CORPORATEContents BRIEFSAugust 2018
THE MONTH’S HIGHLIGHTS 58 PH climbs to 10th spot in Sustainable Trade Index WORD FOR WORD 60 E-money transaction value up COMMENTARY 9% in 1H2018 SPECIAL REPORTS MINING 17 POLITICAL 63 Metal production rose in 1H2018
66 Small-scale mining operations 17 Duterte revokes Trillanes in CAR suspended amnesty; court orders his arrest I.T. UPDATE 19 September 2018 Approval and Trust Ratings of Top 28 Government Officials 68 Gov’t issues final guidelines 23 Bangsamoro plebiscite set on for new telco player January 2019 26 House panel junks BUSINESS CLIMATE INDEX impeachment complaint against 7 SC justices CORPORATE BRIEFS
INFRASTRUCTURE 51 THE ECONOMY
85 ADB approves loans and new 28 Inflation at 9-year high CPS with PH 29 Peso drops to 54 vs. the dollar 90 Two projects of “national in September significance” approved 30 PH FDI inflows soared by 42% 83 PH to ramp up investments in 1H2018 in rail, aviation and maritime 85 transport 33 PH national debt remains manageable as of end-June 81 NEDA reviews infra projects 2018 89 Revised Bulacan airport 35 Employment situation contract under review continues to improve 88 Foreign contractors keen on 36 Consumers less optimistic in Zamboanga power plant 3rd quarter BSP survey CONGRESSWATCH 95
BUSINESS 95 Congress approves Telecommuting Act 51 Business confidence declines 96 Universal Healthcare bill in 3Q2018 nearing passage Online To read Philippine ANALYST online, 53 PH CEOs still bullish amid 99 Senate oks bill promoting go to wallacebusinessforum.com mounting challenges Central Luzon For information, send an email to 56 2018 SME Policy Index finds 101 Asia Pacific Executive Brief PH a mid-level performer [email protected] or 119 Asia Brief contributors [email protected]
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Philippine ANALYST September 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 PRESENT DEVELOPMENT
PRESENT DEVELOPMENT Peso drops to 54 vs. the dollar in September The peso fell to the 54-to-the-dollar mark in mid-September and never looked back for the rest of the month. It closed at Duterte revokes Trillanes amnesty; court orders his arrest P54.13:$1 on the last trading day of September. (see story on p29) Senator Antonio Trillanes IV is facing his previously dismissed rebellion and coup d’état charges again after President Rodrigo Employment situation continues to improve Duterte revoked the amnesty granted to him in 2011. Beyond the arrest of the senator, the crisis could have far more reaching The July 2018 (3rd quarter) labor force survey disclosed that consequences to those who were previously granted amnesty. employment had reached 40.89 million, an increase of 488,000 (see story on p17) over a 12-month period, the highest net gain in employment among July surveys in the last 10 years. The average employment was 41.1 million during the first 3 quarters of 2018, a net gain House panel junks impeachment complaint against 7 SC of 1.17 million from 39.9 million in the same period last year, justices on track with the government’s job creation target of 900,000 The House Committee on Justice officially dismissed the to 1.1 million for 2018. (see story on p35) consolidated impeachment complaints filed against 7 Supreme Court (SC) justices who voted to remove former Chief Justice Consumers less optimistic in 3rd quarter BSP survey (CJ) Maria Lourdes Sereno through a quo warranto petition. (see story on p26) Consumer sentiment turned negative in the current quarter, and consumer outlook was less optimistic in the next quarter and the next 12 months, according to the Consumer Expectations September 2018 Approval and Trust Ratings of Top Government Survey conducted by the central bank in the 3rd quarter of Officials 2018. (see story on p36) President Rodrigo Duterte’s approval and trust ratings sharply declined in September 2018. This is according to the latest results of Pulse Asia Research, Inc’s ‘Ulat ng Bayan’ national survey Business about the performance and trust ratings of top government officials and key government institutions in the country. PAST DEVELOPMENT (see story on p19)
E-money transaction value up 9% in 1H2018 FUTURE DEVELOPMENT Value of electronic money (e-money) transactions in the Philippines rose by 8.9% to P513.8 billion in 1H2018 from P471.7 Bangsamoro plebiscite set on January 2019 billion in the same period last year due to enabling regulatory The fate of the Bangsamoro Autonomous Region now rests on environment, rising number of providers, and aggressive the results of the plebiscite scheduled on January 2019. It is a marketing. (see story on p60) historic step towards achieving lasting peace and prosperity in Mindanao. (see story on p23) PRESENT DEVELOPMENT
Economy Business confidence declines in 3Q2018 Business confidence in the country declined in 3Q2018 to 30.1% PAST DEVELOPMENT from 37.9% in 3Q2017 according to the latest Business Expectations Survey (BES) conducted by the Bangko Sentral ng Pilipinas (BSP) Inflation at 9-year high or central bank. (see story on p51) The headline inflation rose to an annual rate of 6.4% in August, the highest since 6.6% in March 2009, on continuing surge in PH CEOs still bullish amid mounting challenges food prices. Year-to-August inflation averaged 4.8%, exceeding Chief Executive Officers (CEO) in the Philippines are still bullish the 2-4% target range set the central bank for 2018. in doing business over the next 12 months despite challenges (see story on p28) arising from global trade tensions, regulatory changes, and technological disruption. This is according to the latest results PH FDI inflows soared by 42% in 1H2018 of a survey conducted by PwC Philippines for the Management Foreign direct investments (FDI) net inflows into the Philippines Association of the Philippines (MAP). (see story on p53) jumped by 42.4% to $5.8 billion in 1H2018 from $4 billion recorded in the same period in 2017 signifying investor confidence in PH climbs to 10th spot in Sustainable Trade Index the country’s strong macroeconomic fundamentals and growth prospects. (see story on p30) The Philippines is still a top performer in the 2018 Hinrich Foundation Sustainable Trade Index (STI). Although there PH national debt remains manageable as of end-June 2018 are factors that dampened the country’s performance, the government believes key economic reforms will help with the The Philippine government’s outstanding external debt posted country’s participation in international trade. (see story on p58) a 0.4% decrease to $72.2 billion as of end-June 2018, from $72.5 billion recorded in the same period in 2017 attributed to prudent debt management. (see story on p33) Philippine ANALYST September 2018 2 the month’s highlights
2018 SME Policy Index finds PH a mid-level performer Two projects of “national significance” approved The Organisation for Economic Cooperation and Development The Department of Energy (DOE) has certified 2 more power (OECD) considered the Philippines, along with Thailand and projects as “Project of National Significance” under Executive Indonesia, as “mid-level performers” among Association of Order (EO) 30: Atimonan coal power plant in Quezon and the Southeast Asian Nations (ASEAN) countries, in terms of the Talim wind power plant in Rizal. (see story on p90) implementation of Small and Medium Enterprises (SMEs) policy in 2018. (see story on p56) FUTURE DEVELOPMENTS
PH to ramp up investments in rail, aviation and maritime Mining transport The Department of Budget and Management (DBM) said PAST DEVELOPMENT 2019 marks the start of the government’s heavy investments in improving mass urban, aviation and maritime transport Metal production rose in 1H2018 infrastructure. This is seen to improve seamless transport Metal production in the Philippines marginally improved in the within the country which will help enhance economic activities 1st half of 2018, despite the decline it posted in the 1st quarter in emerging growth centers. (see story on p83) of 2018. The Mines and Geosciences Bureau (MGB) attributed the good performance in metal production to the higher metal NEDA reviews infra projects prices in the world market. (see story on p63) The National Economic and Development Authority (NEDA) is reviewing major unsolicited infrastructure projects, including PRESENT DEVELOPMENT the Metro Rail Transit (MRT) 10, the Skytrain and the East West Rail. (see story on p81) Small-scale mining operations in CAR suspended Revised Bulacan airport contract under review The Department of Environment and Natural Resources (DENR) ordered the suspension of all small-scale mining operations in The P735-billion New Manila International Airport project in the Cordillera Administrative Region (CAR) after a landslide hit the province of Bulacan is nearing realization following the Benguet amidst the onslaught of Typhoon Mangkhut (Ompong). submission of a revised concession contract by San Miguel Corp. (see story on p66) (SMC). The contract is now under review by the Department of Transportation (DOTr) after which it will be submitted to the NEDA Investment Coordination Committee (NEDA-ICC) for final IT Update approval. (see story on p89)
Foreign contractors keen on Zamboanga power plant PRESENT DEVELOPMENT Foreign firms signified their interest in building the Alsons Power Group’s San Ramon coal-fired power plant that will supply Gov’t issues final guidelines for new telco player 105MW to Zamboanga City to alleviate the power shortage in After several revisions and consultations, the Department of the area. (see story on p88) Information and Communications Technology (DICT) and the National Telecommunications Commission (NTC) have released the final terms of reference (TOR) on the selection process for a new major player (NMP) in the local telecommunications (telco) industry. (see story on p68)
Infrastructure
PRESENT DEVELOPMENTS
ADB approves loans and new CPS with PH The Asian Development Bank (ADB)’s newly approved loans and country partnership strategy (CPS) seeks to improve the Philippines’ infrastructure, spur local economic development and invest in its human capital. This will allow the government to leverage resources to achieve their transformative social and economic agenda. (see story on p85)
Philippine ANALYST September 2018 the month’s highlights 3
Senate oks bill promoting Central Luzon CongressWatch The Senate has approved on 3rd and final reading a measure that creates the Regional Investment and Infrastructure Coordinating Hub (RICH) of Central Luzon. RICH is mandated PRESENT DEVELOPMENTS to entice businessmen to invest in Central Luzon and promote the development of infrastructure projects in the region. The Congress approves Telecommuting Act proposed bill, once enacted, would support President Rodrigo The Bicameral Conference Committee has ratified the Duterte’s objective of building more infrastructure projects in Telecommuting Act which allows private sector employees to the countryside, decongesting Metro Manila, and attracting more work outside the office through telecommuting. The measure businesses in urban centers outside of NCR. (see story on p99) is now a step away from being a law as it is awaiting President Rodrigo Duterte’s signature. Once enacted, the measure would promote employees’ right to work-life balance and flexible work arrangement. It is also a solution to the worsening traffic situation in Metro Manila especially now that major mass transportation systems are still being constructed. (see story on p95)
Universal Healthcare bill nearing passage The Senate has approved on 3rd and final reading the Universal Health Care Bill that aims to provide Filipinos with quality and affordable health services. The enactment of the proposed measure is crucial as it supports the Duterte administration’s health initiatives. Earlier, President Rodrigo Duterte certified the bill as urgent. This indicates that the President is willing to use his popularity and high political capital to push for essential measures that will benefit majority of Filipinos.( see story on p96)
Philippine ANALYST September 2018 4
wordfor word
“Instead of addressing the rice crisis now engulfing the nation, this government is more concerned with silencing its critics using illegal and unlawful methods. The revocation of the Proclamation granting amnesty to Senator Antonio Trillanes IV is a clear persecution against one of the administration’s toughest critics.”
Sen. Francis Pangilinan on Pres. Duterte’s order to revoke the amnesty granted to Sen. Trillanes.
“The order is anchored on solid legal ground. Trillanes should face the music and dance as Frank Sinatra’s would croon in his song with the same title. He has to stop milking the issue and act pathetically as if he is a victim of injustice.”
Presidential Legal Counsel Salvador Panelo on Makati RTC Branch 150’s arrest order against Sen. Trillanes.
“You cannot do good. It’s always wrong. And so we will just have to navigate where democracy allows us a space to work and produce results.”
President Rodrigo Duterte on Filipinos who criticize his work.
“Being related to me does not disqualify them to bid. These projects are publicly bidded anyway. I never intervened nor influenced the DPWH on how they bid or award these projects. My office does not control DPWH to begin with.”
Special Assistant to the President Bong Go on an investigative report linking his family to multi-billion-peso public works contracts awarded to firms owned by his father.
“It cannot be overemphasized that besides being an agricultural country, the Philippines is a rice-eating nation, it is incumbent upon us to do right with rice.”
Sen. Cynthia Villar on sponsoring the passage of the Rice Tariffication Bill.
“The fear that our peso to dollar at P58 is totally unfounded. That’s unlikely. You can always come up with a scenario that nobody will go to the Philippines, like SARS. If so, then nobody will go here. But why scare ourselves? We are in a good shape right now.”
Budget Secretary Ben Diokno on the forecast of Capital Economics that the peso will sink further to P58 against the dollar.
“Recent allegations by key leaders of the Armed Forces of the Philippines regarding a supposed plot to oust the President would be laughable if they were not so dangerous. For while the claims themselves are absolutely ridiculous, the attempt to delegitimize various opposition groups and personalities by linking them to an alleged extra-constitutional plot is alarming.”
Vice President Leni Robredo on the supposed plot to oust the President in October.
“He made a mess out of the rice market, he contributed to the problem of inflation. He should be held liable. If no one else files, I will. It doesn’t matter who he is. The fact is he played around with the commodity that is closest to our stomach.”
Presidential Spokesperson Harry Roque recommending the filing of charges against NFA Administrator Jason Aquino.
Philippine ANALYST September 2018 COMMENTARY 5
Political An expected move
he House junked an impeachment rap against 7 Supreme Court (SC) Justices (page 26). What else would you expect from a Duterte-dominated House and a court favorable to him. The manner in which those 7 Justices Tbehaved themselves in Congress, then later in their own court has greatly reduced the esteem the SC should hold in the public mind.
The impeachment complaint was filed by 3 of the opposition Congressmen. It was dismissed by the House Committee of Justice in a 22-0 vote. The 3 lawmakers accused the 7 justices of culpable violation of the constitution in granting a quo-warranto case against former Chief Justice Maria Sereno. And accused the justices of betrayal of public trust for refusing to inhibit from the quo-warranto case after testifying against Sereno during the House impeachment complaint hearings.
The blindfold was removed from Justice’s eyes. One of them, Teresita de Castro even accepted to replace the person she’d ruled against as Chief Justice in a complete lack of delicadeza. Tony Carpio, who was the most senior and therefore most eligible Justice to assume the post declined out of delicadeza. Even though he’s voted to retain Sereno, so had much less imposition against accepting.
De Castro had 47 days as SC Chief Justice before retiring on October 10 as she’d reached the mandatory age of 70. It will be interesting to see who President Rodrigo Duterte picks next. The Judicial and Bar council will submit the names to the President. They have opened the applications for Chief Justice last September 29 with the deadline set on October 15. They’ll be the only ones from whom Pres. Duterte can choose.
Philippine ANALYST September 2018 6 COMMENTARY
Political Victory for Duterte
t’s been almost 50 years of fighting that may now be coming to an end. Since 1972 the Bangsamoro have been fighting and killing as the Muslims tried to regain the land they’d owned since historic times. That the Spaniards and, later IFilipino Christians took from them. They don’t get back all of Mindanao, but do get a significant chunk of it. Importantly, they get the autonomy, but not secession they’d been fighting for. It’s a true victory for President Rodrigo Duterte, 95 all previous presidents have tried, but with no success.
Last July 27, Pres. Duterte signed RA 11054, the Bangsamoro Organic Law (BOL) that replaces the Autonomous Region in Muslim Mindanao with a more fiscally and politically autonomous entity called the Bangsamoro Autonomous Region (BAR) (page 23).
On January 19, a plebiscite will be held to decide which territories will comprise the BAR. If a majority vote yes, that locality will join.
The BAR will have power over health, education, budgeting, tourism development, trade and industry, disaster risk reduction and management, economic zones, and urban and rural planning.
Defense and security (that includes police force) will remain national.
A parliamentary system will be established. The Chief Minister will have the authority to nominate 2 Deputy Chief Ministers who will then be elected by the Parliament, and appoint members of the Cabinet, majority of whom should be members of the Parliament.
There has been some question as to whether a parliamentary system can be established within a presidential nation. This could end up in the Supreme Court (SC) but has not done so yet. So the law could remain safe from judicial interference.
Once in place and operating it will be a major achievement of the Duterte administration.
Philippine ANALYST September 2018 COMMENTARY 7
Business Better outlook
he current problems in the economy — higher inflation, falling forex, increasing interest rates — are driving Tbusiness confidence down (page 51). Although the outlook into next year looks more promising. This fits into our general assessment, that overall and in the longer terms, the Philippines is in a strong, generally stable growth position. With Growth Domestic Product (GDP) over the 6.5% level, and cost numbers improving.
But for now, it is not so good. Business confidence is at its lowest level in 5 years. Rising oil prices (the highest since 2008, and up 22% since January), and the negative impacts on rice and other foodstuffs have hurt many sectors. This latter particularly hurting the wholesale and retail sector (a 17.3 confidence index).
Surprisingly, despite the government’s BUILD, BUILD, BUILD program the construction industry was not happy, its index fell from 42 to 32.8. Industry generally was at 36.5.
The services sector fared little better, with hotels and restaurants particularly worried – a 20.5 index. Real estate and transport at 33.7 and 30.4 were better, but not good.
Domestic competition (55%) was a worry (not sure where this one comes from, as I’ve always take competition as being an inevitable part of doing business or trying to). Also listed were insufficient demand leading to low sales volume, high interest rates, labor problems, and lack of equipment. Surely that last is due to a lack of foresight. Credit access was also listed.
Fortunately the future looks better — if corporates beliefs come true. With 42.6% expecting conditions to improve (up from 40.4% in the previous quarter). Needless to say, Christmas is a factor here, Filipinos love to spend during Christmas (that started September 1).
Additional reasons cited by firms were the continued increase in orders and projects, expansion of businesses and new product lines, continued rollout of government infrastructure and other development projects, more favorable weather conditions for agricultural products, and opening of high seas/fishing operations in October.
Some reinforcement of this optimism is that 36.1% of firms intend to expand. Except in the mining and quarrying industry (19.7%) where the Duterte administration has made life very difficult.
The overall business outlook on the Philippines economy has been declining since the start of the year. This sends a negative signal as business confidence drives business growth and investment as well as supports employment opportunities. But it may improve in the last quarter of 2018. Meaning conditions should improve next year.
Philippine ANALYST September 2018 8 COMMENTARY
Mining Responsible mining
inally, recognition of where the problem lies, small scale mining (page 66). Or is there? I’d like to hope there’s now recognition of the harm small-scale mining does, and the need to properly control it. It cannot, realistically, Fbe banned so make sure it operates in a way that is safe, and treats adult (no children) miners well. That’s the message that came out of the sad disaster of the landslide in Benguet that killed 60 people. Regrettably, it’s a faint hope. Reality is that all the right noises will be made, all the right controls will be put in place, all the quite satisfactory laws already in place will be obeyed, but the country will revert to its age old often corrupt, informal, illegal practices.
After the landslide, Department of Environment and Natural Resources (DENR) Secretary Roy Cimatu issued a cease and desist order to suspend small-scale mining in the area. The landslide occurred after the typhoon. In that Ompong area, there are 10 registered mining associations in Itogon (the principal area hit). But of the 10,000 miners employed, only 500 were registered, the rest were illegal.
Gerry Brimo, the Chairman of the Chamber of Mines and President of Nickel Asia Corp bewailed the lack of distinction between small-scale and large-scale mines. He added that small-scale mining “has to be done legally and with proper supervision.” He emphasized that illegal mining does not employ the same stringent safety practices required of legitimate large-scale mining operators.
This is the real problem bedeviling the industry today, the inability of government officials (who make the decisions) and the public egged on by activists (who influence decisions) to understand, and accept the difference between responsible mining, whether big or small, and irresponsible mining. Before you can get anywhere, this distinction has to be understood.
Mining, if done in a way that looks after the environment can add considerably to the wealth of the country, generate needed export earnings to help overcome the imbalance today, and create meaningful jobs in the countryside where they’re most needed.
Philippine ANALYST September 2018 SPECIAL REPORT 9
Make our better world even better
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 27 September 2018
he Economist (a great magazine, you should read it weekly — as you should this column, of course) had some Tvery interesting statistics in its Sept. 15 issue: “Global life expectancy in the past 175 years has risen from a little under 30 years to over 70. The share of people living below the threshold of extreme poverty has fallen from about 80% to 8% and the absolute number has halved, even as the total living above it has increased from about 100 million to over 6.5 billion. And literacy rates are up more than fivefold, to over 80%.”
Dead by 30? All of you, I suspect, would be dead by now. Pretty frightening, isn’t it?
The change was brought about, in great part, by globalization, by opening up markets to free and fair competition, but doing so in a measured way. U. S. President Donald Trump is going the wrong way, Brexit is going the wrong way. Both are going backwards.
Yet Trump is not entirely wrong, and “not entirely” still matters. He’s right that China has stolen American ideas and has subsidized some of its industries. But a blanket tariff is absolutely the most stupid way to go. It will do great harm to the world’s economies.
You only protect industries where there’s strong reason to do so, and only for a limited time, until the industry can be brought into world competitiveness. Any protection should be time-bound and nonextendable, so that the involved sector is forced to perform.
The first one that comes to mind in the Philippines, where a number of protections still exist, is that old perennial — rice. Rice should be open to anyone who can supply it, whether locally produced or imported, and can do so at the lowest cost. We should be paying P17 per kilo, which is what a Vietnamese housewife pays. Not the horrendous P35 per kilo Filipinos pay. But if we open the borders, Filipino farmers will go out of business. They need protection, but only till they can competitively produce. Not forever.
Philippine ANALYST September 2018 10 SPECIAL REPORT
So getting rid of the National Food Authority (NFA) and applying a reasonable tariff for a reasonable time, maybe declining gradually over that time, is the smartest move Congress could make this month. Come on, Congress, just do it. The funds from the tariff should be committed to making the farmers and the logistics of rice delivery competitive. The NFA should maintain a buffer stock for emergencies — no other role. No permits, no nothing, just a tariff.
Another one on the table at the moment is sugar. Like rice, it is uncompetitive in its production, processing and delivery. But the situation can be fixed. Getting rid of the Sugar Regulatory Administration, just like the NFA, needs to be done. It should get out of controlling the market and let the market players do it themselves.
This has been proven to be the most effective and efficient way. Open imports to anyone, but apply a tariff on sugar and products where a principal component is sugar, and funnel some of the money into bringing the industry to world standards. I wouldn’t give the entire tariff to improving the industry, because much of the problem is government policy, which costs nothing to change, and antiquated machinery and methods, which the private sector should fund of its own accord. But some tariff support is necessary for now; a technical working group can work out how much and for how long.
As I highlighted last week, agriculture is our Achilles’ heel. It is holding back our economy and our people. Rice and sugar are two of our biggest agriculture subsectors, and with the biggest problems.
So bring rice and sugar into the real world, open up the markets to anyone who wants to be in them, with protection for local production only through the means of tariff. I’m sure the finance department would welcome such tariffs, and I think even The Economist would approve of them. If they’re time-bound, they would lead to more productive industries.
Unlike rice, though, sugar is an ingredient in many other products that are produced locally. It needs protection from cheaper imports that are able to access cheaper sugar. So, not just sugar itself, but products with sugar in them need protection for now.
The ideal would be no tariff on both products, but that’s just not realistic for now. Still, that must be the ultimate goal.
The end goal should be a better life for all those people who can now live beyond 30 and would like to eat. And all those under 30, too, of course.
Philippine ANALYST September 2018 SPECIAL REPORT 11
A balanced view
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 20 September 2018
he government’s imposition of higher taxes on some products is hurting. But, as we’ve explained before, these taxes aren’t the principal cause of hurt. Other factors are, such as rice, through gross mismanagement Tand the consequent shortages (now unfortunately to get even worse after Typhoon “Ompong”); and oil, with higher world prices ($50 per barrel in July 2017 to $72 per barrel after a year) taking diesel from P34 per liter to P46 per liter, where admittedly the P2 to P3 per liter for diesel under TRAIN has hurt (unfortunate timing did that).
There’s also the poor harvest on other foods (the typhoon destruction of corn will worsen this), while the scarcity of fish has got everyone up in arms. The peso depreciation and dollar appreciation didn’t help, either.
But people are better off. The first tax reform package (TRAIN 1) did impact inflation, but nowhere nearthe level people complain of. What I don’t hear is anybody thanking the government for putting more money in their pockets. If you were one of those people who earn less than P24,000 a month, you’ve gone from paying P1,800 in monthly tax to paying zero; that’s more than P20,000 in your pocket per year.
A call center supervisor earning, say, P30,000 a month, now has about P3,800 more to spend in a month, while a restaurant manager on P40,000 has about P4,400 more per month, and so on. Some basics now cost more, but much of it, if not all, is covered by higher net wages. Partly offsetting the pain, too, is that since President Rodrigo Duterte came to power, students are getting free education all the way up, farmers are getting free irrigation, and the conditional cash transfer program covers more poor people.
Those that really got hurt are the unemployed, and those in the informal sector who are grossly underpaid, if at all. There, TRAIN mandated an unconditional cash transfer of P200 per month to help cover inflation. Unfortunately, implementation has been too slow. (Is anyone surprised? It’s a never-ending weakness of governments; they really do believe what they plan will happen as scheduled. It never does.) Time to put in formal fudge factors. But it is rolling out now, so there should be alleviation of the affected citizens’ very genuine plight.
One of the biggest complaints I get is on the cost of food, which has gone up, indeed. We have a hopelessly inefficient agriculture and delivery system for food, and we’ve had it for the past half-century I’ve been here. Government after government has given insufficient attention to this No. 1 aspect of our lives.
That includes this government. It is addressing part of the second factor in getting food and delivering it. That’s what “Build, build, build” is all about. But that’s just the hardware. The software—the avaricious middlemen— remains unperturbed by any impost on their lives. It’s time the Duterte government took a really hard look at
Philippine ANALYST September 2018 12 SPECIAL REPORT
what’s wrong with Philippine agriculture—and fix it, even if it hurts some.
Before some of you get angry with me for being heartless, think through what I’ve said. Higher prices are happening and they are hurting, but poor government policy and TRAIN aren’t to blame; external factors are. Couple this with the fact that we’ve suffered rising prices before, and you develop a more balanced perspective.
In President Cory Aquino’s day, inflation reached 19.3%. Under Ramos, it peaked at 10.4%, Erap at 9.2%, Gloria at 8.3%. Only in Noynoy Aquino’s term was it lower at 4.6%. But he was just lucky; it was after the global financial crisis that led to low inflation (and interest) rates globally. If considering just the peak is unfair, then here are the averages: Cory, 10.5%; Ramos, 7.6%; Erap, 6.4%; Arroyo, 4.6%; P-Noy, 3%—and Duterte, so far 3%.
All the economists I’ve talked to agree that this 6.4% inflation rate is but a blip. We’ll be back in the 2-4% range next year.
This paper’s editorial said it last week: Relaxing controls on food imports is a good interim measure, but it doesn’t solve the inherent problem of what’s wrong with our agriculture sector.
As the editorial so cogently put it: “Like many other challenges his administration faces, President Duterte is vaunted to have the ability to ram through obstacles that conventional wisdom had previously thought to be insurmountable.”
“The current crisis presents a rare opportunity for the government to address the root of the country’s inflation problem that returns every few years: supply bottlenecks that are easily exploited by industry cartels, and by lumbering, corrupt government agencies with an aversion to unpopular, long-term bitter pills that could mitigate inflation early on.”
It’s time to take a far more serious look at Philippine agriculture. It’s way past time.
Philippine ANALYST September 2018 SPECIAL REPORT 13
Can Congress act?
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 13 September 2018
n 2016, Filipinos said they wanted real change. So they elected Rodrigo Duterte, who promised the change they were demanding. Elsewhere in the world, the same message was being delivered in many countries — unfortunately, Iin America’s case, with disastrous results. Part of that change has occurred: Infrastructure is actually being built, much overdue and much-needed tax reform is happening, and peace with the Bangsamoro is in the offing. But there’s still much to do, and part of it is the need to accelerate passage of some much-needed laws. Here, the President needs the support of Congress, which needs to pass these bills.
I’d put at the top of this list the task of finishing the administration’s tax reform. We are living with a system that hasn’t been changed in 31 years. Benigno Aquino III, when he was president, even boasted that he wouldn’t make any change to it.
The Department of Finance has come up with a well-researched reform plan that simplifies, reduces and realigns taxes in a way that will greatly improve the economy, to the benefit of the people. I’m glad to see the House of Representatives has approved it, and I hope the Senate will, too. Passing the full tax package into law is needed before our legislators get diverted to campaign mode with the coming midterm elections.
People are worried that these taxes will add to inflation. But they won’t; if anything, they will achieve the reverse. Prices could come down IF (I admit it’s a big if) companies pass on the savings that lower taxes will give them to the price of their products or services. Competition might force it; whatever the direction, this can only be good.
TRAIN 1 was the only plank of the changes that could be inflationary — but I hasten to say that the inflationary effect is far less than some are propagating. TRAIN 1 was just a case of unfortunate timing. World oil prices rose, the rice supply ran short, vegetable harvests were poor and fish was in short supply. All that had a bigger impact.
So the Tax Reform for Attracting Better and High-quality Opportunities package should be passed now. Next on the list that needs urgent passage is the rice tariffication bill. Give Filipinos cheaper rice now. For years — no, decades — it’s been abundantly clear to anyone who understands these things that the National Food Authority (NFA) is a disaster — a P170-billion disaster. Its appalling mismanagement of something this essential to Filipino life has to stop.
Philippine ANALYST September 2018 14 SPECIAL REPORT
But the bill has a major flaw; it still allows the NFA to control the importation of rice by the private sector. The agency will only screw that up; it should be completely out of the picture in the trading of rice. Its role should only be to hold a buffer stock to ensure that there’ll be enough supply in times of emergency.
A fully open market, allowing anyone capable and willing enough to import rice, will eliminate the cartels and the distortion of prices. The only control needed is a tariff (unfortunately, our rice production system is still too inefficient, so it needs protection). Without tariffs, rice prices could be halved, but if a reasonable tariff is applied — 35% is recommended—prices could come down by P7 per kilo. That can reduce inflation by a significant 0.4 percentage points.
Other bills I’d put high on the list that Congress should pass this year include the Freedom of Information Act; emergency powers to address traffic; amendments to the Build-Operate-Transfer law and the Central Bank charter; the Universal Health Care Act; and the creation of the Department of Disaster Management. But the first 3 are the really critical ones.
I would also split the consideration of a constitutional change into 2: political change (including federalism), and economic change. Also, the proposal to fully open up the economy should be passed now, so the people can vote on it next May. Those restrictions should not exist in today’s globalized, hi-tech world. That should allot more time to the careful review of much more complicated political changes being proposed. Whether the Philippines should be a federal state, for instance, is an issue that takes time and needs to be thoroughly discussed.
One of the things missing in the past has been cooperative action. Both Houses have boasted on the number of bills they’ve passed. But they’ve been different bills, so no law emanates from them. And they’ve not been bills the administration wanted.
The country needs laws, not bills. This may now change with new leaders like Tito Sotto and Gloria Arroyo, who are both willing to work with Pres. Duterte. Both are action-oriented people who know how to get the cooperation of their party-mates. Let’s hope that they do come up with these laws.
Philippine ANALYST September 2018 SPECIAL REPORT 15
Caring for the elderly
Published in the Philippine Daily Inquirer under the “Like it is” Opinion column, 6 September 2018
ourism is a very competitive business. Sun, sea, and sand are offered by many. Churches abound (temples are Trarer). People are friendly, food is enticing, handicrafts are attractive. So something else is needed . That “something,” I suggest, is to carve out a niche, specialize in something others can’t offer so readily or competitively. We recognized that medical tourism could be a salable product. And the Department of Tourism has prioritized medical tourism in its 2016-2022 Development Plan. But here we are in mid-2018 and I don’t see much of it. It’s also too nebulous, bits and pieces. It also has retirement in this country as a goal. But, again, where? I don’t see many retirees hobbling in.
I want to suggest something unique: Combine the two. Specialize in geriatric services and healthcare for the elderly, tied in with living here till life ends if they wish to. Put all our promotions into it. Forget the rest; with limited money, success comes from putting everything into one thing. Forget the backpackers (they spend little, anyway) and gawking tourists; concentrate on the old. They have money. Filipinos care for the elderly as part of their nature. The old will be happy and content here.
We have beautiful places to retire to, we have world-class hospitals and doctors (I’ve had international experience on both and can confirm this). And we have something few others have—well-trained nurses who truly care for their patients, and staff equally caring and concerned. They won’t tell you to wait your turn in line to talk to a doctor when your child is rushed into ICU, as I saw in a movie on an American hospital.
Doctors are well-trained here, with added specialty experience overseas that is hard to beat. But we should allow foreign doctors in, too. I’m sure an old Japanese person would be more comfortable with a compatriot, let alone one who understands the language. As I said in my column of Aug. 9, “a Japanese doctor may not join the retired Japanese senior citizens we’re trying to attract to give them comfort, and understand what they say and want. Are a few foreign doctors a threat to ours? Aren’t we desperately short of doctors? Wouldn’t it be great to have foreign interns volunteer their services to the rural poor — who otherwise see no one?”
Philippine ANALYST September 2018 16 SPECIAL REPORT
We also need to bring hospitals, or at least a branch of them, to where you’d want to retire. Makati, Bonifacio Global City or Alabang, where the top hospitals are, is not where anyone would want to retire to. Another thing that would help: 24/7 helicopter service, with medically-equipped services.
But it’s not just retirees we could look after; it’s those over, say, 65, who just need repair of the illnesses the old suffer from. Let us be the specialists in these services and be known for it. Encourage medical students to specialize in geriatric services.
And if we bring the old, the young will come, too — without any need to promote. They’ll want to visit Lolo and Lola. So put retirement villages in places that will appeal to the young, too, and where still healthy oldies have fun things to do.
As The Economist pointed out in its July 28 issue (which is what triggered this thought): The Croatian tours of Zalok attracts thousands of patients to have hip or knee replacements at the St. Catherine hospital, which specializes in orthopedic services at a fraction of the cost and no long wait. Bangkok is known for accomplishing sex changes, Hungary for teeth replacement, Mexico for hair transplants.
Seems to me we’ve got a better one — caring for the elderly. But it’s important to have set fees for specific services, as Thailand does. Allowing doctors to set whatever fee they’d like won’t do. Someone considering flying here will want to know what it’s all going to cost before they fly.
As I highlighted in my column more than 4 years ago (“Stay home, it’s more fun in PH”—July 10, 2014): “There are 2 tourism sectors that the Philippine government must promote more actively: medical tourism and retirement. Both are attractive ideas, retirement especially. The genuinely loving care and respect for the elderly (I sure love that) versus the Westerners’ ‘plonk them in an old people’s home’ attitude add to a favorable climate and a place where a pension can go a long way.”
That was 4 years ago; little has happened since.
Is little going to happen in the next 4 years, too? Or will our new tourism secretary agree and shift in this direction? Let me stress that ALL effort must be on this, nothing else, otherwise it won’t work. When you specialize, you specialize.
Philippine ANALYST September 2018 17 POLITICAL
Duterte revokes Trillanes amnesty; court orders his arrest
Senator Antonio Trillanes IV is facing his previously dismissed rebellion and coup d’état charges again after President Rodrigo Duterte revoked the amnesty granted to him in 2011. Beyond the arrest of the senator, the crisis could have far more reaching consequences to those who were previously granted amnesty.
wo charges against Nacionalista Party Sen. Trillanes, a staunch critic of Pres. Duterte, have been revived in separate Regional Trial Courts (RTC) after the President Trevoked his amnesty through the issuance of Proclamation No. (PN) 572, s. 2018. The proclamation declares the amnesty granted to the senator void ab initio (void from the very beginning) after he allegedly failed to comply with the minimum prerequisites needed to qualify for amnesty – filing of an Official Amnesty Application Form and admission of guilt.
In 2010, Former Pres. Benigno Aquino III, through PN 75, granted amnesty to officers and personnel of the Armed Forces of the Philippines (AFP), the Philippine National Police (PNP), and their supporters, in connection with the 2003 Oakwood Mutiny, 2006 Marines Stand-Off, and the 2007 Manila Peninsula Incident. Based on the news the 2007 Manila Peninsula Siege. Sen. Trillanes temporarily reports during that period, Sen. Trillanes, a former Navy avoided jail after posting bail worth P200,000. Notably, Judge Lieutenant, filed his amnesty application on January 5, 2011. Alameda is the same judge who previously dismissed these Although PN 572 was released publicly through the Manila charges against the senator way back in 2011 in pursuant to Times on September 4 while the President was in the middle of Mr. Aquino’s amnesty proclamation. In reopening the case, his state visit in Israel and Jordan, the document has already Judge Alameda explained that Sen. Trillanes failed to convince been signed since August 31. Following the release of the the court that he complied with the minimum requirements proclamation, the Department of Justice (DOJ) filed separate for the amnesty as he was not able to present an original, motions in 2 RTCs to issue a warrant of arrest and hold departure duplicate or even a photocopy of the application form. order against Sen. Trillanes over rebellion and coup charges. Meanwhile, another court, Makati RTC Branch 148 Last September 25, the Makati RTC Branch 150 headed presided by Judge Andres Soriano deferred its decision to grant by Judge Elmo Alameda granted the motion of the DOJ, an arrest warrant and hold departure order on Sen. Trillanes. thereby reviving the senator’s rebellion case stemming from This is in connection with the coup d’état charges against
Proclamation No. 572 declares the amnesty granted to Sen. Trillanes void ab initio after he allegedly failed to comply with the minimum prerequisites needed to qualify for amnesty.
Philippine ANALYST POLITICAL September 2018 18 POLITICAL
The Department of Justice filed separate motions in 2 RTCs to issue a warrant of arrest and hold departure order against Sen. Trillanes over rebellion and coup de ‘tat charges.
The Makati RTC Branch 148 ordered the arrest of Sen. Trillanes but a bail was paid while the Makati RTC Branch 150 deferred the ruling and scheduled a hearing on October 5.
the senator regarding his participation in the 2003 Oakwood on Civil Service and Government Reorganization, headed by Mutiny. A hearing is scheduled on October 5. Unlike rebellion Sen. Trillanes, to conduct an inquiry in aid of legislation on the charges, however, coup d’état is a non-bailable offense. alleged conflict of interest of Sol. Gen. Calida2 Coincidentally, PN 572 was published on the first day of the scheduled Initially, PN 572 ordered law enforcement agencies to arrest congressional hearing on this issue. Sen. Trillanes. However, no arrest occurred as the senator stayed inside the Senate building to seek protection after Apart from this, the Senate minority also filed SR 887 to Senate President Vicente Sotto declared that no arrests will investigate the “fraudulent and erroneous” basis of PN 572. occur within the premises to preserve the chamber’s dignity. The senators described the proclamation as an abuse of presidential powers since it was issued despite photo and video His legal team then filed a petition to the Supreme Court evidence showing that Sen. Trillanes fulfilled the minimum (SC) to issue a temporary restraining order (TRO) against requirements for an amnesty grant. the enforcement of PN 572 to block any impending arrest. However, the SC denied their plea based on Pres. Duterte’s Presidential Spokesperson Harry Roque stood by their commitment that Sen. Trillanes will not be arrested without claims that Sen. Trillanes never filed for amnesty and that he a warrant issued by a trial court. Furthermore, the SC gave never admitted guilt, something that the Makati RTC Branch leeway to the RTCs to decide about the legality of PN 572. 150 seems to agree with. But in an apparent contradiction, Department of National Defense (DND) Secretary Delfin Sen. Trillanes attributed the revocation of his amnesty Lorenzana admitted that Sol. Gen. Calida called him to get to Solicitor General Jose Calida, who is currently under access to the supposed missing amnesty application of Sen. investigation over the P358 million worth of government Trillanes without any reasons before PN 572 was issued. A contracts that his family’s security firm, Vigilant Investigative staff of Sol. Gen Calida was then sent to look for the document. and Security Agency, Inc. (VISAI), won since 20161. Months before PN 572 was issued, the Senate minority group filed 2 The Senate minority group is composed of Sen. Trillanes, Liberal Party Senators Franklin Drilon, Senate Resolution (SR) 760 urging the Senate Committee Francis Pangilinan, Bam Aquino, Leila De Lima, and Akbayan Party Senator Risa Hontiveros.
1 According to Senate Resolution 760, Solicitor General Jose Calida still owns 60% of the VISAI as of September 2016, some 2 months after he assumed office. His wife and 3 children owned the remaining 40% of the shares at 10% each.
Sen. Trillanes attributed the revocation of his amnesty to Solicitor General Jose Calida.
Philippine ANALYST POLITICAL September 2018 POLITICAL 19
In an apparent contradiction, DND Secretary Delfin Lorenzana admitted that Solicitor General Jose Calida called him to get access to the supposed missing amnesty application of Sen. Trillanes.
Sen. Trillanes is the 2nd senator under the Duterte administration to be ordered arrested.
As it stands, Sen. Trillanes is the second senator under Lastly, as former Solicitor General Florin Hilbay explained, the Duterte administration to be arrested. The first one was the government has also “placed on the line” the integrity of Liberal Party Sen. Leila De Lima who was incarcerated in the entire amnesty program and of the peace process since February 2017 over the alleged proliferation of drugs in the anyone who has received amnesty before could be put in New Bilibid Prison during her time as DOJ Secretary. Notably, the same predicament as the case of Sen. Trillanes. This the 2 senators are also the fiercest critics of Pres. Duterte also includes the rebel groups who will avail of the amnesty including his allies and policies such as the war on drugs. program as part of the implementation of the Bangsamoro Organic Law. Before being put to jail, Sen. De Lima, as then head of the Committee on Justice, led the Senate investigation on the alleged extra-judicial killings under the war on drugs campaign. September 2018 Approval and Trust Ratings of She was then stripped off the committee chairmanship and Top Gov’t Officials then scrutinized in a congressional hearing for the alleged charges against her. On the other hand, Sen. Trillanes initiated President Rodrigo Duterte’s approval and trust ratings several investigations on the alleged corrupt and drug-related sharply declined in September 2018. This is according to the activities of Pres. Duterte’s allies including his son and former latest results of Pulse Asia Research, Inc’s ‘Ulat ng Bayan’ Davao City Vice Mayor Paolo Duterte. national survey about the performance and trust ratings of How this issue will play out for Sen. Trillanes now rests on top government officials and key government institutions in the decision of the RTCs, particularly of Branch 148 where the the country. non-bailable offense of coup d’état is being sought to revive. The survey showed that public approval rating of Pres. His term as senator is also about to end in mid-2019, as he is Duterte fell by 13 percentage points to 75% this September not eligible for re-election after maximizing 2 terms. from 88% last June, a personal record low since assuming the But beyond the arrest of the senator, the nullification of presidency in June 2016 (see table on Historical Approval and his amnesty could have far more reaching consequences to Trust Ratings of Duterte). His disapproval scores also rose by the public. The first one concerns data privacy of individuals. 7 points to 10%. Notably, the decrease in approval scores was Data Privacy Lawyer Cecilia Soria explained that under these reflected across all socio-economic classes and geographic circumstances where a document was accessed without location including in Mindanao, his bailiwick. lawful basis as Sec. Lorenzana disclosed, the DND might Among areas, the biggest decline was recorded in Luzon have “remiss in its duties to safeguard the personal data of at 17 points (resulting to 66%), followed by National Capital data subjects.” The same can happen with all the private Region (NCR) at 11 points (75%), Mindanao at 9 points (90%), documents of individuals who transact with the government. and Visayas at 6 points (83%). Double-digit decreases were also felt across classes led by Class D at 13 points (74%), then in Cl a s s ABC at 12 p o int s (72%), a n d Cl a s s E at 10 p o int s (81%).
Philippine ANALYST POLITICAL September 2018 20 POLITICAL
HISTORICAL APPROVAL OF PRES. DUTERTE
Approval Ratings of Pres. Duterte 100 91 86 88 83 82 78 80 80 80 80 75
60
40
20
0 Jul. '16 Sept. '16 Dec. '16 Mar. '17 Jun. '17 Sept. '17 Dec. '17 Mar. '18 Jun. '18 Sept. '18
Source: Bangsamoro Organic Law
HISTORICAL TRUST RATINGS OF PRES. DUTERTE
Trust Ratings of Pres. Duterte 100 91 86 87 83 82 81 80 78 76 80 72
60
40
20
0 Jul. '16 Sept. '16 Dec. '16 Mar. '17 Jun. '17 Sept. '17 Dec. '17 Mar. '18 Jun. '18 Sept. '18
Source: Bangsamoro Organic Law
Public approval rating of Pres. Duterte fell by 13 points to 75% this September from 88% last June, a personal record low since assuming the presidency.
Philippine ANALYST POLITICAL September 2018 POLITICAL 21
The approval and trust ratings of Vice President Leni Robredo remain virtually unchanged from the previous quarter.
Likewise, the trust rating of Pres. Duterte slowed to 72% The high trust and approval ratings of VP Robredo with in September, a 15-point drop from 87% in the June survey, the Class E or the poorest of the poor can be attributed to the also a personal record-low. Significant decreases in his trust impact of the flagship anti-poverty project of her office,Angat scores were also posted across all classes and areas. Buhay, which as of July 2018 have helped more than 155,000 families since 2016. The largest decline in the President’s trust ratings were felt in Luzon at 20 points (64%), followed by NCR at 16 points For his part, Senate President Vicente “Tito” Sotto III fared (63%), Visayas at 13 points (79%), and Mindanao at 4 points well in his 1st survey with Pulse Asia as the top leader of the (90%). Among classes, decreases were felt in Class D at 16 Senate. Sen. Sotto recorded a 73% approval rating and 66% points (71%), Class E at 12 points (76%), and Class ABC at trust rating in September. 9 points (73%). Across geographical areas, the Senate President received For Vice President (VP) Leni Robredo, approval and trust the highest approval rating in NCR at 76%. This was followed ratings remain virtually unchanged from the previous quarter. by Mindanao (75%), Visayas (74%), and Luzon (69%). He also The approval score of VP Robredo barely declined by a point obtained high approval scores across classes led by Class to 61% in September from 62% last June, while her trust score ABC at 79%, Class D at 73%, and Class E at 67%. did not move at all at 56%. Sen. Sotto also garnered the highest trust ratings in Visayas VP Robredo’s approval ratings varied across geographic at 68%, followed by the 67% in Mindanao, 66% in NCR, and areas and classes. While it increased by 17 points in Visayas 65% in Luzon. In terms of socio-economic classes, the Senate (80%), it was offset by an 11-point decline in Mindanao (62%) President also received high trust scores among Class D at and a 9-point drop in NCR (49%). It remains unchanged, 68%, Class E at 62%, and Class ABC at 56%. however, in Luzon (56%). Moreover, her approval ratings experienced a 12-point jump among Class ABC (53%) and a As an institution, the Senate obtained an approval rating 5-point increase among Class E (68%), but it declined by 3 of 63% in September, a 6-point drop from 69% last June. Its points among Class D (60%). approval scores registered declines across all areas and classes. Meanwhile, trust ratings of VP Robredo experienced a 14-point increase in Visayas (76%), but there were minimal Meanwhile, Pulse Asia did not measure the approval declines in other areas: Mindanao by 4 points (56%), NCR by ratings of Former President and now House Speaker Gloria 3 points (43%), and Luzon by a point (53%). Her trust ratings Macapagal-Arroyo because according to their metrics, also surged by 16 points among Class E (66%) and 9 points the approval scores are used to assess the work done by among Class ABC (41%), but it dropped by 3 points among government officials 3 months prior to the survey proper. Rep. Class D (56%). Arroyo only assumed the speakership on July 23. However, the group were able to measure public trust on her.
Philippine ANALYST POLITICAL September 2018 22 POLITICAL
Senate President Tito Sotto fared well in his first survey with Pulse Asia as the head of the Senate.
House Speaker Gloria Macapagal-Arroyo received a trust rating of 19%, the lowest among the top government officials in the survey.
Trustworthiness is the biggest issue with Rep. Arroyo as The performance of the SC was viewed negatively by the she received a trust rating of 19% in September, the lowest public, as shown by an 11 point-drop in its approval rating to a m o n g t h e to p g ove r n m e n t offi c i a l s i n c l u d e d i n t h e s u r vey. M ore 52% in September from 63% last June. It declined sharply than 43% express distrust in her while 37% remain ambivalent. across all classes and areas except in NCR where it remains She received the highest trust score in Mindanao at 30%, unchanged. followed by Visayas (19%), NCR (18%), and Luzon (14%). She received 25% trust scores from Class ABC, 22% from Class Although Pres. Duterte still enjoys relatively high approval E, and 18% from Class D. The trust issues with Rep. Arroyo and trust ratings, the double-digit declines he experienced could have stemmed from her tarnished presidential legacy this quarter indicates a growing frustration of the public to his which was characterized by corruption scandals. performance particularly in issues that directly affects them. The main trigger here could be the continuous rise in food The House of Representatives did not perform well either and fuel prices in recent months highlighted by a 9-year high as their approval ratings declined by 10 points to 56%, from inflation of 6.4% in August, surpassing government estimates. 66% in June. Like with the Senate, the approval scores of the Unfortunately, its announcement even coincided with the lower chamber declined across all areas and classes. survey period. The rice crisis in several areas of the country could have contributed to the decline as well. Incumbent Supreme Court (SC) Chief Justice Teresita Leonardo de-Castro was not included in the survey since she While there are efforts from economic managers to only assumed the post few days before the survey started. It taper the effects of inflation, Pres. Duterte’s recent actions was then acting CJ Antonio Carpio who was assessed and particularly the issuance of the proclamation declaring the received a relatively low approval rating of 42%, with 40% of amnesty granted to his staunch critic Senator Antonio Trillanes Filipinos remain undecided with his performance. Furthermore, IV in 2011 invalid, may have worsen public perception against most Filipinos (45%) are undecided with his trustworthiness him. His action created an impression to the public that the compared to only 33% who have trust in him. government prioritizes politicking instead of addressing more critical issues such as rising prices head on. If these economic woes continue until the end of the year, the President’s approval and trust ratings is expected to decline further.
The main trigger for the decline in Pres. Duterte’s approval and trust scores could be the rising inflation which peaked at a 9-year high of 6.4% in August.
Philippine ANALYST POLITICAL September 2018 POLITICAL 23
ABOUT THE SURVEY:
Conducted from September 1-7, 2018, the Pulse Asia poll used a multistage probability sample of 1,800 registered voters 18 years old and above. The nationwide survey has a ±2% error margin at the 95% confidence level. Meanwhile, the subnational estimates for geographic areas covered in the survey have the following error margins at the 95% confidence level: ±6% for Metro Manila, ±3% for the rest of Luzon, and ±5% for each of Visayas and Mindanao
Bangsamoro plebiscite set on January 2019 Last July 27, President Rodrigo Duterte signed Republic Act (R A) 110 5 4 or t h e BOL , a re c on c il e d ve r s i on of Ho u se B ill 6 475 The fate of the Bangsamoro Autonomous Region now rests on and Senate Bill 1717. The BOL is a landmark legislation which the results of the plebiscite scheduled on January 2019. It is a intends to replace the Autonomous Region in Muslim Mindanao historic step towards achieving lasting peace and prosperity (ARMM) with a more fiscally and politically autonomous entity in Mindanao. called the Bangsamoro Autonomous Region.
The Commission on Elections (Comelec) en banc has set Under the BOL, the proposed Bangsamoro Autonomous the plebiscite for the ratification of the Bangsamoro Organic Region will be composed of the current ARMM provinces Law (BOL) on January 21, 2019. More than 3 million voters (Basilan, Sulu, Tawi-Tawi, Lanao del Sur, and Maguindanao); which include members of the Moro Islamic Liberation Front 6 municipalities in Lanao del Norte (Baloi, Munai, Nunungan, (MILF) are expected to participate in the plebiscite. Pantar, Tagoloan, and Tangkal) which voted for inclusion in the ARMM during the 2001 plebiscite; 39 barangays in North Moreover, the election body also scheduled a 45-day C ot a bato wh i c h a l s o vote d to b e in c lude d in t h e ARMM in 20 01; campaign period for the plebiscite from December 7, 2018 to Cotabato City; and Iligan City (see table on List of barangays January 19, 2019. The entire plebiscite period, meanwhile, will in North Cotabato included in plebiscite). However, the final run from December 7, 2018 until February 5, 2019. territorial jurisdiction of the Bangsamoro will be determined only after the plebiscite. A majority “yes” votes among the valid The projected cost of the Bangsamoro plebiscite is pegged votes cast are needed in the respective localities for them to at P857 million. However, the fund was not included in the be part of the new region3. P10.27 billion proposed budget for Comelec in 2019 since the BOL was not yet signed when the Department of Budget and Management (DBM) submitted the national budget to 3 Votes in the entire present-day ARMM will be counted as one. For cities, municipalities, and barangays outside ARMM, a double majority vote is required to join the Bangsamoro Autonomous Region. For Congress last July 23. Both the Senate and the House of example, the municipality of Baloi should get majority “yes” votes among the votes cast in their locality, as well as the majority “yes” votes of the entire Lanao del Norte. If they failed to achieve that, they Representatives committed to work on providing the necessary cannot join the new region. budget to carry out the plebiscite.
The Commission on Elections en banc has set the plebiscite for the ratification of the Bangsamoro Organic Law on January 21, 2019.
The projected cost of the Bangsamoro plebiscite is pegged at P857 million.
Philippine ANALYST POLITICAL September 2018 24 POLITICAL
BARANGAYS IN NORTH COTABATO INCLUDED IN THE PLEBISCITE
MUNICIPALITY OF MUNICIPALITY OF MUNICIPALITY OF MUNICIAPALITY OF MUNICIPALITY OF MUNICIPALITY OF ALEOSAN CARMEN KABACAN MIDSAYAP PIGKAYAWAN PIKIT
Damatulan Lower Baguer Dunguan Manarapan Nanga-an Bagoinged Kadigasan Balacayon Balatican Lower Mingading Nasapian SImbuhay Kadingilan Buricain S. Balong Kapinpilan Datu Binasing Tapodoc Sanggadong S. Balongis Kudarangan Kadingilan Batulawan Centra Labas Matilac Buloik Malingao Patot Gokotan Mudseng Lower Pangangkalan Kabasalan Nabalawag Lagunde Olandang Macabual Sambulawan Macasendeng Tugal
Source: Bangsamoro Organic Law
LIST OF INTERGOVERNMENTAL BODIES UNDER THE BOL
INTERGOVERNMENTAL BODY FUNCTION
Philippine Congress-Bangsamoro Parliament Forum Cooperation and coordination of legislative initiatives
Address revenue imbalances and fluctuations in regional financial Intergovernmental Fiscal Policy Board needs and revenue-raising capacity of the region
Formulating polices relating to the Zones of Joint Cooperation in Joint Body for the Zones of Joint Cooperation the Sulu Sea and Moro Gulf
Coordinating and synchronizing national and Bangsamoro Intergovernmental Infrastructure Development Board infrastructure development plans
Resolve energy issues referred to it by the Intergovernmental Intergovernmental Energy Board Relations Body
Integration and harmonization of economic, social, and Bangsamoro Sustainable Development Board environmental considerations as vital dimensions of sustainable development
Source: Bangsamoro Organic Law
The Bangsamoro Government is also granted with powers will then be elected by the Parliament, and appoint members over several matters such as health, education, budgeting, of the Cabinet, majority of whom should be members of the tourism development, trade and industry, disaster risk reduction Parliament. and management, economic zones, and urban and rural planning (see table on List of Powers Granted to Bangsamoro Apart from the Chief Minister, there will also be a ceremonial Government). All powers not granted to the Bangsamoro are head of the Bangsamoro government called the Wali, who will automatically vested in the national government. be selected by the Parliament from the list of eminent residents in the region submitted by the Council of Leaders. The Wali According to the BOL, the highest organ of government is mandated to perform ceremonial roles such as opening in the region is the Bangsamoro Parliament composed of 80 the session of Parliament and administering oath of office. members. It is tasked to set policies and legislate matters within its authority. Of this figure, 50% will come from political parties, Several intergovernmental mechanisms will be instituted 40% from parliamentary districts, and the remaining 10% under the BOL to facilitate efficient relations between the from sectoral representatives such as non-Moro indigenous Bangsamoro and National governments. One of which people, youth, and women. is the National Government-Bangsamoro Government Intergovernmental Relations Body which is tasked to resolve The Parliament will elect among them a Chief Minister who and negotiate issues between the 2 entities. Other entities will head the Bangsamoro Government, exercise executive were also created for a more specific task (see table on List authority, and run its day-to-day operations. The Chief Minister of Intergovernmental Bodies under the BOL). also has the authority to nominate 2 Deputy Chief Ministers who
The highest organ of government in the region is the Bangsamoro Parliament composed of 80 members.
Philippine ANALYST POLITICAL September 2018 POLITICAL 25
The enactment of the BOL is a major legislative victory for Pres. Duterte and the 17th Congress.
LIST OF POWERS GRANTED TO BANGSAMORO GOVERNMENT
Administration of Justice; Humanitarian services and institutions; Administrative Organization; Human rights; Agriculture, Livestock and Food Security; Indigenous people’s rights; Ancestral domain and Natural Resources; Inland waters; Barter trade and countertrade; Inland waterways for navigation; Budgeting; Islamic banking and finance; Business name registration; Labor, employment and occupati Science and technology, research councils, and scholarship programs; Cadastral land survey; Social services, social welfare, and charities; Civil service; Sports and recreation; Classification of public lands; Technical cooperation for human resource development; Cooperatives and social entrepreneurship; Tourism development; Creation, division, merger, abolition or alteration of boundaries of municipalities and barangays; Trade and Industry; Creation of government-owned or controlled corporations and pioneer Urban and Rural Planning Development; firms; Urban land reform and land use; and Creation of sources of revenues; Water supply and services, flood control and irrigation systems Cultural exchange, and economic and technical cooperation; Culture and language; Customary laws; Development programs and laws for women, labor, youth, elderly, differently ables, and indigenous people; Disaster risk reduction and management; Ecological solid waste management and pollution control; Economic zones, industrial centers and free ports; Education and skills training; Eminent domain; Environment, parks, forest management, wildlife and nature reserves conservation; Fishery, marine and aquatic resources; Grants and donations; Hajj and Unrah; Health; Housing and human settlements;
Source: Bangsamoro Organic Law
Philippine ANALYST POLITICAL September 2018 26 POLITICAL
The Bangsamoro Region is also entitled to 75% of all Pampanga 2nd District Representative and House Speaker national taxes, fees, and charges collected in their territory, Gloria Macapagal-Arroyo (PDP-Laban) also voted to dismiss except for tariff and customs duties. The remaining 25% the complaint last September 25. goes to the national government. Apart from this, an annual block grant equivalent to 5% of the net national internal The impeachment complaints were filed by Albay 1st revenue tax collection of the Bureau of Revenue (BIR) and net District Rep. Edcel Lagman (Liberal Party), Magdalo Party- collections of the Bureau of Customs (BOC) will be granted to list Rep. Gary Alejano, and Ifugao Rep. Teddy Baguilat Jr the Bangsamoro. The Bangsamoro Transition Commission (L ib e r a l Pa r t y). A k baya n Pa r t y- li st Re p. To m V ill a r in wa s in i t i a ll y estimates that the 5% grant ranges from P60-70 billion. included as a complainant, but was later removed because of his failure to sign the complaints. Defense and security of the Bangsamoro will still be the responsibility of the national government. Notably, former The 3 legislators accused Chief Justice Teresita De Castro members of the Moro Islamic Liberation Front (MILF) and the and 6 associate justices of culpable violation of the Constitution Moro National Liberation Front (MNLF) may choose to join the for granting the quo warranto petition filed by Solicitor General Philippine National Police Regional Office in Bangsamoro as Jose Calida against Sereno. The 6 associate justices are the BOL relaxed some qualifications such as the age, height Diosdado Peralta, Lucas Bersamin, Francis Jardeleza, Noel and educational attainment. Tijam, Andres Reyes Jr. and Alexander Gesmundo. Former SC Associate Justice Samuel Martires, who also voted to The enactment of the BOL is a major legislative victory oust Sereno, was not included in the complaint since he for Pres. Duterte and the 17th Congress. It signifies a historic already retired in the SC last July to assume his new post as step towards solving the longstanding conflict between Moro Ombudsman. separatist groups and the Philippine government dating back to 1972. The peace and order then are expected to usher in Furthermore, the complainants also accused CJ De economic development in the region. Castro and Justices Peralta, Bersamin, Jardeleza, and Tijam of betrayal of public trust for refusing to inhibit from the quo Latest data from the Philippine Statistics Authority (PSA) warranto case after testifying against Sereno during the House showed that the ARMM is the poorest region in the country, impeachment complaint hearings. with poverty incidence among population reaching 53.7% in 2015. This is equivalent to more than 2 million poor people Based on House Rules, the first task of the Committee on in the region. Although the economic growth of the ARMM Justice is to determine if the complaint is sufficient in form and accelerated to 7.3% in 2017 from 0.4% in 2016, the region substance before allowing the respondents (SC Justices) to only contributed 0.6% to the national economy. reply to the allegations. During its 1st hearing last September 4, the committee unanimously ruled that the complaints are After undergoing the tedious legislative process, the next “sufficient in form.” Sufficiency in form is met if the complaint critical part for the BOL and its advocates is to hurdle the is verified which means that the complainants must have a plebiscite. A majority “yes” votes among total votes cast would personal knowledge of the allegations or that these are based ratify the BOL and establish the Bangsamoro Autonomous on authentic documents. Region. Failure to get enough votes would spell doom for the BOL, throwing away years of negotiations and work. Hence, However, last September 11, the committee voted, 23-1, intensive campaign and careful communications plan are declaring the complaints to be insufficient in substance. Only needed to get the support of the political leaders and the Siquijor Rep. Ramon Rocamora (PDP-Laban) voted that the public to put the law into action. complaints were “sufficient in substance.” Under the House Rules on Impeachment, a complaint is “sufficient in substance” if the there is a recital of facts constituting the offense charged House panel junks impeachment complaint and determinative of the jurisdiction of the committee. against 7 SC justices In defending the complaint, Rep. Lagman argued that Congress has the sole power to remove all impeachable The House Committee on Justice officially dismissed the officials from office only through the process of impeachment. consolidated impeachment complaints filed against 7 Supreme Rep. Rocamora also explained that the SC justices showed Court (SC) justices who voted to remove former Chief Justice clear bias against Sereno during the impeachment hearings (CJ) Maria Lourdes Sereno through a quo warranto petition. and thus, should have inhibited themselves from voting in the quo warranto case. Voting 22-0, the committee, chaired by Oriental Mindoro 1st District Representative Doy Leachon (PDP-Laban) has Meanwhile, majority of the committee members asserted approved the Committee Report rejecting the complaints that the facts recited failed to constitute the offense, adding against the SC Justices due to insufficiency in substance. that the quo warranto petition was clearly under the jurisdiction of the SC. Impeaching the 7 justices on that basis was seen
Voting 22-0, the House Committee on Justice approved the Committee Report rejecting the consolidated impeachment complaints against the 7 Supreme Court Justices.
Philippine ANALYST POLITICAL September 2018 POLITICAL 27
The complainants accused Chief Justice Teresita De Castro and 6 associate justices of culpable violation of Constitution for removing Former Chief Justice Maria Lourdes Sereno through quo warranto petition.
The Committee on Justice found the complaint sufficient in form but insufficient in substance.
Justice committee members asserted that impeaching the 7 justices was tantamount to the violation of the separation of powers. to be tantamount to the violation of the separation of powers. least 1/3 of all House members rejects it just like the case of AKO BICOL Party-list Rep. Alfredo Garbin Jr. even argued Former Commission on Elections (Comelec) Chairman Andres that the “standard upon which impeachable officers are held Bautista in 2017. If that happens, the Committee on Justice to are now higher” since quo warranto petition gives Filipinos will prepare the Articles of Impeachment and transmit it to the another way to hold impeachable public officials accountable. Senate to convene as the impeachment court.
Cavite 2nd District Rep. Strike Revilla (PDP-Laban) The impeachment case against Mr. Bautista stemming also defended the appearance of the Justices during the from his alleged failure to properly declare properties in his impeachment proceeding against Sereno, arguing that as Statement of Assets, Liabilities and Networth (SALN) and resource persons they helped the committee in performing its ill-gotten wealth, was also dismissed by the Committee on constitutional mandate. In that way, Rep. Revilla emphasized Justice but was overturned by the House plenary with a vote that the SC justices “recognized the supremacy of the people, of 137-75. The Senate did not proceed with the impeachment exercised through their duly chosen representatives.” hearing since Mr. Bautista already resigned the day the House impeached him. During the September 11 hearing, Rep. Lagman also raised a motion of reconsideration after the vote took place. But since Despite this possibility, there is, however, little to no chance he is just a complainant and not a committee member, the the report would be overturned since no less than Speaker Justice Committee asked him instead to file a manifestation to Arroyo herself, together with other House leaders, voted to clarify his arguments against the committee ruling. However, dismiss it. Furthermore, the looming midterm elections as well Rep. Lagman never filed any manifestation or pleading before as the impending retirement of CJ De Castro in October 10 the committee formally approved the report last September 25. would make impeachment an irrelevant endeavour.
Currently, the impeachment complaint against the 7 justices is not technically dead as the Committee on Justice still needs to submit the committee report to the plenary for their approval. Under House Rules, the report can still be overturned if at
The impeachment complaint is not technically dead as it still needs the approval of the House plenary.
Philippine ANALYST POLITICAL September 2018 28 ECONOMY
Inflation at 9-year high
The headline inflation rose to an annual rate of 6.4% in August, the highest since 6.6% in March 2009, on continuing surge in food prices. Year-to-August inflation averaged 4.8%, exceeding the 2-4% target range set by The Bangko Sentral ng Pilipinas (BSP) or central bank for 2018.
he 9-year high August inflation was driven by soaring prices of alcoholic beverages and tobacco, up 21.6% from its year-ago level (Jan.-Aug.: up 19%), although Tthis was due in large part to the increase in the excise taxes on these commodities under the Tax Reform for Acceleration and Inclusion (TRAIN) 1 Law; and of food and non-alcoholic beverages, up 8.5% (Jan.-Aug.: up 6%). Rice, fish and other food products recorded dramatic increases in prices due to the sharp decline in rice inventory and weather disturbances which affected food production in the northern part of the country. Both commodity groups account for almost half of the consumer basket.
The National Economic and Development Authority (NEDA) has appealed to the government, particularly the Department of Agriculture (DA), to “act quickly and fervently with a sound judgment to ease the increasing prices of agricultural strong consumer demand despite the continued pick-up commodities which are the main drivers of inflation.” in the general price level, raising the risk of a much higher inflationary spiral if not addressed decisively. Since the start But it’s not just rising food prices that’s driving inflation, it’s of the year, BSP rates have risen by a cumulative 150 basis also a confluence of several cost-push factors. Crude oil prices points (1.5%-points), with the overnight lending rate now at 5% have risen sharply in the global market, and its impact in the and overnight borrowing rate at 4%, the highest also in 9 years. Philippines is exacerbated by the peso depreciation. Cost of transport services, which has jumped by 7.8% (Jan.-Aug.: up nd Economic managers expect inflation to peak in the 3rd 6.1%), lead the 2 round effects of the cost-push inflation. The quarter, then start a gradual decline in the 4th quarter. However, implementation of the TRAIN Law also contributed, although they have conceded that the whole year 2018 average could its impact is being exaggerated by populist groups. be higher than their revised projection of 4-4.5%, given the higher-than-expected result in August. Also, the BSP is now The Bangko Sentral ng Pilipinas (BSP) raised its policy looking at next year’s inflation still exceeding the 2-4% target rates for the 4th time this year, by another 50 basis points, to range, up from the previous adjusted expectation of 3.7% or minimize the second-round effects and temper inflationary slightly below the upper end of the range. expectations. The action was prompted by the sustained
The 9-year high August inflation was driven by soaring prices of alcoholic beverages and tobacco
Philippine ANALYST ECONOMY September 2018 ECONOMY 29
Philippines: Annual Headline Inflation (%) 7
6
5
4
3
2
1
0 17 J F M A M J J A S O N D 18 J F M A M J J A
Source: Philippine Statistics Authority (PSA)
Peso drops to 54 vs. the dollar in September The bearish sentiment of the peso, observed since the start of the year (the exchange rate opened at P49.84:$1 on The peso fell to the 54-to-the-dollar mark in mid-September the first trading day of 2018), was sustained in September and never looked back for the rest of the month. It closed at by the strengthening of the dollar vs. emerging market P54.13:$1 on the last trading day of September. currencies due to its trade war with China. The Philippine currency, however, slipped more than the others because The peso first breached the 54-to-the-dollar mark on th of its surging inflation. Jitters about rising inflation have the 13 of September, closing at P54.13:$1, the lowest led to a net outflow in foreign funds especially in the since P54.16:$1 registered nearly 13 years ago, on 2nd stock market, resulting in even more demand for dollars. of December 2005. The exchange rate recovered a bit in the next few days, but continued to slide after that, reaching the month’s low of P54.32:$1 on 25 September. Jitters about rising inflation have led to a net outflow in foreign funds especially in the stock market, resulting in even more demand for dollars.
PESO-DOLLAR RATE Jan2017-Sept2018 55.00
54.00
53.00
52.00
51.00
50.00
49.00
48.00
47.00
46.00
Source: Bangko Sentral ng Pilipinas (BSP) Philippine ANALYST ECONOMY September 2018 30 ECONOMY
Fundamentally, the widening current account deficit, In terms of sources, FDIs were primarily from Singapore reaching a whopping $22.49 billion as of the first 7 months, ($684.5 million), Hong Kong ($242.3 million), China ($168.7 has also put pressure on the peso, as this meant demand million), Japan ($125.3 million), and the U.S. ($62.6 million) for dollars exceeded its supply. The double-digit growth for the 1st half of the year. Investments were mainly in in imports is outpacing the sluggish export performance, manufacturing worth $757 million. This was followed by even if dollar earnings from overseas Filipino workers financial and insurance ($295.3 million); arts, entertainment (OFWs) and business process outsourcing (BPOs) are and recreation ($186.2 million); real estate ($18 million); included, increasing the imbalance in the current account. and electricity, gas, steam and air-conditioning supply ($104.4 million) (see table on Industries with the Highest The peso depreciation, though, should benefit exporters, FDI Inflows in 1H2018). On the other hand, the industries families of OFWs and tourism. with the least investments were administrative and support service, education, public administration and defense, Currency traders see the peso recovering near compulsory social security, other service activities, activities year-end, a seasonal high for net dollar inflows in the of households, and activities of extraterritorial organizations country. But depreciation could resume in late 1st quarter and bodies with zero or negative net inflows see ( table next year if the current account imbalance continues. on Industries with the Lowest FDI Inflows in 1H2018).
Net inflows in June alone stood at $831 million, a PH FDI inflows soared by 42% in 1H2018 9.2% increase from $761 million in June 2017. This was mainly attributed to net equity capital placements of non- Foreign direct investments (FDI) net inflows into the residents at $184 million from the recorded $67 million Philippines jumped by 42.4% to $5.8 billion in 1H2018 from net withdrawals in the same month last year. The positive $4 billion recorded in the same period in 2017 signifying net equity capital placements were due to the increase in investor confidence in the country’s strong macroeconomic gross equity capital which offset withdrawals for the month. fundamentals and growth prospects. The growing FDI signifies that the Philippines is still The 1st half of 2018 tally brought FDI net inflows closer to an increasingly attractive site for investment given its the $9.2 billion full-year projection of the Bangko Sentral ng young and skilled workforce, strong macroeconomic Pilipinas (BSP) or central bank. Data from the BSP showed fundamentals, ad growth prospects. The same increasing that net investments of equity capital from non-residents trend was seen in terms of the FDI-to-GDP ratio which stood soared more than 7 times to $1.6 billion from $201 million at 3.7% in the 1st half of the year from 3.2% in 2017 and year-on-year. This was mainly attributed to the 244.1% surge 2.72 in 2016. Higher net inflows of FDI translate into higher in equity capital placements to $1.7 billion from $508 million productive capacity, employment and domestic activity. in 1H2017 combined with the 46.9% decrease in withdrawals to $163 million from $307 million year-to-date. Moreover, Recently, RAM Rating Services upgraded the country’s investments in debt instruments slightly increased to $3.8 global and Association of Southeast Asian Nations billion in the 1st half of 2018 from $3.4 billion in the same (ASEAN)-scale ratings to a notch above minimum period last year, while reinvestment of earnings were up investment grade due to increasing FDI inflows and to $420 million in the period from $416 million in 1H2017.
The total FDI net inflows in 1H2018 is already more than half of the central bank’s full-year projection.
Philippine ANALYST ECONOMY September 2018 ECONOMY 31
INDUSTRIES WITH THE HIGHEST FDI INFLOWS IN 1H2018 (IN MILLION DOLLARS)
INDUSTRY/SECTOR FDI
Manufacturing 757
Financial and Insurance Activities 295.3
Arts, Entertainment and Recreation 186.2
Real Estate Activities 182
Electricity, Gas, Steam and Airconditioning Supply 104.4
Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 19.5
Construction 16.9
Accommodation and Food Service Activities 7.9
Professional, Scientific and Technical Activities 6.5
Transportation and Storage 4
Source: Bangko Sentral ng Pilipinas (BSP)
INDUSTRIES WITH THE LOWEST FDI INFLOWS IN 1H2018 (IN MILLION DOLLARS)
INDUSTRY/SECTOR FDI
Administrative and Support Service Activities -2.9 Education -0.1
Public Administration and Defense; Compulsory Social Security 0.0
Other Service Activities 0.0 Activities of Households as Employers; Undifferentiated Goods-and-Services-Producing 0.0 Activities of Households for Own Use Activities of Extraterritorial Organizations and Bodies 0.0 Others N.E.C. 0.01 Water Supply; Sewerage, Waste Management and Remediation Activities 0.2 Agriculture, Forestry and Fishing 0.4
Human Health and Social Work Activities 0.9 Source: Bangko Sentral ng Pilipinas (BSP)
business-related reforms. RAM Ratings noted that the Poor’s Global Ratings (S&P) noted that the uncertainty consistent FDI inflows could eventually address the growing associated with the 2nd tax reform package could adversely trade gap as this would result in business expansion. affect FDI as investors opt for a “wait-and-see” stance.
Despite the improving net inflows in the country, Hongkong The BSP claimed that further growth in FDI inflows is and Shanghai Banking Corp. (HSBC) explained that the expected for the rest of the year with the improvement in Philippines still lags behind most of its Southeast Asian infrastructure and global perception. The International neighbors in attracting FDIs due to constitutional restrictions on Monetary Fund (IMF) noted that the Philippines has the foreign ownership. HSBC said that the Duterte administration’s capacity to further raise FDI with its strong domestic reforms. intention to remove tax incentives given to some foreign ING Bank Manila Senior Economist Joey Cuyegkeng companies could affect capital inflows. Also, Standard and added that the economy would fulfill its year-end forecast and remain one of the fastest growing economies in Asia.
Higher FDI inflows translate into higher productive capacity, employment and domestic activity.
Philippine ANALYST ECONOMY September 2018 32 ECONOMY
FDI Net Inflows (In Million U.S. Dollars) 1800
1600
1400
1200
1000
800
600
400
200
0 Jan Feb Mar Apr May Jun 1H2017 1H2018
Source: Bangko Sentral ng Pilipinas (BSP)
Net FDI (2010-2018) In Million U.S. Dollars 12,000.00
10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
0.00 Year 2010 2011 2012 2013 2014 2015 2016 2017
Source: Bangko Sentral ng Pilipinas (BSP)
The government’s plan to remove tax incentives might not bode well for capital inflows.
Philippine ANALYST ECONOMY September 2018 ECONOMY 33
PH national debt remains manageable as of comprises of 17 different currencies including the Philippine end-June 2018 Peso (6%), Euro (2%) and special drawing rights (SDR) (2%).
The Philippine government’s outstanding external debt posted Beyond the nominal values of the external debt, economic a 0.4% decrease to $72.2 billion as of end-June 2018, from managers ayrgued that a more accurate measure of debt $72.5 billion recorded in the same period in 2017 attributed sustainability is the ratio of an economy’s debt to its output. to prudent debt management. Ac c o r d i n g t o t h e B u r e a u o f Tr e a s u r y (B Tr), t h e d e b t- t o - G D P r a t i o for 1H2018 stood at 42.5% compared with 42.6% recorded at According to the Bangko Sentral ng Pilipinas (BSP) t h e en d of Marc h 2018 an d 42.1% at t h e en d of De c em b er 2017. or central bank, the year-on-year decline was due to In general, the country’s debt-to-GDP ratio has been declining net principal repayments ($2.4 billion), late reporting over the past 5 years. Notably, the debt-to-GDP ratio recorded adjustments ($1.8 billion), and transfer of Philippine debt in 2016 and 2017 were the lowest level ratio since 2000 (see papers from residents to non-residents ($419 million). table on PH Debt-to-GDP ratio). Economic managers project that the debt-to-GDP ratio would drop to 38-39%% by 2022. Public sector external debt, which comprises 52.6% of the total debt stock, was up to $38 billion in the 1st half of the year The recorded gross international reserves (GIR) was at $77.5 from $37.5 billion recorded as of end-June 2017. Meanwhile, billion during the period and could cover short-term loans 6.4 capital borrowed by the private sector posted a decline to times based on original maturity. Additionally, the Debt Service $34.2 billion as of end–June from $35 billion in 1H2017. The Ratio (DSR), which relates the debt service burden (DSB) BSP noted that the decline in foreign borrowing could be the or the payment of principal and interest to exports of goods result of the private sector shifting to domestic borrowing and receipts from services and primary income, improved to to avoid fluctuations in the foreign exchange (FX) rate. 6.1% in June 2018 from 6.7% in June 2017. The country’s DSR remained at the single-digit levels and below the international In terms of creditor mix, multilateral agencies, such as benchmark range of 20-25%, which signifies the capacity International Bank for Reconstruction and Development of the country’s FX earnings to pay maturing obligations. (IBRD) or World Bank, International Monetary Fund (IMF), and Asian Development Bank (ADB), and bilateral creditors For 2019, the government set a target borrowing of were the main sources of the country’s debt stock comprising P971.86 billion to continue funding its massive P8 trillion 33.1% or $23.9 billion. It was followed by foreign holders of infrastructure program. Despite a higher debt target, bond and notes with $22.1 billion (30.7%). Loans from foreign the administration claims that its “Build, Build, Build” banks and other financial institutions comprised 29.3% of the program would drive economic growth to at least 7% debt stock with $21.1 billion, while other creditors such as over the medium term. However, some experts argue that suppliers or exporters contribute $5.02 billion or 7% (see table growth sustained by foreign borrowings and a growing on Composition of the External Debt by Institutional Creditor). trade deficit could be a cause for concern in the long run.
The country’s debt stock is mainly denominated in the U.S. Nonetheless, data showed that the debt-to-GDP ratio Dollar (61.5%) in terms of currency, followed by the Japanese has been decreasing through the years indicating reduced Yen (12.9%). Meanwhile, about 14.6% of the total external debt dependence and manageable debt position despite debt is composed of U.S. dollar-denominated multi-currency increased government borrowings. Along with the surge in loans from World Bank and ADB, while the remaining 11% foreign direct investments (FDI), this should allow for the sustained growth of the economy in the foreseeable future. The BSP claimed that the private sector could be deleveraging from foreign borrowing to avoid FX revaluation risks.
The continued improvement of the economy’s debt-to-GDP ratio and Debt Service Ratio signify that the external debt is at a manageable level.
Philippine ANALYST ECONOMY September 2018 34 ECONOMY
COMPOSITION OF THE EXTERNAL DEBT BY INSTITUTIONAL CREDITOR
INSTITUTIONAL CREDITOR AMOUNT SHARE IN TOTAL (MILLION US DOLLARS) DEBT STOCK (%)
Banks and Other Financial Institutions 21,133.6 29.3
Suppliers 3,097.8 4.3 Multilateral 12,881.6 17.8 I B R D 5,096.1 7.1 Use of Fund Credits 0.0 0.0 SDR Allocation 1,177.3 1.6 A D B 5,906.1 8.2 Bilateral 11,032.6 15.3 Export Credit Agencies 788.8 1.1 Others 10,243.8 14.2 Bondholders/Noteholders 22,131.2 30.7 Others 1,922.0 2.7 Source: Bangko Sentral ng Pilipinas (BSP)
PH DEBT-TO-GDP RATIO (2000-2018)
80.0 74.4
67.1 70.0 73.8 60.5 61.4 68.5 60.0 54.7 61.3 52.4 51.5
50.0 53.9 54.8 45.4 51.0 42.1 42.5 49.2 40.0 44.7 42.1
30.0
20.0
10.0
0.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: World Bank Data Indicators
Along with the surge in FDI, a manageable level of external debt should allow for the sustained growth of the economy in the foreseeable future.
Philippine ANALYST ECONOMY September 2018 ECONOMY 35
Employment situation continues to improve indicated that more people entering the labor force, and the market was strong enough to absorb these entrants this year. The July 2018 (3rd quarter) labor force survey disclosed that employment had reached 40.89 million, an increase The underemployment rate, or the percentage of employed of 488,000 over a 12-month period, the highest net gain in wanting to work longer hours or still seeking better jobs, employment among July surveys in the last 10 years. The h oweve r, c o nt in ue d to wo r se n an d ave r ag e d 17.4% in t h e fir st 3 ave rag e e m p loyme nt was 41.1 m i l l io n d u ri ng the fi r st 3 q u ar te r s quarters, much higher than 16.2% in the 1st 3 quarters of 2017. of 2018, a net gain of 1.17 million from 39.9 million in the same This could mean that while jobs became increasingly plentiful, period last year, on track with the government’s job creation some of the workers were not satisfied with the new jobs created. target of 900,000 to 1.1 million for 2018. But offsetting this was the decline in unpaid members working in family farms or business, by 430,000 to 2.01 million from The unemployment rate, at 5.4% in July, was the lowest ever 2.44 million in 1H17, as more wage and salary work became re c ord in a ll s ur vey ro un d s s in c e J ul y 20 0 8. In abso lute n um b e r, available. Perhaps, also, some farm workers were absorbed in there were 2.32 million unemployed, better than the 2.38 million the service sector, but got jobs that were not paying enough. recorded in July 2017. The average number of unemployed was 2.35 million (5.4%) in the first 3 quarters, an improvement Employment in the industrial sector improved significantly, over 2.54 million (6%) in the comparable period in 2017. r i s in g to an ave r ag e of 19.1% of tot a l e m p l oy m e nt o r 7.8 5 m illi o n in the first 3 quarters from 18.4% or 7.35 million in the same The gain in the labor situation occurred even as the Labor period in 2017 – a gain of 500,000 jobs. The service sector force participation rate (LFPR), or the percentage of persons accounted for 56.6% (23.26 million) of employment, a 12-month of working age who joined the labor market, slightly increased gain of 780,000; whilst the agricultural sector contributed to 61.1% in the first 3 quarters from 60.6% a year ago. This 24.3% (9.99 million), down from 25.6% (10.22 million).
The average employment during the first 3 quarters is on track with the government’s job creation target of 900,000 to 1.1 million for 2018.
RESULTS OF THE LABOR FORCE SURVEY
2018 2017 1st 3 Q Ave. July 1st 3 Q Ave. July Labor Force Participation Rate (%) 61.1 60.1 60.7 60.6 Size of Labor Force (M) 43.47 43.01 42.32 42.52 Employed (M) 41.10 40.66 39.93 40.17 Unemployed (M) 2.35 2.32 2.54 2.38 Unemployment Rate (%) 5.4 5.4 6.0 5.6 Underemployment Rate (%) 17.4 17.2 16.2 16.3 Employed by Class of Worker (% Share) Wage & Salary Workers 63.6 65.3 62.5 63.6 Self-Employed w/o Paid Employee 27.0 26.2 27.7 27.7 Employer, Family-owned Farm or Business 3.7 3.8 3.6 3.5 Worked w/o Pay in Own Family Farm or Business 5.1 4.6 6.1 5.2 Employed by Sector (% Share) Agriculture 24.3 23.1 25.6 25.2 Industry 19.1 19.4 18.4 19.2 Services 56.6 57.5 56.3 55.6 Source: Philippine Statistics Authority (PSA), Labor Force Survey
Philippine ANALYST ECONOMY September 2018 36 ECONOMY
Results of the Labor Force Survey 2000
1500
1000
500
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1st 3Q 2018 -500
-1000
Source: Philippine Statistics Authority (PSA), Labor Force Survey
Consumers less optimistic in 3rd quarter BSP The current quarter CI is based on the composite survey of net value of the respondent’s views on inflation, exchange rate, borrowing rate, unemployment, economic Co n s u me r s e nti me nt tu rne d ne g ative i n the c u rre nt q u ar te r, and conditions, household finances and household income. consumer outlook was less optimistic in the next quarter and the next 12 months, according to the Consumer Expectations Rising inflation brought the CI down to the negative territory. S u r vey c o nd u c te d by the c e ntral ban k i n the 3 rd q u ar te r of 2018 . Other factors for the decline in the index were the perception of low salary/income, higher household expenses, and high The overall consumer confidence index (CI) for the current unemployment rate (which contradicted the official data that quarter turned negative at -7.1% in 3rd quarter, the first time it indicated the employment situation actually improved). There did after posting 8 straight months of positive value. This means were also concerns about rising educational expenses. there was a higher percentage of households believing the situation has worsened than those who thought it was better.
Rising inflation brought the CI down to the negative territory.
Source: Bangko Sentral ng Pilipinas (BSP), Consumer Expectations Survey
Philippine ANALYST ECONOMY September 2018 ECONOMY 37
The CI for the current quarter declined in all income groups. weakening of economic condition and of family financial It dropped among the low- and middle-income groups due to situation. Both reverted to negative indices. Views on family expectations of higher household expenditures without any income remained positive, but with a lower index value. increase in family income, while among the high-income group it fell due to peace and order problems and peso depreciation. Households from the low-income group brought the next quarter CI down to a negative value, while those belonging The CI for the next quarter also turned less optimistic, to the middle- and high-income group registered a dip in the with the index falling to 3.8% in the 3rd quarter survey from index, albeit still positive. All income groups experienced 8.7% in the previous quarter. Consumer outlook for the a drop in consumer outlook for the next 12 months. next year also dropped to 13% from 23.1% on perceived
The CI for the next quarter also turned less optimistic.
Philippine ANALYST ECONOMY September 2018 38 ECONOMIC INDICATORS INDICATORS
INFLATION HITS 6.7% IN SEPTEMBER INFLATION RATE (%), BY COMMODITY, 2012=100 Headline inflation rate for September increased to 6.7% from 6.4% last August. RECREATION This figure is higher than the 3% recorded in September 2017. The result was TRANSPORT COMMUNICATION within the central bank’s 6.3% to 7.1% estimate for the month. Inflation during AND CULTURE the month was the highest since February 2009. This was attributed to higher 2018 2017 2018 2017 2018 2017 annual increases in the indices of food and non-alcoholic beverages (9.7%) Jan. 4.5 2.4 0.3 0.1 1.5 1.9 and alcoholic beverages and tobacco (21.8%). Meanwhile, the inflation for the National Capital Region (NCR) and Areas Outside NCR (AONCR) were at 6.3% and Feb. 5.8 2.8 0.2 0.2 1.4 1.8 6.8%, respectively. 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 - SEPTEMBER 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 (2012=100) (2000 = 100) (2000=100) July 7.9 3.8 0.5 0.2 0.9 1.2 2018 2017 2018 2017 2018 2017 Aug. 7.8 4.4 0.4 0.3 2.4 1.4 Jan 114.1 146.8 251.3 239.9 181.0 179.0 Sept. 8.0 4.8 0.5 0.3 3.0 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 116.1 147.8 253.9 239.4 182.0 177.5 Dec. 2.4 0.4 1.5 May 116.1 147.8 275.7 237.7 182.3 175.8 June 116.8 147.9 258.5 234.7 183.1 175.7 INFLATION RATE (%), BY COMMODITY, 2012=100 Jul 117.4 148.3 259.1 236.9 183.2 175.2 Aug 118.4 148.8 239.0 176.4 RESTAURANTS AND EDUCATION MISCELLANEOUS GOODS AND Sept 119.5 149.5 240.6 175.0 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 -3.9 2.3 3.7 2.1 2018 2017 2018 2017 2018 2017 Aug. -3.8 2.3 4.0 2.2 Jan. 4.8 3.4 12.2 5.6 1.9 2.8 Sept. -3.8 2.3 4.0 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 7.1 3.3 21.5 6.2 2.4 2.1 PHILIPPINES METRO MANILA OUTSIDE MM Aug. 8.5 3.5 21.6 6.3 2.4 1.9 2018 2017 2018 2017 2018 2017 Sept. 9.7 3.6 21.8 6.4 2.5 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 5.7 2.8 6.5 3.8 5.5 2.6 HOUSEHOLD HOUSING, WATER, Aug. 6.4 3.1 7.0 4.0 6.2 2.8 EQUIPMENT ELECTRICITY, GAS HEALTH AND ROUTINE Sept. 6.7 3.4 6.3 4.7 6.8 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 5.6 2.2 3.3 2.0 3.7 2.4 Aug. 5.5 2.8 3.5 1.8 4.0 2.4 Sept. 4.6 3.8 3.6 1.8 4.1 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 September 2018 ECONOMIC INDICATORS 39
TREASURY BILL RATE PESO AVERAGES TO P53.942 IN SEPTEMBER PESO-DOLLAR GROSS INTL 91-DAY, WAIR IN EXCHANGE RATE Peso weakens to P53.942:$1 average in September from the P53.274:$1 average RESERVES (US$B) PERCENT PERIOD AVE. in August. The peso started against the dollar in September at P53.475 on (US$B) September 3. The peso closed the weakest at P54.322 on September 26. The 2018 2017 2018 2017 2018 2017 strongest peso close was on September 3 at P53.475. Jan. 81.82 81.38 50.51 49.74 2.277 1.889 Feb. 80.43 81.44 51.79 49.96 1.335 2.306 March 80.51 80.89 52.07 50.28 3.010 2.374 April 79.61 82.02 52.10 49.86 3.422 2.347 PHP: US$ EXCHANGE RATE -44 May 79.20 82.18 52.19 49.86 3.407 2.177 -45 June 77.53 81.32 53.05 49.85 2.526 2.094 -46 July 76.72 81.07 53.43 50.64 3.297 2.164 -47 -48 Aug. 77.93 81.73 53.27 50.87 3.239 2.152 -49 Sept. 81.35 53.94 51.01 1.694 2.060 -50 Oct. 80.42 51.34 1.958 -51 -52 Nov. 80.31 51.04 1.074 -53 Dec. 80.157 50.39 0.000 -54 -55 91-DAY T-BILL RATE AVERAGES 1.694% IN SEPTEMBER J'15M M J S NJ'16M M J S NJ'17M M J S NJ'18M M J 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 September 3, 10, 17 and 24. Total bids for the government securities reached an average of P21.52 billion, but the BTr only awarded P9.35 billion. The 91-day T-bills fetched an average auction rate of 1.694%, down from the 3.239% average in August. The GROSS INTERNATIONAL RESERVES 182- and 364- day debt papers, meanwhile, yielded an average rate of 3.263% 87 and 3.859% from 4.109% and 4.885%, respectively. 86 85 84 83 91-DAY T-BILL RATE 82 3.5 81 3 80 79 2.5 78 2 77 76 1.5 75 J'15 A J O J'16 A J O F M A N F M 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 J
BSP BANK REFERENCE RATES PESO EQUIVALENT PER UNIT OF FOREIGN CURRENCY- AS OF SEPT. 03, 2018 AVE. AVE. CHANGE Australian dollar 38.46 39.48 (2.6) Bahrain dinar 141.84 140.69 0.8 Brunei dollar 38.84 38.92 (0.2) Canadian dollar 40.90 40.88 0.1 E.M.U. euro 62.03 62.15 (0.2) Hong Kong dollar 6.81 6.77 0.6 Indonesian rupiah 0.0037 0.0037 - Japanese yen 0.48 0.48 1.3 Kuwaiti dinar unquoted unquoted unquoted Saudi Arabian rial 14.26 14.18 0.6 Singaporean dollar 38.98 39.06 (0.2) Swiss franc 55.15 53.69 2.7 Thai baht 1.63 1.60 2.3 UAE dirham 14.56 14.47 0.6 UK pound 69.09 69.79 (1.0) US dollar 53.48 53.16 0.6
Philippine ANALYST ECONOMIC INDICATORS September 2018 40 ECONOMIC INDICATORS
BALANCE OF PAYMENTS - JAN-JUN 2018 GROWTH SELECTED INTEREAAST RATES (IN % PER ANNUM) 2018 2017 (IN US$M) RATE % Peso Deposit Rates (September 24-28, 2018) AVE. 2 WEEKS AGO Current Account (3,087) (133) 2,227.7 Saving Deposits 2.50 2.50 Goods and Services (17,457) (14,453) 20.8 Time Deposits Export 44,212 42,463 4.1 below 1 year 3.35 3.20 Import 61,669 56,917 8.3 1 - 2 years 2.30 2.48 Goods (23,324) (18,238) 27.9 Over 2 years 2.89 3.03 Credit: Exports 25,339 25,738 (1.6) Dollar Deposit Rates (September 24-28, 2018) Debit : Imports 48,663 43,976 10.7 Saving Deposits 0.25 0.27 Time Deposits Services 5,867 3,785 55.0 60 days and below 1.03 1.00 Credit: Exports 18,873 16,725 12.8 61-90 Days 1.17 1.21 Debit : Imports 13,006 12,941 0.5 91-180 Days 1.32 1.26 Income 1,347 1,544 (12.7) 181 days and above 1.52 1.49 Credit: Receipts 5,489 5,126 7.1 Bank Lending Rates (September 24-28, 2018) Debit : Disbursments 4,141 3,581 15.6 All Maturities 4.96 4.79 Current Transfers 13,023 12,777 1.9 High 7.19 7.13 Credit: Receipts 13,401 13,177 1.7 Low 4.77 4.72 Debit : Disbursments 377 400 (5.7) Treasury Bill Primary Rates (September 24, 2018) Capital Account (1) 24 (102.7) 91 days 0.000 3.549 Credit: Receipts 20 43 (54.7) 182 days 0.000 4.353 Debit : Disbursments 20 19 5.8 364 days 0.000 5.137 Financial Account (252) (720) (65.1) Money Market Rates (September 24-28, 2018) Direct Investment (4,080) (3,160) 29.1 Promissory Note 4.35 4.00 Debit: Assets, Residents Investment abroad 1,675 881 90.2 Commercial Papers w/o recourse 4.29 4.22 Credit : Liabilities, Non-residents 5,755 4,041 42.4 Manila Reference Rates (September 24-28, 2018) Investment in the Phil MRR 60 N.I. N.I. Portfolio Investment 3,094 2,867 7.9 MRR 90 N.I. N.I. Debit: Assets, Residents Investment abroad 2,434 807 201.4 MRR 180 N.I. N.I. Credit : Liabilities, Non-residents (660) (2,059) (68.0) Source : BSP Key statistical Indicator Investment in the Phil Other Investment 787 (290) (371.5) GOV'T FISCAL PERFORMANCE- JANUARY - JUNE 2018 Debit: Assets, Residents Investment abroad (1,776) 361 (591.4) DATA YEAR-AGO GROWTH RATE Credit : Liabilities, Non-residents (in Php M) (in Php M) (%) (2,563) 651 (493.5) Investment in the Phil I. Revenues 1,410,542 1,176,360 19.9% NET UNCLASSIFIED ITEMS (421) (1,318) (68.0) Tax Revenues 1,254,722 1,069,044 17.4% OVERALL BOP POSITION (3,257) (706) 361.5 Non-Tax Revenues 155,798 107,285 45.2% Grants 22 31 -29.0% II. Expenditures 1,603,559 1,330,830 20.5% III. Surplus/Deficit -193,017 -154,470 -25.0% IV. Financing 379,989 348,836 8.9% Domestic Financing 304,166 320,681 5.1% Foreign Financing 75,823 28,155 169.3% V. Change-in-Cash -25,526 176,787 114.4%
TOTAL EXTERNAL DEBT DATA YEAR-AGO GROWTH RATE AS OF JUNE 2018 (in $ M) (in $ M) (%) By Type of Debt 72,199 72,493 -0.4% Medium and Long-term 60,098 57,942 3.7% Short-Term 12,101 14,551 -16.8% By Borrower 72,199 72,493 -0.4% Banking System 17,847 18,571 -3.9% Public Sector 34,359 33,433 2.8% Private Sector 19,993 20,490 -2.4% By Institutional Creditor 72,199 72,493 -0.4% Banks & Other Financial 21,134 23,692 -10.8% Institutions Suppliers 3,098 2,802 10.6% Multilateral 12,882 12,383 4.0% IBRD 5,096 4,966 2.6% IMF 0 0 ADB 5,906 5,731 3.1% Bilateral 11,033 11,308 -2.4% Bondholders/Noteholders 22,131 20,345 8.8% Others 1,922 1,964 -2.1%
Philippine ANALYST ECONOMIC INDICATORS September 2018 ECONOMIC INDICATORS 41
JANUARY-JULY 2018 TOTAL TRADE AT $99.98 Bn MERCHANDISE IMPORTS -JANUARY-JULY 2018 (in US$ million ) Total merchandise trade in July 2018 stood at $99.98 billion, up 7.74% from the $92.79 2018 2017 % CHANGE billion recorded in the same period in 2017. The trade deficit widened year-on-year to $22.49 billion compared to 2017’s $13.05 billion. Merchandise exports for the January CAPITAL GOODS 20,132 17,244 16.7 to July period were down by 2.8% year-on-year to $38.74 billion from $39.87 billion Telecom eqpmt & elec's eqpmt 8,931 7,416 20.4 in the same period in 2017, while merchandise imports increased by 5.7% to $61.23 billion from $52.92 billion in 2017. Power generating & spec'd eqpmt 4,951 4,398 12.6 For July 2018, total trade increased by 17.5% to $15.25 billion from $12.97 billion last Office and EDP machine 1,961 1,797 9.1 year. Export revenues decreased by 0.3% to $5.85 billion from $5.83 billion. On the Transport 1,675 1,480 13.2 other hand, import payments increased by 31.6% to $9.40 billion from $7.14 billion. Others 1,036 954 8.6 The top 3 exports for July were: Electronic Products (total receipts of $3.28 billion, RAW MATERIALS & INTER. GOODS 23,746 20,721 14.6 up 5.2% year-on-year, and accounting for 56% of the total exports revenue); Other Manufactured Goods ($312.57 million, down 7.3%); and Machinery and Transport Semi-processed raw materials 21,627 18,264 18.4 Equipment ($238.56 million, down 14.4%). Unprocessed raw materials 2,119 2,457 (13.7) Meanwhile, the top 3 imports were: Electronic Products (with a total import bill of MINERALS, FUELS & LUBRICANTS 7,165 5,898 21.5 $2.33 billion, up 43.2% year-on-year, and accounting for 24.8% of the total import bill); Transport Equipment ($1.18 billion, up 61.1%); and Mineral Fuels, Lubricants and Crude petroleum 2,799 1,823 53.5 Related Materials ($1.14 billion, up 35.8%). Others 3,461 3,288 5.3 CONSUMER GOODS 9,839 8,801 11.8 Non-durable 4,264 3,876 10.0 FOREIGN TRADE Durable 5,575 4,925 13.2 8700 SPECIAL TRANSACTION 352 260 35.3 TOTAL IMPORTS 61,234 52,923 15.7 7700
6700 MERCHANDISE EXPORTS - JANUARY-JULY 2018 (in million US$) GROWTH 2018 2017 5700 RATE % Total Agro-Based Products 2,470 3,021 (18.2) 4700 Coconut Products 861 1,206 (28.6) 3700 Sugar and Products 73 115 (36.1) J'15M M J S NJ'16M M J S N J17 M M J S NJ'18M M Fruit and Vegetables 1,032 1,147 (10.0) Fish, Fresh or Preserved of which: shrimps EXPORT IMPORT 246 301 (18.4) and prawn Forest Products 145 71 104.9 Mineral Products 2,519 2,452 2.7 MERCHANDISE BALANCE OF TRADE - IN US$ MILLIONS Copper Metal 728 653 11.4 EXPORTS IMPORTS SURPLUS/(DEFICIT) Petroleum Products 198 221 (10.4) 2018 2017 2018 2017 2018 2017 Manufactures 32,501 33,310 (2.4) Electronic Products 21,613 20,509 5.4 Jan. 5,219 5,130 8,356 7,444 (3,317) (2,314) Garments 518 775 (33.1) Feb. 4,659 4,782 7,725 6,511 (3,065) (1,728) Textile Yarns / Fabrics 121 124 (2.3) March 5,510 5,579 8,118 7,882 (2,608) (2302) Furniture & Fixtures 165 201 (17.9) April 5,115 4,805 7,141 6,857 (2,026) (2,052) Chemicals 752 1,170 (35.7) May 5,762 5,489 9,462 8,242 (3,701) (2,754) Machinery & Transport Equipment 3,088 3,065 0.8 June 5,700 4,913 9,050 7,060 (3,350) (2,147) Iron and Steel 62 77 (19.9) July 5,851 5,285 9,397 6,931 (3,546) (1,646) TOTAL EXPORTS 38,744 39,869 (2.8) 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 September 2018 42 ECONOMIC INDICATORS
NATIONAL ACCOUNTS - 2nd QUARTER 2018 PERCENTAGE DISTRIBUTION OF TOTAL FAMILY EXPENDITURE YEAR -AGO YEAR-AGO GROSS NATIONAL INCOME 2018 EXPENDITURE GROUP 2015 2012 LEVEL GROWTH Total Family Expenditures (in millions) 4,883 4,125 (at constant prices) 2,794.7 2,641.9 5.8% Percent 100.0 100.0 (at current prices) 5,182.4 4,741.0 9.3% GROSS DOMESTIC PRODUCT Food Expenditures 41.9 42.8 (at constant prices) 2,352.5 2,219.5 6.0% Alcoholic Beverages 0.5 0.6 (at current prices) 4,323.5 3,946.1 9.6% Tobacco 1.1 0.9 GNP (at constant prices) by Expenditure Shares Clothing and Footwear 2.4 2.4 1. Household Final Consumption Expenditure 1,552.8 1,469.8 5.6% Furnishings, household equipment 2.5 2.8 a. Food and Non-alcoholic beverages 643.8 605.8 6.3% and routine household maintenance b. Alcoholic beverages, Tobacco 18.2 19.0 -4.3% Health 3.7 3.7 c. Clothing and Footwear 17.7 18.2 -2.9% Housing, water, electricity, gas and other fuels 20.1 20.7 d. Housing, water, electricity, gas and 182.7 172.5 5.9% Transportation 6.2 7.5 other fuels Communication 2.2 2.7 e. Furnishing, household equipment and 75.3 71.4 5.4% routine household maintenance Recreation and culture 0.8 1.4 f. Health 37.2 36.9 0.8% Education 3.8 4.1 g. Transport 149.6 147.6 1.3% Accomodation Service 0.2 0.2 h. Communication 78.8 74.0 6.6% Miscellaneous Goods and Services 6.3 6.6 i. Recreation and Culture 34.7 33.9 2.3% Other Expenditure 3.1 3.7 j. Education 45.7 42.7 7.2% Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2012 k. Restaurants and Hotels 66.4 63.6 4.3% l. Miscellaneous goods and services 202.7 184.2 10.0% 2. Government Final Consumption 308.0 275.2 11.9% Expenditure 3. Capital Formation 688.3 570.1 20.7% 4. Exports 1,426.1 1,262.3 13.0% 5. Imports 1,621.6 1,354.5 19.7% GNP (at constant prices) by Industrial Origin 1. Agriculture 174.2 173.9 0.2% 2. Industry Sector 799.9 752.2 6.3% a. Mning & Quarrying 28.3 31.7 -10.9% b. Manufacturing 525.9 497.9 5.6% c. Construction 171.3 150.9 13.5% d. Electricity, Gas and Water 74.4 71.7 3.8% 3. Service Sector 1,378.4 1,293.4 6.6% a. Transport., Comm., Stor 180.4 169.9 6.2% b. Trade, Repair of Motor Vehicles, 376.2 354.5 6.1% Motorcycle & Household Goods OFW DEPLOYMENT ‘000 c. Financial Intermediation 183.8 169.1 8.7% 2250 d. Real Estate, Renting & Business 271.1 261.4 3.7% 2000 Activities 1750 e. Public Administration & Defense: 109.6 95.3 15.0% Compulsory Social Security 1500
f. Other Services 257.3 243.2 5.8% 1250
1000
750
500
250
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
LABOR AND EMPLOYMENT 2017 2018 APR JUL OCT JAN APR JUL Total labor force (000) 42,737 42,519 43,719 44,098 43,248 43,008 Labor force parcitipation 61.4 60.6 62.1 62.2 60.9 60.1 (%) Employment (%) 94.3 94.4 95.0 94.7 94.5 94.6 Unemployment (%) 5.7 5.6 5.0 5.3 5.5 5.4 Underemployment (%) 16.1 16.3 15.9 18.0 17 17.2
Philippine ANALYST ECONOMIC INDICATORS September 2018 philippine regional update 43
NCR – National Capital Region
DPWH DEFERS REHAB OF ESTRELLA-PANTALEON BRIDGE The Department of Public Works and Highways (DPWH) has moved the scheduled closure of the Estrella-Pantaleon Bridge to the 1st week of January 2019 due to “public clamor and apprehension of the business circle.” The bridge was closed last September 23 to start an estimated 30-month widening repair but was reopened to the public in the night of September 24 amid concerns that the closure will cause economic loss in the Christmas season. Around 100,000 motorists who traverse the bridge daily are expected to be affected by the closure according to the Metro Manila Development Authority. The rehabilitation of the 504.5-meter Estrella-Pantaleon Bridge which connects Estrella Street in Makati City and Barangka Drive in Mandaluyong City is part of a P5.27 billion grant from China. The bridge will be demolished and replaced with 4 lanes from the current 2 lanes.
PASIG RIVER UP FOR QUICK REHABILITATION The Pasig River Rehabilitation Commission (PRRC) has forged an agreement with the local blockchain firm Cypher Odin to rehabilitate the 25-kilometer long Pasig River through blockchain technology. Under the deal, both parties agreed to link their networks and meet regularly to identify problem areas and solutions. Cyber Odin CEO Mariano Villafuerte IV said the company plans to use modern Internet of Things (IoT) and Internet of Underwater Things (IoUT) devices to monitor the amount of garbage, water quality, and tide levels, among others, in the river. Apart from that, the company also plans to release BOTcoin, a cryptocurrency that intends to incentivize and reward communities and companies along the river to assist in the cleanup operations. “It is possible to have a new Pasig River. A river that can rival the beauty of similar areas in Hongkong or Singapore – built around the story of a comeback. That’s good news that can inspire a nation,” Mr. Villafuerte asserted.
QC CONDUCTS BUILDING STRUCTURE AUDIT In a bid to strengthen Quezon City’s resiliency against human induced or natural disasters, Mayor Herbert Bautista signed City Ordinance 2724-2018 ordering a structural integrity audit on all buildings – public and private – within its jurisdiction, particularly those that have been existing for 30 years and those that are in fault line or danger zones. The audit will be conducted by 3 city offices: the Engineering Department which will be responsible for government-owned buildings; the Department of Building Official in-charge of privately-owned structures; and the Disaster Risk Reduction and Management Office for identifying sites situated along the West Valley Fault and any danger zones. Under the ordinance, the owner’s occupancy certificate will be revoked in case of failure to carry out needed repairs and restorations included in the Structural Audit Report.
… PASS LANDMARK ANTI-DRUG CODE The 37-member city council of Quezon City (QC) led by Vice Mayor Joy Belmonte has passed an anti-drug code, the first in the country. Vice Mayor Belmonte, who is also the Chairperson of the QC Anti-Drug Abuse Advisory Council, explained that the code is a product of discussion with different national government agencies and the QC Police District. The code seeks to implement community-based efforts to eradicate drugs in the city. This include comprehensive rehabilitation program for drug offenders who surrendered; education of young people in schools; and enactment of sustainable partnerships with different stakeholders such as the police, church, non-government sector, and the private sector.
REGION II – CAGAYAN VALLEY
ISABELA GETS 2 MORE DISTRICTS President Rodrigo Duterte signed Republic Act 11080, a law reconstituting the Isabela province into 6 congressional districts from the present 4. Under the law, the 1st district is now comprised of the towns of Cabagan, Delfin Albano, Divilacan, Maconacion, Tumauini, San Pablo, Sta. Maria, and Sto. Tomas while the 2nd district is composed of Benito Soliven, Palawan, Naguilian, Reina Mercedes, San Mariano, and Gamu. On the other hand, the 3rd district is made up of Alicia, Cabatuan, San Mateo, Ramon, and Angadanan, while the 4th district is comprised of Santiago City, Cordon, Dinapigue, San Agustin, and Jones. The 5th district is composed of Aurora, Burgos, Luna, Mallig, Quezon, Quirino, Roxas, and San Manuel, while the 6th district is made up of Cauayan City, Echague, San Guillermo, and San Isidro. Isabela Vice Governor Antonio Albano explained that the additional 2 districts is beneficial to the people, since “6 congressmen will be able to take care of their constituents as their districts are now smaller in terms of municipalities and cities that they will represent.”
REGION III – CENTRAL LUZON
Philippine ANALYST September 2018 44 philippine regional update
INVESTMENTS IN SUBIC REACHED P2.85 BN IN 1H New investment projects approved by the Subic Bay Metropolitan Authority (SBMA) reached P2.85 billion in 1H2018, a 290% increase from P731 million in the same period last year. SBMA Chairman and Administrator Wilma Eisma said the 45 new investment proposals are projected to generate 2,439 new jobs in the Subic Bay Freeport Zone (SBFZ), which will bring cumulative investment commitments to P499.6 billion. According to the SBMA Business and Investment Group, the largest investment commitments in the 1st semester were from the Citic Hotels and Leisures Corp. (P1.34 billion), Air Juan Aviation (P671.47 million), GGG Technology Inc. (P200 million), First Aviation Academy Inc. (P156.6 million), and the Vortex Oil and Gas Solutions Corp. (P100 million). Meanwhile, the SBMA also approved 13 expansion projects by existing SBFZ business locators worth P276 million.
CLARK OVERTAKES CEBU; NOW TAKES 2ND PLACE IN OFFICE MARKET Leechiu Property Consultants (LPC) has revealed that Clark is now the 2nd largest office market in the Philippines after it recorded net office take-up of 111,000 square meters (sqm.) from January-September 2018. This is equivalent to 10% of the 1.08 million sqm. total net office take-up in the country. Notably, Clark has now surpassed Cebu with only 76,000 sqm. net office take-up year to date. Meanwhile, Metro Manila is still the country’s major office space market with 799,653 sqm. net office take-up, accounting for 74% overall. LPC President David Leechiu explained that the surge in office space demand in Clark stemmed from improved investor sentiment, adding that business process outsourcing companies (BPO) have developed the labor market in the area which made it easier for other developers to enter Clark. BPO companies are particularly interested in the 177-hectare Clark Global City that is currently being developed.
SUBIC AIRPORT READIES FOR INT’L FLIGHTS Subic Bay Metropolitan Authority (SBMA) Chairperson and Administrator Wilma Eisma announced that the Subic Bay International Airport (SBIA) is set to receive P502 million as part of its rehabilitation program to restore it as a major port for international commercial flights. The fund, which will come from the Procurement Service of the Department of Budget and Management (DBM), will be used for various landing instruments and communications systems such as Air-Ground VHF radio, Area Navigation design, and Airfield Ground Lightings, among others. Ms. Eisma added that some P232 million worth of airport equipment which include x-ray machines, closed circuit television cameras, and fire detection and alarm system, are also needed. SBIA Manager Zharrex Santos explained that almost all types of modern aircraft at more than 20 movements per hour can be accommodated by the Subic airfield due to its 2,744-meter runway with effective width of 45 meters.
SBMA EYES P10.2 BN INFRA WORK The Subic Bay Metropolitan Authority (SBMA) is targeting the implementation of a 6-year infrastructure development program worth P10.2 billion registered under the Build-Build-Build program of the Duterte administration. Currently, the SBMA has started to bid out 6 major projects to start the implementation of a P530 million program to rehabilitate, upgrade, and develop roads and other public facilities in the Freeport. These projects include various road rehabilitation work at P369.7 million; Phase 2 of the NSD road network project at P75.8 million; installation of navigational buoys at P47.5 million; drainage improvement at Argonaut Highway at P18 million; installation of new traffic control systems at P9.6 million; and repair of El Kabayo Road at P9.3 million. According to SBMA Chairperson and Administrator Wilma Eisma, the infrastructure program, intends to improve core infrastructure business and sustain the attractiveness of the Subic Bay Freeport.
DPWH OPENS NEW BRIDGES IN PAMPANGA, BATAAN The Department of Public Works and Highways (DPWH) has opened 3 new bridges in Pampanga and Bataan last September 6. The 3 new bridges are the Pasac-Culcul Bridge 1 and 2 connecting Sto. Tomas to Minalin Road in Pampanga and the Samal Bridge linking Junction Layac, Balanga and Mariveles Port Road in Bataan. According to DPWH Secretary Mark Villar, the Pasac-Cucul Bridges 1 and 2 are replacement projects of 2 bailey bridges in Pampanga, while the Samal Bridge is also a replacement for an old 2-lane bridge. The DPWH has spent P43.7 million for the replacement of the Pasac-Culcul Bridge 1, P26.7 million for Pasac- Culcul Bridge 2 and P14.6 million for Samal Bridge.
Philippine ANALYST September 2018 philippine regional update 45
REGION IV-A – CALABARZON
CAVITE REAPPORTIONED TO 8 LEGISLATIVE DISTRICTS President Rodrigo Duterte has signed Republic Act (RA) 11069, a law which reapportions the province of Cavite into 8 legislative districts from the current 7. Under RA 11069, General Trias will now be Cavite’s 6th legislative district. Trece Martires, Indang, Tanza, and Amadeo, which comprised the 6th district before the law was passed, will now be named as the 7th district, while Tagaytay, Alfonso, General Aguinaldo, Magallanes, Maragondon, Mendez, Naic, and Ternate, which previously composed the 7th district, will now be the 8th district. The rest of the districts remain the same: Cavite City, Kawit, Noveleta, and Rosario in the 1st district; Bacoor as 2nd district; Imus as 3rd district; Dasmariñas as 4th district; and Carmona, General Mariano Alvarez and Silang as 5th district. More than 1.8 million people are registered as voters in Cavite ahead of the 2019 polls.
C5 SOUTH LINK ON TRACK FOR COMPLETION Cavite Infrastructure Corp. (CIC) announced that the construction of the 1st section of the P10 billion C5 South Link Expressway Project is currently on track to be finished by 1Q2019. The C5 South Link is a 7.7 kilometer, 6-lane project which intends to connect Circumferential Road 5 (C5) to Cavite Toll Expressway (CAVITEX) through Merville and Sucat. An estimated 50,000 vehicles are expected to benefit from the project once it starts commercial operation. Travel time from Parañaque, Las Piñas, and Cavite to Taguig will be cut down to 20-30 minutes from the current 1.5-hour drive. In addition, CIC President and CEO Luigi Bautista announced that the company will also be launching girders that will cross the at-grade portion of Skyway and South Luzon Expressway by end-September, a critical activity of the C5 South link Project.
40-HA RESIDENTIAL PROJECT IN BATANGAS TO BE LAUNCHED BY 2019 Pueblo de Oro Development Corp. (PDO), the residential development arm of the Investment & Capital Corporation of the Philippines Group, is developing a 40-hectare (ha) residential subdivision in Malvar, Batangas. The project will be launched in the 4th quarter of 2019. It is part of the 250-hectare “live-work” community, which is being developed by its sister firm, Science Park of the Philippines, Inc. (SPPI). The company said that it chose to expand in Malvar due to the projected influx of locators in the area from Southeast Asian countries in the following years.
REGION V – BICOL REGION
NAGA CITY TO HOST 2018 NICP SUMMIT Naga City is hosting the 2018 Digital Cities Awards and the 2018 National ICT Confederation of the Philippines (NICP) Summit in November 22-24, 2018. The event will be organized in partnership with the Department of Information and Communication Technology and the City government of Naga. It is expected to have 800 to 1,000 participants from the various sectors all over the country. This year’s NICP Summit theme is “A decade of Inclusive Countryside Development: Managing Digital Transformation Driven by Disruptive Technologies.”
REGION VI – WESTERN VISAYAS
NIA SIGNS DEAL WITH DAEWOO TO BUILD ILOILO DAM PROJECT The National Irrigation Administration (NIA) has signed a contract with Korean firm Daewoo Engineering and Construction Co., Ltd. for the construction of the P11.21-billion Jalaur River Multipurpose Project (JRMP) in Calinog, Iloilo City. It is the 2nd project to be funded by Korean Export-Import (KEXIM) Bank. The project is set for groundbreaking on the 1st week of October 2018. The project involves the construction of 3 dams (109-meter (m) Jalaur high dam; 38.5m After bay dam; and 10m Alibutan catch dam), a 6.6-megawatt hydropower plant and an 81-kilometer high-line canal at Jalaur River. It is targeted for completion before the end of 2022.
TIEZA TO REGULATE BORACAY WATER UTILITIES The Tourism Infrastructure and Enterprise Zone Authority (TIEZA) is now regulating water utilities in Boracay and other tourist areas. TIEZA chief operating officer Pocholo Paragas said the Office of the President has recently affirmed the Department of Justice’s decision giving the agency the sole authority to regulate water utilities, including waterworks and sewerage systems, in Boracay. The ruling also denies the motion for reconsideration filed by the National Water Resources Board (NWRB). The 2 water service providers in Boracay such as The Boracay Tubi System Inc. and Boracay Island Water Company Inc. had been separately regulated by the NWRB and TIEZA. Under the ruling, the TIEZA would monitor and enforce standards on the service of the2 water concessionaires in Boracay. Philippine ANALYST September 2018 46 philippine regional update
REGION VIII – EASTERN VISAYAS
DPWH COMPLETES P50 MN SLOPE PROTECTION STRUCTURE IN SAMAR ROAD The Department of Public Works and Highways (DPWH)-Samar First District Engineering Office has completed a P49.9-million slope protection project in Barangay Jose Roño, Calbayog City, Samar. The 7,800-square meter slope protection structure is along 293 meters of road section along Calbayog-Catarman Road in Barangay Jose Roño. The DPWH said the slope protection structure ensures a “safer travel experience” in Samar and other areas of Eastern Visayas. It added the slope protection in Barangay Jose Roño will retain the slope’s stability and avoid the abrupt collapse of weakened slopes due to heavy rain or natural ground movement. The DPWH also built concrete barriers on top of the slope protection structure to prevent vehicles from falling into deep ravines.
10 MAJOR BRIDGES WIDEN IN SOUTHERN LEYTE The Department of Public Works and Highways (DPWH) is currently implementing the widening of 10 vital bridges in Southern Leyte. According to the DPWH Regional Office 8, a total amount of P252.6 million was allocated for bridge widening projects in Libagon and Sogod towns which are being fast-tracked to complement the ongoing road expansion along Southern Leyte’s major highways. The bridges are being widened to 4 lanes from 2 lanes. Seven bridges are undergoing expansion in the town of Libagon namely: Bitanhuan Bridge (P47.64 million), Oticon Bridge (P37.3 million), Nahulid Bridge (P26.3 million), Iti Bridge (P23.4 million), Pangi Bridge (P18.75 million), and Gakat and Nahaong Bridges (P17.3 million each). On the other hand, widening projects in the town of Sogod includes the bridges of Magapso (P25.6 million), Maac II (P22.5 million), and Buac (P16.5 million). These projects are expected to be completed within the year.
REGION XI – DAVAO REGION
NIA COMPLETES IRRIGATION PROJECT IN DAVAO REGION The National Irrigation Authority (NIA) has inaugurated the newly rehabilitated Mal River Irrigation System (Mal RIS) in Davao del Sur. The rehabilitation of Mal RIS, which is funded by Japan, costs P104.3 million. The project is expected to benefit 3,720 farmers and their families as it will provide irrigation service to 2,635 hectares of agricultural land in the municipalities of Matanao, Kiblawan, and Hagonoy in Davao del Sur. Meanwhile, the NIA also turned over Irrigators Association (IA) Buildings and Support Facilities in Matanao and Kiblawan. According to the NIA, the IA Building will house the IA Office and allow stakeholders to hold meetings and secure their records and documents. Meanwhile, the Post-Harvest Facilities will ensure the quality of rice produced by the farmers in the localities.
AEV TO START DAVAO CITY BULK WATER PROJECT IN OCT. Construction of the P14 billion Apo Agua bulk water supply project in Davao City is set to begin in October after Aboitiz Equity Ventures, Inc. (AEV) secured all the necessary permits. Once finished, the Apo Agua project will be the largest bulk water project in the country as it is projected to produce 300-350 million liters of potable water daily. Since the water for Apo Agua will come from the Tamugan River, the AEV will construct 30-52 kilometers of pipes to bring the water from the river to the water treatment plant. Furthermore, the project also includes a hydropower plant which can generate up to 2.2 megawatts of power, enough to run the bulk water facility. Initially, the project is expected to be operational by 2019 but due to difficulty in securing permits, the AEV moved the target completion date to 2021.
REGION XII – SOCCKSARGEN
SAMPAO BRIDGE IN SULTAN KUDARAT REOPENS The Department of Public Works and Highways (DPWH)- Sultan Kudarat First District Engineering Office completed the retrofitting works of the 62-year old Sampao Bridge in Barangay Sampao, Isulan, Sultan Kudarat. According to DPWH District Engineer Alan Arumpac, the 49-lineal meter bridge will provide safer access along the Kidapawan-Ala Junction Road. It now conforms to the latest DPWH bridge design standards with enhanced load-bearing capacity. The DPWH has spent P8.3 million for the repair and strengthening of the Sampao Bridge under the 2018 General Appropriations Act (GAA). The DPWH is also on track in repairing other bridges in Mindanao within the year. These include the Alae Bridge in Bukidnon and the Alubijid and Opol Bridges which are both located in Misamis Oriental.
TWO BIDDERS IN COTABATO AIRPORT PROJECT HELD
Philippine ANALYST September 2018 philippine regional update 47
The Department of Transportation (DOTr) ordered the arrest of the company representatives of the 2 firms who participated in the bidding for the M’Lang Airport Development Project in Cotabato due to falsification of public documents. According to the DOTr, the Granby Trading and Construction, and Kwan Sing Construction submitted the same list of equipment for the project to the Bids and Awards Committee. For instance, the certificates of registration for the vehicles listed showed different company details but some has the same registration dates and chassis numbers. The 2 companies also have the same authorized person to drop the bidding documents and represent the companies which signals a possible conspiracy. The M’Lang Airport is projected to accommodate 3.5 million passengers travelling to and from Central Mindanao.
REGION XIII - CARAGA
BUTUAN WATER DISTRICT RECOGNIZED The Butuan City Water District (BCWD) was recognized during the Search for Most Outstanding Water District organized by the Local Water Utilities Administration (LWUA) held at the Philippine International Convention Center in Manila last September 17. BCWD was cited as the Most Outstanding Water District - National Level Category A for its exemplary performance in providing quality service to majority of its concessionaires. It was also awarded as the Most Outstanding Water District in Mindanao - Category A for being the best performer water district among the Category A water districts in Mindanao. Additionally. BCWD also received recognitions for being a Water District with Department of Health or DOH-Accredited Laboratory; and Big Brother Water District, for generously guiding, mentoring and assisting smaller water districts. The awards were received by BCWD chairman Atty. Roldan Torralba, director Juanito Lao, director Claudio Estacio and general manager Engineer. Anselmo Sang Tian.
ARMM – AUTONOMOUS REGION OF MUSLIM MINDANAO
ARMM BUILDS 1,599 KM OF ROADS IN 6 YEARS The Bureau of Public Information of the Autonomous Region in Muslim Mindanao (ARMM) announced that the regional government has implemented over 1,599 kilometers (km) of road projects in the region from 2012-2018. Of the provinces in ARMM, Lanao del Sur accounted for the most number of road projects at 335. It is followed by Maguindanao (306), Sulu (227), Basilan (247), and Tawi-Tawi (173). The ARMM said that it spent up to P35 billion for the 6-year infrastructure program, many of those are in conflict-affected and far-flung communities. In addition, Lanao del Sur Governor Bae Bajora Soraya Adiong explained that their “dream roads” projects are also nearing completion. The Dream Roads Project 1 will connect Wao and Amai Manabilang town directly to Lanao del Sur while the Dream Roads Project 2 will link Marawi City to Talakag, Bukidnon and Cagayan de Oro.
BOND ISSUE TO FUND MARAWI REHAB EXPECTED TO RAISE P50-P60 BN Task Force Bangon Marawi (TFBM) Chairperson Eduardo Del Rosario revealed that the government plans to raise around P50-60 billion from a retail Treasury bond offering scheduled in October. He added that the Bureau of Treasury and the Department of Finance will decide on the final issue size after they determine how much will be needed. Proceeds of the bond offer will be used for the rehabilitation of the city. The overall estimated cost of the rehabilitation is pegged at P62.2 billion, with P47.2 billion allocated for locations outside the most affected area of the city and P15 billion for the “ground zero.” Rehabilitation for the most affected areas is seen to be completed by December 2021 while the reconstruction of areas outside “ground zero” is expected to be finished by the end of President Rodrigo Duterte’s term in June 2022.
Philippine ANALYST September 2018 48 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 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Philippines 15,806,359 14,479,945 9.2 8.7 104,921 103,242 300,000 350 344 150,650 140,252 Metro Manila 6,016,249 5,526,337 8.9 9.6 12,919 12,788 619 20,871 20,659 465,690 432,150 Cordillera 272,268 242,868 12.1 3.5 1,847 1,815 19611 94 93 147,411 133,812 Administrative Ilocos Region 487,587 450,383 8.3 10.1 5,263 5,200 12974 406 401 92,644 86,612 Cagayan Valley 280,561 251,400 11.6 6.2 251,400 3,547 28265 8,894 125 1,116 70,877 Central Luzon 1,459,629 1,304,053 11.6 9.8 11,427 11,264 22014 519 512 127,735 115,772 Calabarzon 2,316,356 2,142,922 8.1 4.0 14,659 14,394 16644 881 865 158,016 148,876 Mimaropa 236,469 210,488 12.3 2.8 3,216 3,153 29620 109 106 73,529 66,758 Bicol Region 331,677 306,539 8.2 8.4 6,267 6,148 18139 345 339 52,924 49,860 Western Visayas 658,003 596,203 10.4 8.4 7,920 7,812 20794 381 376 83,081 76,319 Central Visayas 1,032,639 964,876 7.0 11.3 7,690 7,568 15885 484 476 134,283 127,494 Eastern Visayas 320,964 311,741 3.0 14.6 4,705 4,620 23253 202 199 68,218 67,476 Zamboanga Peninsula 312,492 295,106 5.9 6.5 3,896 3,830 17046 229 225 80,208 77,051 Northern Mindanao 626,476 576,820 8.6 11.4 4,857 4,782 20496 237 233 128,984 120,623 Davao 728,807 641,246 13.7 13.5 5,153 5,058 20357 253 248 141,434 126,779 Socksacksargen 426,170 386,408 10.3 8.6 4,780 4,690 22436 213 209 89,157 82,390 Autonomous Region of 119,077 105,247 13.1 5.7 3,897 3,801 33511 116 113 30,556 27,689 Muslim Mindanao CARAGA 180,934 167,309 8.1 5.2 2,829 2,772 21412 132 129 63,957 60,357
RATE OF INFLATION FOR ALL INCOME HOUSEHOLD IN THE PHILIPPINES BY REGION (2006=100) COMMODITY GROUPS-ALL ITEMS 2018 JAN FEB MAR APR MAY JUNE JULY AUG SEPT Philippines 3.4 3.9 4.3 4.5 4.6 5.2 5.7 6.4 6.7 Metro Manila 4.7 4.7 5.2 5.2 4.9 5.8 6.5 7.0 6.3 AOMM 3.1 3.7 4.1 4.3 4.6 5.1 5.5 6.2 6.8 CAR 2.3 2.6 2.9 3.3 3.8 3.9 4.1 4.1 5.0 I Ilocos 3.1 3.9 4.4 4.8 4.8 5.7 5.9 6.8 8.6 II Cagayan Valley 2.8 3.8 4.3 4.3 4.5 4.9 5.9 7.1 7.6 III Central Luzo 1.9 2.2 2.8 2.4 2.6 3.0 2.7 3.6 4.5 IV-A Southern Tagalog 3.0 3.5 3.6 3.9 4.0 4.7 5.9 6.1 6.2 IV-B Southern Tagalog 3.3 3.2 3.8 3.6 4.3 4.1 4.0 4.5 7.3 V Bicol 3.1 3.9 5.2 5.5 6.4 6.9 7.4 9.0 10.1 VI Western Visayas 3.9 4.4 4.8 5.3 5.5 6.1 6.2 7.4 7.6 VII Central Visayas 3.0 3.8 5.2 5.8 6.0 6.4 6.5 6.3 7.0 VIII Eastern Visayas 4.0 4.3 5.7 5.4 5.8 6.3 5.9 6.1 6.5 IX Western Mindanao 3.9 4.9 5.9 6.1 6.1 6.7 5.5 6.4 7.7 X Northern Mindanao 3.4 3.8 4.3 4.0 4.4 4.9 5.4 6.1 6.9 XI Southern Mindanao 4.4 4.1 4.1 4.3 5.0 5.4 6.2 7.1 7.9 XII Central Mindanao 4.8 4.9 4.8 5.2 5.4 5.9 6.5 7.9 8.2 Caraga 2.6 2.7 2.8 3.2 3.0 3.6 4.4 4.8 6.1 ARMM 5.3 6.0 6.1 5.9 6.1 7.7 7.5 8.1 9.0
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 September 2018 philippine regional update 49
EMPLOYMENT RATE BY REGION (%) 2017 2018
JAN APR JUL OCT JAN APR JUL
PHILIPPINES 93.4 94.3 94.4 95.0 94.7 94.5 94.6 Metro Manila 91.5 92.8 92.1 93.9 92.2 93.6 93.9 Cordillera CAR 93.9 95.9 96.6 96.3 96.4 96.7 95.0 1-Ilocos Region 91.3 89.6 91.8 91.8 93.3 92.7 93.5 2-Cagayan Valley 95.0 96.8 97.7 97.9 95.8 97.7 97.3 3-Central Luzon 93.3 93.3 92.9 94.0 94.6 94.6 93.7 4A-Calabarzon 91.8 92.9 93.0 94.3 93.3 93.4 93.7 4B-Mimaropa 93.1 95.3 96.0 96.2 96.0 94.8 94.9 5-Bicol Region 94.8 95.9 95.5 95.4 96.0 95.1 93.7 6-Western Visayas 94.0 94.2 95.3 94.4 95.1 94.6 94.3 7-Central Visayas 95.4 94.6 95.3 95.9 94.2 94.3 95.0 8-Eastern Visayas 93.6 96.2 96.0 96.3 96.3 95.4 95.3 9-Zamboanga Peninsula 95.4 97.5 95.5 95.7 96.6 95.8 94.9 10-Northern Mindanao 94.5 94.6 94.3 95.3 97.0 94.9 94.8 11-DAVAO 94.1 95.1 95.3 96.0 95.3 94.6 96.7 12-SOCCSKSARGEN 95.7 95.7 96.1 96.6 96.2 95.1 96.7 CARAGA 91.5 95.3 96.3 96.3 96.0 95.8 96.0 ARMM 95.7 97.4 96.8 96.2 97.4 95.8 95.7 Negros Island Region 94.7 94.6 96.7 0.0
UNEMPLOYMENT RATE BY REGION (%)
(NEW DEFINITION) 2017 2018
JAN APR JUL OCT JAN APR JUL
PHILIPPINES 6.6 5.7 5.6 5.0 5.3 5.5 5.4
Metro Manila 8.5 7.2 7.9 6.1 7.8 6.4 6.1 Cordillera CAR 6.1 4.1 3.4 3.7 3.6 3.3 5.0 Ilocos Region 8.7 10.4 8.2 8.2 6.7 7.3 6.5 Cagayan Valley 5.0 3.2 2.3 2.1 4.2 2.3 2.7
Central Luzon 6.7 6.7 7.1 6.0 5.4 5.4 6.3
Calabarzon 8.2 7.1 7.0 5.7 6.7 6.6 6.3
Mimaropa 6.9 4.7 4.0 3.8 4.0 5.2 5.1
Bicol Region 5.2 4.1 4.5 4.6 4.0 4.9 6.3
Western Visayas 6.0 5.8 4.7 5.6 4.9 5.4 5.7
Central Visayas 4.6 5.4 4.7 4.1 5.8 5.7 5.0
Eastern Visayas 6.4 3.8 4.0 3.7 3.7 4.6 4.7
Zamboanga Penisula 4.6 2.5 4.5 4.3 3.4 4.2 5.1
Northern Mindanao 5.5 5.4 5.7 4.7 3.0 5.1 5.2
DAVAO 5.9 4.9 4.7 4.0 4.7 5.4 3.3
SOCCSKSARGEN 4.3 4.3 3.9 3.4 3.8 4.9 3.3
CARAGA 8.5 4.7 3.7 3.7 4.0 4.2 4.0
ARMM 4.3 2.6 3.2 3.8 2.6 4.2 4.3
5.3 5.4 3.3 0.0
Philippine ANALYST September 2018 50 philippine regional update
FLOOR AREA OF PRIVATE BUILDING CONSTRUCTION (IN ‘000 SQM) 2017 GROWTH 1Q 2Q 3Q 4Q TOTAL 1Q 2Q YR-TO DATE Philippines 7,675,349 7,116,728 7,100,348 7,742,007 29,634,432 (28.3) 8,569,328 8,841,255 Metro Manila 1,659,041 1,372,041 1,402,644 1,465,576 5,899,302 (46.5) 2,118,736 2,036,306 Cordillera CAR 64,077 92,835 61,655 140,901 359,468 (26.8) 204,027 108,960 1-Ilocos Region 330,769 385,555 304,590 351,017 1,371,931 (10.8) 337,438 404,681 2-Cagayan Valley 159,383 167,979 155,729 167,003 650,094 (10.1) 188,539 153,716 3-Central Luzon 1,465,406 840,467 914,000 922,758 4,142,631 5.7 936,140 1,454,579 4A-Calabarzon 1,587,715 1,543,630 1,572,800 1,537,423 6,241,568 (19.2) 1,623,424 1,449,701 4B-Mimaropa 101,329 139,858 94,094 73,754 409,035 (43.3) 109,820 92,785 5-Bicol Region 107,401 129,166 133,401 132,779 502,747 (27.4) 194,245 154,303 6-Western Visayas 336,606 303,770 306,251 464,799 1,411,426 (37.1) 422,030 469,024 7-Central Visayas 522,102 676,137 653,403 859,791 2,711,433 (35.4) 960,129 991,512 8-Eastern Visayas 236,776 248,948 193,728 250,920 930,372 (37.7) 314,812 262,494 9-Zamboanga Penisula 117,122 91,663 138,460 71,873 419,118 (16.6) 93,377 95,620 10-Northern Mindanao 211,791 279,649 258,761 259,257 1,009,458 (13.3) 308,038 273,480 11-DAVAO 369,634 460,300 505,672 497,389 1,832,995 (19.6) 397,158 607,813 12- SOCCSKSARGEN 133,683 204,397 186,406 237,187 761,673 (18.4) 266,798 175,694 CARAGA 85,279 71,191 123,197 82,887 362,554 (27.3) 88,978 106,415 ARMM 6,253 6,074 3,041 253 15,621 30.0 5,639 4,172 NEGROS ISLAND 180,982 103,068 92,516 226,440 603,006 (54.8) 0 0
VALUE OF PRIVATE BUILDING CONSTRUCTION (IN ‘000) 2017 GROWTH 1Q 2Q 3Q 4Q TOTAL 1Q 2Q YR-TO-DATE Philippines 76,605,109 75,857,888 72,122,966 81,698,269 306,284,231 (36.0) 101,729,310 101,178,491 Metro Manila 23,797,737 21,968,117 20,401,933 22,703,945 88,871,731 (52.0) 36,438,974 33,823,079 Cordillera CAR 752,506 1,224,308 701,635 1,710,049 4,388,499 (19.8) 2,414,554 1,105,777 1-Ilocos Region 3,047,626 3,496,467 2,791,199 3,297,694 12,632,986 (6.7) 3,808,783 3,705,284 2-Cagayan Valley 1,299,953 1,566,665 1,485,435 1,529,547 5,881,601 (14.3) 1,805,847 1,631,137 3-Central Luzon 9,571,088 6,881,120 7,368,354 7,807,708 31,628,270 (13.7) 8,081,807 10,086,091 4A-Calabarzon 16,503,515 14,122,546 14,100,014 13,756,282 58,482,357 (24.4) 14,905,975 14,803,567 4B-Mimaropa 817,756 1,895,860 830,665 618,395 4,162,675 (48.9) 956,676 843,669 5-Bicol Region 1,179,749 1,203,782 1,371,260 1,401,565 5,156,355 (17.3) 1,857,489 1,490,561 6-Western Visayas 2,818,257 2,445,827 2,932,971 4,977,507 13,174,562 (45.4) 4,479,440 4,852,285 7-Central Visayas 4,717,904 8,212,707 6,585,383 9,285,085 28,801,080 (32.8) 13,115,290 11,379,403 8-Eastern Visayas 2,557,449 2,181,840 1,760,197 1,938,677 8,438,163 (27.7) 2,395,525 2,417,946 9-Zamboanga Penisula 719,811 586,919 866,057 726,776 2,899,563 (24.5) 912,267 1,033,709 10-Northern Mindanao 1,630,825 2,070,825 2,348,093 1,935,309 7,985,052 (19.3) 2,336,657 2,719,505 11-DAVAO 3,863,873 4,851,501 5,286,471 5,494,043 19,495,887 (14.3) 4,511,663 9,037,487 12-SOCCSKSARGEN 1,101,388 1,595,535 1,320,981 1,971,530 5,989,435 (19.4) 2,488,958 1,365,542 CARAGA 617,420 553,064 1,082,679 662,435 2,915,599 (17.4) 1,197,907 867,258 ARMM 21,468 34,954 8,195 3,176 67,792 (36.8) 21,497 16,191 NEGROS ISLAND 76,605,109 965,849 881,443 1,878,546 5,312,624 (62.2) - 0
Philippine ANALYST September 2018 51 BUSINESS
Business confidence declines in 3Q2018
Business confidence in the country declined in 3Q2018 to 30.1% from 37.9% in 3Q2017 according to the latest Business Expectations Survey (BES) conducted by the Bangko Sentral ng Pilipinas (BSP) or central bank.
he decline on business confidence index1 in 3Q2018 was the lowest level recorded since 1Q2010 (see figure on Overall Business Confidence TIndex). The central bank attributed the weaker business sentiment during the period to the following: hh Higher prices of basic commodities in the global market, increased by the effects of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law on prices of domestic goods; hh Rising overhead costs and lack of supply of raw materials; hh Seasonal factors such as interruption of business activities and lower crop production during the rainy season, slack consumer demand as households prioritized enrollment expenses, as well as the suspension of commercial fishing in Davao Gulf from June to August 32; hh Weakening peso; and h h Stiffer competition. outlook for the current quarter stemmed from expectations of Business sentiment across sectors was less upbeat for lower export orders, lack of raw materials, annual overhauling 3Q2018 based on the results of BES. Of all the sectors, the of machinery, and closure from international waters for fishing. wholesale and retail trade sectors recorded the biggest decline Construction firms were also less optimistic for 3Q2018 due in confidence during the period. It weakened to 17.3 index largely to the slowdown in construction activities during the from 34.1 in 2Q2018. This is the sector’s lowest recorded rainy season as well as increasing costs of components business confidence in the past 5 years (see Figure on (e.g., fuel, spare parts) and maintenance of machinery. Quarterly Business Outlook Index by Sector). The BSP partly attributed the decline in the wholesale and retail trade sectors Similarly, the outlook of the services sector was to the stiffer competition and effects of weather disturbances. less upbeat for the current quarter. This was also driven from the low level of confidence from real estate (33.7), Meanwhile, the construction sector and industry sector transportation (30.4), and hotel and restaurants (20.5) sub- were also pessimistic during 3Q2018. The outlook for the sectors. According to the BSP, these sub-sectors were construction sector fell to 32.8 index from 42, while the industry generally affected by concerns over high interest rates sector recorded a 36.5 index. The industry firms’ less buoyant and the unfolding trade war between the U.S. and China. Businesses were also gloomy about their own operations 1The CI is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with respect to their views on a given indicator. A positive CI indicates for the 3rd quarter of 2018, with a 34.7 registered a favorable view, except for the inflation rate and the peso-borrowing rate, where a positive CI indicates the opposite. index. Likewise, outlook on the volume of total orders 2 The Bureau of Fisheries and Aquatic Resources (BFAR) has implemented the fishing ban in Davao Gulf booked was less than robust for the same period. for the fifth consecutive year under Joint Department of Agriculture-Department of Interior and Local Government (DA-DILG) Administrative Order 02 Series of 2014 (JAO 02) establishing the closed fishing season from 1 June to end of August every year. Philippine ANALYST BUSINESS September 2018 52 BUSINESS
The decline in business confidence in 3Q2018 was the lowest level recorded since 1Q2010.
Overall Business Confidence Index 1Q2010-3Q2018 70 Next Quarter 60
50
40 Current Quarter 30
20
10
0
Source: Bangko Sentral ng Pilipinas, Business Expectation Survey
Quarterly Business Outlook Index By Sector 1Q2013-3Q2018 70
60
50
40
30
20
10
0
Industry Sector Construction Sector
Wholesale and Retail Trade Sector Service Sector
Source: Bangko Sentral ng Pilipinas, Business Expectation Survey
Of all the sectors, the wholesale and retail trade sectors recorded the biggest decline in confidence during the period.
The respondents identified domestic competition (see figure on Overall Business Confidence Index). The more (55% of the total number of respondents) and other upbeat business outlook for the next quarter was based on the business problems (25.6%) as major business constraints expected increase in consumer demand during the holiday in the current quarter. Companies also added that and harvest seasons. Additional reasons cited by firms were insufficient demand leading to low sales volume, high the continued increase in orders and projects, expansion interest rates, labor problems, and lack of equipment of businesses and new product lines, continued rollout of were risks to their businesses. Firms also had uptight government infrastructure and other development projects, financial conditions and credit access during the period. more favorable weather conditions for agricultural products, and opening of high seas/fishing operations in October. For 4Q2018, business confidence, however, is expected to improve to 42.6% from 40.4% in the previous quarter
Philippine ANALYST BUSINESS September 2018 53 BUSINESS
Businesses were also gloomy about their own operations for the 3rd quarter of 2018.
However, the more upbeat business outlook for 4Q2018 was based on the expected increase in consumer demand during the holiday and harvest seasons.
Businesses from mining and quarrying were the least optimistic for 4Q2018.
The central bank added that the positive outlook for The overall business outlook on the Philippines economy business in 4Q2018 was also driven by respondents’ has been declining since the start of the year. This sends expectations of more favorable macroeconomic conditions a negative signal as business confidence drives business in the country for the next quarter (particularly robust GDP growth and investment as well as supports employment growth), sustained foreign investment inflows and the steady opportunities. But it may improve in the last quarter of stream of overseas Filipino workers’ (OFWs) remittances. 2018. Meaning conditions should improve next year. For the next quarter, the services sector (48.9) and the wholesale and retail sectors (43.4) are more bullish due to the expectations of higher consumer demand during the Christmas PH CEOs still bullish amid mounting season, inflow of OFW remittances, acceleration of infrastructure challenges development projects and more investments. However, outlook from the construction (37) and industry sectors (particularly Chief Executive Officers (CEO) in the Philippines are still manufacturing firms) (36.5) are generally less optimistic for bullish in doing business over the next 12 months despite 4Q2018. It was driven from the expectations of higher commodity challenges arising from global trade tensions, regulatory prices and lower demand for exports for the next quarter changes, and technological disruption. This is according to the latest results of a survey conducted by PwC Philippines In terms of expansion plans for 4Q2018, 36.1% of the total for the Management Association of the Philippines (MAP). businesses surveyed said that they have plans to expand their business. About 46.4% of these companies are from The 2018 PwC-MAP CEO Survey entitled, “The agriculture, fishery and forestry sectors. Businesses from future of possibilities: Business in the age of disruption,” mining and quarrying were the least optimistic with only 19.7% covered 122 respondents from the infrastructure, of them having plans to expand due to the unpredictable business process outsourcing (BPO) and information policies of the Duterte administration to the mining sector. technology (IT), manufacturing, agriculture, forestry and fisheries, health care, pharmaceuticals, and retail The BES also noted that respondents anticipate that inflation and wholesale distribution sectors. Of the respondents, will increase but would remain within target, the peso to depreciate, 103 came from “traditional” businesses, while 19 are and interest rates to go up for the current and next quarters. startups. The respondents are primarily members of MAP.
T h e 3Q 2018 BES wa s c on du c te d b et we en 2 J ul y - 29 Aug ust On revenue prospects, 89% of the respondents are 2018. It covered 583 companies in Metro Manila and 883 confident that their company’s revenue growth would be better companies outside of Metro Manila. The respondent companies than their industry segment in the next 12 months, down from were from the industry sector, construction sector, wholesale and 92% in 2017. The report cited higher disposable income from retail sector, and services sector Respondents were drawn from the recently passed Tax Reform for Acceleration and Inclusion the combined list of the Securities and Exchange Commission’s (TRAIN), expected higher government spending, and the Top 7,000 Corporations in 2010 and BusinessWorld’s Top Build, Build, Build program as possible sources of optimism. 1,000 Corporations in 2016. The response rate was 83.6%.
Philippine ANALYST BUSINESS September 2018 54 BUSINESS
About 89% of the respondents are confident that their company’s revenue growth would be better than their industry segment.
PH ECONOMIC GROWTH PROSPECTS
Source: PwC-MAP CEO Survey 2018
Some 79% of the CEOs say that the Philippines’ economy will grow faster than the other ASEAN countries.
STRATEGIES TO DRIVE PROFITABILITY
Source: PwC-MAP CEO Survey 2018
Despite the slowdown in GDP growth at 6% in 2Q2018 PwC Philippines managing partner Mary Jade Roxas- from 6.8% in 1Q2018, 79% of the CEOs still believe that the Divinagracia said that quickening inflation affected the Philippines’ economy will grow faster than the other ASEAN slightly lower optimism reflected in the survey as it was countries. They believe that the main drivers of economic conducted during a “peak” in inflation rate. She added growth include domestic consumption (70%), infrastructure that challenges also include the weakening peso, global (67%), BPO and services sector (54%), and remittances (49%) geopolitical tensions, monetary tightening worldwide and (see figure on PH economic growth prospects). Moreover, the the worsening trade row between the U.S. and China. respondents understand that recent policy changes, such as the Boracay closure and the ban of open-pit mining, were made “to promote long-term and sustainable development.”
The majority of CEOs will focus on organic growth and new partnerships.
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About 68% of the CEOs expect to change their business models in the next 3-5 years.
DRIVERS OF DISRUPTION
Source: PwC-MAP CEO Survey 2018
About 45% of the CEOs plan to invest in startups
On the domestic level, PwC Philippines Chairman Alexander The CEOs also recognized the constraints that keep Cabrera cited the ongoing tax policy overhaul and the planned them from being disruptive, citing lack of financial resources shift to a federal form of government as factors that make investors (51%), regulatory factors (44%), and lack of talent (43%). take a “wait-and-see approach” in their expansion plans. Additionally, CEOs are concerned in technological threat (cybersecurity breaches, IT outage and disruptions, data While faced with mounting challenges, CEOs will focus on privacy breaches) that may hinder their companies’ growth organic growth (76%), new strategic alliances or partnership prospects. According to the 2017 Microsoft Asia Pacific (59%), and cost reduction (45%) to drive profitability in the Security Intelligence Report, the Philippines had a malware next 12 months (see figure on strategies to drive profitability). encounter rate of 19.2%, and has an above-average exposure Additionally, the CEOs also identified Singapore (22%), to drive-by download sites. In the report, CEOs are "extremely Indonesia (16%), and Vietnam (14%) as important countries that concerned" about cybersecurity breaches (51%), IT outages could contribute for their overall growth in the next 12 months. and disruption (51%), and breaches of data privacy and ethics (47%). Also, they are "somewhat concerned" with With the continuous advances in technology, no artificial intelligence automation and blockchain (41%). industry is exempted, and businesses will suffer if they do not adapt. In the survey, 94% of the respondents believe In order to overcome these challenges, 79% of the that disruptive innovations, such as artificial intelligence, businessmen plan to form a strategic partnership while 75% of internet of things and blockchain technology, have changed them plan to invest in new technologies to harness disruption. their industry over the past 10 years. The CEOs believe Working with startups and technology providers also help that the top factor that drives disruptions include shifting businesses mitigate the growing technological threats. Given regulations, new kinds of competition, and changes in this, 45% of the CEOs plan to invest in startups, specifically in the consumer behavior (see figure on drivers of disruption). financial services, retail, logistics, and transportation sectors.
In order to address the continued disruptions, 68% of the Despite the bullish outlook of the CEOs in this report, the CEOs expect to change their business models in the next overall business confidence in the country weakened to its 3-5 years. Of this, 80% will change how the products and lowest level since 2010 at 30.1% from 37.9% in 3Q2017 based services will be created and delivered to the customers. Others on the Bangko Sentral ng Pilipinas (BSP) or central bank’s will change their target market (31%), change from product Business Expectations Survey. However, while the number to service (18%), and change from service to product (8%). of optimists on their business prospects declined, it is still greater than the number of pessimists (see September 2018 Analyst article: Business confidence declines in 3Q2018).
Philippine ANALYST BUSINESS September 2018 56 BUSINESS
2018 SME Policy Index finds PH a mid-level OECD found out that the Philippines has adopted a “service performer delivery” approach to SME policy as it provides services to help SMEs increase their competitiveness. Moreover, the The Organisation for Economic Cooperation and Development OECD said that the Philippines utilizes SME policy to decrease (OECD) considered the Philippines, along with Thailand and poverty and regional inequalities to realize a predominantly Indonesia, as “mid-level performers” among Association of middle-class society by 2040, also known as the AmBisyon Southeast Asian Nations (ASEAN) countries, in terms of the Natin 2040. implementation of Small and Medium Enterprises (SMEs) Singapore and Malaysia were the top performers in this year’s policy in 2018. SME Policy Index. According to the OECD, both countries have “ an advan c e d stag e of p o l i cy deve lo p me nt i n a s i g n i fi c ant The 2018 SME Policy Index gauges SME development number of policy areas, with policies adhering to international policies of ASEAN countries. It measures the countries’ best practices.” Meanwhile, Indonesia and Thailand were performance based on 6 dimensions, namely: SME also considered as “mid-level performers in most SME policy productivity, technology and innovation; environmental policy; areas.” On the other hand, Brunei Darussalam and Vietnam access to finance; access to markets and internationalization; were named to be relatively new to SME policy. institutional frameworks; legislation, regulation and tax; entrepreneurial education and skills; and social Overall, the OECD report found that ASEAN countries enterprises and inclusive SMEs. The index scores range have an improved policy environment for SMEs. The between 1 and 6, with a higher score indicating the more countries tend to prioritize measures to cut red tape advanced level of policy development and implementation. and streamline business registration processes. They also focus on measures to increase productivity and Based on the report, the Philippines was categorized as access to finance, especially access to e-commerce. one of the ‘mid-level performers’ in most SME policy areas. The
ASEAN SME POLICY INDEX 2018 SCORES
DIMENSION BRU KHM IDN LAO MYS MMR PHL SGP THA VNM
Productivity, Technology, and Innovation 3.37 2.62 4.14 2.76 5.06 2.38 4.08 5.84 4.97 3.48
Greening SMEs 2.04 1.88 3.28 1.94 5.08 1.72 3.75 5.30 4.29 3.63
Access to Finance 4.38 2.89 4.58 2.36 5.35 1.83 3.93 5.69 4.87 3.81
Access to Market and 3.41 2.69 5.21 2.45 5.43 2.46 4.95 5.94 5.41 4.15 Internationalisation
Institutional Framework 4.01 2.55 4.35 2.89 5.86 2.17 4.44 5.85 4.88 4.05
Legislation, Regulation and Tax 3.69 2.31 3.49 2.40 4.71 2.23 3.36 5.52 3.74 3.32
Entrepreneurial Education and Skills 4.06 2.54 4.52 2.29 4.58 2.38 4.50 5.36 4.50 2.87
Social Enterprises and Inclusive 2.33 2.35 3.22 2.05 4.00 1.71 3.65 3.96 3.10 2.43 Entrepreneurship
Source: OECD ASEAN SME Policy Index 2018
The Philippines was considered as one of the “mid-level performers in most policy areas.”
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SME firms are still hindered by “lack of infrastructure, rather weak institutions and relatively burdensome tax rates and regulations.”
Across the dimensions monitored by the index, the place, but monitoring and evaluation are only conducted Philippines scored best in terms of access to market and internally and mainly just a budget review rather than internationalisation with 4.95 index (see table on ASEAN assessing its impact. Moreover, high informality rates SME Policy Index 2018 scores). This dimension shows exclude a large number of MSMEs from policy interventions. the intensity of policies to encourage SMEs to expand their businesses overseas. The country has different In order to improve the country’s index scores, one strategic plans, like the Philippines Export Development of the recommendations of OECD is the streamlining of Plan (PEDP), which is implemented by the Department of requirements for launching a company in the Philippines. Trade and Industry through its various agencies. The PEDP Currently, launching a company in the country remains intends to roll out SME export promotion, global value chain relatively burdensome. It takes 28 days, involves 16 integration, and promotion of use of e-commerce in SMEs. procedures, and the applicant must interact with 12 agencies.
The Philippines also does reasonably well in terms of Various measures have been set up to address the entrepreneurial education and skills (4.50); institutional burdensome business registration process in the country framework (4.44); and productivity, technology, and innovation such as the one-stop shops in Metro Manila. Additionally, (4.08). the Securities and Exchange Commission (SEC) has rolled out an Integrated Business Registration System wherein Meanwhile, the report also explained that the Philippines applicants can receive an SEC registration number, a tax has a moderately developed financial sector to cater to SMEs’ identification number, and electronic registration numbers access to finance (3.93). Most notable is the mandatory lending of the Home Development Mutual Fund, Philhealth, and the scheme that requires all commercial banks to disburse 8% Social Security Service. of their total loan portfolio to SMEs. The country also has other sources of finance for SMEs like microfinance, asset- The Philippine government also established Negosyo based financing, crowdfunding, and equity instruments. Centers as the main policy tool for the MSMEs in the Philippines. Enacted through the Republic Act (RA) The OECD noted that the private sector participation 10644 or the Go Negosyo Act, it paved the way for the in SMEs is “relatively robust.” With the Micro, Small and establishment of business support centers in all provinces, Medium Development Plan (MSMED) in place to encourage cities and municipalities. It also established a start-up fund innovation, increase access to finance and pave the way to for MSMEs and extended services like technology transfer, internationalization of SME products. However, SME firms are production, management training, and marketing assistance. still hindered by “lack of infrastructure, rather weak institutions and relatively burdensome tax rates and regulations.” As of 2016, there are 915, 726 registered enterprises in the Philippines. Of which, 89.6% are micro-sized, 5% are small, The Philippines has not fared well in terms of legislation, 4% are medium-sized, and 0.4% are large enterprises. In that regulation and tax with 3.36 index score, the lowest among same year, SMEs accounted for 63.3% of total employment all indicators. This reflects the problems with implementation and 36% of the country’s GDP. They also accounted for 25% and coordination of programs and policies. According of export revenues. Hence, it is critical for the government to to the OECD, medium and long-term strategies are in create a more business-friendly environment for the SMEs. Philippine ANALYST BUSINESS September 2018 58 BUSINESS
PH climbs to 10th spot in Sustainable Trade The STI is a biennial survey that measures the countries’ Index participation in the international trading system based on 3 pillars – economic growth (economic pillar), environmental The Philippines is still a top performer in the 2018 Hinrich protection (environmental pillar), and social capital Foundation Sustainable Trade Index (STI). Although there development (social pillar). Each pillar has its own sub- are factors that dampened the country’s performance, the in di c ato r s t h at a re m ea s ure d o n a s c a l e of 1-10 0. A n ag g re g ate government believes key economic reforms will help with the score of 100 indicates the best conditions for international trade country’s participation in international trade. while an aggregate score of 0 indicates the worst conditions.
Based on the 2018 STI, the Philippines jumped 3 spots Among the 3 pillars, the country ranked best in the to 10th place among 20 countries from 13th place in 2016. environmental pillar (although down to 61 index score from However, the country’s STI score slightly contracted to 71 in 2016), which maintained its ranking at 6th place. It was 51.2 from 52 in 2016. This was weighed down by the poor followed by the social pillar which saw the best improvement (to growth of specific sub-indicators under the economic pillar. 48 from 28), jumping to 11th place from 19th place. Meanwhile, the country performed worst under the economic pillar whose Hong Kong topped this year’s STI with a score of 73.7, score contracted to 51 from 57. Its ranking dropped to 15th fo ll owe d by So u t h Ko rea (73.3), S in g a p o re (71.4), Ja pa n (71.3), place from 9th place in 2016 (see table on PH Overall STI U.S. (68.5), Taiwan (66.6), Sri Lanka (53.3), China (53), and Performance). Vietnam (51.7) (see table on STI Performance per Country).
HINRICH FOUNDATION: STI PERFORMANCE PER COUNTRY
2018 2016 COUNTRY CHANGE IN RANKING SCORE RANK SCORE RANK Hong Kong 73.7 1 73.6 5 +4 South Korea 73.3 2 80 2 = Singapore 71.4 3 81.3 1 -2 Japan 71.3 4 78.5 3 -1 U.S. 68.5 5 76.4 4 -1 Taiwan 66.6 6 69.4 6 = Sri Lanka 53.3 7 54.2 10 +2 China 53 8 52.5 12 +4 Vietnam 51.7 9 54.4 11 +2 Philippines 51.2 10 52 13 +3 India 50.6 11 47.7 15 +4 Malaysia 47.7 12 59.4 7 -5 Thailand 47.6 13 55.5 8 -5 Indonesia 47.4 14 47.9 14 = Brunei 45.9 15 54.2 9 -6 Pakistan 44.8 16 41.7 19 +3 Bangladesh 42.4 17 45.4 18 +1 Laos 42.4 18 45.5 17 = Cambodia 42 19 46.8 16 -3 Myanmar 37.9 20 39.7 20 = Source: The Hinrich Foundation STI 2018
Philippine ANALYST BUSINESS September 2018 59 BUSINESS
HINRICH FOUNDATION: PH OVERALL STI PERFORMANCE
2018 2016 PILLAR CHANGE IN RANKING RANK SCORE (/100) RANK SCORE (/100) Environmental 6 61 6 71 -10
Social 11 48 19 28 +8 Economic 15 51.1 9 57 None Overall 10 51.2 13 52 +3
Source: The Hinrich Foundation STI 2018
Despite the contraction in the index, the country’s shift towards a more liberal policy framework improved the growth of imports and exports.
TOP & BOTTOM INDICATORS FOR THE PHILIPPINES Top & Bottom Indicators for the Philippines INDICATOR INDEX AVERAGE 2018 SCORE Current Account Liberalization 90.7 100 Air Pollution 67.2 97 Environmental Standards in Trade 66.7 83 Tariffs & Non-tariff barrier to trade 59.4 75 Export market concentration 68.3 57 Technological Innovation 26.2 2 Trade Costs 51.2 32 Growth in Labor Force 64 0
Source: The Hinrich Foundation STI 2018
Meanwhile, sub-indicators from the economic and with a score of 2. This was followed by the trade cost environmental pillar topped the index for the Philippines (see indicator (32) then export market concentration (57). table on Top & Bottom Indicators for the Philippines). The current account liberalization indicator scored best at 100, followed by According to the Hinrich Foundation, the ASEAN region the air pollution indicator (97). The country also did well in terms regressed in terms of trade sustainability mostly driven by of participating and complying with environmental standards the decline of the environmental and social pillar. Among the in trade (83) and easing tariff and non-tariff barriers (75). ASEAN countries, the Philippines ranked 3rd outperformed by Singapore (71.2) and Vietnam (51.2). Trailing the country At the bottom of the index was the growth in labor are middle-income economies such as Malaysia (47.7) force indicator with a score of 0. There were also no and Thailand (47.6), as well as low-income economies like improvements in the technological innovation indicator Indonesia (47.4), Brunei (45.9), Laos (42.4), Cambodia (42), and Myanmar (37.9). Philippine ANALYST BUSINESS September 2018 60 BUSINESS
Downgrading trends observed in trade competitiveness will be improved through the government’s commitment in advancing important economic reforms such as the Ease of Doing Business Law, the Philippine Innovation Act, the 11th Foreign Investment List and the Retail Trade Liberalization Act.
The report noted that the Philippines is performing E-money transaction value up 9% in 1H2018 moderately well, despite the contraction in the index. Although the increase in ranking was mostly due to the Value of electronic money (e-money) transactions in the poor performance of other countries, the shift in pushing Philippines rose by 8.9% to P513.8 billion in 1H2018 from for a more liberal policy framework is making some tangible P471.7 billion in the same period last year due to enabling results on the growth of imports. Year to date imports data regulatory environment, rising number of providers, and show that total imports grew by 15.04% to $70.91 billion. aggressive marketing.
The implementation of duty-saving mechanisms such as According to the Bangko Sentral ng Pilipinas (BSP) the Free Trade Agreement (FTA) preferential tariff rates with or central bank, the volume of e-money transactions in countries such as South Korea and Japan partly contributed 1H2018 surged by 56.5% to 289.2 million transactions to its performance. Additionally, existing FTAs with China, from 184.7 million last year. The central bank has been ASEAN, and the European Free Trade Association has also taking conscious efforts to adopt financial technology made its impact. In total, about 87.52% ($ 62.07 billion) of the (fintech) to achieve financial inclusion. It has applied a total imports as of August 2018 were sourced from countries regulatory framework for electronic money issuers (EMIs) the Philippines has an FTA with. Similarly, exports (49.10% by allowing non-banks to offer mobile money; allowing an or $22.05 billion) which have remained a dampening factor agent-based network in performing cash-in and cash-out to the country’s performance could benefit from the FTAs, transactions; simplification of customer verification processes; once firms learn how to effectively utilize these agreements. formalization of guidelines on the issuance of e-money; and allowing competitive business models to be tested. Another mechanism that helped with the country’s bid for trade liberalization was the Bangko Sentral ng Pilipinas (BSP) The adoption of fintech enables the BSP to grant more EMI or the central bank's 11th wave of liberalization reforms which licenses to non-bank institutions, and thus expand the reach allowed banks to convert foreign currency-denominated loans of e-money transactions from just cash cards to electronic to peso without the approval of the central bank, improving the wallets (e-wallet). The BSP has issued EMI licenses to 41 outlook of businesses in international commodity trading. The companies, which consist of 30 banks and 11 non-banks (see central bank reported that exporters, importers and domestic- table on BSP supervised EMIs). Recently, the BSP granted the oriented firms would be more optimistic as this reform would EMI license for the ride-sharing app Grab’s e-wallet, GrabPay. effectively reduce the cost of doing business and improve data capture in the country. The outlook of dual-activity Additionally, BSP deputy director and head of the information (both importer and exporter) firms was also more favorable. technology group Melchor Plabasan said that the EMIs apply aggressive marketing campaigns to increase the number of Despite the country’s steady growth, trends observed e-money users through social media, and referral programs. in trade competitiveness send some worrisome signals EMIs are also partnering with large corporations to provide on the country’s global value chain integration. In a recent freebies, rebates, and rewards to add value to their services. report released by the World Bank (Growth and Productivity in the Philippines: Winning the Future), the higher trade The BSP’s 2017 Financial Inclusion Survey (FIS) presented costs due to lack of adequate infrastructure, dismal logistics t h at o n l y 1.3% of adul t s in t h e c o unt r y h ave e - m o n ey ac c o unt s. situation, growing corruption and rigid legal system; as well Of this, 46% with accounts and access to the internet remain as the lack of growth in technical innovation and the labor ambivalent on e-payments citing security and safety issues. force remain a dulling factor in the country’s performance. Notably, convenience is cited as the top consideration in choosing a channel in sending and receiving money (see To avoid these long-term downgrading prospects in the figure on considerations for choosing channel in sending/ trade, the National Economic and Development Authority receiving of money). In order to increase e-money users, (NEDA) assured that the government is committed to speeding EMI and policymakers should highlight the convenience and up key economic reforms to further improve productivity affordability of utilizing EMI services while ensuring security. in all sectors. These include the full implementation of the Addressing these issues are crucial since more Filipinos Ease of Doing Business Law, and the Philippine Innovation are now more willing to try to utilize e-payment schemes. Act. Other policies that businesses can look forward to are the 11th Foreign Investment Negative List which is waiting President Rodrigo Duterte’s approval; and the Retail Trade Liberalization Act, currently pending in the senate.
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The increase in e-money transactions are due to enabling regulatory environment, rising number of providers, and aggressive marketing.
BSP SUPERVISED EMIS AS OF DECEMBER 2017
EMI BANKS Asia United Bank Corporation BDO Unibank, Inc. Bank of the Philippine Islands China Banking Corporation CTBC Bank (Philippines) Corporation Citibank, N.A. East West Banking Corporation Equicom Savings Bank, Inc. Land Bank of the Philippines Maybank Philippines, Incorporated Metropolitan Bank & Trust Company Philippine National Bank Philippine Savings Bank Rizal Commercial Banking Corporation Robinsons Bank Corp. Security Bank Corporation Sterling Bank of Asia, Inc. (A Savings Bank) Union Bank of the Philippines United Coconut Planters Bank Development Bank of the Philippines First Consolidated Bank Inc. (A Private Development Bank) RCBC Savings, Inc. PNB Savings Bank Bank of Commerce Philippine Bank of Communications UCPB Savings Bank Cebuana Lhuillier Rural Bank Inc. Dungganon Bank (A Microfinance Rural Bank), Inc. Pacific Ace Savings Bank, Inc. Binangonan Rural Bank EMI – NONBANK FINANCIAL INSTITUTIONS OmniPay, Inc. (formerly PVB Card Corporation)
Metrobank Card Corporation (A Finance Company) EMI - OTHERS G-Xchange, Inc. (GXI) Alipay Philippines, Inc. (formerly helloPay Philippines, Inc.) Infoserve, Inc. PayMaya Philippines, Inc. True Money Philippines Inc. DCPay Philippines, Inc. Wisecard e-Money Philippines, Inc. Starpay Corporation Source: BSP
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69% of the respondents from the Philippines are willing to go cashless for 24 hours and 51% are willing to do it for 3 days.
Traditional brick-and-mortar banks should consider the willingness of the consumers to reinvent and innovate themselves.
Based on the 2017 Visa Consumer Payment Attitudes Traditional brick-and-mortar banks should consider Survey, 69% of the respondents from the Philippines the willingness of the consumers to reinvent and innovate are willing to go cashless for 24 hours and 51% are themselves as more app-based EMIs and fintech companies willing to do it for 3 days, both higher than the regional enter the market. The Philippine Payments Management Inc. average (see figure on Consumer Confidence to go (PPMI), which was recognized by the BSP as the Payments Cashless in Selected Countries in Southeast Asia). System Management Body to implement the National Retail
InstaPay enables individuals, businesses, and government institutions to send and receive funds, or make payments in real time of up to P50,000 per transaction, without limit, in a day.
Philippine ANALYST BUSINESS September 2018 63 BUSINESS
E-money transactions will soon prevail as long as EMIs ensure the security of their network, while continuing to create value-adding products.
Payment System (NRPS), noted that different financial MINING, OIL, & GAS institutions have different IT infrastructure, adding that“some adopt quickly while others are not as nimble.” However, they expect BSP-supervised financial institutions to upgrade their Metal production rose in 1H2018 systems and participate in the digitalization efforts. Metal production in the Philippines marginally improved in The BSP anticipates that the volume of e-money the 1st half of 2018, despite the decline it posted in the 1st transactions will continue to rise due to the launch of InstaPay quarter of 2018. The Mines and Geosciences Bureau (MGB) last April 2018. InstaPay is an automated clearing house attributed the good performance in metal production to the that provides infrastructure for financial institutions to allow higher metal prices in the world market. seamless interbank fund transfers. It enables individuals, businesses, and government institutions to send and receive Based on the MGB data, the total value of metallic mineral funds, or make payments in real time of up to P50,000 per products in 1H2018 reached P54.57 billion, a 4% growth transaction, without limit, in a day. Also, it removes the need (P2.14 billion) from P52.42 billion in 1H2017. Of the total to physically transact at bank branches since the service will metallic production value, gold remained the best performer be available 24/7 through mobile apps and internet banking in the sector which accounted for 41% (P22.35 billion); facilities of participating banks and EMIs. followed by nickel direct shipping ore and mixed sulfides with 39% (P21.18 billion) and contribution and copper with The PPMI explained that 75% of checks processed daily 19% (P10.40 billion). The remaining 1% (P640 million) , came are below P50,000 which provides an immediate market from the collective values of silver, chromite and iron ore (see for InstaPay. This will drive up e-money transactions as it figure on 1H2018 Share of Metals to Total Metallic Mineral is expected to replace check and automated teller machine Production). (ATM) transactions as the fastest way to move funds. PPMI said that e-money transactions will soon prevail as long as Despite the dominance of the gold in the sector, it posted EMIs ensure the security of their network while continuing to sluggish performance in terms of production during the 1st half create value-adding products. of 2018. Gold’s output was down to 10,703 kilograms (P22.35 billion) from 11,674 kilograms (P22.97 billion) in the same period last year. It was lower by 8% (971 kilograms) in volume and 3%
Philippine ANALYST BUSINESS September 2018 64 BUSINESS
1H2018 Share of Metals to Total Metallic Mineral Production
1%
18%
45%
36%
Gold Nickel direct shipping ore and mixed sulfides Copper Silver, chromite, iron ore
Source: Mines and Geosciences Bureau Gold posted sluggish performance in terms of production during the 1st half of 2018.
(P620 million) in value (see table on PH Metallic Production Meanwhile, production of nickel direct shipping ore 1H2018). The country’s major gold producers, OceanaGold also declined in terms of volume (-12%) and value (-1%). It (Philippines), Inc. and Philex Mining Corporation, recorded a recorded an output of 116,781 metric tons (P9.80 billion) from 31% (1,457 kilograms) production loss to 3,174 kilograms from 133,332 metric tons (P9.91billion). Nickel mining firms such a combined mine output of 4,631 kilograms. This has affected as Citinickel Mines and Development Corporation in Palawan the weak performance of the gold in 1H2018. (-64%), SR Metals, Inc. in Agusan Del Norte (-55%), and Carrascal Nickel Corporation in Surigao del Sur (-45%) On the other hand, Filminera Mining Corporation/ suffered the largest deficits during the period. The MGB Philippine Gold Processing & Refining Corporation in Masbate, added that major nickel producers Rio Tuba Nickel Mining Philsaga Mining Corporation/Mindanao Mineral Processing Corporation in Palawan, and Taganito Mining Corporation in and Refining Corporation in Agusan del Sur, and Apex Surigao Del Norte, also incurred production setbacks both Mining Corporation in Compostela Valley, and Itogon-Suyoc in volume and value. Resources, Inc. in Benguet posted growths in production during the period with an output of 41 kilograms (P90.44 million) in 1H2018.
The MGB noted that 11 mines (38%) out of the 29 nickel mines reported zero production, whether due to suspended operations or were under maintenance status in the first half of 2018.
Philippine ANALYST BUSINESS September 2018 65 BUSINESS
The MGB is expecting to have a more regulated and closely monitored mining industry in the country, with the issuance of new environmental policies.
PH METALLIC MINERAL PRODUCTION 1H2018
JAN-JUN2018 JAN-JUN 2017 % CHANGE MINERAL COMMODITY UNIT USED VALUE VALUE QUANTITY QUANTITY QUANTITY VALUE (IN MN) (IN MN) PRECIOUS METALS Gold KGS. 10,703 22,352.06 11,674 22,966.03 -8 -3 Silver KGS. 15,174 418.922 16,228 453.46 -6 -8 BASE METALS Copper Concentrate DMT 137,929 10,366.66 138, 689 8,957.52 -1 16 Copper Metal Equivalent MT 32,859 33, 687 -2 Mixed Nickel-Cobalt Sulfide DMT 42,622 11,376.57 46, 444 10,084.89 -8 13 Mixed Nickel-Cobalt Sulfide (Metal) MT 24,454 26, 789 -9 Nickel Direct Shipping Ore DMT 9,432,150 9,801.06 10,440,509 9,907.61 -10 -1 Nickel Content of Ore MT 116,781 133,332 -12 Chromite DMT 21,210 223.96 6,778 53.15 -213 321 Iron Ore DMT 0 0 0 0 -100 -100 TOTAL 54,568.23 52,422.66 4 Source: Mines and Geosciences Bureau
According to the MGB, SR Metals, Inc. has already reported lower plant output in 1H2018 to 24,454 metric tons in di c ate d t h at i t s o p e r at i o n s will b e o n l y b e lim i te d to c are - an d - (P11.38 billion) from 26,789 metric tons (P10.08 billion) in maintenance from April to October 2018 period. Other nickel the same period last year. Taganito HPAL Project reported mines that are still in care-and- maintenance status include: production cutback of 16% to 13,750 metric tons in 2018 from 16,349 metric tons, down by 2,599 metric tons. hh H.Y. Nickel-Chromite Project - Sinosteel Philippines H.Y. Mining Corp.; The production of copper also went down by 2% to 32,859 hh Wellex Area II Nickel Mining Project - Vista Buena Mining metric tons from 33,687 metric tons during the period, However, Corporation/Wellex Mining Corporation; its value grew by 16% to P10.40 billion from P8.96 billion. hh Nonoc Nickel Project - Pacific Nickel Philippines, Inc.; and Of the total copper production, Toledo Copper Operations h of Carmen Copper Corporation in Cebu accounted for 55% h Isabela Nickel Mining Project - Geogen Corporation. (17,986 metric tons). It was followed by Didipio Copper Project The MGB noted that 11 mines (38%) out of the 29 nickel of OceanaGold (Philippines) Inc. with 7,808 metric tons, mines reported zero production. These mines were either Padcal Copper-Gold Project of Philex Mining Corporation under suspended operations or maintenance status in (6,418 metric tons), and Enargite Project of Lepanto the first half of 2018. Similarly, mixed nickel-cobalt sulfide Consolidated Mining Corporation with (647 metric tons).
The country could lose “quality investments” in the mining sector with the proposal, adding that this could make mining operations “too expensive.”
Philippine ANALYST BUSINESS September 2018 66 BUSINESS
For the January to June 2018 period, there are 18 nickel Small-scale mining operations in CAR suspended mines; 7 gold mines with silver as co-product; 4 copper mines with gold and silver as co-products; 1 chromite mines; 2 The Department of Environment and Natural Resources nickel plant; and several small-scale gold mining operations (DENR) ordered the suspension of all small-scale mining that contributed to the total metal production in the country. operations in the Cordillera Administrative Region (CAR) after a landslide hit Benguet amidst the onslaught of Typhoon In terms of metal prices, the average world metal prices of Mangkhut (Ompong). gold, copper, and nickel went up in the 1st half of 2018. Nickel price recorded the highest increase at 41% $6.19 per pound DENR Secretary Roy Cimatu has issued a cease and desist (lb) from $4.39/lb, boosted by the increase in demand from order (CDO) against small-scale mining activities particularly stainless steel production coupled with falling inventories. for illegal mining operations in CAR. He said that the suspension The average price of gold also grew by 6.45% to $1,318.33 only applies to CAR and will not cover large-scale mining in per troy ounce (toz) from $1,238.46/toz, while copper price the country. “We might be filing charges against them if they increased 20.7% to $3.12/lb. from $2.58/lb. don’t stop despite the (cease and desist order). They could be charged with mining without permit or theft of minerals,” he The MGB is expecting to have a more regulated and closely added. The Armed Forces of the Philippines and the Philippine monitored mining industry in the country, with the issuance of National Police will help the DENR in implementing the CDO. new environmental policies. This year, the new environmental policies include: The suspension came after a landslide hit a mining site in Barangay Ucab, Itogon, Benguet during the onslaught of 1. Memorandum Circular No. 2018-02, or the Guidelines Typhoon Mangkhut (Ompong) last September 16. This killed for Compliance Monitoring and Rating/Scorecard of Mining more than 60 people, mostly small-scale miners and their Permits/Contracts; families. The landslide site was an old abandoned bunkhouse of Benguet Corp. It was one of the areas ordered closed by 2. Administrative Order No. 2018-19, or the Guidelines for then DENR Sec. Gina Lopez in 2017. Additional Environmental Measures for Operating Surface Metallic Mines; and (see August 2018 Analyst article, Gov’t The suspension of small-scale mining operations is the limits mining areas, enforces progressive rehabilitation); and 1st phase of the DENR’s response to the incident, while the 2nd phase would involve relocating small-scale miners to 3. Administrative Order No. 2018-20 or Providing for a New safer places. Sec. Cimatu also ordered the revocation of Guidelines in the Evaluation and Approval of the Three- small-scale mining permits issued for mining areas in Itogon, Year Development/Utilization Work Program. emphasizing that the revocation of mining permits was made “to prevent further danger” to the lives of small-scale miners. Howeve r, m in in g fir m s ex p re s s e d un c e r t a int y in t h e m in in g sector due to the proposed mining tax reform bill (House Bill According to Mines and Geosciences Bureau CAR director 7951) that includes the imposition of a 5% royalty tax on all Fay Apil, 10 mining associations were given temporary small- mining operations in the country, whether or not they are scale mining contracts. Of the 10,000 small-scale miners in declared as mineral reservations. Both the DENR and the Itogon, only 500 are members of the associations. “This time, Department of Finance supports it. I will be stricter in the location of the Minahang Bayan. They should not stay in areas prone to disasters. This is a wake-up In response, the Chamber of Mines of the Philippines call,” Sec. Cimatu asserted. Chair and Nickel Asia Corp. president and CEO Gerard Brimo asserted that the country could lose “quality investments” with In 2012, former President Benigno Aquino III issued the proposal, adding that this could make mining operations Executive Order 79 that imposes a moratorium on the grant “too expensive.” He noted that the proposed tax is costlier of new mining permits. The Minahang Bayan is a program than that in major mining countries Australia, Canada, Chile, provided for in the People’s Small-Scale Mining Act of 1991 Peru, and South Africa. (Republic Act No. 7076), which identifies sites “suitable for small-scale mining” to be approved by the DENR Secretary. The mining sector is yet again in the doldrums phase Sec. Cimatu cited that there are existing applications for due to unstable mining policy of the Duterte administration. Minahang Bayan in some areas of the region but then no Notably, most mining companies recorded a shortfall in their Minayang Bayan sites have been declared in CAR. operations since 1Q2018. This sends a lackluster outlook for the mining sector in the 2nd half of 2018. The government Meanwhile, Itogon Mayor Victor Palangdan appealed to should realize the huge economic potential of the mining Sec. Cimatu that a technical conference should be conducted sector while ensuring the sustainable environment conditions first before shutting down small-scale mining in the region. of the country. “We, the local officials, know very well the situation of our small-scale miners. There are small-scale miners (who) are following the laws... they could not get license or permit because of the provisions under our Small-Scale Mining Act
Philippine ANALYST BUSINESS September 2018 67 BUSINESS
The suspension only applies to CAR and will not cover large-scale mining in the country.
Sec. Cimatu also ordered the revocation of small-scale mining permits issued for mining areas in Itogon.
CAR MINING PROJECTS
OPERATING METALLIC MINES NON-METALLIC-MINERAL PROCESSING PERMIT
• Victoria Gold Mine of Lepanto Consolidated Mining Company • BMC-Irisan Lime Project Industrial Sand and Gravel
• Padcal Copper-Gold Mine of Philex Mining Corporation • ML Carantes Devt & General Construction
• Benguet Corporation’s Acupan Contract Mining Project • Mountain Rock Aggregates (MRA)
• Itogon-Suyoc Resources, Inc. • Rolando V. Bautista
Source: MGB-CAR Regional Office
The Chamber of Mines of the Philippines (COMP) urged the government to take a tougher stance against illegal small-scale mining. that you cannot apply for a permit if a big mining company will After the Benguet incident, Sec. Cimatu said that he will not issue you a permit. That should be amended in Congress,” be stricter with the creation of Minahang Bayans in the region, Mayor Palangdan said. He stressed that the landslide area is noting that miners would have to comply with the laws. All small- not covered by any small-scale mining permit since the Benguet scale mines that will be allowed to operate will be required to Corporation mining tunnel there is "abandoned." Sec. Cimatu pay mining tax and adhere to sanitation and environmental has considered Mayor Palangdan’s proposal but maintained standards, he added. Sec. Cimatu also ordered to review all the mining sites will remain closed. Minahang Bayan sites in the country.
In line with this, the Chamber of Mines of the Philippines Currently, there are 4 metallic mines and 4 non-metallic (COMP) urged the government to take a tougher stance mining operations in the region (see table on CAR Mining against illegal small-scale mining, as these had been heavily Projects). Mining investments in CAR reached P12.89 billion influencing the public’s perception of the entire mining industry. in 2017 and generated 7,697 jobs in the sector. The bulk of the COMP chairman and Nickel Asia Corp. president and CEO investments came from the large-scale gold mines (P7.18 billion), Gerard Brimo noted the lack of distinction between small-scale while small-scale gold mines contributed P5.7 million last year. and large-scale mines. He added that small-scale mining “has to b e do ne leg al ly and with p ro p e r s u p e r vi s io n.” He emphasized The government needs to implement stricter mining that illegal mining does not employ the same stringent safety regulations specifically against illegal small-scale mining in the practices required of legitimate large-scale mining operators. country. Although mining should not be blamed solely in the Benguet incident, irresponsible mining practices are extremely high-risk to the environment and mining communities.
Philippine ANALYST BUSINESS September 2018 68 BUSINESS
I.T. UPDATE Points of interested participants will be computed annually over the 5-year commitment period. Bidders will be scored up to a maximum of 500 points for their bid commitments based Gov’t issues final guidelines for new telco on the 3 criteria. But in order to be qualified for the selection, the interested party or participants should have the following: player hh A valid congressional telecommunications franchise that After several revisions and consultations, the Department is not a related party to any dominant telco player (PLDT, of Information and Communications Technology (DICT) Inc. and Globe Telecom, Inc.) and has no pending liabilities and the National Telecommunications Commission (NTC) to the NTC as of October 1; have released the final terms of reference (TOR) on the hh A paid-up capital of at least P10 billion; and selection process for a new major player (NMP) in the local hh At least 10 years of experience in the telco services on a telecommunications (telco) industry. national scale. The 26-page Memorandum Circular (MC) 09-09-2018 Additionally, the available radio frequencies to the was signed by NTC Commissioner Gamaliel Cordoba and new telco player, which the NTC will assign, are 700 Deputy Commissioners Edgardo Cabarios and Delilah megahertz (MHz), 2100 MHz, 2500 MHz, and 3300-3500 Deles last September 20. It was also noted by DICT Acting MHz (see table on Covered Radio Frequencies for the Secretary Eliseo Rio Jr. as the chairman of the Oversight new telco player). However, there are still a set of 2100 Committee. President Rodrigo Duterte initially wanted the MHz frequencies waiting for the Supreme Court’s decision new major telco player to be named within the 1st quarter which will also be awarded to the new major player until the of 2018. But this target was hit with delays as the TOR has case against Bayan Telecommunications, Inc. is resolved. undergone multiple revisions. The first draft of the TOR was released last February 2018 (see Jan-Feb 2018 Analyst For the selection process, a Selection Committee will article: DICT set policy guidelines for new telco investor). be created by the NTC comprised of a Chairperson, a Vice- Chairman, and at least 3 members for the NTC. The NTC Under the memorandum circular, the new NMP will be is also tasked to form a Technical Working Group and a selected based on the ‘highest committed level of service’ Selection Committee Secretariat that will provide technical, (HCLoS) selection model, which consists of 3 selection legal, and administrative support to the Selection Committee. criteria namely, national population coverage, broadband speed, capital and operational expenditures for the first 5 The NTC En Banc is also mandated to invite representatives years. The DICT increased the minimum average broadband from the Commission on Audit (COA) and 2 non-government/ speed to 25% from 20% in its previous draft rules. Capital civil society organizations that will act as non-voting observers and operating expenditure now only accounts for 35% of the to the Selection Committee and the NMP Selection Process. criteria from 40%. Meanwhile, national population coverage This is to ensure the transparency of the NMP selection remains at 40% (see table on NMP Selection Criteria). process.
The new NMP will be selected based on the ‘highest committed level of service’ (HCLoS) selection model.
A Selection Committee will be created by the NTC that will undertake the selection process for the new telco player.
Philippine ANALYST BUSINESS September 2018 69 BUSINESS
NMP SELECTION CRITERIA CRITERIA WEIGHTAGE
The minimum requirement for the first year is 10% while the maximum is 50%. Bidders will receive points for exceeding the minimum, but participants will not win added points National Population Coverage 40 points beyond 50% coverage for the first year. Offers below the minimum “should no longer be processed further.” By the 5th year, the NTC expects a minimum coverage of 50% and the maximum of 90% (see table on National Population Coverage).
The minimum average broadband speed was set at 55 megabits per second (Mbps) from 45 Minimum Average Broadband Speed 25 points Mbps in the last draft. Bidders can receive points for every added 2 Mbps above the mini- mum and only up to 55 Mbps. Bids below 5 Mbps will not be considered.
The minimum annual combined capital and operating expenditures for the first year is P40 billion, while the maximum is P140 billion in the first year. Bidder will get 3.5 points for Capital and operating expenditures 35 points every P10 billion commitment above the minimum capital and operating expenditures (see table on Capital and Operating expenditures Coverage).
TOTAL 100 points
Note: Bids that fail to meet the minimum requirement in any of the 3 criteria will be automatically disqualified, while those that commit above the maximum requirement, while welcome, will not get additional points for doing so. Source: National Telecommunications Commission (NTC)
NATIONAL POPULATION COVERAGE
YEAR MINIMUM MAXIMUM
1 10% 50%
2 20% 60%
3 30% 70%
4 40% 80%
5 50% 90%
Source: National Telecommunications Commission (NTC) CAPITAL AND OPERATIONAL EXPENDITURES COVERAGE
YEAR MINIMUM MAXIMUM
1 P40 billion P140 billion
2 P65 billion P165 billion
3 P90 billion P190 billion
4 P115 billion P215 billion
5 P140 billion P240 billion
Source: National Telecommunications Commission (NTC)
The new telco player is expected to be identified in December this year.
Philippine ANALYST BUSINESS September 2018 70 BUSINESS
COVERED RADIO FREQUENCIES FOR THE NEW TELCO PLAYER FREQUENCY BAND FREQUENCY RANGE 700 MHz 738.0 – 748.0 MHz
739.0 – 803.0 MHz
2100 MHz 1955.0 – 1970.0 MHz
2145.0 – 2160.0 MHz
2000 MHz 2010.0 – 2025.0 MHz
2.5 Gigahertz (GHz) 2535.0 – 2555.0 MHz
3.3. GHz 3300.0 – 3400.0 MHz
3.5 Ghz 3480.0 – 3520.0 MHz
CONTINGENT RADIO FREQUENCIES 2100 MHz 1979.0 – 1980.0 MHz
2160.0 – 2170.0 MHz
Source: National Telecommunications Commission (NTC)
3RD TELCO APPLICANTS
Philippine Telegraph & Telephone Corp (PT&T)
Now Corp.
Converge ICT Solutions
Easy Call Communications Philippines Inc.
TierOne Communications International, Inc
Trans-pacific Broadband Group International, Inc. (TBGI)
China telecom
KT Corp. (South Korea)
LG Uplus (South Korea)
Viettel Telecom (Vietnam)
Telenor (Norway)
Source: National Telecommunications Commission (NTC)
The DOJ will help review the terms for the selection, the contracts that may be executed and the grant of licenses and permits “to ensure compliance with all applicable laws, rules and regulations.”
Philippine ANALYST BUSINESS September 2018 71 BUSINESS
Source: DICT
Moreover, the new major player would need to post a After the evaluation of the bid documents, the new telco participation security in favor of the NTC for P700 million player is expected to be identified in December this year. or 0.5% of its minimum capital and operating expenditures. “We are confident that we will be able to accomplish the Apart from this, the new telco should also submit a quarterly President’s mandate,” Commissioner Cordoba asserted. report that will include the number of subscribers, the rollout Meanwhile, Sec. Rio explained that Pres. Duterte has of the service and spectrum, geographic information of its been listening to the DICT for a more realistic timeline. infrastructures, list of cell towers, annual reports, among “But I think now, as I’ve said this is the deadliest deadline. others. If the 3rd telco player fails to comply with these I think the industry has to accept this,” Sec. Rio added. commitments, the firm will lose the performance security and should return assigned radio frequencies to the NTC. Philippine Competition Commission chair Arsenio Balisacan lauded the release of the final TOR in the search Sec. Rio previously identified several local and foreign for the 3rd player in the telco sector. He said that it will bring firms that have expressed interest to become the 3rd closer to the goal of having a choice beyond the existing major telco player (see table on 3rd telco Applicants). duopoly. Department of Justice (DoJ) Secretary Menardo Guevarra, meanwhile, added that the DOJ will help review Recently, the DICT unveiled the new timeline on the the terms for the selection, the contracts that may be implementation of the latest policy. Commissioner Cordoba executed and the grant of licenses and permits “to ensure ear li e r s a i d t h at t h e TOR will t ake effe c t on O c tob e r 6. T h e DICT compliance with all applicable laws, rules, and regulations.” also noted that a preselection information session will be held on Oct. 15, while potential bidders can submit classificatory There are currently 2 major telcos in the Philippines right questions on Oct. 22 and Nov. 2. By that time, the government now – PLDT and Globe and the selection of the entry of the will soon issue an invitation to bid, where interested parties new telco player is very critical in our telecommunications could purchase bid documents for P1 million each. Submission sector. It will not only give subscribers more choices in of bid documents is set on November 7 (see figure on terms of internet services, but it could also pave the way Timeline for the Submission of Bids for the New Major Player). to improve the slow and sluggish performance of the country’s internet that the duopoly is currently serving.
Philippine ANALYST BUSINESS September 2018 72 BUSINESS
LIST OF BOI-REGISTERED PROJECTS - AUGUST 2018
PROJECT COST EQUITY INDUSTRY ACTIVITY (IN PHP MILLION) LOCAL/FOREIGN
CONSTRUCTION
Public Private Parnership (PPP) Project - Paranaque Integrated Terminal MWM Terminals, Inc. 5,181.4 100% Filipino Exchange) in Coastal Rd., Paranaque City ELECTRICITY, WATER, AND GAS 6 0 % F i l i p i n o Renewable energy developer of a 5.22 MW Puerto Princesa City Waste to Austworks Corporation 2,199.7 3 0 % A u s t r a l i a n Energy Project in Puerto Princesa City, Palawan 10% Irish
Renewable energy developer of Ibulao Hydroelectric Project in Kiangan 6 0 % F i l i p i n o Hydrocore Corp. 990.2 and Lagawe, Ifugao 40% Chinese
Renewable energy developer of 35 MW San Jose del Monte Solar Power Manressa Power Corporation 1,456.0 100% Filipino Project in San Jose del Monte, Bulacan Renewable energy developer of 157 MWp (100MWAC) Magsingal Solar Neoenergy Corporation 5,403.9 100% Filipino Power Plant) in Magsingal, Ilocos Sur Renewable energy developer of North Negros 25 MW Biopower Project in North Negros Biopower, Inc. 5,429.0 100% Filipino Manapla, Negros Occidental
Renewable energy developer of Palawan Solar Power Project: 1.4 MWp 6 0 % F i l i p i n o Sabang Renewable Energy Corp. 292.9 Solar PV Power Generation in Puerto Princesa, Palawan 40% Foreign
HOTEL, RESTAURANT, AND LEISURE SERVICES Operator of a resort (Huni Sicogon Bed and Breakfast) in Sicogon Island, Sicogon Town Hotel, Inc. 200.0 100% Filipino Carles, Iloilo MEDICAL AND HEALTH SERVICES Operator of general hospital - Level 2 (Allegiant Regional Care Hospitals, Allegiant Regional Care Hospitals, Inc. 710.0 100% Filipino Inc.) in Agus, Lapu-lapu City Specialist Primary Care of Ilang, Inc. Operator of general hospital - Level 1 15.0 100% Filipino
MISCELLANEOUS MANUFACTURES
Obi's Trading Room Inc. Producer of seaweed based animal feed ingredient/additive 14.7 100% Filipino
OFFSHORING AND OUTSOURCING
Deployed Philippines Inc. Business process outsourcing-remote staffing services 18.7 99.95% British UK
2 1 % F i l i p i n o Maventyz Corporation Software development services and call center operations 9.8 79% Indian
REAL ESTATE AND PROPERTY DEVELOPMENT Developer of economic and low-cost housing project (Azalea Homes - Borland Development Corporation 58.6 100% Filipino Horizontal) in Mexico, Pampanga Developer of economic and low-cost housing project (Buenavista Borland Development Corporation 218.0 100% Filipino Townhomes Batch B - Horizontal) in General Trias, Cavite Developer of economic and low-cost housing project (Buenavista Borland Development Corporation 243.4 100% Filipino Townhomes Phase 2 - Horizontal) in General Trias, Cavite Developer of economic and low-cost housing project (Georgia Plains Borland Development Corporation 182.4 100% Filipino Subdivision Batch B - Horizontal) in Mexico, Pampanga
Developer of economic and low-cost housing project (Casa Rufina - 9 5 % F i l i p i n o Juanito King & Sons, Inc. 237.1 Horizontal) in Talisay City, Negros Occidental 5% American
Developer of economic and low-cost housing project (Primavera Homes PDB Properties, Inc. 439.0 100% Filipino Tanuan Phase 2 - Horizontal) in Tanauan City, Batangas Developer of economic and low-cost housing project (Lumina Classic I Prima Casa Land & Houses, Inc. 138.3 100% Filipino Annex A - Horizontal) in Sto. Tomas, Batangas STORAGE AND WAREHOUSING Operator of cold storage facility in Laguna International Industrial Park, Cold Centrale Chilling Inc. 226.3 100% Filipino Mamplasan, Binan, Laguna Bulk marketing of petroleum products (Badoc Petroleum Depot) in Gabut Ecology Specialist, Inc. 291.1 100% Filipino Norte, Badoc, Ilocos Norte
Logistics services provider (Manggahan Logistics Center) in Manggahan 6 0 % F i l i p i n o LBL Prime Properties Incorporated 365.8 Light Industrial Park, Pasig City 40% Various
Liquigaz Philippines Corporation Bacolod LPG refilling plant in Bredco Reclamation Area, Bacolod City 41.2 100% Filipino
TOTAL 24,362.4
Philippine ANALYST BUSINESS September 2018 73 BUSINESS
PEZA APPROVED PROJECTS - 1st QUARTER 2018 EQUITY INDUSTRY ACTIVITY ZONE LOCAL/FOREIGN APPAREL AND TEXTILE MANUFACTURES
DAEGYOUNG APPAREL INC. Manufacture of garments and wearing apparel 99.98% - South Korean Suntrust Ecotown Tanza
ELECTRICITY, WATER, AND GAS
ADVENTENERGY INC. Retail Electricity Supplier (RES) operations 100% - Filipino Baguio City Economic Zone Golden Mile Business Park ADVENTENERGY INC. Retail Electricity Supplier (RES) operations 100% - Filipino - SEZ Mactan Economic Zone ADVENTENERGY INC. Retail Electricity Supplier (RES) operations 100% - Filipino II - SEZ Phil. BXT Corp. Tourism ADVENTENERGY INC. Retail Electricity Supplier (RES) operations 100% - Filipino Economic Zone West Cebu Industrial Park ADVENTENERGY INC. Retail Electricity Supplier (RES) operations 100% - Filipino - SEZ AIR LIQUIDE PIPELINE UTILITIES SERVICES Light Industry & Science Park Installation of Nitrogen Gas Generator (APSA T7) 99.99% - French (ALPLUS), INC. II - SEZ ELECTRONICS Manufacture of equipment with automation lines of micro AAC OPTICS PHILIPPINES, INC. 99.99% - Singaporean Gateway Business Park - SEZ motors, vibratos, and electronic parts AMKOR TECHNOLOGY PHILIPPINES, INC. Power quad flat No (PQFN) 100% - Singaporean Laguna Technopark - SEZ
5 0 % - S p a n i s h ATGLOBAL ELECTRONICS MFG., CORP. Manufacture of safety switches 3 4 % - F i l i p i n o Laguna Technopark - SEZ 16% - Chinese Manufacture and processing of 4L Over/Under Small Outline Light Industry & Science Park AUTOMATED TECHNOLOGY (PHIL.) INC. 100% - Caymanian Package (SOP) Devices I - SEZ Assembly of Automotive Horn Assembly Box Build, manufacture EMS COMPONENTS ASSEMBLY, INC. of computer link connectors, and packaging of Data Storage 100% - Filipino Laguna Technopark - SEZ Device
Assembly of parts of airline galley insert products such as Light Industry & Science Park GEMPHIL TECHNOLOGIES, INC. 100% - Filipino beverage maker, refrigeration, oven and others I - SEZ
GOLDEN STONE ELECTRONICS First Cavite Industrial Estate Engage in the assembly and testing of wafer USB 100% - Filipino MANUFACTURING ENTERPRISE - SEZ 9 8 % - F i l i p i n o Light Industry & Science Park IONICS EMS, INC. Buddee smart plug fabrication 2% - Mixed I - SEZ
N.T. PHILIPPINES, INC. Earphone assembly 99.99% - Japanese Cavite Economic Zone PHILIPPINE MANUFACTURING CO. OF Manufacture of High Capacity (Hi-Cap) Monolithic Ceramic First Philippine Industrial 99.99% - Japanese MURATA, INC. Capacitor Park - SEZ SHIMADZU PHILIPPINES, MFG., INC. Manufacture/Assembly of Printed Circuit Boards (PCB) 99.99% - Japanese Cavite Economic Zone
TAIYO YUDEN (PHILIPPINES), INC. Manufacture of high current winding chips inductors (LQ1-Side) 99.99% - Japanese Mactan Economic Zone
TDK PHILIPPINES CORPORATION Resistance inductance ferrite (RLF) 99.96% - Singaporean Laguna Technopark - SEZ Calamba Premiere THN AUTOPARTS PHILIPPINES INC. Manufacture of auto parts such as wire harness 100% - South Korean International Park - SEZ FURNITURE AND FIXTURES Manufacture of veneer lamination, doors, wall, cladding, Mactan Economic Zone VASACRAFTS COMPANY INC. 99.98% - Swedish ceiling panel and flooring II - SEZ IT AND IT-ENABLED SERVICES BEIJING BANGNISHUO INTERNET EDUCATION Engage in Internet Online Education 100% - Chinese Abanao Square TECHNOLOGY LIMITED
JP SEKKEI CORP. Engage in computer-aided design for housing plan and drawing 99.97% - Japanese 6780 Ayala Avenue Bldg.
Information technology outsourcing services specifically STUDIO WEST PHILIPPINES, INC. 99.99% - American RBC Sheridan Engineering, Architectural and Other Design Services MACHINERY AND EQUIPMENT
COLT PRECISION TOOLS INC. Engage in Supply of Cutting Tools and Other Related Items 100% - Filipino Laguna Technopark - SEZ
TEN SOON MACHINE TOOLS INC. Engage in distribution of machine tools 99.99% - Taiwanese Laguna Technopark - SEZ
MEDICAL AND HEALT SERVICE Engage in ambulatory healthcare, diagnostic, medical and MAAYO MEDICAL CLINIC CORPORATION 100% - Filipino Maayo Medical surgical services METAL INDUSTRIES Manufacturing, assembly sale, distribution Passenger Service First Philippine Industrial B/E AEROSPACE B.V. - PHIL. BRANCH Units, Oxygen Systems and marketing of seating spare parts 100% - British Park - SEZ and other aircraft interior components
Philippine ANALYST BUSINESS September 2018 74 BUSINESS
BIT MANUFACTURING, INC. Manufacture of parts, tools, tooling and cutting tools 100% - Filipino Laguna Technopark - SEZ First Cavite Industrial Estate BJ PRECISION INDUSTRY INC. Manufacture of brass and copper electrode tube for EDM 100% - South Korean - SEZ Mactan Economic Zone CEBU SHINSEI CORPORATION Coil Winding project 100% - Japanese II - SEZ
5 0 % - B r i t i s h V i r g i n I s l a n d e r 32% - Filipino Printed Circuit Board Assembly, Machine Shop for fabrication INTEGRATED MICRO-ELECTRONICS, INC. 1 1 % - B e l g i a n Laguna Technopark - SEZ and modification of machine parts 4 % - J a p a n e s e 4% - Mixed
KARUMONA NAGANO SEIKO, INC. Manufacture of Aluminum Die Cast Parts 99.99% - Japanese Daiichi Industrial Park - SEZ First Philippine Industrial POLARIS MOLD FABRICATION CORPORATION Fabricated metal products 100% - Taiwanese Park II - SEZ Calamba Premiere YOUNG SHIN TRONICS INC. Manufacture of press/stamping metal parts and assembly 100% - South Korean International Park - SEZ MISCELLANEOUS MANUFACTURES Manufacture of printer, projector and optional/incidental EPSON PRECISION (PHILIPPINES), INC. 100% - Japanese Lima Technology Center - SEZ devices Manufacture of test hardware and systems for semiconductor JOHNSTECH INTERNATIONAL PHILIPPINES devices, and semiconductor test sockets and semiconductor 99.99% - American Laguna Technopark - SEZ CORPORATION wafer probe arrays TERUMO (PHILIPPINES) CORPORATION Manufacture of syringe molded parts 100% - Japanese Laguna Technopark - SEZ Assembly of Self-Monitoring Blood Glucose (SMBG Kit) - First Philippine Industrial ARKRAY INDUSTRY, INC. Glucocard 01 Sensor Test Strip, Automatic Osmometer, and 99.99% - Japanese Park - SEZ PocketChem Blood and Urine Analyzers OFFSHORING AND OUTSOURCING
ACCENTURE, INC. Software development services 99.99% - Dutch Filinvest Cebu Cyberzone
ACCENTURE, INC. Software development services 99.99% - Dutch Robinsons CyberPark
ACCENTURE, INC. Software development services 99.99% - Dutch Uptown Bonifacio
ACCENTURE, INC. Software development services 99.99% - Dutch Filinvest Cebu Cyberzone
ALTAIR GLOBAL SOLUTIONS CO. Business process outsourcing (BPO) services 100% - American JELP Business Solution Center
6 0 % - A u s t r a l i a n AMAYSIM PHILIPPINES INC. Call center operations E-Square I.T. Park 40% - Filipino
Back office support and business process outsourcing (BPO) AMBR BUSINESS PROCESS OUTSOURCING INC. 99.99% - British One Global Place services ASPIRE OUTSOURCING SERVICES PHILIPPINES, Back office support services 99.97% - British One Global Place INC. CHANNEL INFO TECH SUPPORT AND CALL Business process outsourcing (BPO) services 100% - Filipino CBP-IT Park CENTER DEVELOPMENT INC. COGNIZANT TECHNOLOGY SOLUTIONS Business process outsourcing (BPO) services 99.98% - American Uptown Bonifacio PHILIPPINES, INC. CWT PHILIPPINES, INC. Call center operations 99.99% - Dutch V-Corporate Centre Engage in Site Hosting for Encore Receivable Management, Inc. CONVERGYS PHILIPPINES INC. 100% - Australian SM Megamall I.T. Center (ERMI) EPERFORMAX CONTACT CENTERS (CEBU) Call center operations 99.99% - Filipino JY Square I.T. Center CORP. DELOITTE SHARED SERVICE CENTER INC. Business process outsourcing (BPO) services 100% - Filipino E-Square I.T. Park
ENCORE RECEIVABLE MANAGEMENT, INC. Call center operations 100% - American SM Megamall I.T. Center ePERFORMAX CONTACT CENTERS (ROXAS) Information Technology Services (BPO and call center 99.99% - American Pueblo de Panay Technopark CORP. operations) FACTSET PHILIPPINES, INC. Business process outsourcing (BPO) services 99.99% - American Uptown Bonifacio
FLASHBAY ELECTRONICS PHILIPPINES INC. Business process outsourcing (BPO) services 99.99% - Hong Kong E-Square I.T. Park
GLOBAL PAYMENTS PROCESS CENTRE INC. Business process outsourcing (BPO) services 99.99% - Singaporean RBC Sheridan Business process outsourcing (BPO) services and call center HINDUJA GLOBAL SOLUTIONS LIMITED 100% - Indian Southkey Building operations Business process outsourcing (BPO) services and call center HINDUJA GLOBAL SOLUTIONS LIMITED 100% - Indian Iloilo Technohub operations ING BUSINESS SHARED SERVICES B.V. BRANCH Business process outsourcing (BPO) services 99.99% - Dutch E-Square I.T. Park OFFICE Business process outsourcing (BPO) services and call center JONES LANG LASALLE SSC (PHILIPPINES), INC. 99.99% - Filipino Cyber Sigma operations Business process outsourcing (BPO) services and call center KINECT INC. 99.7% - Australian Panorama TechnoCenter operations MIRANDAH ASIA INTERNATIONAL INC. - Business process outsourcing (BPO) services 100% - Malaysian The Finance Centre PHILIPPINE BRANCH
Philippine ANALYST BUSINESS September 2018 75 BUSINESS
MULTINATIONAL CURRENCIES BUSINESS Business process outsourcing (BPO) services 100% - Filipino E-Square I.T. Park PROCESS OUTSOURCING, INC. 6 0 % - F i l i p i n o RJ GLOBUS SOLUTIONS INC. Call center operations The Rockwell Business Center 40% - Indian
RMS COLLECT PHILS. INC. Call center operations 99.99% - American SMDM IT Center
SEIM AND PARTNER FIBER NETWORK INC. Software development services 99.94% - German SM iCITY 2
SERVTECH GLOBAL PH INC. BPO - Back office administrative services 99.99% - Australian CBP-IT Park SUTHERLAND GLOBAL SERVICES PHILIPPINES, BPO - Back office administrative services 100% - Caymanian Clark - SEZ INC. TELEDIRECT TELECOMMERCE (PHILIPPINES) Information technology (IT) and business process outsourcing 99.99% - Singaporean RBC Sheridan INC. (BPO)services TELEPHILIPPINES INCORPORATED Call center operations 99.99% - Dutch Vertis North IT Park
36% - Filipino Business process outsourcing (BPO) services and call center VEKKTA CORPORATION 3 2 % - A m e r i c a n McKinley Hill Cyberpark operations 32% - Belgian
VXI GLOBAL HOLDINGS B.V. (PHILIPPINES) Call center operations 100% - Dutch SM City Clark IT Park
WEST TECHNOLOGY AND COMMUNICATIONS Information technology (IT) and business process outsourcing 99.99% - Dutch Philamlife I.T. Tower SERVICES, INC. (BPO)services
WNS GLOBAL SERVICES PHILIPPINES, INC. Call center operations 99.99% - Dutch Bridgetowne
OTHER BUSINESS SERVICES
Engage in repair, service and maintenance of Fanuc FANUC PHILIPPINES CORPORATION 99.99% - Japanese Laguna Technopark - SEZ machineries and equipment including supply of spare parts
CIMPRESS PHILIPPINES INCORPORATED Multi-Media Graphics, Animation, Printing and Other Services 99.99% - Dutch Cyber Sigma
PAPER AND PAPER PRODUCTS
6 0 % - F i l i p i n o REPSOLUTIONS PHILIPPINES INC. Manufacture of various types and parts of packaging materials Laguna Technopark - SEZ 40% - Singaporean
REAL ESTATE AND PROPERTY DEVELOPMENT Cavite Technopark-Special CAVITECH LOGISTICS INC. Establish, operate, and maintain a factory/warehouse building 100% - Filipino Economic Zone CENTEREACH RESOURCES, INC. Additional 8 warehouse buildings 100% - Filipino Lima Technology Center - SEZ
EMS LAND SERVICES INC. Additional 4 warehouse buildings 100% - Filipino Laguna Technopark - SEZ
EMS LAND SERVICES INC. Registration of its additional facility 100% - Filipino Mactan Economic Zone Management and operation of a 15-storey IT building - ENRISON HOLDINGS INC. 100% - Filipino Cebu I.T. Park Mabuhay Tower EVERPRIME DEVELOPMENT CORP. Operation and maintain 1-unit warehouse building 100% - Filipino Suntrust Ecotown Tanza Carmelray Industrial Park GEMPHIL TECHNOLOGIES, INC. Registration of its additional facility 100% - Filipino II - SEZ Cavite Technopark-Special GRAND SEQUOIA ESTATE DEVELOPMENT INC. Operation and maintain a factory/warehouse building 100% - Filipino Economic Zone JAVELIN FACILITIES AND REAL ESTATE Operation and maintain a factory/warehouse building 100% - Filipino Lima Technology Center - SEZ CORPORATION Construction and maintain its proposed 8-storey office building METROCOCO EXPORT CORP. 100% - Filipino Lakeside Evozone - Metrococo IT Center 2 Cavite Technopark-Special ORIENT GOLDCREST REALTY INC. Construction and managing its 2 units warehouse buildings 100% - Filipino Economic Zone Mactan Economic Zone PAUL YU PHILIPPINES CORPORATION Operate and maintain its 3 existing buildings 100% - Taiwanese II - SEZ Operate and maintain its existing one-unit standard factory 80% - Taiwanese PROBAG CEBU EXPORTS, INC. Mactan Economic Zone building 20% - Filipino Leasing out a 9,777 sq. m. building area in its facility to THN Calamba Premiere SHIN HEUNG ELECTRO-DIGITAL, INC. 100% - South Korean Autoparts Philippines Inc. International Park - SEZ RUBBER AND PLASTIC PRODUCTS
9 9 % - J a p a n e s e CEBU KADOYA CORPORATION Manufacture of plastic and metal parts Mactan Economic Zone 1% - Filipino
FANDER TECHNOLOGY PHILIPPINES 6 0 % - F i l i p i n o First Cavite Industrial Estate Manufacture and fabrication of plastic mold and press die CORPORATION 40% - Chinese - SEZ
MINATECHNOLOGY PHILIPPINES, Manufacture and assembly of various injection molded plastic 99.99% - Japanese Laguna Technopark - SEZ CORPORATION parts
Philippine ANALYST BUSINESS September 2018 76 BUSINESS
Manufacture of various types of packaging materials, parts, Greenfield Automotive Park MIRAI PHILIPPINES CORP. 99.98% - Japanese and accessories - SEZ Manufacture of EPE Foam Bags, PE Bags/Die Cut Adhesives, PE 67% - Chinese RISO PACKAGING TECHNOLOGY CORP. Stretch film/Anti-static Shielding Bag/Bubble Bag, Tape, and 29% - Japanese Lima Technology Center - SEZ Stickers 4% - Filipino
STORAGE AND WAREHOUSING
CRESTEC PHILIPPINES, INC. Warehousing and logistics support services 99.99% - Japanese Lima Technology Center - SEZ
CRESTEC PHILIPPINES, INC. Warehousing and logistics support services 99.99% - Japanese Laguna Technopark - SEZ Light Industry & Science Park CRESTEC PHILIPPINES, INC. Warehousing and logistics support services 99.99% - Japanese III - SEZ EVERBRILLIANT MANUFACTURING COMPANY 99.99% - British Virgin Light Industry & Science Park Warehousing and logistics support services INC. Islander I - SEZ People's Technology Complex G-12 PRIME SOURCE, INC. Warehousing services 100% - Filipino - SEZ Light Industry & Science Park HONDA LOGISTICS PHILIPPINE, INC. Warehousing and logistics support services 100% - Japanese III - SEZ Calamba Premiere MAY.EXPORTS PHIL. INC. Engage in procurement from of goods and commodities 99.99% - Indian International Park - SEZ 6 0 % - F i l i p i n o Filinvest Technology Park OMON GROUP INC. Warehousing and logistics operations 20% - Chinese Calamba - SEZ 20% - French
SOUTHCOAST METAL ENTERPRISE, INC. Warehousing and logistics support services 99.99% - Japanese Cavite Economic Zone
TOYOTA TSUSHO PHILIPPINES CORPORATION Establishment of a new warehouse facility 99.99% - Japanese Lima Technology Center - SEZ
Philippine ANALYST BUSINESS September 2018 77 BUSINESS
BUSINESS CLIMATE INDEX FOREIGN DIRECT INVESTMENT Balance of Payments Concept*; JANUARY to JUNE 2018 YEAR-AGO YEAR-ON-YEAR LEVEL (US$ million) CURRENT LEVEL (% CHANGE)
TOTAL FDI 5,755.3 4,041.2 42.4
Equity Capital 1,584.6 201.0 688.3
Reinvested Earnings 419.8 416.4 0.8
Debt instruments 3,750.9 3,423.8 9.6
* 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- ON-YEAR (2000=100) JULY 2018 (INDEX) DATE GROWTH Volume of Production Index (VoPI) 148.0 11.8 8.7 MOTOR VEHICLE SALES 2018 JULY 2018 a. Food 138.2 3.7 15.7 YEAR-AGO GROWTH CURRENT b. Beverage 158.9 21.9 12.3 LEVEL RATE (%) c. Tobacco 3.7 -64.6 -38.4 MOTOR VEHICLE SALES 28,060 36,951 (24.1) d. Textile 37.3 33.5 31.9 PASSENGER CAR SALES 6,975 12,701 (45.1) e. Footwear and Wearing Apparel 19.7 -17.9 -9.7 COMMERCIAL VEHICLE SALES 21,063 24,250 (13.1) f. Wood and Wood Products 54.4 -9.3 -2.2
g. Furniture & Fixtures 939.5 -4.6 -2.0 UNIVERSAL AND COMMERCIAL BANK'S -JUNE 2018 h. Basic Metals 250.5 19.1 3.1 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn)
i. Iron and Steel 202.7 21.3 8.2 % to Total RE % to Total Jun-18 Jun-17 j. Non-ferrous Metals 343.1 14.9 -8.7 loan RE loan
k. Fabricated Metal Products 618.3 39.7 -2.9 Residential 404.33 26.5 338.21 24.7 l. Machinery Excluding Electrical 69.6 12.1 11.6 Commercial 1122.61 73.5 1031.94 75.3 m. Electrical Machinery 119.1 3.3 10.4 n. Transport Equipment 189.7 2.7 -2.9 o. Other Mfg Industries 111.3 19.9 3.9 p. Paper & Paper Products 91.2 8.6 12.0 q. Publishing & Printing 56.2 -68.9 -71.6 r. Leather Products 1.0 8.3 4.1 s. Rubber Products 297.2 9.5 3.4 t. Chemical Products 146.3 2.4 -3.6 u. Petroleum Products 63.9 38.3 19.0 v. Non-Metallic Mineral Products 162.1 -0.4 2.2 w. Glass & Glass Products 158.8 14.3 -2.8 x. Cement 229.9 -3.7 5.7 y. Misc. Non-Metalic Mineral 42.5 -7.2 -21.9 Products VALUE OF PRODUCTION INDEX (VAPI) 196.9 12.2 9.4 (2000=100) AVERAGE CAPACITY UTILIZATION 84.2 83.2 84.2
Philippine ANALYST BUSINESS September 2018 78 BUSINESS BUSINESS CLIMATE INDEX STRIKES IN AUGUST 2018 LABOR STRIKES (AUGUST 2018) Four work stoppages were recorded in August. Meanwhile, there were a total of STRIKES DECLARED WORKERS INVOLVED MAN-DAYS LOST (000) 178 notices of strike/lockouts handled during the period. 2018 2017 2018 2017 2018 2017 JAN 1 - 270 - 540 120,348 FEB 1 1 240 214 8,880 14,488 MAR - 1 - 138 1,350 16,668 APR 1 3 - 430 - 16,276 MAY - 1 133 263 2,527 18,040 JUN 1 - 1,400 - 33,992 15,738 JUL 1 1 231 294 36,785 13,346 AUG 4 2 - 140 5,316 9,278 SEP - - - - - 10,894 OCT - - - - - 4,408 NOV ------DEC ------TOTAL 9 9 2,274 1,479 89,390 239,484
VISITOR ARRIVALS IN JULY 2018 Total visitor arrivals registered in July is 601,322, up by 5.86% from 568,035 in the same month in 2017. Of this, 1.16% or 6,966 visitors were Filipinos residing abroad. Korea remained the top source of market followed by China and the U.S. Visi- tors coming from Korea amounted to 121,544 (20.21% share of the total visitors in July). The Chinese market tallied 119,005 visitors (19.79%) while the U.S. market recorded 91,663 visitors (15.24%).
VISITOR ARRIVALS: JANUARY-JULY 2018 SURVEY ON MONTHLY OCCUPANCY RATE & LENGTH OF STAY % COUNTRY 2018 2017 RANK JAN TO DEC JAN TO DEC GROWTH RATE CHANGE 2016 2015 2016/2015 KOREA 937,227 927,220 1.08 1 De Luxe Hotels CHINA 764,094 545,725 40.01 2 Occupancy Rates 68.32 71.60 -4.58 USA 649,496 599,460 8.35 3 Length of Stay 2.42 2.71 -10.70 JAPAN 366,649 341,457 7.38 4 First Class Hotels AUSTRALIA 161,077 150,977 6.69 5 Occupancy Rates 58.57 59.09 -0.88 CANADA 138,467 123,402 12.21 6 Length of Stay 2.44 2.19 11.42 TAIWAN 142,593 147,468 -3.31 7 Standard Hotels UNITED KINGDOM 121,289 110,903 9.36 8 Occupancy Rates 64.74 62.51 3.57 SINGAPORE 104,880 97,742 7.30 9 Length of Stay 2.63 2.42 8.68 MALAYSIA 84,698 82,843 2.24 10 Economy Hotels HONGKONG 79,488 65,463 21.42 11 Occupancy Rates 57.60 60.14 -4.22 INDIA 74,039 64,300 15.15 12 Length of Stay 1.64 1.57 4.46 OVERSEAS FILIPINO 46,569 92,594 -49.71 Overall Average 66.08 66.95 -1.30 OTHERS 637,477 576,072 10.66 TOTAL 4,310,061 3,927,643 9.74
Philippine ANALYST BUSINESS September 2018 79 CORPORATECORPORATE BRIEFS BRIEFS
AGRICULTURE, FISHERY, AND FORESTRY
AgriNurture signs $1 Bn rice import deal with Vinafood AgriNurture, Inc. has signed a $1 billion exclusive deal with Vietnam Southern Food Corp. (Vinafood II) to import 2 million metric tons (MT) of rice to the Philippines starting 2018. The firm said that the terms and conditions of the supply agreement are yet to be finalized in line with the applicable Philippine laws, including the proposed rice tariffication bill. The deal was granted an original proponent status last August. Under the agreement, ANI will finance the procurement of rice, while the NFA will identify the specifications and exact volume. Both parties would determine the origin, suppliers, delivery and arrival periods, pacing and loading, and discharging ports of the imported rice.
Pilmico expands flour, feed mill capacities Pilmico Foods Corp. is expanding the production capacity of its flour and feed mill plants to address the increasing demand in the market. In terms of feed milling, the expansion will increase its milling capacity to 140,000 tons per hour by the end of 2019 from the current 80,000 tons per hour. On the other hand, a cheaper pricing scheme employed by the new millers has been capturing a new growth segment.
ALTERNATIVE FUELS
First Gen, SMEC in talks on $1 Bn LNG project First Gen Corporation and San Miguel Energy Corporation (SMEC) are having preliminary discussions on the $1 billion onshore liquefied natural gas (LNG) import facility to be built in Batangas. The proposed LNG terminal will have a targeted capacity of 5 million tons per year to 5,000 megawatts. First Gen Chairman and CEO Federico Lopez said that San Miguel could be a partner in the venture or an off-taker of gas from the import facility. He added that the major considerations in the project blueprint are gas volume purchase and the number of megawatts to be supported at different points in time.
AUTOMOTIVE TRADE
Hyundai sales down in August Hyundai Asia Resources Inc. (HARI) posted an 8.7% decline in sales to 3,273 units in August 2018 from 2,987 units sold in the same month last year. The company said that the decline was due to the increasing global oil prices and higher retail prices. Passenger car sales also decreased by 31.8% to 1,448 units from 2,122 units sold in August 2017. Meanwhile, light commercial vehicles sold in August climbed 33.7% to 1,539 units from the 1,151 units sold year-on-year. For January to August 2018 period, Hyundai’s sales slid 8.3% to 22,223 units from the 24,233 units sold in the same period in 2017.
Suzuki to open 3 showrooms in Mindanao cities Suzuki Philippines Inc. is expanding its marketing and distribution network in Mindanao as it eyes showrooms in the cities of Tagum, Surigao and Dipolog. Suzuki Philippines vice president Shuzo Hoshikura said that the company anticipates growth despite the industry slowdown this year with the robust sales in Mindanao in the last 5 years.
CONSTRUCTION
CEMEX to launch its digital platform CEMEX Holdings Philippines would be launching CEMEX Go, an innovative digital platform designed to add value to customers’ businesses through improving their operating efficiency and competitiveness. The new platform will allow customers to transact and interact with the company anytime, anywhere using mobile devices. CEMEX added that the shift from manual to digital processes would lift the administrative burden as well as allow its customers to focus on other business matter.
Philippine ANALYST September 2018 80 CORPORATE BRIEFS
ELECTRICITY, WATER AND GAS
AboitizPower to acquire $579 Mn stake in Ayala thermal assets AboitizPower Corp. has entered into a share purchase agreement with AC Energy affiliate Arlington Mariveles Netherlands Hold- ing BV and a shareholders’ agreement with Ayala Corp.’s energy investment arm for $579.2 million. This will give the company a 49% voting stake and 60% economic stake in AA Thermal, Inc. Once completed, AC Energy will increase AboitizPower’s ownership in the Mariveles coal plant to 78.33%, and in the Dinginin coal plant project to 70%. The Mariveles plant has a capacity of 316 megawatts (MW). Meanwhile, the GNPower-Dinginin is developing a supercritical coal-fired power plant with 2 identical units with a net capacity of 668 MW each.
GBP forges retail power supply contract with Robinsons Land Global Business Power Corp. (GBP)’s retail electricity unit, Global Energy Supply Corporation, has signed a power supply agree- ment with Robinsons Land Corp. (RLC) under the Energy Regulatory Commission’s (ERC) retail competition and open access (RCOA) scheme. The agreement renews GBP and RLC’s retail supply contract and expands the supply agreement to 26 megawatts (MW) from 22 MW. It covers Robinsons malls and Universal Robina Corp. factories located in Bacolod, Tacloban, Roxas, Iloilo and Cebu.
Solar Philippines’ 4,550-MW projects set for grid impact study Six projects under Solar Philippines Commercial Rooftop Projects Inc. were among the 12 power development projects cleared by the Department of Energy (DOE) last August 2018. This will allow the company to begin their impact study on the country’s power transmission grid. Among the 6 projects, 3 have a capacity of 1,200 megawatts (MW). 2 of the 1,200-MW projects are being planned to be built in Iba, Zambales while the 3rd project will be in Sta. Rosa, Nueva Ecija. Solar Philippines also plans to build a 600-MW solar farm in Balayan, Batangas; 200 MW in the Maragondon, Naic, Tanza towns of Cavite; and 150 MW in Tarlac City.
FINANCIAL INTERMEDIATION
AXA income up in 1H2018 AXA Philippines’ net income grew by 35% to P1.3 billion in the 1st half of 2018 on the back of new business and renewals. The firm’s annualized premium equivalent (APE) also increased by 27% to P3.8 billion, up from P3 billion from the same period last year. This was due to the growth in all sales channels, which brought higher average active distributor count compared to the same period last year. This led to 24% growth in average case count. AXA’s total premium income also improved by 141%. Regular premium income grew 25%, while single premium income rose 58%.
FOOD AND BEVERAGE MANUFACTURERS
San Miguel units complete share-swap deal San Miguel Food and Beverage, Inc. (SMFB) completed the P336.35 billion share-swap transaction to consolidate the traditional units of its parent firm San Miguel Corp. (SMC) under its portfolio. The transaction made SMFB the holding company for SMC’s food and beverage liquor, and brewery business. The deal was part of the San Miguel group’s internal restructuring to create a “signifi- cant consumer food and beverage vertical market under SMC,” enhance its trading liquidity, and broaden its shareholder base.
HOTEL, RESTAURANT AND LEISURE SERVICES
Jollibee to introduce Panda Express in PH Jollibee Foods Corp. (JFC) is forming a 50-50 joint venture (JV) company with Chinese-American restaurant operator Panda Restaurant Group, Inc. (Panda) for the introduction of Panda Express restaurants in the country. The venture will have an ini- tial authorized capital stock of $5 million. In line with this, the profits will be shared equally between the 2 firms. The JV firm will also have its own management with JFC providing support. In the initial phase, the partnership target to establish 5 Panda Express restaurants in Metro Manila.
Philippine ANALYST September 2018 CORPORATE BRIEFS 81
Dunkin’ unveils beverage rebranding Dunkin’ Donuts has unveiled a new branding, dropping “Donuts” from its name, starting January 2019. The move was part of its rebranding phase as the company plans to be known more as a “beverage-led” company. The firm has recognized that sales from beverages like coffee and tea contributed a significant part of its total sales.
Fruitas opens new stores in provinces, adds food brands Fruitas Holdings, Inc. (FHI) has opened 70 stores within Visayas and Mindanao, which brings its total score scout to 849 nation- wide. Its new markets include in Cebu, Dagupan, Leyte, Iloilo and Cagayan de Oro. The firm also introduced new food brands such as Cascades Lifestyle Park, UVA, Chikenini, and LA Steak.
METAL INDUSTRIES
SteelAsia output hits 1 Mn MT in 1H SteelAsia Manufacturing Corp. posted an 11% increase in its steel bars production to 1.02 million metric tons (MT) in 1H2018 from 925,503 MT recorded in the same period in 2017. SteelAsia attributed the strong demand from public and private sectors to the current infrastructure boom. The company stated that the highest production volume came from its steel mill in Meycauayan, Bulacan with 271,329 MT. This was followed by Davao Works producing 257,032 MT and Calaca Works in Batangas producing 255,147 MT. SteelAsia added that it is preparing for 2 more plants this year in Concepcion, Tarlac with a capacity of 1.2 million tons and in Lemery, Batangas with a capacity of 500,000 tons.
PETROLEUM PRODUCTS
Phoenix Petroleum adds P508 Mn into 3 subsidiaries Phoenix Petroleum Philippines Inc. is adding P507.93 million in capital into its 3 subsidiaries to address capital deficiencies and expand operations. Of the total amount, P55.8 million would go to Subic Petroleum Trading and Transport Inc., P429.63 million to Phoenix Global Mercantile Inc., and P22.5 million to PFL Petroleum Management Inc. Phoenix Petroleum also plans to build depot and terminal facilities in strategic locations through its investments in its subsidiaries.
Petron gets tax perks for P80 Bn new plant Petron Corporation’s P80 billion investments for a new condensing processing project was granted non-pioneer incentives under the Downstream Oil Deregulation Act by the Board of Investments (BOI). The investment would raise the company’s production capacity by 55%. As a non-pioneer project, Petron is entitled to a 5-year income tax holiday and duty-free importation of its capital equipment.
REAL ESTATE AND PROPERTY DEVELOPMENT
Century Properties enters $1 Bn deal Century Properties Inc. (CPI) is entering into a joint venture agreement with international conglomerate Globe Invest Ltd. worth $1 billion. The partnership includes advanced energy optimization management, advanced agriculture and urban farming, pre- fabricated housing, water desalination, and other master-planned real estate development projects.
Revolution Precrafted expands in Zimbabwe Revolution Precrafted Properties, Ltd. has signed a non-exclusive dealership agreement with investment firm African Tsaleach Private Ltd that will start producing prefabricated medical pop-up structures in Zimbabwe. The company said African Tsaleach had requested for an initial order of 6 industrial-type medical office facilities measuring at least 1,000 square meter each. The units will be converted to clinics and consultation centers to be stationed in Bulawayo, Zimbabwe. The expansion is the company’s 1st African market and its 25th new market globally.
RETAIL TRADE
RRHI hikes stake in Ministop PH as Mitsubishi Corp. exits venture Robinson’s Inc., a wholly-owned unit of Robinsons Retail Holdings, Inc. (RRHI), will purchase 161.05 million shares of Mitsubishi Corp. in Robinsons Convenience Stores Inc. (RCSI), as Mitsubishi Corp. exits the venture. The transaction is equivalent to an 8% stake in the exclusive master franchisee of Ministop in the country, which will raise RRHI’s effective ownership in RCSI to 59.1% from 51%.
Philippine ANALYST September 2018 82 CORPORATE BRIEFS
TELECOMMUNICATIONS
PLDT expands deal with Amdocs PLDT Inc. has signed a new 6-year service agreement with U.S.-based Amdocs to manage and automate the telecommunications giant’s information technology (IT) operations. The new agreement is in addition to the 7-year Master Transformation Agreement signed by the 2 companies earlier this year. Under the new deal, Amdocs will introduce artificial intelligence, machine learning, analytics, and robotics into PLDT’s operations.
TRANSPORT SERVICES
PAL bags 4-star rating from U.S.-based APEX Philippine Airlines (PAL) has been awarded a 4-star rating by U.S.-based aviation group Airline Passenger Experience Association (APEX) for its inflight service, seats and cabin products. The company said the 4-Star Major Regional Airline 2019 title was given to the company based on passenger feedback on 5 components: seat comfort, cabin service, food and beverage, entertainment and Wi-Fi connectivity. Meanwhile, APEX CEO Joe Leader said that the award will spur the airline to step up its service enhance- ment program as PAL introduces new aircraft, routes and product innovations.
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PH to ramp up investments in rail, aviation and maritime transport
The Department of Budget and Management (DBM) said 2019 marks the start of the government’s heavy investments in improving mass urban, aviation and maritime transport infrastructure. This is seen to improve seamless transport within the country which will help enhance economic activities in emerging growth centers.
ut of all the key departments, the DBM said the Department of Transportation (DOTr) will have the biggest increase in the 2019 national budget., The ODOTr’s budget will receive an increase of 89.3% to P76.1 billion, P35.9 billion more than the 2018 allocation of P40.2 billion. This will cover the payments for right-of-way access and resettlement, to avoid delays and complications in the implementation of infrastructure projects which will improve the availability and access to rail, air, and sea transport. Overall, the total budget for the Build, build, build program is P909.7 billion, equivalent to 4.7% of the GDP and 24.2% of the total 2019 budget.
The DOTr proposes to extend the Philippines’ railway footprint to up to 2,000 kilometers (km) from the current 77 km. For 2019, the government gave the biggest allocation for rail transport projects with P24.59 billion. (see figure on the List of Rail Transport Projects for 2019). loans from the Japan International Cooperation Agency (JICA). Currently, the DOTr is moving forward with the selection of a The first batch of railway projects for 2019 is seen to Japanese contractor who will begin the PNR North 1 railway enhance economic activities in the emerging growth centers by the end of 2018. in the North-South direction. Two of the projects will be part of the North-South Railway Project that will cover 110 km of Another project is the PNR South Commuter line Phase 2. commuter lines stretching from Malolos, Bulacan to Tutuban, This is a 72-km commuter line which will run from Solis to Los Manila in the North, and Solis Tondo, Manila to Los Baños, Baños that will cut travel time between Manila and Calamba Laguna in the South. to 1 hour from the current 2 hours a day. According to the DOTr, both Asian Development Bank (ADB) and JICA are The PNR North 1 Project is a 38-km commuter railway considering co-financing the South Commuter line project. that will cut travel time from Bulacan to Manila to around 35 minutes. This will be extended to the Clark Airport and New Both projects will be seamlessly integrated to serve as Clark City via the PNR North 2 and will reduce overall travel a feeder line to the upcoming Metro Manila Subway. It is time from Manila to Clark to less than an hour. The entire also complemented by similar projects made by the private project will cost up to P300 billion which is funded mainly by sector such as the Makati-BGC Skytrain and the Makati
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LIST OF RAIL TRANSPORT PROJECTS FOR 2019
Source: 2019 People’s Proposed Budget, DBM
The government allotted a budget of P24.59 billion to railway projects for 2019 as part of their proposed 2,000-km increase on the country’s railway footprint. This will provide seamless transport between urban, residential and industrial hubs.
intra-city subway. As of September 2018, the Makati-BGC investments and tourism in the country. These projects Skytrain is currently being reviewed by National Economic will also connect the country with emerging countries and Development Authority (NEDA) while the Makati intra- and fast-growing cities to help drive economic growth city subway by IRC Properties is waiting for the formal (see figure on the List of Air Transport Projects for 2019). awarding of the project from the local government of Makati. One of the key projects include the New Bohol (Panglao) Meanwhile, the government is also investing heavily International Airport Development which costs P754 in the country’s aviation transport infrastructure, with million. Dubbed as the “Green Gateway to the World,” this P2.16 billion budget. The DBM said that the budget for is the country’s first eco-airport which is up to par with the air transport will facilitate exports, foreign direct international standards in green and sustainable structure.
LIST OF AIR TRANSPORT PROJECTS FOR 2019
Source: 2019 People’s Proposed Budget, DBM
The aviation transport infrastructure projects in provincial areas will help spur economic development at a more equitable pace. It will also connect the Philippines with emerging countries and fast-growing cities to help drive economic growth.
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LIST OF AIR TRANSPORT PROJECTS FOR 2019
Source: 2019 People’s Proposed Budget, DBM The overarching strategy for improving the country’s commuter and freight transport is to develop an intermodal transport network. This will ensure connectivity between industrial areas, major cities and rural areas.
According to the DOTr, the airport is already 92.14% ADB approves loans and new CPS with PH complete as of July 2018. It is targeted for completion by October 2018. The airport will have a total area of 13,884 The Asian Development Bank (ADB)’s newly approved square meters, 3 boarding bridges, a baggage handling system, loans and country partnership strategy (CPS) seeks and an apron that can accommodate 7 aircraft at a time. to improve the Philippines’ infrastructure, spur local economic development and invest in its human capital. The government will then further expand the capacity of the This will allow the government to leverage resources Panglao airport in 2019, according to the Department of Finance. to achieve their transformative social and economic This is in anticipation of the congestion that may arise from tourism agenda. traffic in the area. Additionally, talks are underway with JICA for a supplemental loan to support the airport’s expansion. Once The Asian Development Bank (ADB) has approved finished, the airport is seen to replace the old Tagbilaran airport and activated a total of $484.3 million in loans and and will be upgraded to handle regional flights within the Asia grants for the Philippines last August 2018. The Pacific. It will accommodate about 2 million passengers annually, amount covered 4 specific projects in support of the compared to the 800,000 passenger capacity of Tagbilaran Airport. country’s efforts in infrastructure development such as the Expanding Private Participation in Infrastructure The government also included maritime transport infrastructure Subprogram 2; Railway Project Implementation Support for 2019, allotting P2.5 billion for these projects (see figure on and Institutional Strengthening; the Philippine National the List of Maritime Transport Projects for 2019). One of the Oil and Co. (PNOC) Batangas Liquefied Natural Gas projects in this sector is the New Cebu International Container Project; and the Flood Risk Management Sector Project. Port Project worth P221 million which will address the existing port congestion in Cebu. The NEDA said that the project The Expanding Private Participation in Infrastructure, has an estimated economic internal rate of return of 20.1%. Subprogram 2 was allotted $479 million. Of the total allocation, $300 million will be financed through the The overarching strategy for improving the country’s ADB’s Ordinary Capital Resources while the $179-million commuter and freight transport is to develop an intermodal loan will be coming from the French Development transport network. This was done through operating projects Agency. The executing agency for this program is the in rail, aviation, and maritime transport as an integrated and Department of Finance (DOF) while the ADB’s role is coordinated network. According to NEDA, this will promote sub- to provide technical assistance (TA). The program is regional cooperation which will ensure connectivity between expected to be completed in October 2019, but the industrial areas, major cities, and rural areas. For years, inclusion of a post-program partnership framework will institutions like the ADB and the World Bank have criticized the allow the government to use TA resources until 2022. Philippines for lacking a cohesive transport strategy. In a report, JICA noted that this has led to significant congestion-driven According to the ADB, this program is focused economic losses which amounts to P3.5 billion daily. The current on consolidating Public-Private Partnerships (PPP) efforts in rail, aviation, and maritime infrastructure projects reforms to stimulate and facilitate the development of through the Build, build, build program show that the country the Philippines' PPP market. It will also ensure that these has a clear vision in steering development across the region. earlier reforms are successfully implemented. It is expected to improve overall private participation in infrastructure development and help reach the target public spending Philippine ANALYST INFRASTRUCTURE September 2018 86 INFRASTRUCTURE
The ADB approved a total of $483.3 million last August 2018 to help accelerate the government’s infrastructure program. Their biggest investment is on enhancing Public-Private Partnerships to help increase private sector participation in infrastructure development.
equivalent to 7.4% of the gross domestic product by 2022. facilities, a power plant, loading or unloading area for LNG carriers, and supporting infrastructure that will improve the The ADB also gave priority to the Railway Project operations of the Philippine National Oil Company (PNOC). Implementation Support & Institutional Strengthening The project will be the 1st LNG project in the Philippines. with $2 million from the ADB’s Japan Fund for Poverty The finished facility will address the energy supply risk in the Reduction. The agency in charge of its implementation is country as well as reduce the need for fuel imports such as the Department of Transportation (DOTr). Currently, the coal or liquid fuel. It will also help alleviate additional cost- program is active and is expected to end by August 2020. burden from expensive fuel and exchange rate volatility, promote jobs creation, and stimulate the local economy. The ADB said that the railway project will support the construction of the 51-kilometer (km) section of a new railway The ADB is also investing $1.3 million in the government’s connecting Metro Manila and the regional center in Clark Integrated Flood Risk Management Sector Project. and the Clark International Airport, located in the Central Bulk of the amount ($1 million) will be coming from the Luzon Region, around 100 km north of Manila. The new rail TA Special Fund while the remaining $300,000 will be will provide seamless transport from Metro Manila to Central coming from the Cooperation Fund for Project Preparation Luzon and will reduce greenhouse emissions. This supports in the Greater Mekong Subregion and in Other Specific the country’s National Spatial Strategy (NSS) under the Asian Countries. The project was approved last June Philippine Development Plan 2017-2022 which serves as the 2018 and became active last August 2018. It will end by basis for policies on urban and infrastructure development, June 2020. Presently, the ADB is recruiting consultancy including the government’s “Build, build, build” program. firms who can assist with the project by October 2018.
Another sector the ADB is investing in is the energy The project will help strengthen flood data acquisition sector. The Philippine National Oil Company (PNOC) and flood protection asset management as well as aid in Batangas Liquefied Natural Gas (LNG) Project was also rehabilitating and constructing flood protection infrastructure. It given $2 million from the ADB’s TA Special Fund. The will also raise community awareness and prepare disaster risk project is currently active and is targeted for completion by reduction and management plans to reduce flood risks in 6 river February 2021. Its implementation is being led by the ADB. basins across Luzon (Apayao-Abulog), Visayas (Jalaur), and Mindanao (Agus, Buayan-Malungon, and Tagum-Libuganon). The proposed project consists of a 5-million ton per annum LNG terminal that include storage units, re-gasification ADB’s investment in the energy sector supports the government’s medium-term objective of ensuring energy security and expanding energy access in the Philippines.
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For the Philippines to maintain its economic growth, the ADB will lend an estimated $7.8 billion from 2018-2021. Through this new partnership strategy, ADB will assist the Philippine government in significantly improving economic conditions that will help bring development across the country.
These projects are all part of the ADB’s new 6-year The project’s proponent, C5 Mass Transit Corp. Ltd., CPS with the Philippines which is centered on accelerating names George Uy as its local partner, while Sumitomo infrastructure investment, promoting local economic Corporation is the foreign partner. Geoge Uy is one of the development, and investing in human capital. Other projects original proponents of MRT-7 before San Miguel Corp. took also include the North-South Commuter Rail, Metro Manila over the project. The MRT-10 is a build-operate-transfer Bridges, Bataan-Cavite Long-Span Bridge, and EDSA (BOT) project which the government will amortize for 25 to Greenways projects. The ADB will lend an estimated $7.8 30 years, which the proponent will operate for the next 30 billion, or nearly $2 billion annually, from 2018 to 2021. It to 35 years. The government is expected to have a share in will actively pursue co-financing agreements with other the revenues of the MRT-10, which is seen as a financially development partners to help the Philippine government. viable project since it will run parallel to the Metro Manila Subway and located in areas with high number of passengers. The Philippines has been enjoying its longest economic expansion in decades. Despite this, growth has been Public Private Partnership (PPP) Center data indicate that downplayed by huge infrastructure gaps and poor connectivity the MRT-10 project involves the design, building, operation between regions, markets, and people. The government and maintenance of the approximately 22.5-kilometer mostly hopes that with these investments, the country will have more elevated Light Railway Transit (LRT) System consisting of 16 opportunities to open to a bigger market to help improve the stations. The railway will traverse the circumferential road C-5 lives of Filipinos. connecting the NAIA Terminal 3 to Quezon City, terminating at Commonwealth Avenue with possible interchange with MRT-7 at Tandang Sora Station and LRT-2 at Aurora Station. NEDA reviews infra projects Another unsolicited proposal being reviewed by the NEDA The National Economic and Development Authority (NEDA) is is the Skytrain in Bonifacio Global City and the East West Rail reviewing major unsolicited infrastructure projects, including connecting Quezon City and Manila. The P3.52-billion Fort the Metro Rail Transit (MRT) 10, the Skytrain and the East Bonifacio-Makati Skytrain Project involves the construction West Rail. of a 1.873-kilometer monorail system connecting Fort Bonifacio and Edsa Guadalupe. The project was proposed by As NEDA Undersecretary for Investment Programming Infracorp Development Inc., the company led by Andrew Tan. Rolando Tungpalan stated, the ongoing review of major infrastructure projects includes the proposed railway of The East West Rail is also being reviewed by NEDA. The C5 Mass Transit Corp. Ltd., MRT-10, that will connect project is 9.4-kilometer railway line from Diliman, Quezon Commonwealth Avenue to the Ninoy Aquino International City, to Lerma, Manila; and includes interconnecting facilities Airport (NAIA). The railway will run perpendicular to with neighboring rail systems. The line will start either in MRT-7 in Tandang Sora to Katipunan in Quezon City Philcoa or Quezon City Hall and traverse Quezon Avenue up to Food Terminal Inc. (FTI) in Taguig City toward the and España to reach Lerma, Manila. The project is proposed NAIA. It will be parallel to the Metro Manila Subway. by East-West Rail Corp. and AlloyMTD - a consortium of A Brown Co. Inc. and MTD Philippines, a subsidiary of infrastructure conglomerate AlloyMTD of Malaysia. Philippine ANALYST INFRASTRUCTURE September 2018 88 INFRASTRUCTURE
Three major unsolicited transportation project proposals are being reviewed by NEDA.
Foreign contractors keen on Zamboanga power hh Shandong Electric Power Construction Co.- a unit of Power plant Construction Corporation of China; and hh ThyssenKrupp Industries India Pvt. Ltd.- a unit of Germany’s Foreign firms signified their interest in building the Alsons thyssenkrupp AG based in Pune, India. Power Group’s San Ramon coal-fired power plant that will The San Ramon Power plant is scheduled to start supply 105MW to Zamboanga City to alleviate the power construction in the 1H 2019 with target operations by 2022. The shortage in the area. plant will supply power to Zamboanga City and neighboring The 105MW San Ramon power plant in Zamboanga areas. City has attracted the interest of 5 foreign construction and Alsons Power, Mindanao’s first independent power engineering companies which submitted bid proposals for the producer, presently operates 4 power plants in the engineering, procurement and construction (EPC) of the power Zamboanga peninsula with aggregate generating capacity plant by Alsons Power Group. These foreign companies are: of 363MW. These plants supply main cities such as Cagayan hh Dongfang Electric International Corp. - based in Chengdu de Oro, Davao, Iligan, General Santos and Zamboanga. China; Alsons Power is also embarking on renewable energy hh Jurong Engineering Ltd. - based in Singapore; projects such as run-of-river hydroelectric power projects in h h Northeast No. 1 Electric Power Construction Co., Ltd. Negros Occidental, Sarangani, Davao Oriental, Zamboanga (NEPC 1) - a wholly-owned subsidiary of China Energy del Norte, the two Agusan Provinces, and Surigao del Sur. Engineering Group;
Alsons Power is also embarking on renewable energy projects such as run-of-river hydroelectric power projects.
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Revised Bulacan airport contract under review The New Manila International Airport project in Bulacan was approved by NEDA in April. The project involves the The P735-billion New Manila International Airport project construction of a world-class international airport with 4 in the province of Bulacan is nearing realization following to 6 parallel runways, modern terminals, a seaport and an the submission of a revised concession contract by San industrial zone. SMC proposed to build this huge airport Miguel Corp. (SMC). The contract is now under review by complex on a 2,500-hectare property in Bulakan, Bulacan, the Department of Transportation (DOTr) after which it will be an area that is 27 kilometers from Ninoy Aquino International submitted to the NEDA Investment Coordination Committee Airport, or 45 minutes from any point in Metro Manila via (NEDA-ICC) for final approval. multiple expressways. With project cost of $5 billion or P735 billion, the project will be constructed in 5 to 7 years. San Miguel Holdings Corp., the infrastructure arm of SMC, submitted to the DOTr the revised contract for the P735- SMC has been credited for delivering some of the billion Bulacan airport project. The revision of the concession country’s largest infrastructure networks. Its major projects agreement is in line with the provision raised by DOTr, include the NAIA Expressway, Tarlac-Pangasinan-La NEDA and the Department of Finance (DOF) that there is no Union Expressway, and Boracay Airport runway extension government guarantee and that the project is “purely a private project. Its ongoing projects include the MRT-7 project, sector risk. “ SMC, however, gave the assurance that it can Skyway Stage 3, South East Metro Manila Expressway finance the project from its own resources. Other key issues in and SLEx-TR 4 projects. SMC also operates the Skyway the contract that were raised include the definition of what may system, the South Luzon Expressway and the Star Tollway. constitute a material adverse government action and potential compensation to the proponent in case laws are changed. The proposed airport project in Bulacan replaced SMC's proposal in 2014 to the previous Aquino administration to According to the DOTr, the government is set to give build a $10-billion airport in the reclaimed area at Manila final approval and award the contract by December Bay. The administration of former President Benigno 2018 or early 2019 following a Swiss challenge, a type Aquino III rejected unsolicited infrastructure projects from of bidding that allows other groups to submit rival offers. the private sector due to corruption controversies that The DOTr is preparing for the Swiss challenge which surrounded private sector projects such as NAIA-3 in 2011. also involves the drafting of the terms of reference and minimum performance standards and specifications, the bid parameters and the risk allocations matrix that will form part of the tender documents for the Swiss Challenge.
The Bulacan airport project involves the construction of 4 to 6 parallel runways, modern terminals, a seaport and an industrial zone.
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Two projects of “national significance“ The DOE declared on September 11 as project approved of national significance the application by Atimonan One Energy Inc. to construct the country’s first ultra- The Department of Energy (DOE) has certified 2 more power supercritical coal power plant in Atimonan, Quezon with projects as “Project of National Significance” under Executive capacity of 2x600MW. Atimonan One Energy is a wholly- Order (EO) 30: Atimonan coal power plant in Quezon and the owned subsidiary of Meralco PowerGen Corp. (MGen). Talim wind power plant in Rizal. Another project is the 151.2-MW Talim wind-power project Executive Order (EO) 30 specifies that concerned of Island Wind Energy Corp. Still in its pre-development government agencies must act upon applications for permits stage, the project was approved on August 30. It will be involving Energy Projects of National Significance (EPNS) not constructed in Talim Island, Binangonan and Cardona, Rizal exceeding a 30-day period. If no decision is made within the with target commercial operations operation of the 1st phase specified processing time frame, the application is considered 80MW plant in June 2020 and the 70MW plant in June 2021. a p p rove d by t h e c o n c e r n e d ag e n cy. EO 3 0 effe c t i ve l y re d u c e d the time to process the permits needed for power projects In August, DOE declared the geothermal-power project to take off. of Aragorn Power and Energy Corp. In Kalinga, Apayao as an energy project of national significance. Still in its pre- For power generation and transmission projects to be development stage, the project involves the development of considered among the EPNS, they must have a capital steam fields that can generate between 100MW and 200MW. investment of at least P3.5 billion and should have significant contribution to the country’s economic development and In May, the DOE certified the Visayas-Mindanao beneficial impact on the environment. They must also Interconnection Project (VMIP) as the 1st power project under entail complex technical processes and engineering EO 30. The VMIP involves the interconnection of the Visayas designs, and with significant infrastructure requirements. and Mindanao via Cebu and Zamboanga into a single national grid, with project cost of P52 billion and completion period of 46 months.
EO 30 effectively reduced the time to process the permits needed for power projects to take off.
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STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS IN THE PIPELINE AS OF SEPTEMBER 30, 2018
FUNDING CIVIL WORKS PROJECT TITLE IMPLEMENTING AGENCY PROJECT COST STATUS / ISSUES SOURCE TIMEFRAME ROADS AND BRIDGES DBM Secretary Ben Diokno identified this Improving Growth Corridors in project as one of the flagship projects for 2019. DPWH ODA 2019-2024 P25.15 billion Mindanao Road Sector Project Procurement for the DED is expected to begin in 4Q2018. The DOTr is pushing through with the project after results of the technical inspection with the World Bank and NEDA showed the viability Metro Manila Bus Rapid Transit – Line 1 of the BRT. DOTr ODA 2018-2021 P4.79 billion (Quezon Avenue BRT) The Quezon Avenue BRT is set to proceed with the DED this year.
The DOTr is pushing through with the project after results of the technical inspection with the World Bank and NEDA showed the viability Cebu Bus Rapid Transit DOTr ODA TBD P16.3 billion of the BRT.
The DOTr has also signed a contract with a technical support consultant for the project. Metro Manila Bus Rapid Transit - Line 2 According to the DOTr, the project is currently DOTr ODA 2018-2021 P37.76 billion (EDSA/Central) undergoing evaluation. The DOTr submitted their recommendation to NEDA to cancel the project due to physical BGC to NAIA Bus Rapid Transit System BCDA & DOTr ODA TBD P44.03 billion constraints. The NEDA ICC and NEDA Board will handle the cancellation process for the projects. The DPWH granted Metro Pacific Tollway Corporation original proponent status last July Cavite-Tagaytay-Batangas Expressway DPWH PPP 2019-2022 P22.4 billion 2018. Future important date for the project Project include the swiss challenge which will be held in 2Q2019. The DPWH is preparing the terms of reference Delpan-Pasig-Marikina Expressway DPWH PPP TBD TBD for the conduct of a feasibility study of the project. Infracorp Development, Inc. is currently looking for an operations and maintenance Makati-BGC Skytrain DOTr PPP TBD P3.5 billion (O&M) partner for the project. The company is discussing it with firms from Austria, France, Japan, and China. The DPWH decided to reopen and defer the repair and expansion of the bridge to January Estrella-Pantaleon Bridge Construction DPWH ODA 2018-2021 P5.97 billion 2019 due to the request of stakeholders. Project Construction is expected to be completed by May 2020. The DPWH has already certified Right-of-Way acquisition for the project. The construction will Panguil Bay Bridge DPWH ODA 2018-2021 P7.375 billion start on November 2018 and will end by October 2021. The DPWH contracted Ove Arup (Arup) & Partners HK to help facilitate and prepare feasibility studies and DED of the project. Sorsogon-Samar Project DPWH ODA 2019-TBD P375 billion The DOF submitted a proposal to CIDCA to seek help with the feasibility study of the program. The study will be completed in a year. Cebu – Negros Link Bridge These projects are currently listed as a priority for a technical assistance loan with DPWH TBD TBD P124.15 billion Cebu – Bohol Link Bridge the Infrastructure Preparation and Innovation Facility of the Asian Development Bank. The DOF submitted a proposal to CIDCA to seek Leyte – Mindanao Bridge DPWH TBD TBD TBD help with the feasibility study of the program. Panay-Guimaras Bridge CIDCA signed a a $13.4 million grant with DPWH to support the programs’ feasibility studies. DPWH PPP 2018-2023 P42 billion Guimaras – Negros Bridge The target date for the projects’ construction will be late 2018 or early 2019.
The DOF submitted a proposal to CIDCA to seek Bohol -Lapinig Island- Leyte Bridge DPWH TBD 2019-TBD P92.280 billion help with the feasibility study of the program.
AIR AND WATER PORTS
The procurement of consultant for the AE, EEIA, and DED study of the project started in 2Q2018. Laguindingan International Airport DOTr & CAAP GAA TBD P14.62 billion The feasibility study for the project started Project last 2Q2018 and is targeted to be completed in 3Q2018.
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The DoTr granted original proponent status to Aboitiz InfraCapital, Inc. (AIC) for the operations, maintenance, and future expansion New Bohol (Panglao) Airport of the New Bohol International Airport. DOTr & CAAP GAA 2018-TBD P2.335 billion Operations and Maintenance Project The DOTr is conducting a review and revision of the business case. The feasibility study for the project started last 2Q2018 and is targeted to be completed in 3Q2018.
The DOTr is currently updating the business case under the Philippine Transport System Bacolod-Silay International Airport DOTr & CAAP GAA 2019-2025 P20.26 billion Master Plan (PTSMP). The feasibility study for Project the project started last 2Q2018 and is targeted to be completed in 3Q2018.
The procurement of consultant for the AE, EEIA, and DED study of the project started in 2Q2018. The implementation of the project is expected Iloilo International Airport Project DOTr & CAAP GAA 2019-2025 P30.40 billion to start between 1Q-2Q 2019. The feasibility study for the project started last 2Q2018 and is targeted to be completed in 3Q2018.
According to NEDA, construction is set to begin next year. Chelsea Logistics Holdings Corp. Davao International Airport DOTr & CAAP GAA 2019-2025 P40.57 billion submitted an unsolicited proposal to develop Development Project and maintain the Davao International Airport.
San Miguel Corp. submitted a revised concession agreement incorporating the comments of NEDA and DOF. It is now being reviewed by the DOTr. New Manila International Airport DOTr PPP TBD P735 billion According to DOTr Undersecretary Ruben (Aerotropolis) Reinoso, the government plans to grant final approval and award the contract by the end of 2018 or early 2019. The DOTr and MIAA granted the NAIA Consortium Upgrading of Ninoy Aquino original proponent status. The proposal will DOTr TBD TBD P105 billion International Airport then be submitted to NEDA-ICC and will undergo a swiss challenge. Malaysia’s AirAsia Group placed a bid on an operation and maintenance contract on the project. Other foreign groups that submitted their bids are India’s GVK Airport Developers Ltd. and France’s Groupe ADP. Meanwhile, local groups that submitted their bids include San Clark International Airport BCDA PPP 2018-2020 P9.360 billion Miguel Corp., Metro Pacific Investments Corp., (Operations and Maintenance) Megawide Construction Corp., and Filinvest Development Corp. Other local companies were businessman Manuel Villar Jr.’s Prime Asset Venture and Central Luzon Infrastructure Consultancy Inc. Consortium. The procurement and preparation of the DED are ongoing. The procurement and preparation of the DED are ongoing and are targeted for completion by November 2018. Meanwhile, Clark Investors and Locators Clark International Airport Expansion Association (CILA), push for the development BCDA PPP 2018 P5.612 billion Project - Procurement of the EPC of the project as it presents the most practical and economical solution to the decongestion issues of NAIA. The group also made recommendations to increase the capacity to 80 million passengers by adding a 3rd runway. RAILWAY The Philippines and Japan signed the 1st tranche of loans amounting to P50 billion for the construction of the project this December. The stations will be built in Mindanao Avenue, Tandang Sora, and North Avenue. Meanwhile, Shimizu Corp. is being eyed to head the Metro Manila Subway Project (1st 2018-2025 (partial DOTr ODA P356.96 billion construction of the project. Phase) operability: 2022) The DED for full alignment (excluding partial operability segment) is expected to be completed in November 2019. The procurement of the design and build contract for the Partial Operability segment is to be completed by 4Q2018.
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DBM Secretary Ben Diokno identified this project as one of the flagship projects for 2019.
The DOTr is moving forward with the selection North South Commuter Railway (PNR DOTr ODA TBD P144 billion of a Japanese contractor to begin construction North 1) of the project by the end of 2018.
The project will be mainly funded by loans from JICA. DBM Secretary Ben Diokno identified this project as one of the flagship projects for 2019.
Future important dates for the project include the Exchange of Notes and Loan Agreement PNR South Commuter Line (Tutuban DOTr ODA 2018-2022 P124.1 billion Signing in 4Q2018; the completion of DED in – Calamba) 2Q2019; and the start of works for PNR North 2 and PNR South Commuter in 3Q2019.
The ADB and JICA are considering co-financing the project. The DOTr expects to secure a loan from China by November during Chinese President Xi Jinping’s visit. Additionally, the department will be issuing bids to 3 Chinese contractors by this month.
PNR South Long Haul Project (Manila Future important dates include the Issuance of DOTr ODA 2018-2022 P151 billion – Bicol) Notice of Award for PMC Contract in September 2018; the Loan Signing of PMC Contract in November 2018; and the groundbreaking in August 2019.
The government is currently hiring consultants for the project. The DOTr scheduled a public consultation with traffic stakeholders on the project.
DBM Secretary Ben Diokno identified this project as one of the flagship projects for Mindanao Railway Project Phase 1 2019. Preparation of DED and land acquisition DOTr ODA 2018-2021 P35.26 billion (Tagum-Davao-Digos Segment) activities for the project are ongoing.
Acquisition of the ROW and awarding of contractor will be by December 2018 while construction is set to begin on February 2019. It is expected to be finished by December 2021. Operations & Maintenance of LRT DOTr & LRTA PPP TBD No CAPEX Line-2 The procurement process of the project is on hold until further study. LRT Line 6 Project DOTr PPP TBD P65.09 billion The ADB approved a $2 million technical assistance grant for the project that will help the government prepare for project implementation and project management. The DED is expected to be completed by Malolos-Clark Railway (PNR North 2) DOTr ODA TBD P211.43 billion 2Q2019. ROW acquisition activities which are funded by GAA are ongoing while future important dates include the Exchange of Notes and Loan Agreement Signing in 4Q2018; and the start of works for PNR North 2 in 3Q2019.
The project is under evaluation of the members East-West Railway Project PNR PPP TBD TBD of the ICC-Technical Working Group.
The BCDA is currently calling for consultancy services on the advance preliminary works of the Subic-Clark Railway Project.
China(Loan)/ The Chinese Embassy has yet to provide the Subic-Clark Railway Project BCDA/DOTr 2019-2022 P50.031 billion GAA shortlist of contractors for the project.
The signing of commercial agreement is targeted in November 2018 during Chinese President Xi Jinping’s visit. OTHER PROJECTS Lower Agno River Irrigation System The NEDA Board has approved the NIA GAA 2018-2021 P3.5 billion Improvement Project implementation 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 of ICC.
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As to the infrastructure works, 3 Chinese contractors submitted its bids last June 20, 2018.
China EXIM Bank is conducting its internal New Centennial Water Source Project MWSS ODA 2018-2022 P12.2 billion assessment of the project and requested – Kaliwa Dam MWSS for additional documents last June 2018, in support of the latter’s application for concessional loan. This project is targeted to be signed during the state visit of Chinese President Xi Jinping in November 2018. The ROW activities and procurement of consultants for DED and construction supervision of the project are ongoing. Cavite Industrial Area Flood Risk DPWH ODA 2019-2024 P9.9 billion The target start of DED is in December 2018 Management Project while the civil works is expected in November 2019. The government The Chinese embassy has yet to provide a Ambal-Simuay River and Rio Grande shortlist of contractors that can undertake the de Mindanao River Flood Control DPWH ODA 2019-2025 P39.219 billion project by August 2018. This project is targeted Projects to be signed during the state visit of Chinese President Xi Jinping in November 2018.
ACRONYMS ADB Asian Development Bank AE Advance Engineering BCDA Bases Conversion and Development Authority CAAP Civil Aviation Authority of the Philippines CIAC Clark International Airport Corporation CIDCA China International Development Cooperation Agency DBM Department of Budget and Management DED Detailed Engineering Design DOF Department of Finance DOJ Department of Justice DOTr Department of Transportation DPWH Department of Public Works and Highways EEIA Engineering Environment Impact Assessment 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 ROW Right of way TBD To be determined WB World Bank
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Congress Approves Telecommuting Act
The Bicameral Conference Committee composed of representatives from Senate and House has ratified the Telecommuting Act which allows private sector employees to work outside the office through telecommuting. The measure is now a step away from being a law as it is awaiting President Rodrigo Duterte’s signature. Once enacted, the measure would promote employees’ right to work-life balance and flexible work arrangement. It is also a solution to the worsening traffic situation in Metro Manila especially now that major mass transportation systems are still being constructed.
he House and Senate versions of the measure define “telecommuting” as a flexible work arrangement that allows an employee in the private sector Tto work from an alternative workplace with the use of telecommunication and computer technologies. The measure states that employer has the option to offer a telecommuting program to its employees on a voluntary basis, and after terms and conditions are mutually agreed upon.
According to the Bicameral Conference Committee- approved measures the Department of Labor and Employment (DOLE) is mandated to issue guidelines that will ensure the “fair treatment” provision of the measure such as the following: hh Rate of pay, including overtime and night shift differential, and other similar monetary benefits not lower than those provided in applicable laws, and collective bargaining hh Appropriate training on the technical equipment at their agreements; h disposal, and the characteristics and conditions of h Right to rest periods, regular holidays, and special non- telecommuting; and working days; h h h Collective rights as the workers at the employer’s premises h Equivalent workload and performance standards as those and shall not be barred from communicating with workers’ of comparable workers at the employer’s premises; representatives. hh Access to training and career development opportunities as According to the measure, the terms and conditions those of comparable workers at the employer’s premises, must not be less than the minimum labor standards and be subject to the same appraisal policies covering set by the Philippine Labor Code, and must include these workers; compensable work hours, minimum number of work hours, overtime, rest days, and entitlement to leave benefits.
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GDP PER PERSON EMPLOYED (CONSTANT 2011 PPP $) ASEAN COUNTRIES: 2013-2017
COUNTRY NAME 2013 2014 2015 2016 2017 AVERAGE
Brunei Darussalam 173,001 168,369 164,315 156,100 151,609 162,679
Cambodia 5,421 5,675 5,955 6,254 6,573 5,974
Indonesia 21,228 21,940 22,644 23,352 24,190 22,671
Lao PDR 9,660 10,180 10,692 11,192 11,700 10,685
Malaysia 51,142 52,751 54,102 55,350 56,649 53,999
Myanmar 8,066 8,595 9,095 9,535 10,107 9,080
Philippines 15,624 16,200 16,741 17,373 18,231 16,834
Singapore 142,916 144,863 143,706 144,424 145,824 144,347
Thailand 25,630 25,779 26,449 27,165 27,867 26,578
Vietnam 8,540 8,926 9,419 9,891 10,427 9,441
Source: National Wages and Productivity Commission
The bill stipulates that measures must be undertaken to Universal Healthcare bill nearing passage prevent the telecommuting employees from being isolated from the rest of the working community in the company. The The Senate has approved on 3rd and final reading the Universal DOLE is mandated to pilot-test the program in select industries. Health Care Bill that aims to provide The telecommuting pilot program will be implemented for up to 3 years. Filipinos with quality and affordable health services. The enactment of the proposed measure is crucial as it The Telecommuting Act’s enactment is crucial especially supports the Duterte administration’s health initiatives. with the worsening daily commute of employees in Metro Earlier, President Rodrigo Duterte certified the bill as Manila. According to the Japan International Cooperation urgent. This indicates that the President is willing to Agency (JICA) the country loses P3.5 billion a day due to use his popularity and high political capital to push for traffic congestion along EDSA while the World Bank and essential measures that will benefit majority of Filipinos. traffic app Waze have noted the worsening traffic in Metro Manila. The traffic in the country’s capital is unlikely to The proposed measure stipulates that all Filipinos be improve immediately as mass transportation projects remain automatically enrolled into the National Health Insurance dilapidated and construction of major projects is still ongoing. Program whether as direct contributor (those who have the capacity to pay premiums) or indirect contributor (those A number of labor advocates note that telecommuting will sponsored by the government like the indigents, senior improve the productivity of employees. The implementation citizens, among others). A key provision of the bill is the of the measure is expected to improve the labor productivity expansion of PhilHealth services to cover free consultation of Filipino employees (measured as gross domestic product fees, laboratory tests and other diagnostic services. ( GDP) divided by total employment) which at present is one of the lowest in Southeast Asia (see table).
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What lawmakers say about the Universal Healthcare Bill
“This bill seeks to address barriers in health governance, health human resources, regulations, service delivery and health information that would prevent Filipinos from accessing care.” - Sen. Risa Hontiveros “This bill will ensure that financial issues will no longer be a burden to our countrymen when it comes to healthcare.” - Se. JV Ejercito “We may have modern curative facilities, but when the sick are continuously dumped on them because we have neglected the promotive and the preventive aspect of medicine, then we have failed to address the roots.” - Sen. Ralph Recto “We are now a step closer to ensuring that every Filipino family will have access to health services without causing them financial hardship. - Sen. Sonny Angara
According to Senator Joseph Victor ‘JV’Ejercito, sponsor Among the proposed bill’s key provisions are the following: of the measure, data from the Philippine Statistics Authority h (PSA) show that Filipinos spent around P6,345 for their health h Pooling of funds for Universal Health Care from PCSO, needs in 2016 or 8.7% higher from P5,840 health expenditure PAGCOR, incremental sin tax collections to the sugar tax; in 2015. He added that “majority of Filipinos consulted a hh Granting and eligibility and coverage to all Filipinos, even doctor only when their illnesses were already at their worst Overseas Filipino Worker’s (OFWs); because of the lack of government support in health care.” hh Simplifying the membership category into direct and indirect; According to the proposed measure, Filipinos can avail h of health services even without PhilHealth Identification h Setting up of a health care provider network that will allow Cards. The bill also aims to improve the country’s doctor-to- every Filipino to register and have its own primary care patient ratio and health facilities especially in remote areas. provider; hh Creation a national pool of health professionals by The measure’s counterpart at the House of Representatives expanding the medical scholarship; has also been passed on 3rd and final reading. A hh Development of a health information system as database Bicameral Conference Committee will now draft a single of all health-related information; bill and reconcile both versions’ conflicting provisions. The h important bill is a few steps away from becoming a law. h Accounting and inventory of health professionals to determine the actual gap and needs for a specific health profession;
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Health Spending as % of GDP 7
6
5
4
3
2
1
0 Vietnam Thailand Singapore Philippines Malaysia Indonesia 2011 2012 2013 2014 2015
10-POINT SOCIOECONOMIC AGENDA OF THE DUTERTE ADMINISTRATION
1. Continue and maintain current macroeconomic policies, including fiscal, monetary, and trade policies. 2. Institute progressive tax reform and more effective tax collection, indexing taxes to inflation. 3. Increase competitiveness and the ease of doing business. This effort will draw upon successful models used to attract business to local cities (e.g., Davao) and pursue the relaxation of the Constitutional restrictions on foreign ownership, except as regards land ownership, in order to attract foreign direct investment. 4. Accelerate annual infrastructure spending to account for 5% of GDP, with Public-Private Partnerships playing a key role. 5. Promote rural and value chain development toward increasing agricultural and rural enterprise productivity and rural tourism. 6. Ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies. 7. Invest in human capital development, including health and education systems, and match skills and training to meet the demand of businesses and the private sector. 8. Promote science, technology, and the creative arts to enhance innovation and creative capacity towards self-sustaining, inclusive development. 9. Improve social protection programs, including the government’s Conditional Cash Transfer program, to protect the poor against instability and economic shocks. 10. Strengthen implementation of the Responsible Parenthood and Reproductive Health Law to enable especially poor couples to make informed choices on financial and family planning.
hh Conduct of health technology assessment to evaluate and research; service delivery; health human resources; the social, economic, organizational and ethical issues and medicines and health technology. It believes an of health intervention or health technology; effective health system cannot just focus on one or a few hh Aggressive prevention campaign to eventually address of these building blocks without considering and including the bottlenecks in curative health care; the impact of the others. The government must ensure that its implementation of a Universal Healthcare law is hh Establishment of a mechanism for the public health care anchored on the six building blocks specified by WHO. providers to improve its facilities and equipment by means of financial subsidies to make them ready to shift into Providing free and quality healthcare services is essential if network-based health care delivery system; and the government is to develop its workforce. Having a skilled and hh Prescription of co-payments of patients in public and healthy labor pool is among the factors that foreign investors private facilities. seriously consider when scouting for countries to invest in. The World Health Organization (WHO) considers 6 The government must employ a preventive, proactive, and building blocks essential to a health system: leadership comprehensive approach in the implementation of its health (political will)/governance; health financing; information initiatives. This should be complemented by the speedy enactment of the Universal Health law. Philippine ANALYST CONGRESSWATCH September 2018 CONGRESSWATCH 99
In the proposed 2019 national budget the Health in Central Luzon which should benefit from its proximity department, which covers the budgets of the Department to Metro Manila and presence of interconnecting public of Health (DOH) and the Philippine Health Insurance infrastructure including expressways, airports, and seaports. Corporation (PHIC), will receive P141 billion to continue providing affordable and accessible healthcare to Filipinos. According to Sen. Gordon the RICH bill is envisioned This is important in raising the share of health spending “to maximize the presence of the Subic, Mariveles and to the country’s annual economic output, as measured by Manila seaports along with the airports and the North gross domestic product (GDP). Luzon Expressway (NLEX), Tarlac-Pangasinan-La Union Expressway (TPLEX), Subic-Clark-Tarlac Expressway (SCTEX) and Olongapo-Gapan Highway to enhance business Senate oks bill promoting Central Luzon and employment opportunities, which in turn, will serve as a model for the rest of the country.” The Senate has approved on 3rd and final reading a measure Sen. Gordon added that another objective of the that creates the Regional Investment and Infrastructure proposed measure is the dispersal of industries and Coordinating Hub (RICH) of Central Luzon. RICH is population to Central Luzon. This is important as Metro m andate d to e nti c e b u s i ne s s me n to i nve st i n Ce ntral Luzo n Manila is already one of the most populous metropolitan and promote the development of infrastructure projects in cities in the world. About a third of Metro Manila is prone the region. The proposed bill, once enacted, would support to flooding and at risk as sea levels rise. Flooding in Metro President Rodrigo Duterte’s objective of building more Manila worsened over the years due to the lack of urban infrastructure projects in the countryside, decongesting planning and political will. Thus, the establishment of a new Metro Manila, and attracting more businesses in urban investment corridor near Metro Manila is extremely important. centers outside of National Capital Region (NCR). According to the World Bank “population density particularly Senate Bill No. 1997 was authored and sponsored by i n Metro Man i la h as wo r s e ne d s i n c e 2010 and the re i s n o s i g n of Senator Richard Gordon, chairman of the Senate Committee slowing.” The Japan International Cooperation Agency (JICA) on Government Corporations and Public Enterprises and was noted that traffic within Metro Manila results in daily revenue co-authored by Senate Majority Leader Juan Miguel Zubiri and loss of about P3.5 billion. If left unaddressed, JICA noted that Senate Minority Leader Franklin Drilon. Sen. Gordon noted traffic congestion could result in daily losses of up to P6 billion that “the name of the bill reflects its aim to enrich the people by 2030. Meanwhile, driving application Waze tags Manila by encouraging and promoting investments and infrastructure as having the “worst traffic on earth and longest commute.” in Central Luzon, as well as addressing bottlenecks, laying the foundation for long-term growth in the region, Several initiatives were launched by previous administration creating jobs and improving the quality of life of Filipinos.” to develop Clark but these have yet to be fully implemented. Then President Fidel Ramos issued an executive order (EO) The officials of RICH are mandated to map out a plan that will appointing Clark Airport as the alternative to Ninoy Aquino help entice foreign and local investments in Central Luzon. The International Airport. Former President Gloria Macapgal- plan should also maximize the current and future infrastructure
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INITIATIVES TO DEVELOP SUBIC-CLARK CORRIDOR ADMINISTRATION PROGRAM
Ramos Issuance of EO 174 in 1994 appointing Clark Airport as alternative gateway
Arroyo Development of Subic-Clark corridor as a competitive international logistics center
Aquino Promotion of Clark Green City as a smart and disaster-resilient business megalopolis
Development of infrastructure projects such as Clark Airport Expansion, Subic-Clark railway, and Manila- Duterte Clark Passenger rail
Arroyo formed Super Regions and positioned the Subic- full support of the local government - strict implementation of Clark corridor as a competitive international logistics center the recently-enacted Ease of Doing Business Act; an airport supported by Clark Airport, Subic seaport, and Subic-Clark that has direct International flights; sufficient, efficient transport Tarlac Expressway. In 2015, the Aquino administration bid for staff to get to and from the office safely 7 days a week, out parcels of land in Clark Green City that is envisioned as 24 hours a day, 365 days a year; business continuity plans a disaster-resilient, smart business hub in Central Luzon. in case of weather disruption or other natural impacts to city Meanwhile, the Duterte administration ensured the speedy services; and proximity and access to residential areas where approval and development of Clark Airport Modernization and employee population lives. National Government Administrative Center which will house a number of government agencies. Aside from determining According to Sen. Gordon, the RICH bill is supported by projects to be implemented in the next 3 to 6 years such governors, mayors and other local officials from Bulacan, as Manila-Clark Passenger Rail and Subic-Clark cargo Pampanga and Tarlac. The measure’s counterpart versions railway, the Duterte administration has started transferring a are currently pending at the House of Representatives. number of government agencies such as the Department of The enactment of the measure is important to help Transportation (DOTr) to Clark. the government realize its goal of spurring business One industry that should be developed in Clark is the opportunities outside of Metro Manila. Central Luzon is a Information Technology and Business Process Outsourcing major industrial corridor, and this should be supported by (IT-BPO) industry. Clark is a very attractive location for a lot the Duterte administration’s thrust to usher in the ‘golden of BPO companies. But for the sector to flourish the following age of infrastructure.’ The measure, once implemented, must be ensured: a strong internet service that has redundancy should help Central Luzon attract a larger share of foreign capability, reliable, and high speed; reliable cellphone service investments which enter the country every year. Aside from with sufficient coverage ; Constant, 24/7 stable power and developing Central Luzon, lawmakers should also support water; qualified colleges prepared to work with business toward the development of other regions. This should ensure a relevant training; suitable office space, at competitive rates; more inclusive and equitable economic growth throughout the country.
Philippine ANALYST CONGRESSWATCH September 2018
Asia Pacific Executive Brief
September 2018
© IMA Asia Editor: Richard Martin ([email protected]) Consulting economist: Kostas Panagiotou ([email protected])
CONFIDENTIAL CONTENTS
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
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Global outlook
Strong global Global growth was good in 1H’18 thanks to strong growth in the US (Q2’18 saw annualised growth jump to growth in 1H’18 4.2% after averaging 2.5% over the prior five quarters) and steady growth in China (6.8%yoy in 1H’18 from 6.9% in full 2017). That helped offset a slowdown in Euro zone growth to 2.1%yoy in Q2’18 from 2.5%yoy … driven by in Q1’18 and 2.8%yoy in Q4’17. That leaves the world on track for a second good year, with 3.9% growth the US in 2018. However, we’ve cut the global growth forecast, which we generally take from the IMF, to 3.6% for 2019 as growth is … and becoming unbalanced (driven more by the US alone), and that will make it supported by harder to smooth over the many risks that always threaten growth. Since July, global growth China indicators have also been easing, with the PMIs from IHS-Markit for all developed economies, for China, and for other big emerging markets dropping, although still above 50 (the break point for expansion/contraction). As a result, our following forecasts assume that export growth for the A/P 14 halves in 2019 from an estimated 9-10% this year.
Four risks: rising Four risks stand out in the next 18 months: rising US interest rates with the associated risk of a strong interest rates; US$; a bad Brexit (29th March 2019); escalation in the US-China trade war; and emerging market (EM) Brexit; trade wars; contagion, which has been hinted at by the tumbling currencies for Turkey, Argentina, and Brazil in the last and EM contagion few months. As a result, our forecasts assume that global market volatility rises, especially for currencies, raising risk concerns for all EM. Global financial markets will particularly focus on the ability of EM to roll over or repay US$1tr in bond debt that falls due each year from 2018 to 2020.
The US-China Until August, we’d assumed that the US-China trade spat would be settled in time for the US mid-term trade war will elections in November. That no longer looks likely, with most commentators talking about a deal in early run into 2019 2019. Although a decision on imposing punitive tariffs on another US$200bn in annual imports from China is imminent, we aren’t sure that the US will do that, as it would boost US inflation, and that would mean higher interest rates and an even … triggering stronger US$. However, some ratcheting up is likely by both sides. It’s also apparent that many supply chain Western MNCs and Chinese manufacturers are reconsidering their supply chains to changes cope with a long-term rise in economic nationalism. SE Asia may struggle with dumped Chinese product in 2H’18, but then gain a new wave of manufacturing investment in 2019.
A broad and The revised Q2’18 GDP data for the US shows a broad and strong upturn. On the year-on- year measure, strong US GDP growth for the year to Q2 lifted to 2.9%yoy driven by a 5.7%yoy rise in private fixed investment, upturn which reflects factories running at capacity and the extra stimulus from Trump’s tax cut for investment in plant and equipment. Consumer growth remained firm at 2.6%yoy, and while there is concern over rising consumer debt, the lift in interest rates is from a low level and strong employment conditions with rising … which wages should offset that risk. Industrial production rose 4.2%yoy in July, in line with the strongest growth means higher in the last eight years. Retail sales growth also accelerated to 6.4%yoy in July, up from a 3-5% band over interest rates the last six years. Inflation has risen from zero in Sept 2015 to 2.9%yoy in July. That will encourage the US Fed to make two more rate hikes this year, with another two likely in 2019. We expect that to keep the … and a US$ rising on its trade weighted index with an annual average pace of 3-5% this year and in 2019. Year- stronger US$ to-date it was up 6.7% at end- August after a surge over the prior two months. There is a risk that US$ appreciation could be stronger than we expect, particularly if the Trump administration imposes tariffs on another US$200bn in imports from China in the next month.
IMA Asia’s forecasts 2015 2016 2017 2018 2019 World – Real GDP growth, % 3.5 3.2 3.8 3.9 3.6 - US 2.9 1.6 2.2 2.9 2.7 - Euro area 2.1 1.8 2.3 2.4 2.0 - Asia/Pacific (14) 4.5 4.7 4.9 4.8 4.9 - NICs (4) 2.2 2.6 3.2 3.0 2.4 - Developing or “EM” Asia (7) 6.7 6.6 6.6 6.6 6.4 - ASEAN (6) 4.5 4.6 5.1 5.1 4.9
World goods & services trade volume, % growth 2.8 2.3 4.9 5.1 4.7 Interest rates, US Fed target rate, year end, % 0.50 0.75 1.50 2.25 3.00 Inflation, CPI, US, year avg., % 0.1 1.3 2.2 2.8 2.6 Inflation, CPI, Euro area, % 0.0 0.2 1.5 1.5 1.6 Crude oil, avg of 3 spot crudes, US$ 51 43 53 65 65 US$ / Euro 1, year average rate 1.11 1.11 1.13 1.14 1.08 Yen / US$1, year average rate 121 109 112 110 108
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.
Richard Martin, IMA Asia ♦ Email: [email protected]
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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 1.0 1.2 China 6.9 6.7 6.9 6.5 6.3 Hong Kong 2.4 3.3 3.8 3.8 2.8 Taiwan 0.8 1.4 2.9 3.1 2.1 South Korea 2.8 2.9 3.1 2.6 2.3 Indonesia 4.9 5.0 5.1 5.4 5.5 Malaysia 5.1 4.2 5.9 5.3 5.0 Philippines 6.1 6.9 6.7 6.0 5.3 Singapore 2.2 2.4 3.6 3.6 3.2 Thailand 3.0 3.3 3.9 4.2 3.6 Vietnam 6.7 6.2 6.8 6.6 6.2 India (CY) 7.6 7.9 6.2 8.1 7.8 Australia 2.5 2.6 2.2 2.7 2.4 New Zealand 4.2 4.1 3.0 2.7 2.5
Inflation, CPI year average, % 2015 2016 2017 2018 2019 Japan 0.8 -0.2 0.5 0.6 0.9 China 1.4 2.0 1.6 2.1 2.6 Hong Kong (composite CPI) 3.0 2.4 1.5 2.3 3.0 Taiwan -0.3 1.4 0.6 1.4 0.2 South Korea 0.7 1.0 1.9 1.6 2.4 Indonesia 6.4 3.5 3.8 3.4 4.2 Malaysia 2.1 2.1 3.7 1.3 2.3 Philippines 0.7 1.3 2.9 5.0 4.7 Singapore -0.5 -0.5 0.6 0.5 1.3 Thailand -0.9 0.2 0.7 1.0 1.4 Vietnam 0.6 2.7 3.5 3.9 5.1 India (CY CPI urban non-manual workers) 4.9 5.0 3.3 5.1 5.0 Australia 1.5 1.3 1.9 2.2 2.6 New Zealand 0.3 0.6 1.9 1.5 2.3
Exchange rate to US$1, year avg. 2015 2016 2017 2018 2019 Japan 121 109 112 110 108 China 6.28 6.64 6.76 6.62 6.94 Hong Kong 7.75 7.76 7.79 7.83 7.80 Taiwan 31.8 32.2 30.4 30.1 31.3 South Korea 1,131 1,160 1,129 1,104 1,148 Indonesia 13,389 13,309 13,381 14,349 15,150 Malaysia 3.90 4.14 4.30 4.02 4.16 Philippines 45.5 47.5 50.4 52.8 54.7 Singapore 1.37 1.38 1.38 1.35 1.38 Thailand 34.2 35.3 33.9 33.0 33.5 Vietnam 21,677 21,932 22,370 22,949 23,471 India (FY) 64.1 67.2 65.1 68.5 71.3 Australia 1.33 1.35 1.30 1.35 1.49 New Zealand 1.43 1.43 1.41 1.46 1.63
Sources: CEIC, central banks, and national statistics offices. Forecasts are by IMA Asia.
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Political & policy issues to watch
Asia keeps the lid on Global risk concerns will be elevated over the next year, which means that capital markets will be political risk looking for the next emerging market (EM) to take down. Two of the “fragile five” (a term coined in 2013 by Morgan Stanley covering Turkey, Brazil, South Africa, India, and Indonesia) are in Asia. For the year to August, the currencies for these five on the US$ were respectively down 43%, 18%, 16%, 10%, and 9%. Several other EM have been hit, including (surprisingly, as it was trying to do everything right) Argentina, whose Peso has been hammered down 50%ytd. It’s critical at times like these to keep a lid on political risk. We’ve spotted no instance of rising political risk across the Asia/Pacific 14 in this month’s Asia Brief, although Australia has put in a good effort with an internal party coup turfing out the country’s sixth PM in 10 years (the A$ was down 8%ytd at end-August).
Rock solid Xi With a US-China trade war escalating and the US play book guided as much by President Trump’s The Art of the Deal (1987, and No.1 on the NY Times best seller list for 13 weeks) as by his populist take on … so, reforms in trade policy, it’s important to note that President Xi Jinping’s position as one of China’s strongest China stay on course leaders since 1949 has not be shaken. That means he is unlikely to give in to US demands that China … and foreign abandon its technology drive. It also means that he’ll stay on course in many other policy areas, which firms are welcome is important, as China has massive reforms underway across its economy. That might also reassure the many foreign firms, particularly from the US, that have built large businesses in China
Key elections Among the elections due in the next year three stand out. In India, PM Modi will be running (in March- April) for a second 5-year term; we expect he’ll get it with a solid margin. In Indonesia, President Joko … for India, Widodo will also be running for a second 5-year term; we also expect him to win with a solid margin. Both Indonesia, & leaders have gunned their economies to keep voters happy, which means rising growth into 2019. Both Australia are pro-reform and have made mild policy gains that will help long-term growth. Australia faces a change in government, as the ruling Liberal Party tears itself apart; we expect Labor to return to government after an election that must be called by May 4.
Asia looks for a Asia is struggling to find a replacement for the Trans Pacific Partnership (TPP), which the Trump new trade bloc administration abandoned in 2016. The remaining TPP-11 (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, NZ, Peru, Singapore and Vietnam) have signed the pact, which will go into effect … the TPP-11 when six members have ratified it. Five should have done so by end-2018, and the new Malaysia may start in 2019 government should be the sixth in 1H’19. The TPP-11 deal should provide a weak boost to regional trade. The 16 members of the Regional Comprehensive Economic Partnership (RCEP, covering the ASEAN-10 plus China, Korea, India, Australia, and NZ) are making slower progress, as India fears any deal involving China will hurt its industries.
Outlook for the market
2018 and 2019 With first half data in for most countries, the key theme for 2018 is strong growth across Asia, driven by a good exports and a marked rise in domestic demand. There are hints in the July trade data that … rising local export growth will slow in 2H’18, but we could be surprised by rising US demand (and a strong US$), demand supports China’s move to stimulus, and strong demand from the Euro zone even though its growth is slowing. growth as exports However, we expect global growth to slow in 2019 and Asia’s export growth to halve to 4-5%. The cool slowdown in GDP growth will be cushioned by continued strong domestic demand growth. Only a few markets will see local demand growth cooling, notably Malaysia (as a new government recasts policy), the Philippines (as interest rates are hiked to prevent overheating and slow the Peso’s fall), Australia (as its housing boom cools), and NZ (as the flood of inbound migrants drops).
Asia currencies Asia’s dominant currency theme in 2018 is the rise of the US$. The question is, which countries go up with it, and which suffer an amplified devaluation on the greenback as capital exits, attracted by better … not following returns in the US and worried by rising EM risk. With the US$ up 6.7%ytd on its broad trade weighted the US$ up exchange rate, Asia’s strong currencies year to date are: Yen (+1.4%), Baht (-0.7%), Ringgit (-1.6%), S$ (-2.6%), Dong (-2.7%), and the NT$ (-3.4%). Asia’s weak currencies are: India’s Rupee (-10.2%) … watch for and the A$ (-8.1%). The rest have simply not followed the US$ up, falling by about the amount the them to lift when US$ has risen on its index: NZ$ (-6.9%), the Peso (-6.7%), and the Yuan (-5.1%). When the US$ the US$ falls weakens, Asia’s stronger currencies will rise against it, and its weaker ones will regain ground.
Richard Martin, IMA Asia ♦ Email: [email protected]
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Asia Pacific Executive Brief September 2018 www.imaasia.com Japan
Political & policy issues to watch
PM Abe is set to With the backing of five of the seven factions in the ruling LDP, PM Abe should easily win a third 3-year lead Japan to term as party president on Sept. 20, ensuring that he remains PM through the 2020 Tokyo Olympics. 2020 A strong win will help him put a string of scandals behind him and secure his hold over a restive party. Already in office for five and a half years, he is the second longest serving G7 leader (to Merkel) and by 2020, he will be Japan’s longest serving post-war leader. The LDP is well placed to retain its majority in the upper house elections next July, as the opposition remains weak and disorganised. A lower house election is not required until October 2021, although it will likely be called earlier. The LDP’s new 3-year term limit suggests that Abe should step aside before that poll.
His macro Abe has talked a good game on reforming Japan’s economy to lift growth (the third arrow of policies have “Abenomics”) but done little. Nevertheless, his stimulus efforts, anchored in massive quantitative boosted growth easing (QE) and a cheap Yen, have paid off. Deflation has ended, corporate profits are at record levels, the job market is the tightest in 45 years, and big companies have lifted wage growth to 2%pa. The biggest reform ahead is a lift in the sales tax to 10% from 8% on October 1, 2019. Already postponed twice, we expect it will go ahead. The extra funds were intended to pay for health care for an ageing population, but Abe has promised to divert a large part to young families (including free childcare from Oct. 2019).
Car exports could Japan’s 1.7m annual car exports to the US (out of 8.4m units produced in 2017) are painfully exposed be hurt by US to Trump’s threat of a tariff of up to 25% on car imports. So far, Tokyo has fended off US demands to tariffs start bilateral trade talks. As any concession by Abe would hurt his chances in the September LDP race, we expect negotiations will be put off until his trip to the UN in New York at the end of September. Meanwhile, Japan’s auto sales in China (largely from local production) are growing fast as US brands lose ground.
Outlook for the market
The 2017 growth Japan’s growth eased to 1%yoy in 1H’18 from 1.7% in 2017 with a marked slowdown in the two main rebound eases in drivers of domestic demand. Real growth in consumer spending slipped to 2018 0.1%yoy in 1H’18 from 1.0% in 2017, while fixed investment growth slowed to 1.1%yoy from 2.5%. Rather than a downturn, this is best seen as a drop from very fast growth in … local demand 2017, which was well above the decade to 2016 average of 0.5%pa for GDP and consumer demand, and should lift in -0.1%pa for capex. Provided Japan’s car exports to the US aren’t 2019 hit with a 20-25% tariff, we expect full year growth of 0.5% for consumers and 1.5% for capex. The 2019 sales tax hike will pull demand forward from 2020, delivering 2019 consumer growth of 1.2% and capex growth of 1.2% before growth slumps in 2020. High consumer By July, there were 1.6 job offers for every applicant, a level reached just once before (Oct. & business 1990) in the last 45 years. Growth in average cash earnings for employees in companies with more confidence than five workers rose to 1.1%yoy, the fastest pace since Jan 1998, putting consumer confidence close to decade highs. Business confidence in the June Tankan survey shows a slight easing for manufacturers, but lifted for services firms.
Why the Yen is at Inflation of 0.9%yoy in July has left the Bank of Japan in a position to continue quantitative easing and a risk of rising on a negative interest rate into 2019. In most countries, that would mean a weak currency against the US$, as strong US$ the US Fed hikes interest rates. However, Japan’s very low inflation relative to its trading partners puts the Yen under long-term appreciation pressure that could push the currency towards 90 to US$1. Thus, even after weakening from a recent high of 105=US$1 in late March, the Yen was up 1.4%ytd by end- August on a US$ that has climbed 6.7% on its own major currency index. Having proved it can mostly hold its ground on a rising US$ in July-August, we expect the Yen to sustain a mild appreciation of 1- 2%pa on a strong US$ into 2019.
2015 2016 2017 2018 2019 GDP, real growth (2005p), % 1.4 1.0 1.7 1.0 1.2 CPI, year average, % 0.8 -0.2 0.5 0.6 0.9 Overnight call rate, year end, % 0.04 -0.06 -0.06 -0.10 -0.10 Yen to US$1, year average 121 109 112 110 108 Sources: 2015-2017 data from the BOJ and government sources; 2018-2019 estimates by IMA Asia
The above forecast is by IMA Asia. Companies seeking local advice should contact: Dan Slater, Director, The Delphi Network Mob: +81 80 205 70 609♦ Email: [email protected] 105
Asia Pacific Executive Brief September 2018 www.imaasia.com China
Political & policy issues to watch
The US-China The US-China trade spat is driven by five US concerns: a large bilateral US trade deficit; China’s slow trade spat could opening of its domestic market despite taking full advantage of WTO membership; years of intellectual run into 2019 property (IP) theft; pressure on foreign firms to hand over IP to local JVs; and unfair state support for key industries in the China 2025 industrial plan. The last four of those concerns are shared by most … the challenge is industrialised nations. China would like to end the spat by acting on the first two concerns (i.e. buy over IP and China more US products and open its markets a bit faster). The US wants change in all five areas, 2025 particularly the China 2025 industrial plan, which is an area where China won’t budge easily. From August 23, both sides have applied punitive tariffs to US$50bn in annual imports, with the US … economic threatening a nationalism is 25% tariff on a further $200bn in imports (taking the total to half of all US imports from here to stay China) from early September. A deal before the US mid-term elections in November looks unlikely, although some sort of deal is expected in early 2019. Even with that, most firms are likely to amend their IP and supply chain strategies to cope with rising economic nationalism, while China will accelerate its efforts to lead in a range of technologies. President Xi is Despite speculation, there’s no sign that the trade spat has damaged President Xi Jinping or caused secure divisions in China. If the US escalates in September, Beijing says its response won’t be limited to US goods, but would extended to services imports and US investments in China. A loss of $250bn in … policy swings to exports to the US is not a big challenge for China (it is about stimulus as 10% of 2018 exports, while all exports account for 12% or less of industrial sales). China’s deleveraging deleveraging campaign has had a bigger negative impact on GDP and the Shanghai stock overshoots market (-16%ytd). Concern over both challenges has swung economic policy towards stimulus from July. Deleveraging has eased, banks are being told to lend more, liquidity is being pumped up and extra spending has been announced notably onrailways The reform push Despite the trade spat, Beijing has not dropped plans for major reforms to government, industry, continues healthcare, and the finance sector, which should produce a better business environment (witness the recent jump in profits for foreign pharma firms). Foreign firms are welcomed in most sectors, although it is worrying (but not unexpected) that Beijing is talking about retaliation against US investors in China if the US escalates in September.
Outlook for the market
Strong 1H’18 China’s 1H’18 real growth of 6.8%yoy was in line with the 6.9% reported for full 2017. More importantly, growth current growth was 10%yoy, and while down from 11.2% for 2017 that was above the average 7.7%pa for the prior three years, which reflected collapsing prices in the manufacturing sector. Strong current … with stimulus growth boosts profits, eases restructuring, and enables deleveraging. The growth measures that helping 2H’18 Premier Li Keqiang likes confirm a good 1H’18: electricity consumption rose 9.3%yoy (from 6.7% for full 2017); rail freight grew 7.7%yoy (10.7% in 2017); and bank lending grew 12.7%yoy (matching 2017). GDP growth may well exceed ourcurrent 6.5% forecast for 2018 andthe 6.3% expectedin2019. Consumers & Consumers (38% of GDP on the expenditure measure) and services (46% on the production services drive measure) are playing a leading role in overall growth this year. Services grew growth into 2019 7.6%yoy in 1H’18, led by logistics and domestic trade. In July, retail sales were growing at 8.8%yoy in current prices and 6.5%yoy in volume. We expect real growth in consumer demand to stay close to 7% this year and in 2019 from an estimated 7.2% in 2017. Steps to halt a big Current growth for fixed asset investment (FAI) fell to 5.5%ytd by July, the weakest since the data fall in capex and starts in 1995, suggesting that deleveraging has overshot. A 10.4%yoy fall for cement production in construction 1H’18 is the worst performance since the data starts in 1987. We expect policy tweaks from mid-July will lift FAI by 7-8% in 2018 and 8-10% in 2019. Manufacturing real growth will likely be 6.6% this year and 6.2% in 2019 from 7% in 2017. The Yuan’s slide = The Yuan finished August down 5.1%ytd on a US$ that had risen 6.7%ytd on its own trade weighted the US$’s rise index. With US$3.1tr in forex reserves and tight control on its capital account China will aim to keep the Yuan above 7=US$1 even as the US$ climbs on its TWI.
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 2.1 2.6 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 6.62 6.94 Sources: 2015-17 data from CEIC and government agencies; 2018-19 forecasts by IMA Asia
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Asia Pacific Executive Brief September 2018 www.imaasia.com Hong Kong
Political & policy issues to watch
CE Carrie Lam Chief Executive (CE) Carrie Lam has entered the second year of her 5-year term with a better track gets the HK record on legislation than her predecessor thanks to three developments: tighter limits on filibustering administration in the Legislative Council (LegCo); the ejection of six opposition LegCo members (leaving the pan- working for now democrats with 25 of 68 seats); and her greater willingness to negotiate bills with LegCo. As a result, the legislative session from October 2017 to this July saw 26 bills passed (compared to 12 in the prior …but struggles session), while HK$251bn (US$32bn) - a 5-year high - was approved for government projects. Yet with land and insufficient and inadequate housing remains a big challenge. The CE may propose remedies, housing issues probably focusing on more land reclamation, in her October Policy Address.
HK’s future With two big transport links to China due to open soon (the US$20bn HK-Macau-Zhuhai bridge and the US$11bn high-speed rail link), companies are keen to see China’s delayed plan for the regulatory … will China’s integration for the Greater Bay Area (GBA), which aims to help pull together HK, Macau, and highly anticipated Guangdong into a US$1.5tr GDP economy with 70m people, a thriving high tech sector and global- Greater Bay Area scale ports, airports, and financial markets. While businesses see the GBA as central to HK’s long- work? term success, many Hong Kongers oppose greater control by Beijing; they will not be comforted by the 800 mainland officers stationed at the Kowloon rail terminus. Another challenge is China’s penchant for red tape, which runs counter to hopes of a fluid single market. Those challenges need to be sorted out by Chinese Vice Premier Han Zheng, a Politburo Standing Committee member, who chaired the first official meeting of the “leading group” for GBA development in August.
Outlook for the market
HK faces rising With a US-China trade war escalating, global liquidity tightening, and export growth slowing, HK’s headwinds economic outlook is dimming. However, the slowdown should be cushioned by good local demand growth. That was apparent in 1H’18, when GDP growth lifted to … but tourists 4.0%yoy from 3.8% for full 2017, thanks to a 7.4%yoy surge in consumer demand (from from China will 5.5% growth in 2017). The consumer upturn was almost wholly due to a 13.4%yoy jump in mainland support growth arrivals (mostly tourists), from 3.9% growth in full 2017. Growth in other areas of demand was in line with 2017, with export and import volumes up 5-6%yoy and … & China’s swing government consumption up 4.1%yoy. Fixed investment growth, however, unexpectedly slipped to to stimulus will help 2.2%yoy in 1H’18, from 3.5% in 2017, as construction capex fell in Q2’18. Given that development, we’ve cut our GDP forecasts to 3.8% for 2018 (prior 4.4%) and 2.8% for 2019 (prior 3.0%). There is some potential upside for China’s stimulus measures to spill into HK in the next year to underpin growth to support its GBA plan. Sea cargo will fall The trade slowdown has hit sea cargo, its growth slowing to 2%yoy in May, from 9.7% in full 2017. We but air cargo keeps expect a fall of 3-5% next year and likely more in 2019. By contrast, air cargo hit a new annual record of growing 5m tonnes in April, although its growth eased to 5.8%yoy in June from 9.2% in full 2017. Air shipments should grow at a slower pace into 2019.
Construction has A surprise Q2’18 fall in construction capex (-3%yoy) reflects a 58%yoy slide in building starts in 1H’18 cooled (after a 22% rise in 2017), while authorisations slid 42%yoy (after 39% growth in 2017). We now expect construction capex real growth to fall to around 1% this year and 1-3% next year, from 6.6% in 2017.
HK adjusts to HK faces a mild adjustment to the steady rise in the US Fed’s policy rate, which the HKMA policy rate rising interest must track because of the currency peg with a 50-basis point (bp) cushion. The HKMA is intervening to rates defend the low end of the HK$ peg at 7.85 during this transition and has plenty of capacity to continue. HK’s ultra-low mortgage rates have also started edging up (to 2.25-2.35% at end-August). That should help cool residential property prices (up 16%yoy in August) without undermining consumer demand.
2015 2016 2017 2018 2019 GDP, real growth, % 2.4 3.3 3.8 3.8 2.8 Composite CPI (14/15), year average, % 3.0 2.4 1.5 2.3 3.0 Discount window base rate, % year end 0.75 1.00 1.75 2.50 3.25 HK$ to US$1, year average 7.75 7.76 7.79 7.83 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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Asia Pacific Executive Brief September 2018 www.imaasia.com Taiwan
Political & policy issues to watch
Watch local polls in Taiwan will be in full election mode for the next 90 days, as the November 24 “9 in 11” elections are November as a held for 23 city mayors and county magistrates and another 11,000+ officials at the city, county, guide to support village, and neighbourhood level. Held every four years, this poll is the main event between the for Pres. Tsai 2016 elections, which brought President Tsai Ing-wen and her DPP to power, and the 2020 elections when Tsai will seek a second term. The November elections will show whether the opposition KMT has regained ground as Tsai has implemented unpopular reforms to pensions and come under severe attack from China, which distrusts the DPP’s independence inclinations. It might also show how much damage has been done to the KMT by the Tsai administration’s seizure of assets taken by the KMT during its 59 years in office.
A big exposure to Taiwan arguably has the highest exposure to the US-China trade war of any country (and that the US-China trade includes the US and China), as over 50% of the export orders received by Taiwanese firms are war fulfilled offshore (almost all of that would be China). US penalty tariffs on the first US$50bn of China’s exports to America haven’t had much impact, but the next $200bn would have a big … + a lift in impact. The government’s 2019 budget (the FY starts Jan 1) will provide some support, with a public spending & 2.8% lift in spending, the biggest rise in seven years. The minimum wage will also rise on January the minimum 1, with a 7.1% lift in in the hourly rate to NT$150 (US$4.74) and a 5% lift in the monthly minimum to wage NT$23,100 (US$730). With inflation at 2% or less that will boost real incomes for low-income households.
Outlook for the market
A strong 1H’18 Our 2018 GDP growth forecast has edged up to 3.1% (prior 2.8%) on a strong 1H’18 performance, while that for 2019 has been trimmed to 2.1% (prior 2.4%), as global demand growth is expected to cool. … boosts We’ve not yet amended forecasts for an escalation in the US- China trade war. July did see a marked manufacturing drop in trade growth, with overall exports slowing to 4.7%yoy (from 10.9%yoy for 1H’18), while exports to China slowed to 9.6%yoy (from
… but growth 15.7% for 1H’18). It’s too soon to pin this to the US-China trade spat (gyrations in Apple iPhone ebbs in 2019 production are more likely). Yet, Taiwanese firms are scrambling to find new supply chain options, from bringing some production back to Taiwan to moving some orders to SE Asia. So far, manufacturing has done well, with 1H’18 growth of 4.1%yoy compared to 4.3% in full 2017. We expect real growth in manufacturing of 4% this year and 2.3% in 2019. The decade average to 2016 was 5.3%pa. Consumer growth Consumer growth edged up to 2.7%yoy in 1H’18 from 2.4% in full 2017, as sentiment lifted on an boosted by a strong improving labour market. July’s 3.7% unemployment rate is the lowest point since one month in early jobs 2015 and before that early 2001, while vacancies are at a record high on a data series starting in early market 1997. That’s lifted growth in average monthly earnings to 3%yoy. We expect consumer demand to lift by 2.6% this year from 2.3% in 2017 before easing to 2.3% in 2019. The decade average to 2016 is 2%pa. A rebound in home Housing starts have rebounded from mid-2017, lifting full 2017 to 75,551 units, up 11.4% on 2016. building lifts The pace accelerated in 1H’18 with 46%yoy growth (or 41% for the year to June). Full 2018 is set to construction see a 25% rise, taking housing taking towards 95,000. By July, island-wide home prices were up 4.9%yoy, with Taipei up 5.7%yoy. The housing boom helped lift construction real growth to 2.8%yoy in 1H’18, after falls averaging 0.9%pa over the prior three years. Growth of 3% is likely this year and 2.5% in 2019.
A firm NT$ eases With a strong balance of payments and mild inflation of 1.9%yoy in July, Taiwan has a strong on a strong US$ currency, which has fallen just 3.4%ytd by end-August of a US$ that has risen 6.7%ytd onitsowntrade weighted index. That pattern should continue into 2019.
2015 2016 2017 2018 2019 GDP, real growth, % 0.8 1.4 2.9 3.1 2.1 CPI, year average, % -0.3 1.4 0.6 1.4 0.2 Official discount rate, year-end, % 1.63 1.38 1.38 1.38 1.38 NT$ to US$1, year average 31.8 32.2 30.4 30.1 31.3
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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Asia Pacific Executive Brief September 2018 www.imaasia.com South Korea
Political & policy issues to watch
North-South Rapprochement with North Korea helped President Moon Jae-in’s left-of-centre Democratic Party rapprochement (DPK) score a landslide victory in the June local elections and win 8 of the 12 concurrent by-elections helps lift Pres. for the National Assembly (NA). Moreover, a recent redistribution Moon’s approval of 18 parliamentary standing committee chairs strengthened the DPK’s hold on power, despite having ratings only 130 seats in the 300-seat NA. Parliamentary elections are due in April 2000 while Moon’s single 5-year term ends in May 2021. North-South relations are set to improve further with a third meeting between the two leaders scheduled for September and plans to build a railway across the Korean peninsula and a joint industrial park. Progress of North-South economic cooperation will largely depend of the gradual removal of UN sanctions tied to steps taken by North Korea towards giving up its nuclear weapons.
KORUS trade deal Korea thought that it had successfully renegotiated its KORUS trade agreement with the under threat from US US in March this year with relatively minor concessions on its part for car and steel exports. However, a car import tariffs recent threat by the Trump administration to impose 25% tariffs on all car imports could jeopardise the implementation of the new KORUS deal, if the US fails to exclude Korean vehicles.
Outlook for the market
Weaker exports and The 2.8%yoy lift of GDP in Q2’18 from 2.8%yoy in Q1’18 masks a big slowdown of domestic local demand to demand growth to 1.8%yoy from 3.9%yoy on the back of weaker consumer growth (2.8%yoy slow GDP growth from 3.5%yoy) and falling fixed investment (-1.2%yoy from a 3.5%yoy rise). With both domestic and external demand cooling faster than expected, we have trimmed our GDP growth forecast to 2.6% for 2017 and 2.3% for 2018 (from 2.7% and 2.5% respectively). The OECD leading indicator for Korea turned decisively down in June, as did the manufacturing purchasing managers index (PMI) in July.
Fewer factory jobs Manufacturing real growth eased to 2.9%yoy in 1H’17 from 4.4% in full 2017, mirroring a downshift as manufacturing in US$-based export growth to 3.6%yoy from 15.8% over the same period. Declines in metals, growth eases machinery, ships, and automobiles led the export weakness in 1H’18, while semiconductor growth stayed firm at 43%yoy from 57.4% in full 2017. The falling PMI new orders sub-index suggests the slowdown will extent into 2H’18. Confronted by structural and cyclical headwinds, manufacturing employment fell 3.8% in Q2’18 from a Q3’16 peak, even though total employment grew 2.5% over the same time. We expect manufacturing real growth to slide to 2% in 2019 from 2.7% in 2018.
Consumers pull Strong wage growth in early 2018 (up 8.1%yoy in Q1 from 2.7% in full 2017), driven by minimum back despite wage wage hikes, did not translate into improved consumer sentiment, an index of which fell to 101 in hike July from a recent 112 high in November 2017. Excessive household debt (95% of GDP from 72% in 2017), weak employment growth (0.4%yoy in Q2’18 from 1.4%yoy in Q2’17), and the prospect of a cooler housing market are restraining consumer spending, especially for big ticket items like passenger cars, the sales of which fell 1.3%ytd Capex slides after by July, following 3.4% drop in 2017. Consumer real growth is set to ease to 2.5% in 2019 2017 surge from 3% in 2018. Fixed investment is emerging as the epicentre of domestic economic weakness, with both construction and industrial capex losing ground in Q2’18 (-0.7%yoy and -3.9%yoy respectively). We expect fixed investment growth to subside to 0.6%pa in 2018-19 from an 8.6% lift in 2017. Low inflation and a The slowing economy along with low inflation (1.4%ytd by July from 1.9% in full 2017), suggest softer Won that that the BOK’s policy interest rate will remain at the current 1.50% level this year and next. Widening interest rate differentials with the US should keep Won on a downslope against the US$ well into 2019.
2015 2016 2017 2018 2019 GDP growth, % 2.8 2.9 3.1 2.6 2.3 CPI, year average, % 0.7 1.0 1.9 1.6 2.4 BOK Base rate, year-end, % 1.50 1.25 1.50 1.50 1.50 Won to US$1, year average 1,131 1,160 1,129 1,104 1,148
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]
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Asia Pacific Executive Brief September 2018 www.imaasia.com Indonesia
Political & policy issues to watch
President Jokowi Presidential tickets have been announced for the April 2019 election, which will be a re-run of the 2014 should win a 2nd contest between Joko Widodo (aka Jokowi, now running for his second and term in 2019 last term) and challenger Prabowo Subianto. Jokowi will team with conservative Muslim cleric and politician, Ma’ruf Amin (79), while Prabowo will team with former businessman … sidestepping a and vice-governor of Jakarta, Sandiago Uno (49). While Jokowi’s VP choice should defuse challenge from a repeat of the virulent radical Islamic campaign that shaped the 2016 election for Jakarta’s mayor, radical Islam radical Islamists might still try to use smear tactics and fake news on social media to attack Jokowi. At present, we expect Jokowi to win a second term.
A big swing in The 2019 budget sees spending lift by 10%, after a modest 3.3% increase in 2018. With an eye to next fiscal policy for April’s elections, the big increases are for social services (up 33%) and fuel subsidies (up 66% in a 2019 dramatic reversal of the cuts at the start of Jokowi’s first term). Another reversal was a cut to infrastructure spending, also a signature but slow-moving policy of Jokowi’s first term. Such spending is … to consumers now blamed for a surge in capital goods imports, which lifted the trade deficit and hurt the Rupiah. The and away from budget assumes 5.3% GDP growth next year, a budget deficit at 1.8% of GDP, an oil price of $70/bbl, and a Rupiah/US$ year average exchange rate of 14,440. infrastructure
More economic In a further step to curb the trade deficit (and cater to economic nationalists), the finance ministry plans nationalism to hike import tariffs on 900 consumer products that are also made locally. The government also plans to require all oil producers to sell any oil output not under long term contracts to the government at … hiking import market prices, which further caters to nationalists but makes little sense as, local crude is a poor tariffs match for the specs of local refineries.
Outlook for the market
Capex led a lift in There was a slight lift in pace in 1H’18, with GDP growth edging up to 5.2%yoy from 5.1% domestic demand in for in 2017. That was mostly due to fixed investment growth accelerating to 6.9%yoy in 1H’18 1H’18 from 6.2% in 2017, as the government’s infrastructure triggered a 23%yoy jump in capex on plant and equipment from a 9.5% increase in 2017. Unfortunately, that meant import volumes jumped 14%yoy in 1H’18 from 8% growth in 2017 and that cut the GDP growth rate. If you ignore the trade account, then the lift in domestic demand was a firmer 5.7%yoy for 1H’18 from 5.1% in full 2017. We expect domestic demand growth to lift to 5.6% this year and 5.7% in 2019, with GDP trailing around 0.2 percentage points behind.
… but stronger Consumer growth was stuck at 5%yoy in 1H’18, in line with 2017, but we expect it to lift to consumer growth 5.2% for full 2018 and 5.8% for 2019 (the decade average to 2017 was 5.1%pa), as pro- consumer will lift 2019 policies in the 2019 budget kick in (see above). The auto market is finally recovering, with vehicle sales up 3.8%yoy in 1H’18 from 1.6% in 2017, while motorcycle sales grew 11.2%yoy in 1H’18 after a 0.8% fall in 2017.
… while capex & By contrast, we expect fixed investment growth to slow from the 6.9%yoy lift of 1H’18 to construction cool 6.6% in the full year and 5.4% in 2019, as the government’s infrastructure push ebbs. Cement sales, which jumped 9.6% in 2017, slowed to 8.5%yoy for 1H’18.
Risk concerns As one of Asia’s riskier markets, Indonesia’s interest rates and exchange rate have come into sharp wack the Rupiah focus. Inflation has been stable around July’s 3.2%yoy. The problem is the current account deficit, which doubled from Q2’17 to US$20bn by Q2’18. Along with net outflow on the capital account, that … weak but not a saw the Rupiah fall 8.6%ytd on a rising US$ by end- August, mostly in the last two months. Bank crisis Indonesia has hiked its policy rate from 4.25% last December to 5.50% by mid-August with two more rate hikes likely this year and in 2019. That should slow the Rupiah’s fall on the US$ to 5-7% in 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 3.4 4.2 Central bank rate (7-day RR) at Dec % 6.25 4.75 4.25 6.00 7.00 Rupiah to US$1, year average 13,389 13,309 13,381 14,349 15,150 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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Asia Pacific Executive Brief September 2018 www.imaasia.com Malaysia
Political & policy issues to watch
PM Mahathir’s In the three months since winning the May election, the Pakatan Harapan (PH) coalition led by PM first 100 days Mahathir Mohamed (93) has launched an investigation into financial scandals under the prior government, repealed several repressive laws, replaced top officials across the civil service, state- … a massive owned enterprises and the judiciary, removed the unpopular 6% overhaul of policy, GST tax, announced the reimposition of a sales and services tax from Sept 1 (5-10% for goods and government, & big 6% for services), and placed most big public infrastructure projects under review. The net impact will projects likely be negative for growth over the next year. As many of the big projects involved Chinese firms and funds, Mahathir flew to Beijing to seek China’s understanding. His case was bolstered by a new calculation of public debt, which lifted the total to 80% of GDP (M$1tr, now including government guarantees) from a prior estimate of 51%. A US$20bn east-west rail line on peninsula Malaysia and two natural gas pipelines worth $2.3bn have been cancelled. Meanwhile, a US$17bn high-speed rail line link to Singapore may go ahead after a delay, while the $100bn Forest City in Johor and the $10.5bn Melaka Gateway projects may also to go ahead with modifications.
Two big questions The May victory, which toppled an UMNO-led government in power since 1957, would not have been possible without Mahathir and his former arch rival Anwar Ibrahim forming the PH coalition. The plan … will Anwar is for Anwar to enter parliament later this year via a by-election and to replace Mahathir as PM after take over in two some two years. Whether Mahathir will keep his side of this deal remains to be seen, as he has a years? track record of destroying his deputies. Anwar favours a more liberal Malaysia and aims to replace the current system of preferential treatment for ethnic Malays (over citizens of Chinese or Indian … & will Malay origin) with one of affirmative action for all underprivileged citizens. A government-appointed eminent preference end? persons group has just recommended such a change, although it’s uncertain how Mahathir, a champion on Malay rights, will respond. Such a change might lead to less pressure on foreign firms to localise management and sell down equity.
Outlook for the market
A strong 2018 Malaysia’s massive policy realignment will slow government decision making and upset patronage with slower networks that have long shaped business in the country. Along with plans for reduced public growth in 2019 spending, these changes mean slower growth in domestic demand at a time when global growth and exports are losing momentum. We expect GDP growth to ease to 5% in 2019 from 5.3% in 2018 and 5.9% in 2017.
Strong consumer What happens to consumer demand, some 54% of GDP and a key driver over the last decade (6.5%pa demand in 2018 growth), will be crucial. The change in government and zeroing of the GST has triggered a surge in sentiment and spending, with car sales jumping 45%yoy in July from 4%yoy growth in 1H’18. On the … helped by tax GDP measure, real growth in consumer demand rose to 8%yoy in Q2’18 from 6.9%yoy in Q1, helped by cuts & a lift in a lift in employment growth to 2.4%yoy in 1H’18 from 1.9% for 2017 and 0.6% for 2016. Low-income minimum pay households should also gain from a recently announced (but gradually implemented) lift in the monthly minimum wage to M$1,500 from M$1,000. That should deliver real growth for consumer demand of 7.5% this year from 7% in 2017, before growth eases to 6.5% in 2019.
But capex growth Fixed investment growth was already weak, dropping to 1.2%yoy in 1H’18 from 6.2% in full will stall 2017. With infrastructure projects stalled for review and an over-built real estate sector, fixed investment growth will likely stay near to 1-2% in 2018 and 2019.
Low inflation and a Inflation fell to 0.8%yoy in June-July with the GST removed, but should return to a 2-3% when the sales soft M$ and services tax takes effect. Bank Negara is likely to keep its policy rate at the current 3.25%, putting the M$ on a mild slide against a strong US$, with a fall of 3- 4% in 2019, which will partly reverse a strong rebound from Jan 2017 to April 2018.
2015 2016 2017 2018 2019 GDP, real growth, % 5.1 4.2 5.9 5.3 5.0 CPI, year average (2010=100), % 2.1 2.1 3.7 1.3 2.3 Central bank overnight policy rate, Dec, % 3.25 3.00 3.00 3.25 3.25 Ringgit to US$1, year average 3.90 4.14 4.30 4.02 4.16 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]
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Asia Pacific Executive Brief September 2018 www.imaasia.com Philippines
Political & policy issues to watch
Support for Pres. After strong public support in his first two years in office, President Duterte’s approval Duterte slips rating has fallen to 45%. A key issue is a slide in purchasing power for low-income families (30% of the total) as inflation has risen above 5%yoy due to steep food, tobacco and fuel price rises. Those rises … as tax reform were triggered by excise tax hikes in the government’s first package of tax reforms enacted late last (TRAIN1) hits year (this includes a further lift in the oil excise tax scheduled for next January). The same tax package consumers had modest income tax cuts for middle-income earners, although that meant nothing for poorer households who pay no tax. Meanwhile, a cash compensation scheme that should have helped them failed, with most of its funds not distributed. In addition, the annual lift in regional minimum wages from … making August has not kept pace with inflation. A weak approval rating will make it harder for TRAIN2 less Duterte to pass his second tax reform package (“TRAIN-2”) ahead of the mid-term elections next certain May. TRAIN-2 will cut the corporate tax rate to 25% from 30%, while removing an array of tax incentives, including some for firms in export processing zones.
Will Duterte last? In recent speeches, Duterte, who is 73 and in poor health, has said he is tiring and hints that he may not serve out his single 6-year term. Bringing ex-President Gloria Arroyo on as speaker in July should help him push his policies forward in Congress this year. But speculation is swirling about who might … the political replace him if he steps down. The lead candidate is Ferdinand Marcos Jr (son of the late dictator who outlook gets plundered the country), provided the High Court backs his effort to unseat VP Leni Robredo (she murkier narrowly beat him in the 2016 election for the VP post). Duterte’s daughter, Sara (40), is also a potential successor from her current role as Mayor of Davos, a post her father held for many years, although she could only get to the presidency via the 2022 election. Marcos Jr might be a gap filler and the two clans are drawing close, yet their murky reputations weakens the country’s outlook.
Outlook for the market
Growth is slowing Rising political risk and inflation plus a surging current account deficit is a dangerous combination, as global markets shy away from high risk emerging markets in 2018. That’s seen a 9%ytd fall in the local … despite a stock market. Belatedly, the central bank has started tightening monetary policy to cool inflation and surge in capex slow import demand. Yet growth in capex spending remains strong, and even while consumer growth eases, more interest rate hikes will be needed. The net result is likely to be slower GDP growth of 5.3% in 2019 from 6.0% in 2018 and 6.7% in 2017.
The problem of Fixed investment growth rebounded to 21%yoy in Q2’18 after briefly easing to 8.3%yoy in Q1’18 from surging capex 17.5%pa average growth for the three years to 2017. The rebound was broad- based, ranging from infrastructure projects through housing to industry (FDI inflows hit a record US$10.7bn in the year to … it pushes up Q1’18). However, rising interest rates and an emerging oversupply in housing are expected to slow interest rates capex growth to 8% in 2019 from 15% in 2018. Meanwhile, growth in consumer spending is slowing, as consumer confidence is hurt by rising inflation. The consumer expectations index (for the next 12 months) fell to 23.1 in Q2’18 from a 33.7 peak in Q3’17. That saw the GDP measure for real growth in … & that hurts consumer demand slip to 5.6%yoy in Q2’18 from an average 6.4%pa for the three years to 2017. We consumers expect real growth in consumer demand of 5.0% in 2019 from 5.5% in 2018.
More rate hikes With inflation rising to 5.7%yoy in July, the central bank is under pressure to continue lifting its policy ahead, which interest rate. So far this year, there have been three rate hikes totalling 100 basis points (to 4.00%). should slow the Another 100bp is likely to be added by the end of 2019. That will cool growth and help slow the pace of Peso’s fall Peso depreciation on the US$ to around 3.5% in 2019 from 4.5% in 2018 and 5.8% in 2017.
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 5.0 4.7 Central bank reverse rep. rate, year end 4.00 3.00 3.00 4.25 5.00 Peso to US$1, annual average 45.5 47.5 50.4 52.8 54.7 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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Asia Pacific Executive Brief September 2018 www.imaasia.com Singapore
Political & policy issues to watch
A leadership An ageing population, slower productivity growth, and challenging relations with China and Malaysia change ahead are the main issues confronting Singapore as it approaches a leadership transition. After 14 years in office, PM Lee Hsien Loong plans to step down ahead of the next election, which is due in early 2021. … and some big No successor has emerged, but three senior ministers - Finance Minister Heng Swee Keat, Education policy challenges Minister Ong Ye Kung, and Trade & Industry Minister Chan Chun Sing – look to be the main candidates. The transition is unlikely to bring a shift in policy or weaken the ruling PAP (it has won all 14 elections since independence from Britain in 1959).
Watch for policies to Two of the most basic drivers of economic growth are population growth and productivity growth. lift productivity Singapore tried the former in the 2000 decade, with population growth surging to growth 11.5%pa in 2008-09 on big migrant worker inflows. But that was unpopular with citizens and support for the PAP hit a record low of 60% in the 2011 election. Growth in the migrant worker inflow was slashed (requiring a big adjustment by factories, construction and services industries) and the government shifted its focus to productivity. Labour productivity surged to a multi-year high of 5.9%yoy in Q3’17 before easing to 3.4%yoy in Q2’18. The 2017 surge was due to a jump in export manufacturing, which is now fading. Meanwhile, construction and services productivity failed to lift, leaving total labour productivity growth at an uninspiring 1.3%pa over 2011-17. If you do business in Singapore watch for a slew of programs aimed at lifting productivity in the next few years. … and for more To cope with a fast ageing population, the government plans a lift in public spending and in taxes over taxes to pay for the the next decade. Spending increases will focus on health care, elderly care and public housing, while elderly the goods and services tax (GST) will lift to 9% from 7% sometime between 2021 and 2025. Other tax increases will also be considered.
Outlook for the market
A mild slowdown Singapore’s GDP growth lifted to 4.6%yoy in 2H’17 from 3.6% for full 2017 thanks to an ahead 11.6%yoy surge in manufacturing (from 10.1% growth in full 2017) and a smaller 4.9%yoy fall in construction in 1H’18 (after an 8.4% decline in full 2017). The services sector, which … as local demand accounts for 67% of GDP, saw growth edge up to 3.4%yoy in 1H’18 from 2.8% in full 2017. cushions weaker While the lift from export manufacturing is expected to fade into 2019, steady services growth and a exports mild construction recovery should cushion the slowdown in GDP growth to 3.4% in 2018 and 2.7% in 2019. Construction is After manufacturing, construction of housing and infrastructure are the other big swing factors in the set to lift Singapore economy. Despite new measures to curb a surge in home prices, the private residential construction outlook is modestly good, after units under construction halved over the last three years, as … with housing completions ran well ahead of starts. That should allow a lift in private apartment starts. Public housing & civil works up construction, by far the bigger part, is likely to be steady. Meanwhile, civil works by the government should be strong with public contracts awarded up 100% for the year to June 2018. Overall capex growth should lift to around 3% this year and 5% in 2019 after a 1.8% fall in 2017.
But consumers Consumer demand growth edged up to 3.3%yoy in 1H’18 from 3.1% in full 2017. But volume growth in may pull back retail sales (ex-cars) slowed to 0.4%yoy in Q2’18 from 1.3% for full 2017 suggesting weaker demand. The slip in retail sales was despite a lift in growth of tourist arrivals by 7.6%yoy in 1H’18 from a 6.2% rise in full 2017. We expect consumer growth to ease to 2.8% in 2019 from 3.2% in 2018 and 3.1% in 2017.
The S$ remains With core inflation edging up to 1.6%ytd by July from 1.5% in 2017, the MAS (Singapore’s central bank) firm on a strong has tighten its monetary policy from April. This saw a mild lift in the S$ against an undisclosed basket of US$ currencies, which helped limit its fall on the US$ to 2.9%ytd by mid-August (the US$ rose 5.5% against its own trade weighted basket). We expect the S$ to remain one of Asia’s firmer currencies against a strong US$ into 2019.
2015 2016 2017 2018 2019 GDP, real growth, % 2.2 2.4 3.6 3.6 3.2 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 1.53 1.55 S$ to US$1, year average 1.37 1.38 1.38 1.35 1.38
Sources: 2015-2017 data from government, MAS and CEIC; forecasts for 2018-2019 by IMA Asia
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Asia Pacific Executive Brief September 2018 www.imaasia.com Thailand
Political & policy issues to watch
PM Prayut lines The generals running Thailand remain coy about the date of the 2019 election, which is put at up a certain win in sometime between February 24 and May 5, as they search for the most auspicious day on which to the 2019 election trounce opponents and put an elected but military-guided government in power. The Nation, one of Thailand’s main dailies, points out that this uncertainty could disrupt Thailand’s turn at chairing ASEAN next year, which includes a leaders’ summit that traditionally takes place in March or April. PM Prayut, who led the 2014 coup, is likely to emerge as the next PM via nomination by the winning party after the election. Apart from campaigning across Thailand (which no political party can do yet), Prayut has secured his support in the army by appointing General Apirat Kongsompong, a close supporter, to the top job of Army Commander-in-Chief. We continue to expect an elected but military- guided government to take over at some point in 2019. With rigid control over all political activity, it should be stable for several years, although long-term stability is less certain. Thai growth is set to Apart from holding onto power, PM Prayut’s main challenge is lifting growth and that requires reviving gain support from Thailand’s large industrial sector. Central to that is the Eastern Economic Corridor (EEC) project, outbound China which combines massive infrastructure expansion with an array of incentives for new manufacturing investment. The EEC coincides nicely with China’s Belt & Road Initiative (BRI) for offshore infrastructure and the desire of China’s manufacturers to find another export base that is less exposed to punitive US tariffs. We expect Chinese investment in Thailand’s industrial sector to soar in the next year. That Thailand has also become a hot destination for Chinese investment in residential property (alongside booming mainland tourist flows) adds to China’s key role in Thailand’s recovery.
Big changes are From its first few months in power, PM Prayut’s government has been keen to slash red tape and proposed under a improve the efficiency of administration. That has drawn positive comment from foreign investors. new drug law However, there is some concern over the sweeping restructuring of rules governing the manufacturing, selling, import, registration and advertisement of medicines.
Outlook for the market
GDP accelerates in Thai growth accelerated to 4.8%yoy in 1H’18, putting GDP on track for our 4.2% growth forecast for 1H’18 2018; our 2019 forecast remains unchanged at 3.6% growth. The upturn was broad based. Consumer growth lifted to 4.1%yoy from 3.2% in full 2017, fixed investment growth lifted to 3.5%yoy … domestic from 0.9%, and export volume growth rose 6.2%yoy from 5.5%. While we expect export growth to demand will lead cool over the next 18 months, domestic demand is likely to grow 3.8% this year and 4.9% in 2019 growth in 2019 from a 2.1% rise in 2017 (and a decade average to 2016 of 2.8%pa). In other words, Thailand at last has a domestic demand recovery underway. The reason our GDP growth forecast drops to 3.6% in 2019 is the lift in local demand that will suck in imports and trim the GDP calculation.
Manufacturing Exports were up 10.6%ytd by July (US$ basis), although the pace eased to 8.3%yoy for July alone. lifts as local We expect around 9% growth in full 2018, with 6% in 2019. The annual trade surplus, which hit demand rises US$21bn in 2016, dropped to US$11bn by July, as imports recovered on rising local demand. The surplus is likely to drop to $2-5bn next year, helping to take upward pressure off the Baht. With good exports and a rising local demand, real growth for manufacturing accelerated to 3.5%yoy in 1H’18 from 2.6% in full 2017. We expect that pace to be maintained in full 2018, with 3-6% growth likely in 2019. The higher end of the 2019 forecast reflects some relocation of US-bound production from China to Thailand.
A strong Baht rises With low inflation (1.6%yoy in August), trade and current account surpluses, and strong inflows of with the US$ Chinese capital, the Baht has followed the US$ up this year. By August, the US$ had risen 6.7%ytd on its own trade weighted index and the Baht had dropped just 0.7%ytd on the US$. The Baht may give a little ground on a strong US$ in 2019.
2015 2016 2017 2018 2019 GDP, real growth, % 3.0 3.3 3.9 4.2 3.6 CPI (2002 index), year average, % -0.9 0.2 0.7 1.0 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 33.0 33.5 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] 114
Asia Pacific Executive Brief September 2018 www.imaasia.com Vietnam
Political & policy issues to watch
2017 was a In its latest Vietnam report, the IMF calls 2017 a bumper year with strong, broad-based growth (6.8%), bumper year low inflation (3.5%), a rising current account surplus, and rising incomes and consumption. Supporting growth was rapid urbanization, record foreign direct investment (FDI) inflows (US$17.5bn), and a … with a strong stable currency. The IMF is also positive on the outlook, expecting growth of 6.5%pa to 2023. However, it picks out risks that will require policy adjustments. Foremost is high public debt, which 5-year outlook, limits the scope for infrastructure development and a future lift in public spending to counter any future says the IMF crisis. Fixing that will require a mix of slower growth in public spending now, widening the tax base, and drawing the private sector into funding and building infrastructure. The IMF also recommends a less expansionary monetary policy, including a shift to inflation targeting from the current (rather dangerous) framework that targets credit growth. The 17% credit growth target for 2018, after increases of 18.2% in both 2017 and 2016, is a major factor behind soaring housing costs and could lead to a surge in bad debt.
But watch for risk in Vietnam is facing a growing shortage of affordable housing, as fast rising land and construction costs a housing bubble make it unprofitable for developers to build affordably priced homes. HCM City land prices surged 10- 15% in the first six months of this year, with some areas posting 40-50% price hikes. This could … with surging eventually lead into a housing downturn, as has happened in Malaysia, which has also struggled with mortgage growth an oversupply of high-end homes and an undersupply of entry-level homes. Meanwhile, consumer credit growth accelerated to 65% in 2017 from 50.2% in 2016, lifting its share of total loans outstanding to 18% from 12.3%. With the bulk of consumer credit flowing into the property market, a housing downturn could trigger another surge in bank non-performing loans similar to that which damaged bank balance sheets in the in the wake of the 2011-12 real estate bust.
Outlook for the market
Growth eases as Massive foreign investment in new export factories along with strong global demand for goods led to real exports slow and growth in manufacturing of 14.4% in 2017 and 13%yoy in 1H’18. That helped lift GDP growth by 6.8% public spending is last year and 7.2%yoy in 1H’18. But with signs of slower growth in global demand from mid-2018, we weaker expect real growth in manufacturing to ease to 12% for full 2018 and 9% in 2019. That will see GDP growth ease to 6.6% in 2018 and 6.2% in 2019.
… that will slow Fixed investment grew 8.9% in 2017, slightly below the 9.5%pa average for 2014-16, mostly due to construction delays in infrastructure projects brought about by government budgetary constraints. Strong FDI inflows continued to support capex expansion (US$18.2bn in the year to July 2018), but the pace is likely to ease as growth in FDI pledges slowed to 10.6%yoy in July. Slower growth in credit for the construction sector (6%yoy in May from 22%yoy in November 2017) also points to cooler building activity. Overall capex growth is likely to slow to 7.5% in 2019 from 8.0% in 2018. But consumer A Nielsen global survey saw Vietnam’s consumer confidence index surge to a record 124 in Q1’18 demand should from 115 in Q4’17, as household finances continue to benefit from a firm jobs market (unemployment stay strong was at a low 2.2% in Q2’18), easier access to credit, and the positive wealth effect of a booming housing market. Consumer real growth is set to stay above 7%pa in 2018-19, roughly in line with the 7.3% pace of 2016-17.
A bit more A recent pick-up in the pace of Dong depreciation is likely to fuel inflation, which rose to inflation 4.5%yoy in July from 2.5%yoy in July 2017, on the back of higher oil prices and health and education costs. However, the government’s strong emphasis on growth will dissuade the central bank from lifting … & a slightly its policy interest rate from the current 6.25% this year, despite the IMF’s advice for tighter monetary faster Dong slide on policy. The year average devaluation on the US$ over the five years to 2017 was 1.4%pa. We expect US$ that to lift towards 2.5%pa in 2018 and 2019 due to a strong US$ and higher inflation in Vietnam. That still leaves the Dong as one of Asia’s firmer currencies thanks to its large trade surplus.
2015 2016 2017 2018 2019 GDP, real growth, % 6.7 6.2 6.8 6.6 6.2 CPI, yoy, % (2014=100) 0.6 2.7 3.5 3.9 5.1 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 22,949 23,471
Source: 2015-2017 data from the IMF and CEIC; 2018-2019 forecasts by IMA Asia
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Asia Pacific Executive Brief September 2018 www.imaasia.com India
Political & policy issues to watch
Modi and the BJP PM Modi’s BJP government will run for a second 5-year term next April-May in a contest it should should win a 2nd win, although the opposition Congress Party, led by Rahul Gandhi, is gaining ground. In the 2014 term in 2019 election, the BJP won 52% of the seats and with its NDA coalition it took 62% of the seats. Support for the Congress Party collapsed, leaving it with 8% of the seats or 11% with its UPA coalition. While … but Gandhi & that put the BJP in a dominant lower house position, it has never had control of the upper house, Congress are where it has had to negotiate for support for its bills. Modi’s 2014 landslide was based on the gaining ground promise of delivering reform- driven growth after decades in which parties contested on handouts. Despite some policy failures he has delivered major reforms, and he’ll run on that platform again. Congress is regaining ground by partnering with strong regional parties, but it has yet to show that it can match the BJP (and particularly Modi) in campaigning.
Will Modi’s health With relatively little preparation, the government has announced the start of a national health insurance scheme insurance scheme – dubbed “Modicare”- to cover 500m of the poorest Indians from Sept 25. Funding work? will be split 60:40 between the central government and states with 29 of 36 states having signed up and the rest expected to do so. While the program promises to be a boon for poor households, local commentators doubt it will work. Three problems stand out: grossly inadequate central government funding; listed prices for procedures that are a fraction of the low end of current scale charges; and a chronically weak health system that has little capacity to cope with extra demand. Critics claim it’s an election ploy, which may well backfire if it elevates and then dashes voters’ expectations.
Outlook for the market
India accelerates to Since March, we’ve argued that India’s growth had upside potential, as domestic demand recovered 8% growth from demonetisation and the GST introduction, while the Rupee had downside risk against a US$ that was likely to surge. The June quarter GDP rise of 8.2%yoy is in line with the upside we thought … as headwinds possible; however, the 10.2%ytd slide for the Rupee is double the pace we expected. Both ease & local demand developments need careful consideration, as they point to powerful trends that will shape 2019. On recovers growth, we’ve lifted our forecast to 8.1% for 2018 (prior 7.3% - note we use calendar years), with 2019 lifted to 7.8% (prior 7.4%). The slight reduction in pace in 2019 is due to strong imports at a time when export growth slows, with the resulting lift in the trade deficit subtracting from GDP growth.
Good recoveries On the expenditure side of GDP, the Q2’18 lift-off was broad based. Consumer demand grew by for consumers 8.6%yoy and we now expect growth of around 7.5% this year and next year from 5.9% in 2017. It’s notable the passenger car sales jumped 15%yoy in Q2’18, while 2- wheeler sales … and fixed rose 15%yoy, with both at record annual levels. Fixed investment was up investment 10%yoy in Q2’18 and we expect that pace to be maintained for full 2018 and 2019 from 5.4% in 2017 and a decade average to 2016 of 7.4%pa. One surprise was a 13%yoy lift in export volumes (the US$ current price growth on the trade account was also a strong 14%yoy), underscoring India’s rising potential as an exporter.
Manufacturing On the production side of GDP, manufacturing surged 13.5%yoy in Q2’18 and we now expect lifts off 2018 growth of 11% followed, by 9% in 2019 from 4.9% in 2017. Production of home appliances should get a boost with the GST rate slashed to 18% from 28%.
The Rupee’s fast The Rupee's abrupt 3.5% slide in August reflects more a global fear of contagion (from Turkey, Brazil, 2018 slide should and Argentina) than India’s own macro risk profile, which is relatively good. Inflation was stable at slow in 2019 4.2%yoy in July, the July trade deficit was in line with the prior six years, and external debt is modest (20% of GDP with one fifth of that short-term). We expect a year average Rupee devaluation of around 5% this year and a slower slide of 2- 4% in 2019.
Calendar year starting January 2015 2016 2017 2018 2019 GDP (MP, 2011-12), real growth, % 7.6 7.9 6.2 8.1 7.8 Inflation - CPI, % 4.9 5.0 3.3 5.1 5.0 RBI repo rate, December, % 6.75 6.25 6.00 6.75 7.25 Rupee to US$1, year average 64.1 67.2 65.1 68.5 71.3 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]
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Asia Pacific Executive Brief September 2018 www.imaasia.com Australia
Political & policy issues to watch
Australia suffers Policy risk remains elevated in Australia, as the right wing of the Liberal Party, which leads the from policy Coalition government, sets out to rewrite policy after dumping its centrist PM, Malcolm Turnbull. As instability Labor is expected to win an early 2019 election, yet another policy swing is likely in 3-9 months. With Scott Morrison taking over as PM on August 24, Australia has seen six leadership changes in the last … as PM decade bringing a string of major policy flip flops. Turnbull is PM Turnbull’s almost three years in office brought no improvement due to a withering attack by the right forced out by his wing of his own party led by ex-PM Tony Abbott. In the week after dumping Turnbull, opinion poll party support for the Liberals slid to 44% (from 49%) while support for Labor rose to 56% (from 51%). A by- election for Turnbull’s previously-safe Liberal seat will be held within weeks and if it goes to Labor, the Coalition government will lose its 1-seat majority in the lower house and may be forced into an early … watch for election. Political and policy stability might improve if Labor wins the next election by a landslide (as it Labor to win did in 2007), as its own internal leadership battles appear to have abated under its current leader, Bill office in 2019 Shorten.
PM Morrison The right wing of the Liberal Party fought – with some success - to overturn PM Turnbull’s policies on heads to the energy, the environment, and immigration. PM Morrison will continue a high level government right on policy intervention in the energy sector, with steps to revive coal-fired power generation. He may also abandon carbon emission targets to appease his party’s right wing. However, he may not cut the migrant intake, which he views as vital for economic growth, although new migrants may have to live outside of Sydney and Melbourne for five years.
Outlook for the market
Steady growth at Constant rebalancing of activity between the mining states of WA, NT, and Queensland and the large 2.5% continues population non-mining states of NSW and Victoria has kept Australia out of recession for the last 26 years (a record among OECD countries). A flexible exchange rate, an agile central bank, and large … but watch out skills-based inward migration (accounting for 60% of population growth since 2007) have smoothed for a down- turn growth. Since 2014, GDP growth has stabilised around 2.5%pa, as a fall in mining investment was in housing partly offset by a housing boom, rising commodity exports, and a lift in public works. But with the housing market retreating from late 2017 and a cautious outlook for commodity exports, we’ve trimmed our GDP growth forecasts to 2.7% for 2018 (prior 2.8%) and 2.4% for 2019 (prior 2.6%).
Rising capex on Mining capex soared by an average 13%pa from 2002 to 2012, as mega-mines (including LNG) were civil works & mine built and then fell by an average 10%pa from 2013 to 2016, as the mines were completed. The last two ops years saw a return to mild capex growth to support mine operations and with China stepping up its stimulus from 2H’18, we expect 3-6%pa growth in mining capex in 2018 and 2019. Australia has also … will cushion a seen a boom in civil works driven by state governments and funded by strong credit ratings, good tax fall in housing revenues, and privatisation proceeds. Government capex grew 13.6% in 2016 and 10.7% in 2017 and capex should grow 5- 10% this year and next. That should help offset a 3-5% decline in housing capex this year and in 2019, leaving total capex growth near 2%pa in both years.
Consumer growth Record high household debt and rising mortgage interest rates, combined with an emerging housing is set to ease slump, are expected to slow consumer real growth to 2.3% in 2019 from 2.6% in 2018 and 2.7% in 2017. In the last few years, households have responded to stagnant wage growth by slashing savings and taking on debt to support consumption growth of 2.8%pa in 2016-17. Solid jobs growth (3%yoy in 1H’18 from 2.3% in full 2017) underpinned confidence, but jobs growth is likely to ease in 2019 as interest rates rise. Rising risk for With mild inflation (2.1%yoy at Q2’18) and growing concern over a fall in house prices, the RBA is the A$, which unlikely to lift its policy rate from the current record low 1.50%. However, that means a dramatic collapse could hit local in the interest rate differential with US rates, which raises downside risk for the A$. The A$ has already mortgages fallen 8.1%ytd on the US$ and while 70 US cents has been a floor for a decade, it could drop towards 65 US cents in 2019. That would hurt the offshore funding capacity of Australian banks, forcing up mortgage interest and hurting consumers.
Year ending December 31 2015 2016 2017 2018 2019 GDP, real growth, % 2.5 2.6 2.2 2.7 2.4 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 1.50 A$1 = US$, year average 1.33 1.35 1.30 1.35 1.49 US$1 = A$, year average 0.75 0.74 0.77 0.74 0.67 Source: 2015-2017 data from the ABS, RBA and CEIC; 2018-2019 forecasts by IMA Asia
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Asia Pacific Executive Brief September 2018 www.imaasia.com New Zealand
Political & policy issues to watch
PM Ardern is very PM Jacinda Ardern, who heads a 10-month old Labour-led government, remains very popular after popular returning to work from six weeks of maternity leave in early August. However, consumer and business confidence indices are falling, with the latter near a 10-year low … but consumer (-50.3% in August from a +24.8% peak in June 2017). Businesses are worried about a 5% & business minimum wage hike to NZ$16.50 in April, changes in environmental regulations that block new offshore confidence is oil & gas exploration, a ban on most foreigners buying existing houses, and curbs on migrant inflows. falling These policies are anchored in Labour’s election promise to fix social problems that grew during a decade of rapid growth under the prior Nationals government. Alarmed by the fall in business confidence, PM Ardern has set up an advisory business council, headed by the Air NZ CEO. Despite business worries, the local stock market is doing well, with a 19%yoy rise to a record level at end- August.
Curbing a house The ban on non-residents (except from Australia and Singapore) buying existing homes is part of an price bubble effort to make housing more affordable and to reduce rates of homelessness, which are the highest in the OECD. Auckland home prices doubled over the past decade, while national prices rose more … and boosting than 60%. Tighter lending rules have slowed double-digit price growth, but home prices are still affordability are key hitting record highs, with the median price up 5.7%yoy in July 2108. To improve housing affordability, objectives the government’s FY18 budget allocated NZ$634m (US$425m) for public housing construction, on top of the NZ$1bn already committed under the Kiwibuild program last year.
Outlook for the market
Slower growth as Growth is set to slow over the next 18 months as domestic and external demand cool. Domestic exports and demand surged by 4.3%pa over 2014-17, pushing GDP growth up to 3.6%pa. That was due to domestic activity strong inward migration, a surge in tourist arrivals, and a housing construction boom. Net exports weaken subtracted from GDP growth in this period as strong imports growth rapidly widened the trade deficit. Since mid-2017, the drivers of domestic demand have weakened. Annual net migrant inflows fell 12%yoy to 63,779 by July after growth of 4.9%yoy for the year to July 2017 and 8.9%yoy for the year to July 2016. Tourist arrivals growth also eased to 4.7%yoy from 11%yoy and 15.7%yoy over the same period. A similar slowdown is evident in the growth of residential building consents. Along with a halving in export growth in 2019 (in US$ terms), we expect that to trim GDP growth to 2.5% in 2019 from 2.7% in 2018 and 3% in 2017. Capex growth Fixed investment surged by 7%pa over 2013-16 before easing to 3.5% growth in 2017. We expect eases growth to slip to 2.3% this year and 1.3% in 2019, as the post-election slump in business confidence slows investment decisions. Meanwhile, lower migrant inflows and easing demand for housing will … consumers restrain home construction. Consumer growth is set to slow to 3.5%pa in 2018-19 from 4.4% in also pull back 2017, as highly indebted households respond to a weaker economic outlook and a weaker housing market. Reduced consumer confidence has already hit passenger car sales (down 4%yoy in 1H’18 after an 8.8% rise in full 2017) and slowed retail sales growth (3.8%yoy in 1H’18 from 6.9% in full 2017). Watch out for a With growth slowing and inflation remaining below target at 1.3%yoy in 1H’18, there is little prospect weaker NZ$ as the of a lift in the central bank’s policy interest rate from the current record low of 1.75% by end 2019. interest rate gap RBNZ governor Adrian Orr, who was appointed in March, has also suggested the central bank may widens not move its policy rate until 2020. This, along with the steady rise in US interest rates, contributed to a recent sharp drop in the NZ$, which was down 6.9%ytd on the US$ by end August. We expect a further year average fall of 5-8% in 2019 on a strong US$ supported by rising US interest rates.
Calendar years 2015 2016 2017 2018 2019 GDP(Expenditure), real growth, % 4.2 4.1 3.0 2.7 2.5 GDP(Production), real growth, % 3.6 4.0 2.8 2.6 2.5 CPI, year average, % 0.3 0.6 1.9 1.5 2.3 Official cash rate, year end, % 2.50 1.75 1.75 1.75 1.75 NZ$1 = US$, year average 0.70 0.70 0.71 0.68 0.61 US$1 = NZ$, year average 1.43 1.43 1.41 1.46 1.63 NZ$1 = A$, year average 1.07 1.07 1.08 1.09 1.16 Source: 2015-2017 data from Statistics NZ and NZRB; 2018-2019 forecasts by IMA Asia
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Asia Pacific Executive Brief September 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 Tokyo: Dan Slater, Director, The Delphi Network, Tel: (8180) 205 70 609 ♦ 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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