 99.99% - Japanese LAGUNA TECHNOPARK - SEZ FIRST PHILIPPINE INDUSTRIAL PARK ZHONG YU MOULD INDUSTRY Warehousing/logistics support services 100% - Chinese - SEZ
Philippine ANALYST BUSINESS June 2018 60 BUSINESS
BUSINESS CLIMATE INDEX
FOREIGN DIRECT INVESTMENT Balance of Payments Concept*; January to March 2018 YEAR-AGO YEAR-ON-YEAR LEVEL (US$ million) CURRENT LEVEL (% CHANGE) TOTAL FDI 2,175.0 1,515.5 43.5 Equity Capital 887.0 129.2 586.4 Reinvested Earnings 193.2 193.2 (0.0) Debt instruments 1,094.8 1,193.1 (8.2)
* The BSP adopted the Balance of Payment, 6th edition (BPM6) compilation framework effective 22 March 2013 with the release of the full-year 2012 and revised 2011 BOP statistics. In BPM6, net FDI flows refer to non-residents’ equity capital (i.e., placements less withdrawals) + reinvestment of earnings + debt instruments, net (i.e.,net intercompany borrowings).
YEAR- INDUSTRIAL PERFORMANCE DATA YEAR-TO- MOTOR VEHICLE SALES 2018 ON-YEAR (2000=100) APRIL 2018 (INDEX) DATE APRIL 2018 GROWTH YEAR-AGO GROWTH RATE CURRENT Volume of Production Index (VoPI) 168.0 31.1 15.9 LEVEL (%) a. Food 201.7 31.4 27.4 MOTOR VEHICLE SALES 25,583 29,038 (11.9)
b. Beverage 162.6 31.7 7.4 PASSENGER CAR SALES 9,910 9,862 0.5 c. Tobacco 6.1 10.0 -28.7 COMMERCIAL VEHICLE SALES 15,673 19,176 (18.3) d. Textile 34.6 32.1 11.3 e. Footwear and Wearing Apparel 18.0 -12.7 -6.5 UNIVERSAL AND COMMERCIAL BANK'S -MARCH 2018 f. Wood and Wood Products 67.5 11.7 6.5 g. Furniture & Fixtures 725.8 -22.3 -9.9 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn) % TO TOTAL % TO TOTAL h. Basic Metals 225.2 -5.9 0.1 MAR-18 MAR-17 RE LOAN RE LOAN i. Iron and Steel 200.0 0.8 8.4 j. Non-ferrous Metals 261.0 -19.3 -13.5 Residential 391.19 25.5 322.9 24.5 k. Fabricated Metal Products 504.4 12.9 -6.1 Commercial 1144.01 74.5 994.85 75.5 l. Machinery Excluding Electrical 63.3 34.0 7.5 m. Electrical Machinery 130.7 26.8 14.9 n. Transport Equipment 171.8 0.7 -7.7 o. Other Mfg Industries 119.8 34.5 19.3 p. Paper & Paper Products 83.5 6.1 4.0 q. Publishing & Printing 369.3 182.8 85.9 r. Leather Products 1.0 23.8 0.2 s. Rubber Products 283.7 2.8 -0.3 t. Chemical Products 158.2 23.4 -5.2 u. Petroleum Products 59.1 79.2 22.7 v. Non-Metallic Mineral Products 179.4 24.6 9.5 w. Glass & Glass Products 150.9 13.3 -4.3 x. Cement 261.7 27.8 13.3 y. Misc. Non-Metalic Mineral Products 51.0 18.4 2.3 VALUE OF PRODUCTION INDEX (VAPI) 224.0 31.7 16.3 (2000=100) AVERAGE CAPACITY UTILIZATION 84.3 83.2 84.2
Philippine ANALYST BUSINESS June 2018 61 BUSINESS BUSINESS CLIMATE INDEX STRIKES IN MAY 2018 LABOR STRIKES (MAY 2018) No work stoppage was recorded in May. Meanwhile, there were a total of 112 notices of strike/lockouts handled during the period. STRIKES DECLARED WORKERS INVOLVED MAN-DAYS LOST (000)
2018 2017 2018 2017 2018 2017 JAN 1 - 70 - 140 120,348 FEB 1 1 245 214 2,170 14,488 MAR - 1 - 138 350 16,668 APR - 3 - 430 - 16,276 MAY - 1 133 263 2,527 18,040 JUN - - - - - 15,738 JUL - 1 - 294 - 13,346 AUG - 2 - 140 - 9,278 SEP - - - - - 10,894 OCT - - - - - 4,408 NOV ------DEC ------TOTAL 2 9 448 1,479 5,187 239,484
VISITOR ARRIVALS IN APRIL 2018 Total visitor arrivals registered in April is 591,137, up by 4.61% from 565,098 in the same month in 2017. Of this, 1.21% or 7,141 visitors were Filipinos residing abroad. Korea remained the top source of market followed by China and the U.S. Visitors coming from Korea amounted to 114,973 (19.45% share of the total visitors in April). The Chinese market tallied 109,789 visitors (18.57%) while the U.S. market recorded 85,573 visitors (14.48%).
VISITOR ARRIVALS: JANUARY-APRIL 2018 SURVEY ON MONTHLY OCCUPANCY RATE & LENGTH OF STAY COUNTRY 2018 2017 % CHANGE RANK JAN TO DEC JAN TO DEC GROWTH RATE KOREA 592,060 557,939 6.12 1 2016 2015 2016/2015 CHINA 481,218 315,247 52.65 2 De Luxe Hotels USA 370,519 345,711 7.18 3 Occupancy Rates 68.32 71.60 -4.58 JAPAN 230,199 211,123 9.04 4 Length of Stay 2.42 2.71 -10.70 AUSTRALIA 99,319 93,254 6.50 5 First Class Hotels CANADA 89,649 80,593 11.24 6 Occupancy Rates 58.57 59.09 -0.88 TAIWAN 82,827 86,214 -3.93 7 Length of Stay 2.44 2.19 11.42 UNITED KINGDOM 74,434 68,188 9.16 8 Standard Hotels SINGAPORE 59,891 54,290 10.32 9 Occupancy Rates 64.74 62.51 3.57 MALAYSIA 48,861 47,250 3.41 10 Length of Stay 2.63 2.42 8.68 HONGKONG 47,101 38,182 23.36 11 Economy Hotels INDIA 43,020 35,747 20.35 12 Occupancy Rates 57.60 60.14 -4.22 OVERSEAS FILIPINO 27,534 52,095 -47.15 Length of Stay 1.64 1.57 4.46 OTHERS 393,599 364,147 8.09 Overall Average 66.08 66.95 -1.30 TOTAL 2,642,249 2,351,997 12.34
Philippine ANALYST BUSINESS June 2018 62 CORPORATECORPORATE BRIEFS BRIEFS
CONSTRUCTION
Aboitiz Construction bags Austal PH contract Aboitiz Construction Inc., has bagged a contract to design and construct the new facilities of Australian shipbuilder Austal Philip- pines Pty. Ltd. in Cebu. The project is expected to be completed by February 2019. Austal Philippines project manager, Mitch Barnett said the expansion would more than double the capability of the shipyard in terms of output and size of vessels it can manufacture.
Phinma cement unit obtains P875 Mn loan PhilCement Corp., a cement trading unit of Phinma Corp., has signed a P875-million 5-year fixed-term loan agreement with Security Bank. The firm said that the loan will be used for the construction of the Cement Terminal that will be located in Mariveles, Bataan.
ELECTRICITY, WATER AND GAS
MPIC unit completes deal for Vietnam water firm MetroPac Water Investment Corp. (MPW), a unit of Metro Pacific Investments Corp. (MPIC), has completed the acquisition of a 49% stake in Tuan Loc Water Resources Investment Joint Stock Co. for P2 billion. The acquisition will allow MPIC to expand into Vietnamese industrial water concessions.
PNOC-EC eyes Malampaya takeover in 2024 State-owned Philippine National Oil Co.-Exploration Corp. (PNOC-EC) is studying the viability of taking over the Malampaya offshore gas-to-power project, Department of Energy (DOE) assistant secretary Leonido Pulido III said. The study intends to determine if the concession agreement is still beneficial for the national government. Shell Philippines Exploration B.V. (SPEx) and consortium partners Chevron Malampaya LLC and PNOC-EC currently operates the offshore Malampaya natural gas platform. The DoE previously said that the consortium’s application remains pending since 2008, when it filed for a 15-year extension.
FOOD AND BEVERAGE MANUFACTURE Ginebra aims to double net income this year Ginebra San Miguel Inc. (GSMI) targets to generate P1.2 billion in earnings this year, double the net income it realized in 2017 amid an expected recovery in the sales of gin. The listed beverage manufacturer booked P602 million in net income last year, 66% higher than the P361 million it posted in 2016.
Tanduay to enter Europe within 3-5 years Tanduay Distillers Inc. (TDI) is looking to enter the European market within the next 3 to 5 years, as it scouts for opportunities to bring its rum brand overseas.TDI CFO Nestor Mendones said the company will offer the Tanduay Asian Rum brand to the European market. TDI currently exports its products to Hong Kong, United States, and United Arab Emirates through various distributors.
SMC plans to build 5-6 new breweries San Miguel Corp. (SMC) is planning to put up 5 to 6 new breweries worth around $250 million each in the country. SMC President and COO Ramon Ang said the breweries will have a capacity of 2 million hectoliters each. The new breweries will be located at — Sta. Rosa, Laguna; Quezon province near the Bicol area; Cagayan de Oro; Zamboanga; and near the boundary of La Union and Pangasinan.
PETROLEUM PRODUCTS
Phoenix inks deal with CNOOC for LNG project Phoenix Petroleum Philippines, Inc. has signed a memorandum of understanding (MoU) with CNOOC Gas and Power Group Co. Ltd, a subsidiary of China National Offshore Oil Corp. (CNOOC) to develop a receiving terminal for imported liquefied natural gas in the country. The MOU will potentially broaden Phoenix’ portfolio which currently includes LPG, convenience retailing, asphalt, and e-transactions.
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REAL ESTATE AND PROPERTY DEVELOPMENT
DoubleDragon starts building 2nd CentralHub DoubleDragon Properties Corp. has started construction for its 2nd industrial leasing hub in Iloilo City. CentralHub Industrial Centers Inc, the developer’s unit, broke ground for the 3.9-hectare property, which will host modern, standardized, multi-use warehouses for commissaries, cold storage, light manufacturing, and logistics distribution centers. It will offer 22,000 square meters (sq.m.) of leasable space once fully developed.
Empire East expanding into luxury projects Empire East Land Holdings, Inc. is adding 1,900 units to its residential portfolio this year, as it sees rising demand for its luxury projects. The new residential units are located in Kasara Urban Resort and The Paddington Palace, which are under the Empire East Elite brand. The company said Tower 1 and 2 of Kasara is now 74% sold, while Tower 1 of The Paddington Palace is 71% sold.
GERI eyes P8 Bn in sales from Ortigas condo Global Estate Resorts, Inc. (GERI) is aiming to generate P8 billion in sales from its 5th residential condominium in Ortigas Center, banking on its proximity to educational institutions and key business districts. The project will offer studio units sized up to 37 square meters (sq.m.), 1-bedroom units up to 86 sq.m., 2-bedroom units up to 137 sq.m., and 3-bedroom units up to 229 sq.m. It is expected to be completed by 2024.
IRC to build $3.7 Bn Makati rail project IRC Properties has been granted original proponent status (OPS) for a proposed $3.7 billion intra city rail transport system in Makati. The LGU has already accepted its Makati mass transport system proposal for “purposes of detailed negotiations on the technical and financial aspects” of the project. Under its proposal, the firm will construct an 11-kilometer intra-city subway system with 8-10 stations that will connect key points in Makati’s 2 districts.
Megaworld to launch P80 Bn worth of projects this year Megaworld Corp. is set to launch P80 billion worth of its residential project this year, banking on the continued strong demand for properties from both local and foreign buyers. In 1Q2018 alone, Megaworld Senior Vice President Jericho Go said the company has already matched the value of projects it launched last year. In 2017, Megaworld has unveiled P39 billion worth of projects.
STORAGE AND WAREHOUSING
MPIC logistics unit to build warehouses in Cavite Metropac Movers Inc (MMI), the logistics unit of Metro Pacific Investments Corp. (MPIC) will be setting aside P8 billion for the development of warehouses in Cavite. MMI has signed the deal with Property Company of Friends (ProFriends) to buy 202,000 square meters (sq.m.) of land worth P1.2 billion in General Trias.
TELECOMMUNICATIONS
Globe broadband upgrades to 5G next year Ayala-led Globe Telecom Inc. is leading the adoption of 5G (5th-generation) wireless technology in the country by making the 1st 5G home broadband service available by 2Q2019. Globe president and chief executive officer Ernest Cu said the telco is bringing the 5G technology in line with the aim to improve the state of the internet services in the country.
Now Corp. inks deal with TransCo for use of fiber assets Now Corp. has signed a memorandum of understanding (MoU) with the National Transmission Corp. (TransCo) for the use of the latter’s fiber and microwave assets for the establishment of a nationwide fixed broadband network. Now Corp. is one of the companies keen on becoming the “3rd” telecommunications player in the country. In February 2018, it was granted an extension of its franchise as a telco, until 2043.
Philippine ANALYST June 2018 64 CORPORATE BRIEFS
TRANSPORT SERVICES
PAL flies to Auckland with tri-class A330b Philippine Airlines (PAL) said it has started using a tri-class Airbus A330-343 on its non-stop flights to Auckland, New Zealand. The flag carrier said the refurbished A330-343 has 18 business class, 24 premium economy and 267 regular economy seats PAL has a thrice weekly service from Manila to Auckland.
TNC Hirna on track for expansion beyond Davao Local transportation network company (TNC) Hirna Mobility Solutions, Inc. is preparing to enter new markets after its success in his hometown of Davao. The firm is set to expand in Iligan City and Cagayan De Oro. Hirna already has a fleet of 600 taxis in Cagayan De Oro, and 100 taxis in Iligan City. It targets to be fully operational in these locations within the month.
WHOLESALE/RETAIL TRADE
Wilcon to open 9 stores this year Wilcon Depot, Inc. is set to open 9 store this year, as part of its 5-year expansion plan in the country. The expansion will allow the company to hit its target of 65 stores, 1 year ahead of schedule. The company announced in 2017 its plan to open 29 new stores by 2021. Of this, 16 will be located in Luzon, 5 in Visayas, and 8 in Mindanao.
Philippine ANALYST June 2018 65 INFRASTRUCTURE
NAIA Consortium to obtain original proponent status The group of the country’s 7 conglomerates that offered to rehabilitate the Ninoy Aquino International Airport (NAIA) is set to obtain original proponent status (OPS) for its proposal following a recommendation made by the Department of Transportation (DOTr).
OTr Secretary Arthur Tugade said that the DOTr has recommended the granting of OPS to the NAIA DConsortium composed of Aboitiz InfraCapital Inc., AC Infrastructure Holdings Corp., Alliance Global Group Inc., Asia’s Emerging Dragon Corp., Filinvest Development Corp., JG Summit Holdings Inc., and Metro Pacific Investments Corp. The recommendation needs the final approval of the Manila International Airport Authority (MIAA) board of directors as MIAA is the agency in charge of the country’s airports. Once an OPS is granted to the consortium, it will give the group the right to match offers from other parties when a Swiss challenge is conducted for the project. The NAIA Consortium originally offered to spend P350 billion for the NAIA upgrade for a concession period of 35 years under the proposal it submitted to the DOTr on February 12, 2018. However, it submitted a revised proposal with a shorter concession period of 15 years and lower project cost of P106 billion after the The NAIA Consortium has a combined capitalization of DOTr noted that the 35-year concession period is too long. more than P2.2 trillion. Aside from this consortium, another With NAIA being viable only for 10 more years, the country’s P156.2-billion bid was submitted by Megawide Construction main international gateway urgently needs upgrade to ease Corp. and its India-based partner GMR Infrastructure Limited. congestion. Under the revised proposal of the consortium, the The Megawide consortium proposal aims to modernize and rehabilitation and upgrade would be implemented in 2 phases: more than triple the capacity of the Manila airport or raise hh Phase 1 covers the improvements and expansion of the aircraft capacity by up to 35% double terminal space and terminals in the current land area to expand annual capacity more than double its capacity to 72 million passengers a year. to 65 million passengers from the current 31 million; and GMR Megawide manages the Cebu International Airport while GMR operates the New Delhi and Istanbul airports. hh Phase 2 will see the building of an additional runway, taxiways, passenger terminals and associated support infrastructure, with a 3rd runway as option.
Philippine ANALYST INFRASTRUCTURE June 2018 66 INFRASTRUCTURE
Consortium offers to upgrade NAIA at a cost of P106Bn, with concession period of 15 years.
WESM starts independent operation During the PEMC annual meeting, 15 board members, including 11 sectoral representatives and 4 independent The wholesale electricity spot market (WESM) is now under directors were elected. The elected board members were an independent market operator (IMO), nearly 20 years after Emmanuel Rubio (SN Aboitiz Power), Victor Emmanuel the Electric Power Industry Reform Act of 2001 (EPIRA) Santos Jr. (First Gen Corp.), Elenita Go (SMC Global Power mandated its transition to an IMO. Holdings Corp.), Juan Eugenio Roxas (FDC Utilities Inc.), Rolando M. Cagampan (Meralco), Allan Laniba (LEYECO At the “E-Power Mo” Conference, Energy Secretary III), Felino Herbert Palpallatoc Agdigos (Ilocos Norte Electric Alfonso Cusi announced that WESM has started its Cooperative), Gilbert Pagobo (Mactan Electric Co. Inc.), Noel independent operations and that he has stepped down Villas Aboboto (Team Energy), Ronald Dylan Concepcion as chairman of the Philippine Electricity Market Corp. (National Grid Corp. of the Philippines), and Francis Saturnino (PEMC) with the election of independent stakeholders. Juan (Independent Electricity Market Operator of the Philippines). Based on the IMO transition plan designed by PEMC The 4 new independent directors were also elected namely, transition team in August 2017, a new company called the Raul Tan, Oscar Ala, Jesus Lim Arranza, and Peter Wallace. Independent Electricity Market Operator of the Philippines The election of a new PEMC board implements the long- (IEMOP) has been formed as an independent market delayed transition to the IMO. The IMO will be initially operator with PEMC remaining as WESM’s governing body. headed by Francis Saturnino Juan as chairman, president and
Energy Secretary Alfonso G. Cusi with the newly-elected Board Members of the Philippine Electricity Market Corporation (PEMC) during its Annual General Membership Meeting on 25 June 2018. In photo (L-R) are Peter Wallace, Eugenio Roxas, Elenita Go, Rolando Cagampan, Allan Laniba, Felino Herbert Agdigos, Secretary Alfonso G. Cusi, Noel Aboboto, Nino Juan, Ronald Dylan Concepcion, Gilbert Pagobo, Rauf Tan, Oscar Ala
Philippine ANALYST INFRASTRUCTURE June 2018 INFRASTRUCTURE 67
After a delay of 2 decades, an independent market operator (IMO) has been formed to operate the WESM.
CEO; Jose Mari Bigornia as COO; Carrol Tang, Johnny Tuason, Sy Enc Co. is engaged in renewable energy. It submitted Jose Rodelio Mangulabnan, Richard Nethercott and Lt. Gen. a proposal for a wind power project at a cost of over $255 Ralph Villanueva as board members. According to Sec. Cusi, million. The project is expected to create 10,000 jobs. the initial IMO board is armed with the necessary skills - from BKS Energy Industry Ltd. plans to invest $500 legal, finance, engineering and intelligence - to operate the IMO. million in a solar power generation facility which PEMC was incorporated in 2003 as an autonomous group market is expected to generate around 1,000 jobs per year. operator to oversee market governance and perform the functions SK E&S is engaged in the business of power generation, of the market operator in the WESM, as required under the EPIRA. district energy, and city gas in both Korea and overseas. It plans to build an LNG terminal hub at a project cost Korean firms eye $4.4 Bn in PH energy projects of $1.6 billion with projected job generation of 2,200 yearly during the construction period. This project targets Four Korean firms plan to invest a total of $4.4 billion in various to begin construction by mid-2019 and aims to become energy projects in the Philippines. like one of the LNG hubs in Japan and Singapore. Also, the hub will serve as an alternative to the Malampaya SK Engineering & Construction, Sy Enc Co., BKS Energy Industry gas source which is projected to be depleted by 2024. Ltd. and SK E&S have submitted their letters of intent (LOIs) during Malampaya supports 3,000MW of gas-fired power plants. the Philippines-Korea Business Forum and Luncheon held as part of Aside from these 4 companies, Korea Hydro & Nuclear the activities during President Rodrigo Duterte’s official visit to Korea. Power (KHNP) also signified its intention to invest in SK Engineering & Construction is an engineering, procurement a nuclear power project in the Philippines, according and construction (EPC) contractor in the Philippines. It submitted to Department of Energy (DoE) officials who met with a proposal to construct a coal-fired power plant in Quezon KHNP officials. The 2 parties explored energy cooperation province, at an investment of more than $2 billion. In an EPC endeavors, including the possibility of conducting a contract, the contractor undertakes all activities - from design, feasibility study on the establishment of a small, 100-MW procurement, construction, commissioning up to the handover of modular reactor in the Cagayan Economic Zone Authority. the project - to the end-user or owner. The project is expected to generate at least 3,000 jobs yearly during the construction period.
A total of $4.4 billion from 4 South Korean companies would be poured into the energy generation sector.
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STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS IN THE PIPELINE AS OF JUNE 30, 2018
IMPLEMENTING FUNDING CIVIL WORKS PROJECT TITLE PROJECT COST STATUS / ISSUES AGENCY SOURCE TIMEFRAME
ROADS AND BRIDGES The NEDA Board, in their meeting last April, Improving Growth Corridors in DPWH ODA 2017-2020 P25.15 billion approved the change in the financing of the project Mindanao Road Sector Project to ODA, from local funding. Metro Manila Bus Rapid Transit – Line 1 DOTr ODA 2018-2021 P4.79 billion (Quezon Avenue BRT) The DOTr submitted their recommendation to Metro Manila Bus Rapid Transit - Line 2 DOTr ODA 2018-2021 P37.76 billion NEDA to cancel these projects due to physical (EDSA/Central) constraints. The NEDA-ICC and NEDA Board will Cebu Bus Rapid Transit DOTr ODA TBD P16.3 billion handle the cancellation process for the 3 projects. BGC to NAIA Bus Rapid Transit System BCDA/DOTr ODA TBD P44.03 billion Cavite-Tagaytay-Batangas Expressway MPCALA Holdings Inc. expects that it will secure the DPWH PPP 2019-2022 P22.4 billion Project original proponent status for the project by June. The DPWH is preparing the terms of reference for Delpan-Pasig-Marikina Expressway DPWH PPP TBD TBD the conduct of a feasibility study of the project. Infracorp Development, Inc. is currently looking for an operations and maintenance (O&M) partner for Makati-BGC Skytrain DOTr PPP TBD P3.5 billion the project. The company is discussing it with firms from Austria, France, Japan, and China. Binondo-Intramuros and Estrella- The DOF announced that the construction of these Pantaleon Bridges Construction DPWH ODA 2018-2021 P5.97 billion projects will commence in 2H2018. Project The DOF announced that the construction of the Panguil Bay Bridge DPWH ODA 2017-2020 P4.86 billion project will commence in 2H2018. Samar-Luzon (Masbate) Bridge Leyte – Mindanao Bridge Panay-Guimaras Bridge Feasibility studies for these projects will start Guimaras – Negros Bridge within the year or next year. Possible sources of DPWH TBD TBD P269.19 billion Bohol-Lapinig Island Bridge funding are China’s “One Belt, One Road” initiative, the national budget, ODA, and PPP. Lapinig Island – Leyte Bridge Cebu – Negros Link Bridge Cebu – Bohol Link Bridge AIR AND WATER PORTS Laguindingan Airport Operations, DOTr & CAAP GAA TBD P14.62 billion Maintenance & Development Project New Bohol (Panglao) Airport Operations, Maintenance & DOTr & CAAP GAA TBD P4.57 billion The DOTr rejected the unsolicited proposals of Development Project Chelsea Logistics Corp. and Aboitiz InfraCapital Bacolod Airport Operations, Inc. for the improvement and operations, and DOTr & CAAP GAA TBD P20.26 billion Maintenance & Development Project maintenance of the regional airports, since they Iloilo Airport Operations, Maintenance want to conduct bidding for the projects. DOTr & CAAP GAA TBD P30.40 billion & Development Project Bidding for the O&M of the New Bohol (Panglao) Davao Airport Operations, DOTr & CAAP GAA TBD P40.57 billion Airport may be done before August. Maintenance & Development Project The NEDA-ICC is currently reviewing the concession New Manila International Airport DOTr PPP TBD P753.63 billion agreement of San Miguel Corp. for the project. The NAIA Consortium, composed of 7 of the country’s top conglomerates, has submitted a revised proposal to rehabilitate NAIA. The group Upgrading of Ninoy Aquino shortened the concession period to 15 years from DOTr TBD TBD P105 billion International Airport the original 35 years and lowered the cost to P105 billion from the initial P350 billion. The DOTr is planning to grant original proponent status to the group this June. The NEDA Board approved the project in their meeting last April.
The BCDA also revealed that 8 groups acquired bid documents for the 25-year concession to operate the Clark Airport. These are: a. Megawide Construction Corp. and GMR Infrastructure; Clark International Airport (Operations b. Metro Pacific Investment Corp; BCDA TBD TBD P12.55 billion and Maintenance) c. Filinvest Development Corp; d. San Miguel Holdings Corp; e. Prime Asset Venture; f. Central Luzon Infrastructure Consultancy Inc.; g. GVK Airport Developers Ltd.; and h. Groupe ADP.
The bid submission is targeted on July 20, 2018, while the awarding is projected on August 24, 2018.
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RAILWAY DOTr Sec. Arthur Tugade explained that the Metro Manila Subway Project (1st groundbreaking of the project can happen in DOTr ODA TBD P356.96 billion Phase) 4Q2018. It will be partially operational in 2.5-3 years. DMCI Holdings, Inc. may partner with a Japanese investor to bid for the 1st phase of the project. The DOTr recently opened the bidding for the civil works and building components of the project. It is North South Commuter Railway (PNR DOTr ODA TBD P144 billion due to close on August 16. North 1) Furthermore, the Asian Development Bank and Japan International Cooperation Agency are interested to co-finance the project. PNR South Commuter Line (Tutuban – The government is currently pitching the project DOTr ODA TBD P124.1 billion Los Baños) for financing to Japan. PNR South Long Haul Project (Manila – The NEDA explained that the project is expected DOTr ODA TBD P151 billion Matnog and Laguna – Batangas) to be implemented this year. The DOTr approved the proposed 2-track electric train system for the main line of the project. Mindanao Railway Project Phase 1 DOTr GAA TBD P35.26 billion (Tagum-Davao-Digos Segment) Meanwhile, the DOF also announced that the construction of the project will commence in 2H2018. Operations & Maintenance of LRT Bidding is on hold. The project is still under DOTr & LRTA PPP TBD No CAPEX Line-2 further study. Bidding is on hold. The project is still under LRT Line 6 Project DOTr PPP TBD P65.09 billion further study. The Asian Development Bank and Japan Malolos-Clark Railway (PNR North 2) DOTr ODA TBD P211.43 billion International Cooperation Agency are interested to co-finance the project.
The NEDA-ICC is set to prioritize its review of the East-West Railway Project PNR PPP TBD TBD project this year.
The DOF is into discussion with the Chinese government to finalize the loan financing. The Clark-Subic Rail Project BCDA/DOTr ODA TBD P57.6 billion project is also covered under the BCDA 2018 corporate budget, which will be included in the DOTr 2019 budget. OTHER PROJECTS Lower Agno River Irrigation System The NEDA Board has approved the implementation NIA GAA 2018-2021 P3.5 billion Improvement Project of the project. The consortium of San Miguel Corp. and New Manila Bay Integrated Flood Control, San Jose Builders Inc. has been given original Coastal Defense and Expressway DPWH PPP TBD TBD proponent status for the project. It is currently Project under evaluation by the NEDA. Bid submission date has been moved to June 8. Schedule of the award of contract and loan signing New Centennial Water Source Project MWSS ODA TBD P14.32 billion is on September 2018. The detailed engineering – Kaliwa Dam and design of the project are scheduled to be conducted from October 2018-April 2019. The right of way acquisition and procurement of consultants for the detailed engineering and design Cavite Industrial Area Flood Risk DPWH ODA TBD P9.9 billion (DED), and construction supervision are ongoing. Management Project The target start of DED is in July 2018, while civil works are expected to start in July 2019. The DOF announced that the construction of the Chico River Pump Irrigation Facility NIA ODA TBD P4.37 billion project will commence in 2H2018.
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ACRONYMS
BCDA Bases Conversion and Development Authority BuCor Bureau of Corrections CAAP Civil Aviation Authority of the Philippines CIAC Clark International Airport Corporation DOF Department of Finance DOJ Department of Justice DOTr Department of Transportation DPWH Department of Public Works and Highways GAA General Appropriations Act ICC Investment Coordination Committee JICA Japan International Cooperation Agency LRTA Light Rail Transit Authority MIAA Manila International Airport Authority MPIC Metro Pacific Investments Corporation MWSS Metropolitan Waterworks and Sewerage System NEDA National Economic Development Authority NIA National Irrigation Administration ODA Official Development Assistance PNOC Philippine National Oil Company PNR Philippine National Railways PPA Philippine Ports Authority PPP Public-Private Partnership TBD To be determined WB World Bank
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Duterte signs mental health law President Rodrigo Duterte has signed a landmark legislation on mental health which intends to protect the rights and welfare of both mental health patients and professionals.
epublic Act (RA) 11036 or the Philippine Mental Health Act seeks to integrate mental health care into the country’s Rpublic health service system, as well as incorporate strategies to raise awareness on this issue in educational institutions, the workplace, and communities. Notably, it is also one of the priority legislation of the Legislative-Executive Development Advisory Council (LEDAC) in the 17th Congress. The enactment of this law is not surprising since it received overwhelming support from both houses of Congress. The Senate voted 19-0 in favor of the measure (Senate Bill 1354) during its 3rd and final reading last May 2017. Akbayan Party-list Senator Risa Hontiveros, mental health advocate and principal sponsor of the bill, led the legislative crusade in the upper chamber. At the House of Representatives, the mental health bill (House Bill 6452) received a 223-0 vote in favor during its 3rd and final reading last November 2017. House Committee on Health Chairperson and Quezon 4th District PCMH will act as the policy-making, planning, coordinating, Representative Angelina Tan, as well as, Antipolo City 1st and advisory body to oversee the implementation of this law. District Rep. Cristina Roa-Puno sponsored the bill on the floor. Meanwhile, the DOH Secretary will act as the RA 11036 identifies and protects the rights of persons Chairperson of the Council composed of other heads with mental illness such as freedom from social, economic, of government agencies. Its other members include: and political discrimination, as well as access to mental a. Secretary of the Department of Education; health services at all levels of the public health care system, b. Secretary of the Department of Labor; among others. Rights of mental health professionals are also outlined in the law which includes participation in c. Secretary of the Department of Interior and Local Government; continuous professional development program, development d. Chairperson of the Commission on Human Rights; of mental health policy and service delivery guidelines, etc. e. Chairperson of the Commission on Higher Education; and Another salient provision of the mental health law is the f. One representative each from the academe/research, medical strengthening and reconstitution of the Philippine Council or health professional organizations, and non-government for Mental Health (PCMH), which was originally created organizations (NGOs) involved in mental health issues, appointed through Executive Order 470 of Former President Fidel Ramos by the President for a term of 3 years. in 1998. Attached to the Department of Health (DOH), the
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RA 11036 seeks to integrate mental health care into the country’s public health delivery system.
One salient provision of the mental health law is the strengthening and reconstitution of the Philippine Council for Mental Health
RA 11036 also recognizes drug dependency as a form of mental illness.
Aside from the PCMH, the law also mandates the creation depression, making it the most common health problem globally. of the Mental Health Division under the Disease Prevention and It also affects performance of an individual in the workplace as Control Bureau of the DOH to implement the National Mental lost productivity due to depression amounts to $1 trillion annually. Health Program and serve as the Secretariat of the Council. In the Philippines, the DOH explained that 1 in 5 adult Under the law, every local government unit LGU should create Filipinos suffer from a form of mental disorder such as anxiety their own mental health program in coordination with stakeholders and depression. The World Health Organization (WHO) also to effectively integrate mental health as part of basic health services reported that there were 2,558 suicide cases in the country in 2012, at the community level. The DOH is also tasked to assist LGUs or an average of 7 Filipinos claiming their own lives every day. and provide funds for the operation of community-based mental Furthermore, mental health issue also significantly affects health care facilities at the provincial, city, and municipal level. the youth in the country. The National Poison Management and On top of it, LGUs are also required to submit a quarterly report Control Center of the Philippine General Hospital revealed that to the PCMH outlining their performance and services rendered. 46% of total suicide cases since 2010 involves the youth – 30% Moreover, public (regional, provincial, and tertiary), are young adults aged 20-35, while 16% are teens aged 10-19. and private hospitals are mandated to provide psychiatric, This assertion is supported by the Global School Based psychosocial, and neurologic services to persons with mental health Student Health Survey (GSHS) of 2015 saying that some 17% illness. Mental health facilities are also required to set up 24/7 of high school students aged 13-15 in the country revealed that hotlines as a mechanism for suicide intervention and assistance. they had attempted suicide at least once. Another 12% said that Educational institutions and employers are required to they had seriously considered attempting suicide, while 11% develop their own policies and programs to raise awareness disclosed that they have made plans on how to commit suicide. on these issues and provide support and services to What is even more alarming is the lack of adequate individuals who are at risk. This is to incorporate mental facilities and personnel to address mental health disorders in health into the educational system and in the workplace. the country. Sen. Hontiveros claimed that there are only 60 Research and development on mental health will psychiatric healthcare facilities nationwide with the 4,200-bed also be enhanced to assist in crafting evidence-based capacity National Center for Mental Health being the largest policies regarding these issues. The research capacity among these. Only 7% of all public and private hospitals of the National Center for Mental Health (NCMH) have a psychiatric unit or ward. Meanwhile, there are only 2 under the DOH will be expanded to help in this agenda. mental health workers for every 100,000 people in the country. RA 11036 also recognizes drug dependency as a form of mental The enactment of RA 11036 signals the beginning of illness. Hence, covered by this law are drug users who voluntarily the end of the country’s negligence on mental health issues. submitted themselves to treatment and rehabilitation, along with It is a win not just for the government and its staunch people charged under the Comprehensive Dangerous Drugs advocates but importantly to all people suffering from these Act of 2002 who are found to be suffering from mental illness. illnesses who most of the time just keep it to themselves due The passage of RA 11036 cannot be more overstated. to the social stigma attached to it. It this therefore critical According to Sen. Hontiveros, over 300 million people suffer from for the government to implement this policy effectively.
The WHO reported that there were 2,557 suicide cases in the country in 2012, or an average of 7 Filipinos claiming their own lives every day.
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The WHO reported that there were 2,557 suicide cases in the country in 2012, or an average of 7 Filipinos claiming their own lives every day.
The enactment of RA 11036 signals the beginning of the end of the country’s negligence on mental health issues.
House approves ‘Telecommuting’ bill The measure states that employers must ensure that its telecommuting employees are given the same treatment as The House of Representatives has approved on 3rd and that of comparable employees working at the employer’s final reading the Telecommuting Act which allows private premises. The firms must ensure that the employees – sector employees to work outside the office through (a) Receive rate of pay, including overtime and nighttime work, telecommuting. Its counterpart measure at the Senate has and other similar monetary benefits not lower than applicable also been approved on 3rd and final reading. Both bills are legislation and collective agreements; now up for bicameral committee approval. The proposed (b) Have the same or equivalent workload and performance measure’s ultimate goal is to promote employees’ right to standards of the telecommuting employee; work-life balance and flexible work arrangement. (c) Have the same access to training and career development opportunities as comparable workers at the employer’s premises House Bill 7402 defines “telecommuting” as a flexible and are subject to the same appraisal policies as these workers. work arrangement that allows an employee in the private (d) Receive appropriate training targeted at the technical sector to work from an alternative workplace with the equipment at their disposal and at the characteristics of this form use of telecommunication and computer technologies. of work organization. The measure states that employer has the option to offer a telecommuting program to its employees on a voluntary basis, (e) Have the same collective rights as workers at the employer’s and after terms and conditions are mutually agreed upon. premises and no obstacles are placed to communicating with According to the proposed bill, the terms and conditions must workers’ representatives. not be less than the minimum labor standards set by the Labor Code, and must include compensable work hours, minimum number of work hours, overtime, rest days, and entitlement to leave benefits.
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The bill stipulates that companies must ensure that measures Lawmakers support BSP Charter amendments are taken to prevent the telecommuting employee from being isolated from the rest of the working community in the company. Lawmakers are pushing for the swift passage of a bill The Department of Labor and Employment (DOLE) is mandated amending the charter of the Bangko Sentral ng Pilipinas to pilot-test the program in select industries. The telecommuting (BSP) or central bank. The proposed bill strengthens the pilot program will be implemented for up to 3 years. country’s monetary authority and gives the central bank House Bill 7402’s counterpart at the Senate more flexibility in regulating and managing the Philippines’ has also been approved on 3rd and final reading. A financial system. Once enacted, the measure would broaden Bicameral Conference Committee will be formed to the central bank’s examination authority to include banks’ reconcile the differences in the House and Senate versions. and quasi-bank’s subsidiaries and allow full flexibility to The measure’s enactment is crucial especially as the worsening enable the BSP to conduct risk-based supervision. traffic across Metro Manila has affected the productivity of employees. According to the Japan International Cooperation Several proposals to change the BSP’s 2-decade old charter Agency (JICA) the country loses P3.5 billion a day due to have been consolidated. Among the measures proposing to traffic congestion along EDSA. Some workers in the Caloocan- modernize the BSP’s charter are Senate Bills (SB) 16 (by Sen. Malabon-Navotas (CAMANAVA) and Quezon City areas, for Franklin Drilon), 859 (by Sen. Ralph Recto), and 1027 (by Senator instance, need to allot at least 2 hours just to travel to Ortigas and Francis Escudero). The bills have been merged into a single Makati. Metro Manila’s dilapidated mass transportation system measure, SB 1297, which is currently pending on 2nd reading. only makes the employees’ commute unbearable. While a number SB 1297’s counterpart measures at the House of Representatives of projects are currently being constructed and proposed such are still pending with the Committee on Ways and Means. as Metro Manila Subway, BGC-Ortigas Link Bridge, and Bus One of the key proposals is the hiking of the central bank’s Rapid Transit (BRT) System (see map), it will take at least 3 capitalization to P200 billion from the current P50 billion. Former years before some these projects are completed. Meanwhile, the BSP governor Amando Tetangco, Jr. expressed full support for much-needed MRT-3 rehabilitation has yet to be started. Allowing SB 1297, particularly the provision raising the central bank’s telecommuting will be a great relief to some employees. Although capitalization. According to Mr. Tetangco, since the restructuring employers and the DOLE must make sure that safeguards are in of the BSP in 1993, the Philippines has undergone 2 financial place to maintain the productivity of telecommuting workers. crises: the Asian financial crisis in 1997 and the global financial crisis in 2007. However, the BSP’s capitalization has remained The measure’s enactment is crucial especially the same for the past 23 years. Current BSP governor Nestor Espenilla also supports the provision and the passage of the bill. as the worsening traffic across Metro Manila The proposed bill also expands the BSP’s supervision and has affected the productivity of employees. regulatory powers over banks, finance companies, non-bank financial institutions performing quasi-banking functions, credit card firms, money changing businesses, pawnshops, e-money issuers, money forwarding businesses, payment and settlement system operators, and other institutions doing similar business.
Philippine ANALYST CONGRESSWATCH June 2018 CONGRESSWATCH 75 Group Group Policy, Division Operations IT Systems IT Systems IT Project IT Project Department Department IT Security IT Security Management Management Planning, and IT Acquisitions Strategy Group IT Infrastructure & IT Infrastructure Information Sub-Sector Technology Budget Financial Special Accounting Risk Department Planning & Office Office Studies Group Sub-Sector Systems & Systems Management Comptrollership Methods Office Corporate Affairs Sector Office Corporate Services Human Human Group Group People Resource Resource Analytics Department Department Knowledge Information Management Office BSP Institute Office Development Human Management Health Services Business Resource Management & Corporate Sub-Sector Settlements Settlements Payments & Payments Provident Fund Planning Office Continuity Office Asset Office Office Project Services Security, Security, Facilities Facilities Transport Department Department Department Department Engineering Procurement Management Management Services Administrative Investigation & Management & Development & Sub-Sector Management
Integrity Office Integrity Currency Issue & Cash Department Sub-Sector Metro Manila Currency Operations Group Services Financial Visayas Branches Branches Branches Mindanao North Luzon BSP Cebu Branches BSP Davao BSP La Union Sector South Luzon Regional Office Regional Office Regional Office Regional Currency Operations Sub-Sector Management General Services Department of Printing Securities Securities Production Operations Department Department Department Banknotes & Banknotes & Management Mint & Refinery Currency Production Sub-Sector Office Office of of Office Secretary, Office of the Management Internal Audit Systemic Risk Monetary Board Reserves Reserves Operations Department Management Management Department I Department II Department of Loans & Credit Services Office Market Support Analytics Office Domestic Market Investment Risk & Operations Sub-Sector Governor Financial Market Monetary Board Special Office of of Office Investigation Office Relations Operations Department Department International International Investor Relations Sub-Sector Litigation and Monetary and Investigation Group Economics Sector Affairs & Surveillance International Monetary Services Counsel and Legal Office of the General Center Group Economic & Department of Department of & Financial Policy Financial Learning Economic Statistics Economic Sub-Sector Legal Counseling Center for Monetary Economic Research Monetary Policy Group Discipline Discipline Administrative Group Oversight Department Payment System System Payment Core IT Specialist Financial Sub-Sector Technology Integrated Integrated Supervision Supervision Department I Department II Financial Supervision Sub-Sector III Sub-Sector Central Services Staff Services Administrative FSS Technical Services Group Contact Contact Group System Integrity Medium Finance Services Regional Financial Specialist Division II Division Enterprise Examination Examination Department Supervisory Department III Department III Department IV Department IV Central Point of Central Point of Financial Micro, Small & Small Micro, Financial Supervision Sub-Sector II Supervision Sector Group Management FSS Operations Advocacy Office Inclusive Finance Contact Contact Group Group As of 18 JulyAs 18 2018 of Services Regional Division I Division Specialist Examination Examination Department I Department I Organization Chart Department II Supervisory Department II Central Point of Central Point of Financial Trust Specialist Capital Markets Supervision Sub-Sector I Source: Human Resource Development Department Development HumanSource: Resource BANGKO SENTRAL NG PILIPINAS Policy Office of of Office Financial Protection Consumer Department Supervisory Supervisory Data Center Policy Development Sub-Sector Supervisory
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Once signed into law, the bill would grant the central card while only 3.5% connect to the internet to pay bills or bank authority to seek necessary information from covered make purchases. Measures to improve financial inclusion must companies. These firms would face sanctions if they withhold extend to overseas Filipino workers (OFWs), whose billions of such information. The law protects citizens who rely on the dollars in remittances annually keep the economy afloat. The services of banks and other firms providing financial services. ease of transferring money to the Philippines, expansion of The proposed bill also allows the central bank to establish fund transfer options, and implementation of financial literacy a reserve fund to mitigate future risks and contingencies sessions for OFWs and their families must also be prioritized. inherent in carrying out its functions. The measure also As central bank governor, Mr. Espenilla also serves as the permits the BSP to acquire shares of any kind or accept them chairman of the Monetary Board and the Anti-Money Laundering as collateral and prohibits it to participate in the ownership Council (AMLC). This will be a particularly challenging post or management of any enterprise either directly or indirectly. given that the council is among the agencies that are at the The approval of the measure will enable BSP forefront of the government’s anti-corruption efforts. AMLC’s governor Nestor Espenilla to implement key reforms powers to investigate are also constricted by a bank secrecy law within the country’s central monetary authority. that is considered as among the most restrictive in the world. In May 2017, President Rodrigo Duterte appointed Nestor Gov. Espenilla’s ability to properly execute his function Espenilla as the new governor of the BSP. Pres. Duterte’s decision can be enhanced by the enactment of key reform measures to appoint Mr. Espenilla shows the chief executive’s desire to but which are not among the priorities in Congress. instill smooth transition and policy continuity at the central Among these is the proposed New Central Bank Act. bank, in keeping with the President’s socio-economic agenda The enactment of the bill is crucial as it intends to keep of continuing and maintaining current macroeconomic policies. pace with the changes of a modern and globalized economy Among the major challenges that Gov. Espenilla faces and to make the Philippine central monetary authority less is the improvement of financial inclusion in the country. At vulnerable to shocks brought about by global financial crises. present, only 3 of 10 Filipinos have bank accounts; only 12% use a debit card to make payments; only 2.2% own a credit
BSP’s Advocacies:
hh Microfinance and Financial Inclusion hh Financial Education and Consumer Protection hh Overseas Filipino Workers
The proposed bill strengthens the country’s monetary authority and gives the central bank more flexibility in regulating and managing the Philippines’ financial system.
Philippine ANALYST CONGRESSWATCH June 2018
IMA Asia
Asia Pacific Executive Brief
June 2018 © IMA Asia
Editor: Richard Martin ([email protected]) Consulting economist: Kostas Panagiotou ([email protected])
CONTENTS CONFIDENTIAL Overviews Global Outlook Regional Outlook North Asia Japan China Hong Kong Taiwan South Korea Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam South Asia India Australasia Australia New Zealand www.imaasia.com
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Global outlook
A strong start The global economy had a strong start to 2018 according to our favourite measure. Exports for the global for the A/P14 covered by the Asia Brief grew 11.7%yoy in Q1’18 followed by 10.9%yoy in economy to April, which is in line with full 2017 growth of 10.7%. Keep in mind that’s after five straight 2018 years when A/P14 exports fell by an average 0.8%pa. As Asia makes a lot of the world’s goods, this measuring stick suggests sustained strong demand in Q1’18 after the 2017 … with good recovery. That recovery reflected healthier balance sheets in Europe, China, and the US. In growth likely its April forecast, the IMF put global growth at 3.9% this year and in 2019, from 3.8% in 2017 into 2019 and a decade average of 3.5%pa to 2016. Despite all the risks, that remains a reasonable forecast, as most risks are less bothersome if a market has momentum.
A long US Trump’s tax cuts, particularly immediate 100% depreciation for capex, has given the US upturn gains a recovery a second wind. GDP growth lifted to 2.9%yoy in Q1’18 from 2.3% for full 2017. 2nd wind That was led by a 4.6% rise in private fixed investment from 4% growth in 2017. We expect private capex to grow by 6.8% this year and 5% next year. Consumers were slower off the … as capex mark with 2.6%yoy growth in Q1’18 down from 2.8% for full 2017. The boost from income lifts after the tax tax cuts and strong employment growth was likely offset by a jump in fuel prices and weak cuts wage growth. Overall, we expect 3% GDP growth this year and 2.8% in 2019 after 2.3% growth in 2017 and a decade average of 1.4%pa to 2016.
The Euro area Euro zone growth edged up to 2.5%yoy in Q1’18 from 2.3% in 2017. While the zone has yet sees steady to break out its Q1 GDP data, most indicators point to broad growth. Imports and exports for growth March were both up 17%yoy (US$ terms, our standard cross-country measure), while industrial production was up 3%yoy after 2.9% growth in full 2017. Unemployment in March was down to 7.1% from 7.9% a year earlier, while growth in the annual rate for new car sales edged up to 6%yoy in March from 5.7%yoy in December 2017. The IMF puts GDP real growth this year slightly up on 2017 at 2.4% before it eases to 2% next year. That’s well above the decade average to 2016 of 0.7%pa.
RISKS While good growth will help mitigate risks two challenges need watching. The first is a gradual exit from quantitative easing (QE). The US and England have stopped it, and China QE is ending is curbing the wilder fringes of its credit growth. The Euro zone is likely to stop its QE by the end of this year, which leaves Japan alone continuing QE into 2019. That has a big impact … & that will by reversing the flow of ultra-cheap capital into risky assets (either emerging markets like affect countries, Argentina or Turkey or bubbly real estate markets). In Asia, that puts India, Indonesia, and asset prices & the Philippines on a watch list for currency falls, while HK’s soaring property prices are a supply chains worry. It also means the end of cheap working capital in corporate supply chains, as our May CFO meeting in Singapore explored.
Protectionism The second risk is the rise of populist politicians and protectionist trade and industry policies. It has already delivered the shocks of Brexit and a Trump presidency, both of which will have … strategy will an impact on markets. While political grandstanding and damage to specific firms gains need to adapt press attention, fundamental adjustments will likely be need to long-term strategy (indeed, the protectionists aim for that).
The potential for Combine strong US growth and rising interest rates with milder growth and low policy rates a US$ surge in other OECD economies and rising global market volatility and you have a recipe for a big rise in the US$.
IMA Asia’s forecasts 2015 2016 2017 2018 2019 World – Real GDP growth, % 3.5 3.2 3.8 3.9 3.9 - US 2.9 1.5 2.3 3.0 2.8 - Euro area 2.1 1.8 2.3 2.4 2.0 - Asia/Pacific (14) 4.5 4.7 4.9 4.7 4.9 - NICs (4) 2.2 2.6 3.2 3.0 2.5 - Developing or “EM” Asia (7) 6.7 6.6 6.6 6.4 6.3 - ASEAN (6) 4.5 4.6 5.2 5.0 4.8 World goods & services trade volume, % growth 2.8 2.3 4.9 5.1 4.7 Interest rates, US Fed target rate, year end, % 0.50 0.75 1.50 2.25 3.25 Inflation, CPI, US, year avg., % 0.1 1.3 2.2 3.0 4.0 Inflation, CPI, Euro area, % 0.0 0.2 1.5 1.5 1.6 Crude oil, avg of 3 spot crudes, US$ 51 43 53 65 65 US$ / Euro 1, year average rate 1.11 1.11 1.13 1.24 1.21 Yen / US$1, year average rate 121 109 112 110 112 The Asia/Pacific 14 = the countries on the forecast summary page. NICs are the newly industrialised countries = Korea, Taiwan, HK, Singapore. The ASEAN 6 = Indonesia, Thailand, Malaysia, Philippines, Vietnam, + Singapore. Dev Asia = ASEAN 5 + China and India. IMA Asia forecasts.
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Asia Pacific Executive Brief June 2018 www.imaasia.com
Regional outlook
Summary of forecasts in this month’s Asia Brief
GDP (Expenditure), real growth, % 2015 2016 2017 2018 2019 Japan 1.4 1.0 1.7 0.9 1.1 China 6.9 6.7 6.9 6.5 6.3 Hong Kong 2.4 3.3 3.8 4.4 3.0 Taiwan 0.8 1.4 2.9 2.4 2.0 South Korea 2.8 2.9 3.1 2.7 2.5 Indonesia 4.9 5.0 5.1 5.4 5.5 Malaysia 5.0 4.2 5.9 5.3 4.8 Philippines 6.1 6.9 6.7 6.0 5.3 Singapore 2.2 2.4 3.6 3.6 3.0 Thailand 3.1 3.4 4.1 3.7 3.2 Vietnam 6.7 6.2 6.8 6.4 6.2 India (CY) 7.6 7.9 6.2 7.3 7.4 Australia 2.5 2.6 2.3 2.6 2.6 New Zealand 4.2 4.2 3.0 2.8 2.6
Inflation, CPI year average, % 2015 2016 2017 2018 2019 Japan 0.8 -0.2 0.5 1.1 1.2 China 1.4 2.0 1.6 2.4 2.5 Hong Kong (composite CPI) 3.0 2.4 1.5 2.5 3.0 Taiwan -0.3 1.4 0.6 1.9 1.6 South Korea 0.7 1.0 1.9 1.7 2.5 Indonesia 6.4 3.5 3.8 3.5 4.0 Malaysia 2.1 2.1 3.7 2.0 2.5 Philippines 0.7 1.3 2.9 4.4 5.0 Singapore -0.5 -0.5 0.6 0.5 1.3 Thailand -0.9 0.2 0.7 0.8 1.4 Vietnam 0.6 2.7 3.5 3.4 4.1 India (CY CPI urban non-manual workers) 4.9 5.0 3.3 5.0 5.0 Australia 1.5 1.3 1.9 2.2 2.6 New Zealand 0.3 0.6 1.9 1.6 2.4
Exchange rate to US$1, year avg. 2015 2016 2017 2018 2019 Japan 121 109 112 110 112 China 6.28 6.64 6.76 6.39 6.52 Hong Kong 7.75 7.76 7.79 7.82 7.80 Taiwan 31.8 32.2 30.4 29.7 30.2 South Korea 1,131 1,160 1,129 1,085 1,105 Indonesia 13,389 13,309 13,381 14,082 14,517 Malaysia 3.90 4.14 4.30 3.96 4.02 Philippines 45.5 47.5 50.4 53.0 55.7 Singapore 1.37 1.38 1.38 1.34 1.37 Thailand 34.2 35.3 33.9 32.4 32.9 Vietnam 21,677 21,932 22,370 22,754 23,278 India (FY) 64.1 67.2 65.1 67.1 69.2 Australia 1.33 1.35 1.30 1.32 1.32 New Zealand 1.43 1.43 1.41 1.42 1.49
Sources: CEIC, central banks, and national statistics offices. Forecasts are by IMA Asia.
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Regional outlook
Political & policy issues to watch
SE Asia – those One of the wonderful things about democracy is the way that voters can overturn prevailing unpredictable wisdom, as they did in Malaysia in May by dumping a 62-year old government that had voters looked certain to win. We have a lot to learn about the new government led by a politically reborn Dr Mahathir, ranging from a change in policy on big projects to a questionable deal to hand power to Anwar Ibrahim in two years. But already we can see a swing in drivers from growth led by big projects (and China) to a lift in consumer demand and sentiment after the GST was zeroed on June 1. The military in Thailand is toying with plans for its own tightly controlled election in 2019 and will have been shocked by the Malaysian poll. Does money, coercion, and gerrymandering count for so little today?
The long-term Despite conflicting reports of progress and failure on US-China trade talks, and an impact of the 2018 avalanche of “what-if” analysis, one underlying theme is emerging. Economic nationalism US-China trade is on the rise, particularly in the US and China, and companies will need to adapt their spat strategy. At one extreme that may mean choosing which camp to belong to, although most firms will try strategies that can bridge the growing divide. That likely means big adjustments to supply chains, which might be a boost for production in Taiwan and southeast Asia. In the short-term, we don’t expect a trade war. China will give Trump enough to claim a “historic trade win” before the November elections, although US trade data will likely show the opposite thanks to a strong US$.
North Korean risk Risk on the Korean peninsula will continue to ease whatever the outcome of talks between is easing North Korea and the US. In the last year, Pyongyang has notched up three long-sought victories: intercontinental nuclear capacity; de facto recognition as a nuclear power (at … but what can least by the US); and bringing the US president to the negotiating table after six decades in Kim do to help which all prior US governments refused direct talks. A fourth big victory appears imminent, Trump? if Trump agrees to a formal recognition of the end of the Korean war at a June meeting in Singapore, which would lock in place the legitimacy of the North Korean regime. President Kim Jong-un is now focused on ending sanctions and supporting an economic recovery rather than sabre rattling. He’ll not give up nuclear weapons, so the question is what he might do – with Beijing’s approval - to save Trump’s face and allow sanctions to be eased.
Outlook for the market
Strong exports Our forecast theme for 2018 was for the region to see firm but moderating export growth boost Asia’s start with domestic demand set to play a more prominent role. So far, we appear to have under- to 2018 estimated the strength of export demand, which through to April was running stronger than the rebound pace set in 2017 (see our Global Outlook). However, we expect a cooling in … but the export export growth to emerge in data for May and June and to continue through 2H’18 into lift should cool in 2019. As a result, our overall forecast for 2018 and 2019 is little changed from the one 2H’18 made in January. ASEAN is the only sub-region with a significant change, with growth for 2018 trimmed to 5% (from 5.3% in January) and to 4.8% for 2019 (prior 5%). Mostly, that recognises persistent weak growth in Indonesia and some cooling in overly-fast expansions in Vietnam and the Philippines.
Good domestic The domestic demand side of our 2018 outlook remains intact, particularly in markets like demand Japan, China, India, the Philippines, and Vietnam. We expect Thailand to see a local demand revival this year, while Malaysia may get a boost from its new government.
No plunges for In our Global Outlook we argued that three of our 14 A/P currencies should be watched for Asia’s weaker currency falls, as the countries involved – the Philippines, Indonesia, and India – had rising currencies current account deficits in a world increasingly wary of emerging market (EM) risk. That risk does not put them in the same category as Turkey and Argentina, which saw their … while the currencies fall 15-20% on the US$ in May alone. Indeed, S&P released confirmation of a strong ones won’t stable outlook for Indonesia at the end of May. The Asia three have strong foreign follow the US$ up exchange reserves, and much lower foreign and public debt levels. As a result, modest policy interest rate rises should limit depreciations. Elsewhere, Asia saw strong rises on a weaker US$ over the last 12-18 months, particularly for China, Taiwan, South Korea, and Thailand. With the US$ returning to an appreciation phase on its trade weighted index from April, most of Asia’s strong currencies over the last 18 months are likely to give ground, as their respective interest rate differentials widen with the US.
Richard Martin, IMA Asia Email: [email protected]
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Japan
Political & policy issues to watch
Despite scandals Despite two influence peddling scandals and a related slide in popularity, PM Abe isn’t PM Abe has the under pressure in the Diet or in the ruling LDP. While opinion poll support for his cabinet numbers to stay fell 14 percentage points to 42% in March and has stayed near that level, support for the put main opposition party, the CDPJ, is just 12%. Meanwhile, the LDP, along with coalition partner Komeito, dominates in the Diet, with 312 of the 465 lower house seats and 150 of … in the Diet the 242 upper house seats. The next contest will be local elections in the spring of 2019, followed by a half upper house poll in July 2019. The LDP should do well enough in both. … and in the Abe needn’t call a general election until October 2021, having won a snap lower-house LDP race last October with the loss of just seven seats. He must also win a third 3-year term as head of the LDP in party elections, which are due by this September. Opinion polls say he is well placed in this race too, with 45% support among LDP voters compared to 21% support for Defence Minister Shigeru Ishiba and 19% for a young Shinjiro Koizumi. Having dressed up as Super Mario for the London Olympics closing, he’ll hope to hold on to office until the 2020 Tokyo Olympics. By then, he’ll be Japan’s longest serving post-war PM, and that that may be his greatest risk, as voters tire of his rule.
New laws are The current Diet session ends on June 20 with the government expected to push through imminent three significant bills if it can avoid further gaffes. The most important is a labour reform bill, which calls for equal pay for equal work to eliminate wage gaps between regular and …on labour nonregular employees, and the introduction of a cap on overtime hours. This fits with rules, casino- Abe’s drive for higher wages to lift consumer spending. A bill to established three resorts, and TPP integrated resorts based on casinos is also expected to be passed. Finally, a bill to ratify ratification the 11-member TPP trade pact may also get passed. Abe’s trade team wants that in place to bolster their position in bilateral trade negotiations with the Trump administration.
Outlook for the market
A surprisingly Japan’s economy stalled in Q1’18, with the widely watched quarter-on-quarter change weak Q1’18 falling 0.6%, while our standard year-on-year measure showed growth slowing to 0.9%yoy from 1.7% for 2017. We had expected growth to cool this year, but not as abruptly. … suggests Moreover, the slide in domestic demand growth was sharp, with real growth in consumer slower growth spending slowing to 0.2%yoy from 1% in full 2017, while fixed investment growth slipped to 1.1%yoy from 2.5% in full 2017. By itself, the weak Q1 has pulled down our 2018 growth … but watch forecast, and we’ve also trimmed growth for the next three quarters. Our new forecast of for the impact of 0.9% growth in 2018 is down from 1.4% last month. The key for 2019 remains the sales the 2019 sales tax hike to 10% from 8% planned for October 2019. That’s likely to pull forward both tax hike consumer and fixed investment spending, with GDP growth lifting above 1% again.
Consumers pull The slump in growth for consumers appears tied to car sales, which fell 2.7%yoy in Q1’18 back on cars after a 5.8% surge last year. That gyration reflects the extreme sensitivity of consumers to tax breaks and tax hikes, in this case for eco-friendly cars. Take cars out of retail sales, and Q1’18 saw 2.1%yoy growth, up from 1.3% for full 2017, suggesting steady or slightly firmer consumer demand. We’re expecting real growth of 0.7% this year from 1% in 2017, with a lift to 1.5% in 2019, as consumers lift spending before the sales tax rises.
Surprising Exports are running stronger than expected, with 10.2%ytd (US$ terms) for the first four strength in months compared to 8.3% for full 2017. By far the strongest export growth for the year to exports and April was to China, up 16%yoy, followed by ASEAN (11%), and the EU (10%). The US capex for export was up just 6%, although we can assume that a lot of what went to China went into manufacturing products heading for the US. Strong exports appear to have been the trigger than lifted May new machinery orders back at levels last seen over 2005-08 and 1990-92.
The Yen swings April inflation dropped to 0.6%yoy after four months above 1%. Core inflation remains back to a slide under 0.5%, so there’s no reason for the Bank of Japan to reduce its quantitative easing on the US$ program and tighten monetary policy any time in the next two years. With the US Fed on a rate hike path, widening interest rate differentials saw the Yen slide to 109 on the US$ in May from 106 in March. That mild Yen downtrend should run into 2019.
2015 2016 2017 2018 2019 GDP, real growth (2005p), % 1.4 1.0 1.7 0.9 1.1 CPI, year average, % 0.8 -0.2 0.5 1.1 1.2 Overnight call rate, year end, % 0.04 -0.06 -0.06 -0.07 -0.02 Yen to US$1, year average 121 109 112 110 112 Sources: 2015-2017 data from the BOJ and government sources; 2018-2019 estimates by IMA Asia 81
Asia Pacific Executive Brief June 2018 www.imaasia.com
China
Political & policy issues to watch
Big reforms are China’s challenge in 2018 will be staying on course. Major reforms are underway in its underway industrial and financial sectors, with the goal of improving efficiency (especially in the allocation of capital), productivity (as the labour force in shrinking), and innovation. The … to industry, reforms will sustain long-term growth, but are mildly negative for short-term growth. finance, and Alongside these “supply-side” reforms, there is a major restructuring of government, which government should also support long-term growth. Risks in two areas could knock China off course. The first are domestic, and mostly economic, as the political outlook appears sound (a dominant communist party with a dominant leader). The second are external, and concern the trade spat with the US. Despite these risks, we expect China to stay mostly on course and our forecast below assumes that.
Domestic risk has There has been a big reduction in domestic risks over the last year, the biggest of which fallen was the possibility of a financial crisis due to excess leverage and poor regulation in the shadow banking sector. Tighter regulation of borrowers (especially local governments) … as shadow and lenders has seen shadow banking’s share of total social financing fall from a peak of banking has been 50% to 15% by April. That included a 64%ytd fall in such lending by April. That China kept cleaned up growing through such a dramatic pull-back is striking, with dozens of fine-tuning tweaks (such as cutting the bank reserve requirement ratio) to ensure liquidity and access to capital for key sectors.
Beijing aims to A trade war with the US would also knock China off-course, requiring Beijing to pull back limit the risk of a on reform and boost domestic demand to cushion the adverse impact. Against a populist trade war US president with a commitment to economic nationalism, Beijing will aim to avoid escalation while offering “useful” concessions, in that they’ll fit within the supply-side reform plan to modernise China. Our forecast assumes that China’s highly skilled negotiators, backed by a coherent and unified strategy, can give Trump the victory he needs. However, this looks like the start of a long-term trend that will force MNCs to adapt strategies.
Outlook for the market
Strong demand We expect Beijing to achieve its 6.5% growth target this year, although President Xi’s growth in early administration has shifted its focus from growth to a broader range of quality metrics, 2018 running from improved pollution readings to productivity and innovation. Pushing ahead with reforms to industry, finance, and government will slow growth, as will steps to curb …with scope to property speculation. If a trade war escalates, we’d expect China to engineer a lift in tweak policies lending (TSF growth is currently around 11-12%yoy), as demand from corporates and households is strong, while also easing restrictions on property. 2017 was the first year that Beijing found it had an ability to fine tune growth.
Export & local The latest data points to strong external demand, but easing growth in local demand, with demand should cooler conditions from mid-year. Export growth accelerated to 13.9%yoy in Q1’18 from ease from mid- 7.9% in full 201, and posted a12.6%yoy rise in April. While early 2018 exports are stronger year than forecast, we expect the pace to cool to 8-9% for full 2018 and 5-6% for 2019. Import growth (one measure of local demand) was also stronger than forecast, rising 19%yoy in Q1 and by 21.5%yoy in April from 16% for full 2017. We expect the pace to slow to 10- 12% this year and 6-8% in 2019. The trade surplus has been falling since mid-2016, and the current account went into deficit in Q1’18 for the first time since 2001.
Slower growth in Despite the strong imports data, other indicators point to cooling local demand. Retail retail sales sales growth slowed to 5.1%ytd by April from 10.2% in full 2017. Passenger car sales lifted to 4.5%ytd by April from a weak 1.9% in full 2017, but that’s half the 11%pa average … and housing pace for the five years to 2016. Residential property sales grew 9.5%ytd by April from an 11.3% increase in 2017, with the pace likely to slow further after Beijing told city governments to clamp down on speculation in mid-May.
The Yuan won’t The Yuan’s real effective exchange rate, as measured by the BIS, was up 5.7%yoy in April, follow the US$ up but we expect Beijing to allow a softer Yuan from mid-2018 on a rising US$ into 2019.
2015 2016 2017 2018 2019 GDP, real growth, % 6.9 6.7 6.9 6.5 6.3 CPI, year average, % 1.4 2.0 1.6 2.4 2.5 PBOC 1-year loan, at Dec., % 4.35 4.35 4.35 4.35 4.35 Yuan to US$1, year average 6.28 6.64 6.76 6.39 6.52 Sources: 2015-17 data from CEIC and government agencies; 2018-19 forecasts by IMA Asia 82
Asia Pacific Executive Brief June 2018 www.imaasia.com
Hong Kong
Political & policy issues to watch
Watch for a lift in HK has eased the gridlock in its Legislative Council (LegCo) on public spending and public capex mainland-related issues, which has delayed projects and made construction planning difficult for several years. This is due in part to better management of the flow of business … as LegCo through the pivotal Finance Committee, but largely to new rules that restrict filibustering bills pass faster and especially because of a more muted opposition, following the ejection of several members of the pro-Democrat camp and the threatened expulsion of one or two more. Chief Executive Carrie Lam is pushing for approval of some HK$170bn in spending before Legco breaks for the summer recess in July, the highest amount in five years.
The long-term Central to HK politics and economics over the next decade is how well the city integrates plan into the Greater Bay Area (GBA), China’s plan for integrating an area the size of Germany in the Pearl River Delta into an economic bloc with a US$1.3tr economy and some 68m … will HK fully people scattered across 11 cities. With two controversial major transport links between HK integrate into and the rest of the GBA due to open within months – the HK-Macau-Zhuhai bridge and the China’s Greater HK-Guangzhou fast train – China’s peak policy body, the NDRC, may produce more Bay Area? details on the plan this month. HK could play a central role as a hub for finance and high- end services. A strong IT-based industry sector could also emerge, as the GBA is home to China’s IT titans, like Tencent and Huawei - as it has been for TTI and others. It could also help resolve the perennial problem of overcrowding and soaring home prices in HK. For any of this to come true, some dramatic changes in the regulatory framework for both HK and China need to take place and both face political hurdles - like often visceral opposition to mainland projects in HK and regulatory mismatches. But HK needs to move quickly before the rapidly developing GBA cities see the SAR becoming less relevant.
Outlook for the market
A fast start to HK has started 2018 at a fast clip, delivering Q1’18 GDP growth of 4.7%yoy, a whole 2018 as trade and percentage point above market forecasts. Trade has grown much faster than expected local demand and HK’s large stock market has recorded a 29%ytd lift in equity raised by April. But it also jump reflects an 8.6%yoy surge in consumer demand in Q1’18, after 2.5% growth in full 2017. This means our 2018 forecast GDP growth rises to 4.4% from 3.3% (matching the IMF), while our 2019 forecast lifts to 3% from a prior 2.9%. Caution is required because of two clear risks: the impact of higher interest rates on HK’s soaring home prices, and the spill over from a possible US-China trade war.
A surge in The consumer surge starts with a 13%yoy jump for mainland tourist arrivals in Q1’18 that mainland tourists accelerated to 15%yoy in April. That helped boost retail sales growth by volume to helps retailers 12.7%yoy in Q1’18, by far the fastest pace since Q2’13. That was led by a 22%yoy surge in the watch & jewellery sub-index, while apparel also did well with a 12.6%yoy rise, and volume at department stores rose 10.3%yoy. A current price measure for restaurant and all other eating places also jumped, recording 8.7%yoy growth in Q1’18. But supermarket sales fell 1.6%yoy in Q1’18. We now expect real growth in consumer spending of 6.6% this year and 3-4% next year, from 2.5% in 2017.
Defending the low By April, the HKMA had spent some US$6.5bn of its $440bn in forex reserves and drained end of the HK$ interbank liquidity to defend the 35-year old HK$ peg to the US$ at the 7.85 low side of its trading band trading band. There’s little doubt that the HKMA can defend the peg; its actions have nudged up HK’s low interest rates, with the 3-month HIBOR at 1.77% at end May, its … means a mild highest level in a decade. This increase has helped push up mortgage rates to 2.3%pa. rise in very low That hasn’t deterred surging demand for homes, which lifted residential property prices interest rates 14%yoy by April. This surge has to stop in 2018; the key question is whether it’s a gentle easing, as new housing supply emerges or a bust. The market expects the former.
2015 2016 2017 2018 2019 GDP, real growth, % 2.4 3.3 3.8 4.4 3.0 Composite CPI (14/15), year average, % 3.0 2.4 1.5 2.5 3.0 Discount window base rate, % year end 0.75 1.00 1.75 2.50 3.50 HK$ to US$1, year average 7.75 7.76 7.79 7.82 7.80 Sources: 2014-2017 from Censtat, HKMA, and CEIC; 2018-2019 forecasts by IMA Asia.
Dr Mark Michelson, Chairman, Asia CEO Forum (Hong Kong) Tel: (852) 2530-1115 Fax: (852) 2530-1125 Email: [email protected]
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Taiwan
Political & policy issues to watch
A loss of support President Tsai Ing-wen is two years into her first four-year term and eligible for a second from Pres. Tsai term in 2020. On present trends, she may not get that, and her party, the DPP, might also lose control of the legislature. Taiwan has a blizzard of opinion polls, but all are showing rising dissatisfaction with Tsai and her administration. That includes the latest poll by the … watch the DPP, which puts dissatisfied voters at 48.4% to 41.7% satisfied. This November’s local November local elections may see big gains by the opposition KMT despite its own poor leadership. A elections major defeat for the DPP in November would leave Tsai a lame duck leader, with William Lai, her premier, possibly replacing her as the DPP’s presidential candidate. The rising mood of dissatisfaction is fertile territory for US-style populism and abrupt voter swings.
Rising conflict Central to Tsai’s falling popularity is her policy agenda. Some policies were needed but over policy were deeply unpopular, like long overdue reforms to the public-sector pension system. Other reforms delivered on election commitments but had unintended consequences, such … reflect voter as promoting green energy over nuclear power and the ensuing blackout in August 2017. unease over a Policy on relations with China have been particularly deadly, with many in Tsai’s party weak industrial castigating her for not pushing for independence, while the KMT hammers her for pushing sector independence and undermining crucial economic ties with the mainland. Beijing has lent heavily on the KMT’s side, edging up cross-straits tension to undermine the DPP. Yet none of this has much to do with Taiwan’s central challenge, which is adapting to rapid hollowing out of the island’s industrial base. Tsai’s policies to deal with that look lightweight, while the KMT has none. Voters are the “cannon fodder” and are worried.
Outlook for the market
A muted 2017 As a major export manufacturer, Taiwan’s growth should have rebounded in a global recovery recovery. Yet, 2017 saw GDP growth of 2.9%, which though double the 2016 pace was well below global growth of 3.8%. Meanwhile, export growth, which lifted to 13% last year … with growth eased to around 10.5%ytd by April. As a result, we’ve kept our GDP forecast growth easing in early unchanged from last month. For exports, we expect 6-7% growth this year and 5-6% next 2018 year. That should deliver industrial production growth of 2.7% this year and 2.2% in 2019, after a 3.3% increase in 2017 and 3.8%pa decade average growth to 2016.
Consumer do The one bright spot in recent data was a lift in real growth for consumer demand to better as wages 2.7%yoy in Q1’18 from 2.4% in full 2017. That reflects a strong employment market as lift export factories geared up to meet 2017 demand. That saw wage growth lift to 4.7%yoy in Q1’18 from 2.5% in 2017 and 0.6% in 2016. Retail sales for the first four months were up 2.8%ytd after 0.5% growth in 2017 and 0.6% in 2016. Unemployment has been at 3.8% for eight straight months, a level last seen prior to the 2001 tech-wreck hit. We expect consumer demand growth of 2.5% in 2018, easing to 2.1% in 2019 from 2.4% in 2017 and a decade average to 2016 of 2%pa.
Capex grow One wild card to watch in 2018 is fixed investment, which can be characterised as both remains weak cyclical (linked to the global chip cycle) and weak (its share of GDP has fallen from 35% in the 1990s to 22% in 2017). Q1’18 saw capex edge up by 0.5%yoy after falling 0.3% in … but watch the 2017 and average growth of just 0.8%pa in the decade to 2016. An escalating US-China US-China trade trade war could see Taiwanese firms pull some US-bound assembly work back from dispute China, leading to investment in new capacity on the island. At present, we expect capex growth of 1.4% this year and 2.8% next year.
A 2-year NT$ rally After posting a strong 16% gain on the US$ in the last two years, the NT$ has started has ended losing ground, as the greenback staged a broad-based upturn. Mild NT$ weakness is likely to persist into 2019, as the US$ recovers on the back of rising US interest rates.
2015 2016 2017 2018 2019 GDP, real growth, % 0.8 1.4 2.9 2.4 2.0 CPI, year average, % -0.3 1.4 0.6 1.9 1.6 Official discount rate, year-end, % 1.63 1.38 1.38 1.50 1.63 NT$ to US$1, year average 31.8 32.2 30.4 29.7 30.2 Sources: 2015-2017 government data and CEIC; 2018-2019 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Michael Boyden, Managing Director, Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978 Fax: (886 2) 8789 0877 Email: [email protected]
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South Korea
Political & policy issues to watch
An uncertain Several meetings between the leaders of North and South Korea this year and the outcome on North upcoming US-North Korea summit on June 12 in Singapore could improve the political and Korea economic outlook on both sides of the Korean peninsula. The main stumbling block is that it is quite unlikely that North Korea will let go of its nuclear weapons or that the US will withdraw its troops from South Korea. The key issue is whether Presidents Kim and Trump can negotiate some form of improved relations between these two hard realities. That’s far from clear, and it doesn’t help that both presidents are mercurial, prone to bombast, and given to blindsiding their own teams and supporters.
President Moon President Moon Jae-in’s hard work in improving ties with North Korea has pushed his gains support for approval rating to a 4-month high of 70%, which should help his Democratic party in the his diplomacy upcoming June 13 local elections. His labour-friendly policies are also likely to be a big factor in building popular support. They include a 16.4% hike in the minimum wage this … and his pro- year, reduced statutory working hours (52 hours per week from 68), and increased hiring labour policies by the public sector. Companies argue that the associated jump in labour costs has contributed to a downturn in hiring. Meanwhile, tough labour market rules are cited as the … although they biggest concern in a recent survey of 120 foreign companies operating in Korea. That’s add to industrial led to employers citing data showing that factories are moving jobs overseas, while foreign challenges investors are pulling out. Yet, Korean labour market regulation has always been excessive and labour relations are famously fraught. In large part, Korea is confronting the type of industrial restructuring that has swept across other advanced markets in the last decade.
Outlook for the market
Growth is slowing GDP growth eased to 2.8%yoy in Q1’18 from 3.3%yoy in 2H’17, as domestic demand in 2018 growth slowed to 4.2%yoy from 4.5%yoy on the back of weaker investment activity. A big drop in net exports also undermined Q1 GDP growth, as export volume growth eased a lot … as growth in more than that of imports. Support from external demand weakened further in early Q2’18, exports cools as US$-based exports rose 5.5%yoy in April-May, while imports surged 13.5%yoy from respective Q1 increases of 10.1%yoy and 13.6%yoy. Korea’s manufacturing purchasing managers index (PMI) also lost ground, falling to 48.9 in May from a recent peak of 51.2 in November 2017. The emerging economic slowdown is consistent with our expectation of GDP growth easing to 2.7% in 2018 followed by 2.5% in 2019 from 3.1% in 2017.
Slower growth for Fixed investment growth eased to 4.7%yoy in Q1’18 from an 11%yoy peak in Q1’17, as construction and both construction and industrial capex activity lost steam. The capex slowdown is set to industrial capex continue, as indicated by weaker capital goods imports (up 8%yoy in April from 12.6%yoy in Q1’18 and 16.2% in full 2017, all US$ basis) and a recent downturn in construction approvals. With these trends firmly in place, we expect fixed investment growth to slow to 4% in 2018 and 2.7% in 2019 from 8.6% posted in 2017.
High debt limits Private consumption growth edged up to 3.4%yoy in Q1’18 from 3%yoy in 2H’17, but household falling passenger car sales (-1.5%yoy in January-April from -3.5% in full 2017) hint at spending growing consumer reluctance to spend. This is understandable in view of slowing employment growth and record high household debt (94.4% of GDP up from 74.2% in 2008). We expect consumption real growth to ease to 3% in 2018, followed by 2.5% in 2019 from 2.6% in 2017.
Steady interest The BOK is likely to keep its policy interest rate steady at the current 1.50% for the rest of rates and a this year, as economic growth slows, and inflation remains low (1.3%yoy in January-April weaker Won from 1.9% in full 2017). In conjunction with rising US interest rates, this will tend to soften the Won, which gained 13% on the US$ through 2017.
2015 2016 2017 2018 2019 GDP growth, % 2.8 2.9 3.1 2.7 2.5 CPI, year average, % 0.7 1.0 1.9 1.7 2.5 BOK Base rate, year-end, % 1.50 1.25 1.50 1.50 2.25 Won to US$1, year average 1,131 1,160 1,129 1,085 1,105 Sources: 2015-2017 government data (NSO, BOK) and CEIC; 2018-2019 forecasts by IMA Asia.
The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Tony Michell, Managing Director, Korea Associates Business Consultancy Ltd Tel: (82 2) 335 7854/2614 Fax: (82 2) 323 4262 Email: [email protected] 85
Asia Pacific Executive Brief June 2018 www.imaasia.com
Indonesia
Political & policy issues to watch
President Jokowi With the deadline for candidate registration in the April 2019 presidential race less than still leads in the three months away, it is still uncertain who will oppose President Joko Widodo (Jokowi) as 2019 presidential he runs for his second and last term. Gerindra (the party of Prabowo Subianto, who leads race the opposition to Jokowi) and Partai Demokrat (PD, led by Susilo Bambang Yudhoyono or SBY, who was President of Indonesia 2004-14) are working on an alternative ticket that … but a strong would place SBY’s son, Agus Harimurti Yudhoyono (AHY) as vice-president. At just 40 contender may years of age, AHY is looking for the VP slot on any strong ticket that would position him as still emerge a presidential contender in 2024. Opinion polls put Jokowi well ahead of any contender for 2019, but there’s a large undecided group that could swing the election against him. That may well depend on the outcome of local elections across Indonesia on June 27.
Beefing up anti- After a string of terrorist attacks on churches and police stations, Indonesia’s parliament terror capacity has passed a tough anti-terror law that strengthens the role of the army (TNI) in curbing civil unrest. This is controversial, given Indonesia’s decades under a military dictatorship. Yet a survey by Kompas, a respected newspaper, shows 90% of respondents supporting an enhanced role for the TNI. That will help the government counter the threat from over 500 Indonesians who joined ISIS in Syria and have since returned to Indonesia.
Outlook for the market
Three trends in Indonesia’s outlook is shaped by three trends. An infrastructure boom is underway, with the outlook strong sales of cement and steel imports thanks to the government’s infrastructure program. Along with higher oil prices that’s contributed to second trend, which is a 24%ytd … a surge in infrastructure jump in imports by April, while export growth was just 9%ytd. Apart from lowering the GDP growth calculation, that’s also led to a rising current account deficit, which has hurt the … a growing Rupiah. The third trend is continued weak consumer demand growth, which is particularly trade deficit apparent for big-ticket purchases like cars and motorcycles. Overall that left GDP growth … and weak in Q1’18 stuck at 5.1%yoy, matching the full 2017 rate and the 5% reported for 2016. Our consumers forecast of 5.5% for 2018 is unchanged from last month, while 2019 is trimmed to 5.5% from 5.6% prior, which is in line with the IMF’s April 2018 forecast.
Stable consumer Real growth in consumer demand on the GDP measure was 4.9%yoy in Q1’18, in line with demand for growth for the prior four years. While that sounds stable it isn’t, accept for the most basic necessities consumer goods. Over 2013-16 retail sales in current terms averaged 12%pa growth. But in 2017, growth slumped to 2.7%, and in Q1’18 growth was just 0.7%yoy. Vehicles sales … but not for have also stalled, with light vehicle sales falling 2.1% in 2017 before a weak lift of 1%ytd by other goods April. Motorcycle sales fell 18% in 2015, another 9% in 2016, and 0.8% in 2017 before climbing 14%ytd by April. That turned a market that had reached 8m units in 2011 into a 6m unit market over 2016 and 2017. We expect real growth in consumer demand of 5.1% this year and 5.6% next year, with most of the impetus remaining in basic goods.
Civils works boost Construction is leading GDP growth with a 6.8% rise in 2017, followed by 7.4%yoy real construction growth in Q1’18. The lift in construction work is apparent in cement sales, which continued growing at 9.6%ytd for the first four months of 2018, matching the pace of full 2017, and well above the average 5%pa growth in the decade to 2016. That also saw steel imports for the year to March 2018 surge by 31%yoy, following a 20% increase in 2017 and falls of 8% in 2016 and 20% in 2015. We expect construction growth on the GDP measure of 7.2% this year and 6.5% in 2019 from 6.8% last year.
Rate hikes to slow With “risk-off” dominating markets in early 2018 and a widening current account deficit, the the Rupiah’s fall Rupiah has been under pressure. Bank Indonesia’s double rate hike in May will help ease the slide, with 2-3 more hikes likely by end-2019.
2015 2016 2017 2018 2019 GDP, real growth, % 4.9 5.0 5.1 5.4 5.5 CPI, year average, (2012=100), % 6.4 3.5 3.8 3.5 4.0 Central bank rate (7-day RR) at Dec % 6.25 4.75 4.25 5.00 5.50 Rupiah to US$1, year average 13,389 13,309 13,381 14,082 14,517 Sources: 2015-2017 government data (BPS, BI) and CEIC; 2018-2019 forecasts by IMA Asia The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: James Castle, Chairman, CastleAsia Tel: (62 21) 2902 1641 Fax: (62 21) 2902 1648 Email: [email protected]
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Malaysia
Political & policy issues to watch
A surprising The surprise win of the 4-party Pakatan Harapan (PH) coalition in the May 9 poll ended six change in decades under UMNO-led governments. Voter discontent about rising costs, corruption, government and authoritarian government overweighted good GDP growth, government cash handouts, and blatant gerrymandering. The new government of PM Mahathir promises a … PM Mahathir crackdown on corruption and a return to democratic governance, due legal process, and a sets out to clean- freer media. We will need to see how far Mahathir moves on these promises as “money up Malaysia politics” flourished during his first 22-years in power (1981-2003), a period also noted for the rise of authoritarianism in Malaysia. Rent-seeking and corruption are now entrenched … while Anwar and racial quotas in government and business in favour of the ethnic Malay majority (69% waits in the wings of the population) are likely to stay. The plan is for Mahathir to step down as PM after two years in favour of Anwar Ibrahim, leader of the largest component of the PH coalition. If Mahathir delivers on this deal (another big uncertainty), Malaysia faces a 2-stage government, as Anwar would push down a broader reform path.
Bringing big The new government cut the goods & services tax (GST, introduced in 2015) to zero on changes to tax June 1 from 6%, and reintroduced a petrol subsidy removed by UMNO in 2014. While that will mean larger budget deficits, it should boost consumer spending. Some form of sales & … and to major services tax (SST) will be resurrected in the next few months, but the overall tax take will projects fall. A surge in the oil price to US$60-80 from the $52 in the 2018 government budget will help pay for some of this largesse. PM Mahathir will look for other savings by cancelling some of ex-PM Najib’s mega-projects (including the fast rail link to Singapore) and trimming a bloated public service (which includes some 17,000 political appointees). The IMF and bond rating agencies will quibble about a loser fiscal strategy, but we don’t think Malaysia will be downgraded and a new course on economic policy was needed.
Outlook for the market
Growth remains Malaysia’s growth in 2018 will be supported by a higher oil price and by tax cuts, but good companies will need to watch for a swing in the growth drivers towards consumers and away from fixed investment, particularly the mega-projects favoured by deposed PM Najib. … but eases as We’ve trimmed our capex real growth forecast for 2018 to 2.4% this year from 6.2% in big projects are 2017, with a modest recovery to 4% next year. Meanwhile, consumer demand growth will trimmed ease to around 6% this year from 7% in 2017, with 5.5% likely in 2019. Our GDP growth forecast for 2018 is now 5.3% (5.6% last month), with 2019 at 4.8% (5% last month), and with domestic demand growth likely to stay under 5% in both years.
Watch for an As Malaysian businesses and politics are famously intertwined, the change in government impact on local will bring a major realignment in the corporate landscape. This will temporarily freeze a lot corporates of investment activity, as the Mahathir government will review and likely scale down or cancel some of the infrastructure projects of the previous administration. Mahathir has signalled that includes the US$28bn fast rail line to Singapore.
Consumers trim Employment gains (jobs grew 2.2%yoy in Q1’18 from 0.4%yoy in Q2’16) and higher pay spending despite (wages up 8.4% in 2017 and 14.9% in 2016) kept consumption real growth at 6-7%pa in tax cuts 2014-17. But households have been trimming their debt and cutting down on big ticket items (passenger car sales down 2.7%yoy in Q1’18 after a 3.2% fall in full 2017). Household deleveraging is likely to persist, despite the removal of the GST.
The M$ recovery Mild inflation (1.8%yoy in Q1’18) and slower domestic activity will allow the central bank to halts keep it policy interest rate at the current 3% level well into 2019. The Ringgit’s rebound from its December 2016 low has halted, as the US$ staged a broad recovery from Q2’18.
2015 2016 2017 2018 2019 GDP, real growth, % 5.0 4.2 5.9 5.3 4.8 CPI, year average (2010=100), % 2.1 2.1 3.7 2.0 2.5 Central bank overnight policy rate, Dec, % 3.25 3.00 3.00 3.00 3.25 Ringgit to US$1, year average 3.90 4.14 4.30 3.96 4.02
Sources: 2015-2017 data from government, Bank Negara, & CEIC; 2018-2019 forecasts by IMA Asia.
The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Datuk Paddy Bowie, Managing Director, Paddy Schubert Sdn. Bhd. Tel: (60 3) 2078 4031 Fax: (60 3) 2078 7034 Email: [email protected] 87
Asia Pacific Executive Brief June 2018 www.imaasia.com
Philippines
Political & policy issues to watch
Pres. Duterte President Duterte’s approval rating remains high at around 70%, although there is growing moves to address dissatisfaction over rising fuel prices, as tax hikes on fuel have come on top of rising crude a squeeze on poor prices. Poor households have been hurt the most, as they don’t benefit from the modest households personal tax cuts announced as part of tax reform. It’s given small opposition parties a rare popular issue to mobilise around, with a call for a nationwide daily minimum wage of … watch for a Pesos 750 (US$14.23) to replace the current two-tier minimum wage of P512 ($9.72) for hike in minimum non-agricultural workers and P475 ($9.01) for those in agriculture. Although they don’t pay have the numbers to succeed, Duterte’s administration will likely respond with a more moderate hike in the minimum wage in the next few months. Maintaining a high level of public approval is crucial for Duterte’s legislative agenda, as Philippine lawmakers tend to support bills of popular presidents irrespective of their party.
Next phase of tax In the second instalment of tax reforms to be launched later this year, the administration reform could hurt plans to cut the corporate tax rate to 25% from 30%, while removing an array of corporate export-oriented tax breaks, such as tax holidays and duty-free imports, worth over P300bn (US$5.8bn) a businesses year or about 2% of GDP. If passed into law and implement, that could trigger a significant realignment in local commerce, as firms that have built businesses around specific tax breaks lose ground. That includes the booming business process outsourcing (PBO) sector, with US$22.5bn in export revenue in 2017 and 1.3m workers earning more than double the average national wage.
Outlook for the market
An overheated A 16% fall in the local stock market from a January 29 peak reflects investor nervousness economy is set to about reluctance by both the government and the central bank to address an overheating lose steam into economy after six years of 6.6%pa average growth. As a result, inflation has lifted above 2019 the top of the central bank’s 2-4% target range, and the trade deficit hit a record high of US$30bn for the year to March. That’s put the Peso on a steady slide (averaging 3.5%pa) on the US$ since 2013. A key question in the outlook is whether policy settings will be adjusted to cool growth or “automatic stabilisers” (i.e. a sharp fall in the Peso, which would suppress imports and local demand and boost exports) will kick in. There’s no sign yet of Duterte’s administration pulling back on its big infrastructure plans, so we expect a weaker currency – by around 5%pa in 2018 and 2019 - to crimp local demand growth and imports. That will slow GDP growth to 6% this year and 5.3% in 2019.
Watch for the By continuing the prior administration’s infrastructure push in his first 11 months in office, surge in public Duterte has supported 17.5%pa average real growth in fixed investment over the last three works to cool years. That’s lifted fixed investment from 22% of GDP in 2014 to 29% in 2017, which should start a positive transformation of the country’s productive capacity. Yet, the capex growth rate has to slow, as materials and skilled workers are in short supply, and capital goods imports have blown out the trade deficit. We expect fixed investment growth to slow to 7-8% this year and 5-6% next year, as supply constraints and a weaker Peso bite.
Consumers have Private consumption growth eased to 5.8% in 2017 from 7% in 2016 and should slow to been hit by price 5.2%pa over 2018-19. Household purchasing power is constrained by the rising cost of hikes fuel, cars, tobacco and sweetened drinks due to tax hikes and rising crude oil prices. Consumers are turning cautious, as reflected in car sales falling 9.3%yoy in January-April after surging 18.4% in 2017 and 25.7%pa in 2014-16.
Mild monetary The central bank reluctantly lifted its policy interest rate to 3.25% from 3.00% in May, as tightening and a the CPI edged up to 4.5%yoy in April from 3.9%yoy in Q1’18. More monetary tightening is weaker Peso needed, but that won’t slow the Peso’s decline as global markets become wary of EM risk.
2015 2016 2017 2018 2019 GDP growth, % 6.1 6.9 6.7 6.0 5.3 CPI, annual average, % 0.7 1.3 2.9 4.4 5.0 Central bank reverse rep. rate, year end 4.00 3.00 3.00 3.75 4.75 Peso to US$1, annual average 45.5 47.5 50.4 53.0 55.7 Sources: 2015-2017 data from BSP and CEIC; 2018-2019 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Peter Wallace, Managing Director, The Wallace Business Forum Tel: (63 2) 810 9606 Fax 810 9610 Email: [email protected]
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Singapore
Political & policy issues to watch
Will Singapore get The return of Mahathir Mohamed as Malaysia’s PM after the win of the Pakatan Harapan along with the (PH) coalition in the May 9 election could make life less comfortable for Singapore. During new government his previous term as PM (1981-2003) Mahathir had several quarrels with Singapore over in KL? bilateral issues, such as the sale of Malaysian water to the island state, the replacement of a causeway linking the two countries with a new bridge, Singapore’s use of Malaysian … it all depends airspace, and its extensive land reclamation work. Soon after taking office, the PH on Mahathir government said it would cancel a planned US$28bn high-speed rail line to Singapore, disappointing both Singapore and China. Beijing wanted this to be part of a larger rail network linking its Yunnan province with SE Asia. Even though Mahathir will need Singapore’s cooperation in the investigation of the 1MDB financial scandal, the relationship with Singapore is unlikely to be smooth.
Singapore Singapore is preparing for a major leadership transition, with Lee Hsien Loong, its third PM prepares for its since independence in 1965, planning to step down before the next election, which is due own change in in early 2021. A clear successor has yet to emerge, although three cabinet ministers are leadership viewed as likely candidates: Finance Minister Heng Swee Keat, Education Minister Ong Ye Kung, and Trade and Industry Minister Chan Chun Sing. We expect a smooth leadership change, which will maintain stability in policy-making.
Outlook for the market
Softer growth in GDP growth edged up to 4.4%yoy in Q1’18 from 3.6% in full 2017, mostly due to a strong 2019 as global lift in net exports. While export and import volume growth slowed, imports slowed most demand eases due to weak domestic demand. Local demand growth was held down to 2.7%yoy from 3.6%yoy in in Q4’17, as private consumption and fixed investment growth moderated (see below). On the production side, GDP growth was boosted by a 9.8%yoy lift in manufacturing output, as export demand stayed firm. Being one of the world’s most open economies to international trade and investment, Singapore’s growth cycle is highly sensitive to the pace of global demand. With the latter expected to ease next year, Singapore’s GDP growth should ease to 3% in 2019 from 3.6% in 2018.
Firmer jobs and Consumption growth eased to 2%yoy in Q1’18 from 3.1% in full 2017, but this is likely to be housing markets a temporary slowdown. We expect the pace to pick up to 3.7% in full 2018 and 3.5% in should lift 2019 from 3.1% in 2017. Jobs growth turned flat in Q1’18 after a 0.2% fall in 2017, while consumer the unemployment rate slipped to 2.8% from 3.2% in Q1’17. Alongside those modest demand gains, the average wage grew by 4%yoy in Q1’18 from 3% in full 2017. Retail sales (ex- cars) are recovering with 2.5%yoy growth in Q1’18 from 1.9% in 2017, as a recent upturn in home prices from a 4-year mild decline helped lift consumer sentiment. This is also apparent in rising outbound tourist flows, which were up 6.3%yoy in Q1’18 from 4.4% in 2017 and 3.8% in 2016.
A recovery in A five-quarter fall in fixed investment growth ended in Q4’17 with a 2.2%yoy rise. But infrastructure growth slowed to 0.2%yoy in Q1’17, despite a 14.7%yoy surge in machinery & equipment spending will help capex. The problem lies in a sharp construction downturn (-12.2% in full 2017 and - capex 7.5%yoy in Q1’18), which we expect to turn into a weak recovery later this year. That upturn will be led by public works after a 75%yoy surge in public construction permits awarded in Q1’18. That should contribute to mild capex growth of 1.7% in 2018 and 3.0% in 2019, following a 1.8% decline in 2017.
Weak inflation and The mild monetary tightening the MAS announce last month appears premature after a soft S$ on a headlined inflation fell to 0.1%yoy in April from 0.2%yoy in Q1’18 and 0.6% in full 2017. rising US$ The S$’s 8% rise on the US$ through 2017 ended in January following the broad-based rebound of the US$. We expect this to continue, with the S$ slipping to 1.38 by Q4’19 against the US$ from the current 1.34 level.
2015 2016 2017 2018 2019 GDP, real growth, % 2.2 2.4 3.6 3.6 3.0 CPI, year average, % -0.5 -0.5 0.6 0.5 1.3 3-month interbank interest rate, Dec, % 1.19 0.97 1.50 1.50 1.55 S$ to US$1, year average 1.37 1.38 1.38 1.34 1.37
Sources: 2015-2017 data from government, MAS and CEIC; forecasts for 2018-2019 by IMA Asia
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Thailand
Political & policy issues to watch
PM Prayut’s Thailand’s stumbling block in the next year is likely to be politics, as PM Prayuth’s plans to strategy for an stay in power through a tightly controlled election in 2019 collide with plans by political army-guided parties to win office and roll back military rule. Prayuth’s strategy started with a successful democracy is referendum for a new constitution in 2016 that would entrench military power behind a fraying democratic façade once elections were held. In the last year, it has extended to jailing around 100 party politicians for sedition, a rural support program for all villages (at a cost of B100bn, US$3.2bn) with Prayuth playing a prominent role in the handouts, and meeting with regional power brokers to ensure that rural voters (the majority) vote as directed. Machiavelli would be proud of such diligent work. The problem is the voters. Polling by Pheu Thai, the party of ex-PM Thaksin (seen as enemy No.1 by the army), suggest it would win 200 of the 500 lower house seats. Apparently, state intelligence agencies put Pheu Thai support even higher at 230 seats. Either way, a Pheu Thai-led coalition could easily take office, as it or its forbears have in every election since 2001.
Watch for Prayuth The Constitutional Court has just cleared the last of the regulatory barriers to holding an to delay plans for election and the army’s governing council (NCPO) should meet with political parties in a2019 election June to lift the ban on political activities and determine what restrictions will remain on campaigning. Some politicians, risking jail on sedition charges, are already indicating they’d role back military rule if they win. Prayuth is getting testy in his few press interviews and hinting that the poll, which has been put off four times already, won’t be held until he thinks the time is right. The mooted February date looks increasingly unlikely, and Thailand may well continue into a 6th year under military rule in late 2019. While that’s likely to be stable for a few more years, it leaves a cloud over the outlook.
Geopolitics aligns Work on Thailand’s industrial revival strategy, the Eastern Economic Corridor, continues behind the EEC apace. Japan and China have agreed that the EEC will be the first place they attempt plan working together on China’s Belt & Road Initiative (BRI), as Thailand is positioning a large EEC infrastructure program as a BRI extension. One glitch is that Thailand’s 1.1% unemployment rate means it is missing some 30,000 workers to staff new EEC factories. The World Bank has brought this to the government’s attention, and there are hints that a change in Thailand’s rigid foreign worker laws is likely.
Outlook for the market
A strong start to GDP growth lifted to 4.9%yoy in Q1’18, the fastest pace in four years thanks to a revival in 2018 local demand and continued strong export growth. As that’s in line with what we expected, our 2018 GDP growth forecast remains at 3.7%, with 3.2% for 2019. Apart from an … as exports & uncertain political outlook, the factors to watch are the quirks of what’s likely to be an local demand lift investment driven recovery. That will lift imports of capital goods and with export growth set to ease, it will tend to reduce the GDP growth estimate. However, inventory rebuilding should help GDP, as companies responded to better demand.
Strong imports Exports grew 11.3%yoy in Q1’18 and 12.3%yoy in April from 9.9% in full 2017 (US$ basis). point to a capex That helped lift manufacturing production 3.7%yoy in Q1’18 and 9.1%yoy in April from recovery 5.3% in full 2017. Meanwhile, imports grew 16%yoy in Q1’18 followed by a 20%yoy surge in April due to strong demand for investment goods. Consumer growth edged up to 3.6%yoy in Q1’18 from 3.2% for full 2017 and will likely reach 3.7%pa in 2018 and 2019.
The BOT will After climbing from a recent low of 36.2 to US$1 in January 2016 to a high of 31.3 in March avoid a rate hike 2018, the Baht has retreated for two straight months on a broadly rising US$, ending May to stop the Baht at 32.0. With very little inflation (1.1%yoy in April), the Bank of Thailand is expected to rising keep its policy rate at 1.50% well into 2019, with the aim of preventing any further appreciation, which would undermine exports and the local capex recovery.
2015 2016 2017 2018 2019 GDP, real growth, % 3.1 3.4 4.1 3.7 3.2 CPI (2002 index), year average, % -0.9 0.2 0.7 0.8 1.4 Central bank, policy rate, year end, % 1.50 1.50 1.50 1.50 1.75 Baht to US$1, year average 34.2 35.3 33.9 32.4 32.9 Source: 2015-2017 data from BOT and CEIC; 2018-2019 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Christopher Bruton, Consultant, Dataconsult Ltd Tel: (66 2) 233 5606/7 Fax: (66 2) 236 8143 Email: [email protected] 90
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Vietnam
Political & policy issues to watch
A stable Political stability and mildly pro-market reforms are expected to continue under Communist Communist Party head, Nguyen Phu Trong (74 years old), and PM Nguyen Xuan Phuc (64). Trong government became Party head in 2011 and gained a second 5-year term in January 2016 after pushing a challenger aside. Opposition to the Party is rigorously suppressed, while … learning to surging growth has underpinned popular support. Within the Party, Trong is using an anti- get along with corruption campaign to remove opponents. His main challenge is geopolitics, and that’s China as tourism almost wholly about dealing with China, with whom Vietnam has had centuries of conflict, & trade surge which continued in recent times despite shared Communist ideology. Central to that conflict are competing claims in the South China Sea. After damaging anti-Chinese riots in 2014, Vietnam has become more cautious, largely because of rapid growth in China tourist arrivals (up 51% in 2016 and 49% in 2017) and equally strong growth in trade (in 2017, imports from China grew 17% while exports to China surged 61%). Such rapid growth in economic dependency should bring a pragmatic improvement in relations.
Despite problems, Vietnam has become one of Southeast Asia’s most attractive markets for foreign investors everyone wants to despite problems with a lack of protection in local courts and a tough new cybersecurity invest in Vietnam law that will take effect in late June. Foreign direct investment (FDI) has grown by 11%pa over the last five years, hitting a record US$17.5bn in 2017. Foreign portfolio investment … both FDI and has also soared, attracted by share offers by local firms. That includes a US$1.35bn portfolio investors private share sale in early May by Vinhomes, the residential property arm of Vietnamese conglomerate Vingroup. The sensation of the last year, however, was the US$4.5bn purchase of a 53.59% stake in the country’s largest brewer, Saigon Beer Alcohol Beverage Corp, by Thai Beverage PCL. In mid-May, ratings agency Fitch raised Vietnam’s long- term, foreign-currency rating to ‘BB’ from ‘BB-‘, with a stable outlook. While that leaves Vietnam two notches below investment grade, it should help lower the cost of some US$4.7bn in planned foreign borrowing by the government in 2018.
Outlook for the market
A needed cooling Unlike the Philippines, Vietnam has avoided overheating despite expanding at a hectic in fast growth 6%pa since 2010. Its 12-month rolling trade balance turned into a US$8bn surplus in May from a US$2.1bn deficit in May 2017, while inflation moderated to an average of 3%yoy in … but still above January-May from 3.5% in full 2017. Moreover, the cooling of domestic activity that 6% emerged in Q1’18 has spread into early Q2. This was reflected import growth easing to 2.7%yoy in April-May from 12.7%yoy in Q1’18 and 21.99% in full 2017. Credit growth also eased to 14.1%yoy in March from a 20.1%yoy peak in April 2017, with a much bigger slide in construction credit growth. We have trimmed our GDP forecast to 6.4% for 2018 and 6.2% for 2019 from 6.7% and 6.5% respectably. The government targets 6.8% growth.
Capex growth has A 48.8%%yoy plunge in machinery & spare parts imports in April-May after a 1.5%yoy drop slowed in Q1’18 points to weakening capex activity. This partly reflects stalled infrastructure projects due to government budgetary constraints. Investment activity in the foreign- owned manufacturing sector may also be slowing. FDI pledges fell 18.4%yoy in January- May after a 47.2% surge in full 2017. We expect fixed investment growth to slow to 8.0% in 2019 from 8.5% in 2018 and an estimated 10.5% in 2017.
A very attractive Low unemployment (2.3% in 2016-17), fast wage growth (7.7% in 2017 from 7.1% in 2016) consumer market and surging consumer credit (65% growth in 2017 from 50.2% in 2016) have made Vietnam an attractive market for retailers. Real growth in consumer demand was 7.3% in 2016 and estimated at 7.5% in 2017, with a 7.0-7.5%pa pace likely over 2018 and 2019.
Stable interest Tame inflation and slowing domestic activity should allow the central bank to keep its policy rates and a interest rate at the current 6.25% level well into 2019. Vietnam’s shift to macro-economic steadier Dong stability has turned the Dong into one of Asia’s most stable currencies in recent years. We expect it to maintain a modest 2%pa pace of depreciation against the US$ over 2018-19, similar to that of 2014-17.
2015 2016 2017 2018 2019 GDP, real growth, % 6.7 6.2 6.8 6.4 6.2 CPI, yoy, % (2005=100 from 2007) 0.6 2.7 3.5 3.4 4.1 Central bank refinancing rate, year-end, % 6.50 6.50 6.25 6.25 6.50 Dong to US$1, year average 21,677 21,932 22,370 22,754 23,278
Source: 2015-2017 data from the IMF and CEIC; 2018-2019 forecasts by IMA Asia 91
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India
Political & policy issues to watch
Political stability India is one year out from the 2019 general election in which PM Modi and the BJP will & progress on seek a second 5-year term. That election will mark two decades with four administrations reform that have all served full terms, including two changes in government, which is a remarkable statement of stability for any parliamentary democracy today. Such stability supports … PM Modi policy evolution and better growth. Modi is on track to win a second term, as he has done should with a 2nd enough to sustain popular support. Congress, the main opposition party, is weak but may term in 2019 regain ground by partnering with state-based opponents to the BJP, as it just did in the Karnataka election. Modi will also focus on winning over more state governments with the aim of gaining control over India’s upper house in his second term.
Key laws to watch In his first term, Modi pushed through enough laws to show that he is serious about reform- for driven growth (the bankruptcy law and the GST stand out). Yet the results are modest, and some of the biggest challenges (reform to land and labour markets) have yet to be … a broader law tackled. His first term was also marred by bad policies, such as demonetisation and on minimum increased protectionism. If the 2019 race becomes close, he may resort to populist wages policies that will further undermine long-term growth. However, he’ll wrap up his first term with a start on labour market reform by amending the 1948 minimum wage act, which … some vote created a fragmented system (by industry and state) that only covered firms with 1,000+ winning gambits staff. For the first time, the central government will set a floor wage by industry and all companies will be covered, with a big increase in penalties for breaches. This could have an impact on wage costs for both small and large companies.
Outlook for the market
Growth edges up India’s economy is lifting after a slump to 6.2% growth in 2017 on the GDP expenditure measure, while growth on the industry GDP measure slipped to 6.1%. The downturn was … but headwinds driven by poor policies (demonetisation and a poorly designed GST) and bad debts at state limit the recovery banks, which constrained lending and thereby new investment. Those problems are receding, with bank credit to the commercial sector up 12%yoy in April from 5%yoy in April last year. The March quarter saw GDP growth accelerate to 7.7%yoy as domestic demand rebounded by 10.1%yoy. That’s led us to lift our 2018 forecast to 7.3% (prior 7.1%) with 2019 rising to 7.4% (prior 7.3%).
A lift in consumer Real growth in consumer spending slipped to 5.7% last year from a decade average of demand 7.6%pa to 2016, as consumers struggled with demonetisation and the GST. With those problems fading, we expect a lift to 6.4% this year and 6.8% in 2019. Vehicle sales show a … watch for a mixed picture for the first four months of 2018: car sales were flat after a 4.1% lift in 2017, good monsoon while 2-wheeler sales surged by 23%ytd from a 9.3% increase in 2017. Rural demand is still important, and the early arrival of the southwest monsoon (May 29 in Kerala) with a forecast 54% chance of normal or better rainfall across the country should help after below normal rain in 2017 and droughts in 2014 and 2015.
Growth in capex A 6.6% fixed investment increase in 2017 was slightly below the 10-year average growth recovers rate of 7.4%pa. As loan growth has lifted, we expect 7-8% growth this year and 8-9% in 2019. Clients report strong growth in the property sector and, outside a few sectors where bad lending has clustered, there is steady capex growth. Capital goods production on the industrial production index was up 9%yoy in Q1’18 after rising 2.7% in full 2017.
Higher interest India’s Rupee has dropped 6% so far this year on the US$, with only the currencies of rates to slow the Argentina, Brazil, Russia and Turkey doing worse according to the WSJ. Markets are Rupee’s slide worried that higher oil prices will push up inflation and the trade deficit. We expect the RBI to use a mix of forex market interventions (it has large reserves) and rate hikes to limit the year average fall for the Rupee to around 3% in 2018 and 2% in 2019.
Calendar year starting January 2015 2016 2017 2018 2019 GDP (MP, 2011-12), real growth, % 7.6 7.9 6.2 7.3 7.4 Inflation - CPI, % 4.9 5.0 3.3 5.0 5.0 RBI repo rate, December, % 6.75 6.25 6.00 6.75 6.75 Rupee to US$1, year average 64.1 67.2 65.1 67.1 69.2 Sources: 2015-2017 data from the government (NCI, RBI) and CEIC. 2018-2019 forecasts by IMA Asia with guidance from IMA India. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Adit Jain, Chairman, IMA India Tel: (91 124) 459 1200 Fax: (91 124) 459 1250 Email: [email protected] 92
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Australia
Political & policy issues to watch
A weak Liberal PM Malcolm Turnbull’s Liberal-led coalition continues to hang onto office with a 1-seat government majority almost two years into a 3-year term. It is consistently behind the opposition Labor limps along party in opinion polls and is weakened by constant snipping from a right-wing faction led by ex-PM Tony Abbott, who is keen to depose Turnbull. However, Abbott lacks party room backing as opinion polls suggest that he’s even less likely than Turnbull to win the next … with few election, which should be called between August 2018 and May 2019. Labor would be a policy wins shoo-in for the next election if it had a stronger leader than Bill Shorten and wasn’t being pulled towards populist policies by fringe nationalist party, One Nation. With insufficient support in the Senate PM Turnbull needs to negotiate every bill with independents and the One Nation party. This is an environment in which few of the government’s policy objectives can be implemented and policy reversals are common.
Will the FY2019 Two developments could change the outlook. Turnbull must push the FY2019 budget budget pass the through the Senate before parliament rises for the winter recess on June 28. The budget is senate? his biggest attempt to break the policy logjam with A$13bn worth of tax cuts for companies and households over the next four years, a flatter marginal tax rate structure and an extra … also watch A$25bn in infrastructure spending. If the Senate blocks a large part of the budget, PM the July 28 by- Turnbull might well call a snap election. Second, on July 28, five by-elections will be held to elections fill seats after MPs were forced from parliament in a double citizenship debate that has consumed politics for six months. Four of the five seats are Labor, and a loss of one or two Labor seats would undermine Shorten and strengthen Turnbull.
Outlook for the market
Growth will ease Australia has racked up 26 years of uninterrupted growth (an OECD record) thanks to strong immigration-led population growth and regular switching between domestic and external … as a demand drivers with the help of a flexible exchange rate. The most recent rebalancing was housing boom triggered by the 2012 collapse of a mining investment boom, which saw growth swing from cools the mining regions of WA and NT to the big cities of Sydney and Melbourne, which have been riding a housing boom. That boom is now fading, and GDP growth will likely settle near 2.6%pa in 2018-19, slower that the government’s and the IMF’s 3%pa growth forecasts.
Strong growth in Fixed investment is recovering after falling by 3.7%pa over 2014-16, as mining investment civil works retreated. Capex grew 1.2% in 2017 with growth of 1-2%pa likely in 2018-19. While mining supports capex capex is no longer declining, a fall in housing approvals points to a decline in residential construction. Capex growth will be supported by ongoing work on multiple infrastructure projects, many at the state level. That lifted public sector capex growth to 12.1%pa over 2016-17 after several weak years.
Consumers Surging home prices and minuscule wage growth forced Australian households to run up lots spending eases of debt in recent years (reaching 121% of GDP in 2017 from 106% in 2008). However, a as debt is paid recent surge in employment growth to 3.4%yoy in Q1’18 kept retail sales growth at 2.7%yoy off in Q1’18, in line with 2017 growth. Combined passenger and SUV car sales also grew 2.7%yoy in Q1’18 after a 0.9% drop in full 2017. A risk to watch is how the cooling housing market will affect the finances of highly indebted households. At present, we expect a modest retreat in home prices combined with a firm jobs market. That should see consumer real growth ease to around 2.5%pa in 2018 and 2019 from 2.7% in 2017.
Rates stuck at The RBA’s policy interest rate has been at a record low of 1.50% since August 2016 and is record lows unlikely to lift over the next 12 months. Inflation is low (1.9%yoy in Q1’18, in line with that of 2017), consumers are carrying a lot of debt, and home prices are falling, all of which will … plus a deter the RBA from a rate hike. Australia’s widening interest rate gap with the US suggests steady A$ a weaker A$ against the US$, although its slide is being cushioned by firm commodity prices and strong growth in China.
Year ending December 31 2015 2016 2017 2018 2019 GDP, real growth, % 2.5 2.6 2.3 2.6 2.6 CPI, year average, % 1.5 1.3 1.9 2.2 2.6 RBA cash rate, year-end, % 2.00 1.50 1.50 1.50 2.00 A$1 = US$, year average 1.33 1.35 1.30 1.32 1.32 US$1 = A$, year average 0.75 0.74 0.77 0.76 0.76 Source: 2015-2017 data from the ABS, RBA and CEIC; 2018-2019 forecasts by IMA Asia
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New Zealand
Political & policy issues to watch
PM Ardern was While NZ outgrew most of its OECD counterparts in recent years, it also saw some of the put in office to fix highest rates of homelessness and child poverty in the OECD. The Labour-led coalition social problems government led by PM Jacinda Ardern came to power in late 2017 promising to correct the social imbalances that emerged under a high-growth Nationals-led government. It plans to do this with minimum wage hikes, higher public welfare spending, reduced inward migration, and a more expansionary fiscal policy. NZ public finances can easily accommodate Labour’s spending plans, as the country has one of the lowest public debt- to-GDP ratios in the OECD (26.4% in 2017).
FY2018 budget In its first budget statement for FY2018 (starts July 1) the new government gave a big lifts spending on spending boost to public services. NZ$3.2bn will go to health services in the next four low-income years (including NZ$750m for hospital upgrades) with the aim of lowering the cost of doctor households visits for low-income families. NZ$395m will go for education, mostly for building new schools and expanding existing ones. NZ$3.8bn will flow into public housing construction (6,400 new public houses planned by 2022) and home insulation subsidies for low-income households. The government projects a budget surplus of NZ$3.1bn in FY2018, which will rise to NZ$7.3bn in FY2022. This should keep net public debt at a very low 20-21% of GDP in FY2018-20 before falling to 19% in FY2022.
Outlook for the market
Softer growth in GDP grew 3.3%pa over 2013-17 on the back of strong domestic demand (4.3%pa), which 2018-19 was boosted by high migrant inflows, a housing boom, and a surging tourist sector. All three of these drivers have been losing steam in recent quarters. Annual net migration … as domestic peaked at 72,402 persons in July 2017 before sliding to 63,038 in April this year. Annual demand drivers tourist inflows are still growing, but growth eased to 6.5%yoy in April from a 17.4%yoy peak lose steam in October 2016. Median home price growth eased to 3.4%yoy in April from a recent 12%yoy peak in December 2016, while annual home sales fell to 73,435 units in April from a 94,570 peak in June 2016. With these trends likely to continue, we expect the pace of domestic demand growth to ease to 2.9% in 2019 from 3.3% in 2018 and 4.2% in 2017. That should trim GDP growth to 2.6% in 2019 and 2.8% in 2018 from 3.0% in 2017. The finance ministry expects real GDP to grow at 3%pa to 2022, faster than the IMF’s latest NZ growth forecast of 2.8%pa over the same period.
Fewer migrants A surge in migrants and strong jobs growth (4.1% in 2017 and 6.4% in 2016) helped will slow growth consumer spending growth average 4.8%pa over the last two years, well ahead of 3.6%pa in consumer average pace of GDP growth. Reduced migrant inflows and slower domestic spending are demand likely to cut consumer growth to an average 3.6%pa over 2018 and 2019. The slowdown is apparent in a 3.3%yoy fall in car registrations in Q1’18 after an 8.8% rise in full 2017. Retail sales growth also eased to 3.8%yoy in Q1’18, after peaking at 8.2%yoy in Q1’17.
Weaker business We expect fixed investment growth to ease to 1.8% this year and 1.4% in 2019 from 3.3% sentiment will trim posted in 2017, as housing construction cools and growth in spending on plant & capex growth equipment eases. Growth in annual residential approvals (in value terms) eased to 8.6%yoy in Q1’18 from a 29.6%yoy peak in Q1’14, while a post-election slump in business confidence points to weaker plant & equipment investment spending, after an 11.9% surge in 2017 from 1.1% in 2016 and average growth of 5.3%pa over 2012-15.
Record low In common with most developed countries, NZ’s strong economy failed to create much interest rates and inflation in the post-GFC period. The CPI eased to 1.1%yoy in Q1’18 from 1.9% in full a weaker NZ$ 2017. As the economy is slowing in 2018, we don’t expect the central bank’s policy rate to move from its current record low of 1.75%, which has been in place since November 2016. That means a softer NZ$ against a broadly rising US$.
Calendar years 2015 2016 2017 2018 2019 GDP(Expenditure), real growth, % 4.2 4.2 3.0 2.8 2.6 GDP(Production), real growth, % 3.5 4.0 2.9 2.8 2.6 CPI, year average, % 0.3 0.6 1.9 1.6 2.4 Official cash rate, year end, % 2.50 1.75 1.75 1.75 2.00 NZ$1 = US$, year average 0.70 0.70 0.71 0.70 0.67 US$1 = NZ$, year average 1.43 1.43 1.41 1.42 1.49 NZ$1 = A$, year average 1.07 1.07 1.08 1.08 1.12 Source: 2015-2017 data from Statistics NZ and NZRB; 2018-2019 forecasts by IMA Asia
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Asia Pacific Executive Brief June 2018 www.imaasia.com
Asia Brief contributors
The Asia Pacific Executive Brief is produced by a unique network of in-country experts who run briefing and advisory programs that are designed to help senior executives monitor and anticipate critical business developments through timely insights and analysis. Further information on the markets and the peer group briefing programs is available from the Country Directors listed below.
Asia & Singapore: Richard Martin, Managing Director, IMA Asia Web: www.imaasia.com Global Mob: (65) 9023 9642 Email: [email protected]
Australia Sydney: Richard Martin, Managing Director, IMA Asia Web: www.imaasia.com Tel: (61 2) 9252 4336 Fax: (61 2) 9252 4339 Email: [email protected]
China Shanghai: James Loudon, China Representative, IMA Asia Tel: (86) 186 2153 7602 Email: [email protected]
Hong Kong Hong Kong: Mark Michelson, Chairman, Asia CEO Forum, Hong Kong Tel: (852) 2530 1115 Fax: (852) 2530 1125 Email: [email protected]
India New Delhi: Adit Jain, Chairman, IMA India Web: www.ima-india.com Tel: (91124) 459 1251 Fax: (91124) 459 1250 Email: [email protected]
Indonesia Jakarta: James Castle, Chairman, CastleAsia Web: www.castleasia.com Tel: (62 21) 2902 1641 Fax: (62 21) 2902 1648 Email: [email protected]
Japan Canberra: Chris Nailer, Associate Director, IMA Asia & Director MBA program, ANU Tel: (61 2) 9252 4336 Fax: (61 2) 9252 4339 Email: [email protected]
Malaysia Kuala Lumpur: Datuk Paddy Bowie, Managing Director, Paddy Schubert Sdn. Bhd. Tel: (60 3) 2078 4031 Fax: (60 3) 2078 7034 Email: [email protected]
Pakistan Karachi: Babar Ayaz, Managing Director, Mediators (Pvt) Ltd Tel: (92 21) 565 6113 Fax: (92 21) 565 6112 Email: [email protected]
Philippines Manila: Peter Wallace, President, The Wallace Business Forum Fax: (63 2) 810 9610 Web: www.wallacebusinessforum.com Tel: (63 2) 810 9606 Email: [email protected]
South Korea Seoul: Tony Michell, Managing Director, Korea Associates Business Consultancy Tel: (82 2) 335 2614 Fax: (82 2) 323 4262 Web: www.kabcltd.com Email: [email protected]
Singapore Singapore: Richard Martin, Managing Director, IMA Asia Web: www.imaasia.com Tel: (65) 6332 0166 Fax: (65) 6332 0170 Email: [email protected]
Taiwan Taipei: Michael Boyden, Managing Director, TASC Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978 Email: [email protected] Web: www.tasc-taiwanasia.com
Thailand Bangkok: Christopher Bruton, Managing Director, Dataconsult Ltd Tel: (66 2) 233 5606/7 Fax: (66 2) 236 8143 Email: [email protected]
Vietnam Bangkok: Christopher Bruton, Managing Director, Dataconsult Ltd Tel: (66 2) 233 5606/7 Fax: (66 2) 236 8143 Email: [email protected]
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