Traffic congestion cost Phl P137 billion last year
By Lawrence Agcaoili
(The Philippine Star)
Updated September 27, 2012 12:00 AM
MANILA, Philippines - With economic losses from traffic congestion reaching P137.5 billion last year, the government is launching several infrastructure projects, including modernizing and expanding the country’s rail system to make commuters depend less on road transport.
In his opening address at the 2012 Philippine Energy & Infrastructure Business Meeting, Transportation Undersecretary Rene Limcaoco said the projects being readied – once completed – would greatly help decongest roads and reduce transport costs.
“This drives home a strong point for us in the government,” Limcaoco said, referring to the huge economic cost of traffic congestion as shown in a study published by the National Center for Transportation Studies.
He said there is a need to improve the country’s railway system to entice more Filipinos to use the mass transit system.
He said only four percent of Filipinos use the railway system compared to 32 percent in South Korea, 30 percent in New York, and 20 percent in London.
Rail projects in the pipeline include the Light Rail Transit 1 extension from Baclaran to Cavite, as well as the LRT extension from Santolan along EDSA to Masinag Junction in Antipolo.
He said losses over the past 11 years in terms of productivity have reached P1.5 trillion. Fuel losses, meanwhile, reached P4.5 billion.
The losses may even be higher since the NCTS study covers only five groups – government officials, professionals, technicians, clerical workers, and service workers.
Limcaoco also revealed that the Department of Transportation and Communications is set to bid out a P1.7-billion contract for an automated fare collection system to replace the current magnetic stripe being used in LRT1, LRT2, and Metro Rail Transit (MRT) 3.
Another project to help decongest traffic, Limcaoco said, is an integrated transport system involving the construction of two bus terminals in the south and one terminal in the north. He said about 8,000 provincial buses enter Metro Manila every day.
The project, he added, would be undertaken jointly with the Department of Public Works and Highways (DPWH) and the Metropolitan Manila Development Authority (MMDA).
Other infrastructure projects being undertaken are the P10.2-billion Mactan-Cebu International Airport, P7.4-billion new Bohol Airport, P4.5-billion Puerto Princesa Airport, P4.7-billion Bicol International Airport, P7.9-billion Laguindingan Airport, P7.9- billion Tacloban Airport, and Clark International Airport.
My wife Pilar celebrates her birthday as I write this, so I thought I’d dedicate this piece to her (and all women) by updating an article I wrote almost exactly 10 years ago.
When our family goes out for dinner, when we hire a woman to do our laundry and iron our clothes, or when my grandchildren’s schoolteachers teach them their lessons in school, these activities have a corresponding economic value that enters into the nation’s reported gross national product (GNP).
When my wife cooks our family dinner, does the laundry and ironing, or spends time teaching the grandchildren, none of her efforts ever gets to be valued and entered in any economic accounts. Outside our family and household, her true worth to the economy will never be fully appreciated. This is because productive activities done outside the market economy are never captured in the national income accounts that measure the nation’s economic output.
Women contribute to the economy vastly more than what most people recognize and what are recorded in the country’s economic accounts. Partly as a consequence of this, their status in the economy has always been and has continued to be lower than that of men. Fortunately, the evolution of the modern economy has been changing all of this. Key trends shaping the nature of the economy at the global, national and local levels are impacting the economic role and status of women in both positive and negative ways. These major economic trends include globalization, increased prominence of the so-called knowledge economy, and the increasing focus on small enterprises.
Over time, globalization has been reshaping the relative roles of women and men in economic life. The globalization process has brought about greater worker mobility and widened employment opportunities. Accompanying this is a growing proportion of women workers in nonstandard work such as temporary, casual, multiple, contract and home-based employment. Thus, while globalization is raising the quantity of women’s contribution to economic life through the labor force, the quality of their participation needs serious consideration.
In particular, women dominate labor migration, with domestic workers, nurses and caregivers making up a substantial portion of such labor movement coming from Asia, especially the Philippines. This has in turn led to changes in the host countries, where the consequent restructuring of household work from unremunerated work by housewives to a more formal economic activity undertaken by foreign domestic workers has increased the labor force participation by women in general. This may be seen as a positive trend from the point of view of the host economy, but comes at the cost of fracturing the families of the women migrant workers, often with tremendous social costs at home.
The second major economic trend is the dominance of information and communication technology (ICT) in the knowledge economy of the 21st century. The modern economy has seen dramatic change in the basis for wealth creation—from the traditional “bricks and mortar” to “clicks and portals.” The more successful firms and individuals in the knowledge-based economy are those who have better access to information and knowledge, no longer those endowed with greater fixed capital including real estate. For women, this could be a positive factor, given the fact that they now dominate tertiary education, as statistics in European and Asian countries show. In the Philippines, 56.1 percent of college and university students are female, and the ratio has been growing (10 years ago, the figure was 53.2 percent). Provided that there is no gender gap in access to ICT, women would thus appear to have the advantage in numbers to cash in on the knowledge economy.
The third economic trend, which has to a large extent been facilitated by the second, is the renewed focus on small enterprises. With rapid developments in ICT, modern societies have seen a widespread resurgence of small, even home-based enterprises. Small firms providing products that range from services to manufactured products are proliferating. This is because e-commerce provides them virtually equal access to markets relative to their much larger counterparts, with savings in overhead costs compensating for their lack of economies of scale. This particular trend has created wider opportunities for integrating formal economic activities with unremunerated domestic work, whether for men or women, but especially for the women. Having to devote time for rearing children and managing the household need no longer deprive women of the opportunity to become entrepreneurs. But the same trend also implies that men are increasingly able to participate more equitably in child rearing and home management, while still engaged in gainful enterprise.
What’s needed is to overcome traditional cultural biases against women taking a more active role in formal economic life, and men taking a more active role in home and family management. A “gender divide” in ICT must also not be allowed to arise or expand. In general, there is need to eliminate the unfair wage differentials between men and women that still persist in many contexts.
My wife runs a community school and associated community welfare initiatives, balancing all these with managing our home, seeing to our family’s welfare, and responding to my sometimes unfair demands as a husband. She earns nothing from all of that. Given what she contributes to our economy and society, I often feel she should be earning a lot more than I do.
In the past, according to CNN, the United States spent 4 percent of GDP on infrastructure and was the envy of the world with its roads and expressways, airports and seaports. It was the leader. Today, it spends 2 percent and is falling rapidly behind.
China, on the other hand, is leaping ahead. Its expressway network of 74,000 kilometers is now the second largest in the world after the United States. Its highway system connects all provincial capitals and cities. China’s high-speed trains, running at a maximum speed of 220 miles per hour, are at par or even faster than their European counterparts. Its high-speed rail network of 4,600 miles is the largest in the world. China’s investments in ports, highways, railways, etc. grew more than twofold from US$41.5 billion in 2000 to $103.4 billion in 2006.
In the 2012-2013 Global Competitiveness Report, China ranked 69th (the Philippines 98th) in terms of quality of overall infrastructure. It placed 22nd in terms of railroad infrastructure (PH 94th); 54th in quality of roads (PH 87th); 59th in terms of port infrastructure (PH 120th); and 70th in quality of air transport infrastructure (PH ranked 112th). The World Bank noted that one primary contributor to China’s “outstanding achievements in economic growth and poverty reduction over the last 15 years … has been the development of its transport infrastructure.” One of the outstanding NON-achievements of the Philippines has been its NON-development of its transport infrastructure.
In the past three decades, the Philippines has annually spent an average 3 percent of GDP on infrastructure. Elsewhere in Asia, the average was nearly 6 percent: Thailand 4.8 percent, Malaysia 5.4 percent, and Indonesia around 7 percent. We have the worst systems in Asia, they have the best. Why? my wife asked.
There are a number of reasons, but two stand out: revenues and attitude. The government doesn’t get enough money; only 14 percent of GDP is paid in taxes versus 17 percent in Malaysia. Too many people cheat, they get rich at our expense, they should be ashamed of themselves (needless to say, they’re not). That’s part of this culture the President is trying to change.
The other is what I’ll call the “loser syndrome.” At the London Olympics, the Philippines’ brightest hope for a medal was Mark Anthony Barriga, a most promising boxer. He lost in the Round of 16. His team’s immediate reaction was to file a protest before the International Amateur Boxing Association, disputing the referee’s decision. In Australia, the loser congratulates the winner, warmly and genuinely, and try harder next time to be the winner.
When a government project is put up for bidding in the Philippines, the loser doesn’t accept his fate, learn how the winner won, and then make every (honest) effort to win next time. He challenges the winner and government in court for supposed anomalies in the bid. The project is delayed. No wonder nothing gets done.
Then we have a namby-pamby government (all of them) that doesn’t have the balls to do what the Constitution mandates: take over land needed for a national project. The Constitution gives the government power of eminent domain. It can acquire the necessary right-of-way. As I’ve argued before, what it should do is give double the market value (independently appraised). It will be cheap compared to the cost of the current years of delay. And who will refuse? They can have my house tomorrow—today, if they want to rush it. As to squatters, it’s just (and “just” is the correct word) a matter of compassionately relocating them. There’s plenty of land available, there just isn’t plenty of political will.
The cost of not-built infrastructure is incalculable: nonproductive time spent in traffic, wasted fuel, cost of delayed goods shipment, loss of tourists (getting there is too difficult, etc.).
All of this has been talked about, and promised. None of it gets DONE. I’m convinced that when a government official promises something will be done, he considers it as having been done. I was most impressed when Secretary Cesar Purisima promised me a document the other day, and it arrived two hours later. The late Secretary Jesse Robredo was like that, too. Twice, things I requested action on got done. While I’m in a praise mode, Secretary Rene Almendras also came through on promised action. But these are the exceptions. Too often it’s a land of promise, in the wrong way.
We need action now. Under the proposed 2013 budget, some P410 billion will be set aside for infrastructure projects and capital outlay. The funds will be used to continue the full paving of arterial/secondary roads and bridges; preserve the existing road network; construct and rehabilitate access roads to tourist spots; and construct and rehabilitate 15 airports and nine seaports and wharves. If these are accomplished, we’ll definitely see dramatic changes. But will these promises turn into reality or, as before, gather dust on a desk of promises?
The much-vaunted Public-Private Partnership program will help solve the funding problem, but it will get mired down in litigation and right-of-way takeovers if change is not made. Eight PPP projects were promised this year. It is now Oct. 11 and only three have been put on the auction block: PPP for Schools, LRT-1 South Extension, and Naia Expressway Phase 2 (may go up to four if the invitation for the Modernization of the Philippine Orthopedic Center is published). Of these, only the PPP for Schools has been awarded; the two others are still in the prequalification phase. Can Cosette Canilao, a most effective lady, get through the bureaucratic jungle, and the determined blockages by some, to get the others signed into beginning?
CANBERRA—The Aquino administration’s primary thrust in eradicating corruption through its matuwid na daan (straight path) strategy came under rigorous academic scrutiny at an international forum of Philippine specialists at Australian National University (ANU) in Canberra.
A paper presented by Desiree Desierto, an assistant professor of the University of the Philippines’ School of Economics, demonstrated that the straight path is not always the shortest route to economic growth and sustained economic development.
Desierto presented the lead paper, titled “Reforming Institutions and Building Trust to Achieve Sustained Economic Development,” at the 2012 Philippines Update conference at ANU School of International, Political and Strategic Studies, headed by Prof. Paul Hutchcroft, author of several books on the Philippines.
The forum reviewed the first 26 months of the Aquino presidency in the frame of the theme: “Moving Forward but for How Long?”
The paper, presented on Friday, made a critique of the contradictions between the strategy of what is sometimes spelled out by another slogan, “Kung walang corrupt, walang mahirap (If there’s no corruption, there’s no poor),” and producing sustained economic growth.
Summing up the theme of her paper, Desierto wrote: “The Philippines may … finally be on the cusp of what other scholars call ‘critical juncture’ that can push its trajectory toward the development of more ‘inclusive’ institutions, enabling continued increases in productivity and sustaining economic growth.”
However, she argued that “focusing solely on anticorruption for its own sake may also undermine lasting institutional reform, if property rights, credibility and stability are weakened in the course of enforcing against anomalous transactions. What may be an optimal strategy is to treat anticorruption as part of a larger framework of building trust in society.”
The forum also centered on “Peace Prospects in Mindanao” and “Political Reforms.”
Less than spectacular
The Desierto paper started with an overview of the Philippine economy in the last two decades, painting a less than spectacular performance highlighted by, among other things, the fact that the Philippines recently posed an “impressive” 6.4-percent growth in the first quarter of 2012, up from 4.9 percent in the same period last year.
The economy has experienced a surge in merchandise exports and “now appears on its way toward the first investment boom since the 1997 Asian financial crisis.”
Such a boom is “likely to come from large infrastructure projects and further development of the services, especially business process outsourcing,” the paper added.
Unlike other countries
The country has also weathered the recent economic crisis “with rising overseas remittances continuously fueling strong consumer demand.”
The paper added: “At the same time, however, most of the growth has come from the service sector, while growth in agriculture and industry have decreased. Investments in the form of public-private partnership (PPPs) and investments in special trade zones … have slowed down. Net foreign investments have gone up, but the capital and financial accounts are down despite the opportunities from the global downturn and massive capital flight from abroad and the country’s improvement in credit (S&P) ratings.”
Unlike the experience of many Asian countries, the paper said, “economic growth has not been export-driven, largely fueled by domestic consumption,” which is a technocratic variation of Napoleon Bonaparte’s battlefield maxim that an army “runs on its stomach.”
In fact, between 1990 and 2010, net exports have mostly been negative, the paper said. “Hence, capital formation has not been a priority—while the share of gross domestic product (GDP) growth even grew from 73.8 percent in 1990 to 79 percent in 2010, the share of net capital formation dropped from 24 percent (in) 1990 to 18 percent in 2010.”
“Strong consumption demand has been maintained even after the 1997 Asian financial crisis and even the more recent global crisis, mainly because of sizeable and sustained remittances from overseas Filipino workers, which have propped up gross national product (GNP) over gross domestic product (GDP),” the paper said.
“Such remittances have helped increase national savings to more than 30 percent of GDP since 1999, (with) remittances themselves contributing to over 10 percent of GDP.
“It thus appears that the Philippines has not taken full advantage of this low-lying fruit from its labor export. While in 2010 it received the fourth largest foreign remittances at $21.3 billion (following India, China and Mexico), investments have not grown and exports have been left behind.
“Not surprisingly, then, the manufacturing industry and industrial production (have) remained low, compared with services, which have been expanding in the last decade due to the business process outsourcing (BPO) sector that has been growing over 20 percent each year. There is no evidence that OFW (overseas Filipino workers) remittances are used by recipients to invest in micro-enterprises, unlike in other countries.”
Desierto cited a recent study by EA Tan (2012) casting doubt on the resiliency of remittances to global downturns and arguing that, while the global recession had so far had a minor impact on remittances, “the ongoing uncertainty in the United States and Europe might yet eventually decrease demand for OFWs.”
This factor is likely to affect political and social stability in the Philippines.
The Desierto paper quickly shifted focus to the section that takes aim at the pursuit of the Aquino administration of its “inclusive growth” strategy and the nexus between it and the anticorruption reform efforts. (To be continued: The next part examines the downsides of this piggyback strategy of good governance.)
The watered-down sin tax bill Senator Ralph Recto revealed last week did not only propose a revenue goal on the low end of expectations; it represented a new low, period. Bandying fancy terms like “equilibrium,” Recto, the chair of the Senate committee on ways and means, deceived both the administration he is allied with and the people he is supposed to serve with a rationalization that only the tobacco companies could love.
We can get a sharper sense of Recto’s deceptiveness by studying his well-written, even witty, sponsorship speech.
He begins with an unexpected and—on further reflection—even astonishing claim: “To every overture of a new tax, [the Senate’s] reply has never been of ratification but of restraint. The Senate’s role has always been to temper, not top, executive proposals.” He goes on to make the assumption behind this supposed role explicit: “while paying taxes may be the first duty of citizenship, ordering more of it should be Congress’ last.”
This all sounds vaguely right, but in fact we are being deceived. Recto does not refer to the middle ground between ratification and restraint, between tempering and topping. Where did all that go? In truth, this startling assertion is meant only to frame the issue in a particular way; even the supposed principle he offers is meant to introduce the absurd idea, which he later explicitly makes, that taxation is equivalent to, is as dangerous as, belongs to the same last-resort category of, the government’s power to wage war. Nonsense.
Recto then coins a new word, “intaxication,” to refer to the “historical addiction” of all governments, “whether ruled by despots or democrats,” to depend on so-called sin taxes. “The reason for this is simple: a government in need of money would always prefer a taxable vice, like drinking, to a tax-exempt virtue like staying sober.”
Again this sounds vaguely right, but in fact we are being deceived, because all the political science behind the use of government powers such as taxation to meet reasonable policy goals has been thrown out the car window—like a used cigarette. Indeed, Recto himself referred to the link between tax power and policy agenda early in his speech: “The measure… poses a deterrent that will keep people from being sick and will generate revenues that will treat them when they get sick.” But after he pays the policy lip service, Recto disregards it.
Perhaps the most startling of all of Recto’s pronouncements is his populist idea that the tobacco and other companies are “just collecting agents of the government” and that therefore the proposed new sin taxes will not really impact on the companies but on the companies’ customers. He paints a poignant portrait: “The ones who will ultimately bear the additional tax burden are ordinary folks, like the worker who likes to cap his day with a cocktail of rum and [Coke] or the call center employee who grabs a bottle of ice-cold beer before he hits the road.”
Nice touch, but selective to the point of dishonesty. He could also have sketched in other ordinary folks, like the bus driver who smokes a pack a day because of the stress of work, or the security guard who acquired the habit to stay awake on the job, or the traveling salesman for whom nicotine has become a way of life—the very people who, together, incur, by the government’s own estimate, P144 billion a year in smoking-related health care costs.
What is Recto doing with his people-not-companies-will-pay line? First, he is using images from the less-controversial public vice of drinking to camouflage the social and healthcare costs of smoking. Second, he is rejecting the administration policy to discourage people from smoking—surely, given all the evidence of smoking-related cancer, a reasonable policy goal. Third, he is reframing the issue as though companies are stupid or inflexible or helpless enough to pass on every single additional cost to their customers.
Recto could not stop himself from offering an argument from the extreme: “[I]f sin products indeed carry a misery index so high that it can’t be assuaged by high revenues, then the solution is not to tax them severely but to ban them completely.” Nice try, but if Recto thinks a total ban on tobacco products is politically feasible, let him be the first to cast the first bill. In the meantime, in the real world where 17.3 million Filipinos are classified as smokers, we must make do with a “severe” tax. It is a challenge Recto has failed.
On Dec. 21, Congress closes down for the year. That’s the day when the sin tax law must be voted upon. By Jan. 21, when Congress resumes, politicians will be consumed by thoughts of winning again. And raising taxes is not a way to win votes. So it must be now.
And it must be the administration or, at worst (note “at worst”), the House bill of Jun Abaya. The Senate bill that came out of the ways and means committee is totally unacceptable. It’s capitulation to the cigarette industry disguised in platitudes of “good intentions.” It’s nothing of the sort, and the President must step in now and make his sensible wishes very, very clear. It’s a matter, literally, of life and death, the unnecessary death of 90,000 Filipinos annually (or 240 daily). It’s not about the livelihood of a few farmers, but the life of Filipinos.
So much has been written, much of it passionate, some of it ever so clearly biased to suit vested interests (read Malaya sometime). Let me try and bring the whole thing into proper perspective by reviewing the issues raised to date, in as factual a manner as I can.
It all hangs around three things: health, government revenues, and fairness. For me, the most important by far is health. Smoking isn’t just “dangerous to your health,” it kills. There have been more than enough reputable, independent studies done to confirm this. And some of the more responsible governments in the region—such as those of Singapore, Malaysia, Thailand and Vietnam—have mandated the warning “SMOKING KILLS” on cigarette packs, even required gruesome pictures of the harm done. So how can any politician not want to stop this pernicious habit if he/she has the power to do so? Does he/she want Filipinos to die? Is that a way to reduce the population rather than pass the RH bill?
Governments can ban smoking, but none has because it’s seen, rightly, as an infringement on a citizen’s freedom to choose, an imposition on the free market that democracies are built upon. And prohibition never works, only leads to crime. So they do it another way: They raise prices. Marlboro sells for P32 a pack here. Look what it sells for elsewhere: Singapore (price of pack of 20s: $8.30, increase over Philippine price: 1,217 percent); Malaysia ($3.32/pack, 427 percent); Thailand ($2.36/pack, 275 percent); Brazil ($2.16/pack, 243 percent); India ($1.83/pack, 190 percent); Egypt ($1.53/pack, 143 percent); Indonesia ($1.24/pack, 97 percent); Cambodia ($1.19/pack, 89 percent); Vietnam ($0.96/pack, 52 percent); Philippines ($0.63/pack).
If the original Abaya bill is passed, Marlboro would cost P60, or $1.44, putting it still at the low end of the pack in our neighborhood. In the United States, Marlboro costs $15, in Australia $15.40—two of the more enlightened countries on looking after their people’s health. The Philippines is obviously out of step with the world; it is living on distorted taxes set 16 years ago (1996) with lower-than-inflation increases (up 88 percent versus 120 percent inflation).
Have high prices worked? Yes. In the United States when federal taxes were raised from 39 cents to $1.01 per pack to expand health care for children, 3 million people stopped smoking, yet the government generated $30 billion more in tax revenues. Smoking by young people, the ones we most want to stop, fell 10 percent to 13 percent and other smokers smoked less. Thailand has also been successful in raising revenues after adopting a unitary tax structure in 1990. The price of a cigarette pack in Thailand is now five times its price 20 years ago, and revenues have grown almost fourfold.
It worked, health was protected, government got more money.
The best thing is it deters the people we’d most like to save: the kids. Young people have limited money. So people smoke less or don’t smoke when prices are high. According to Department of Health estimates, smoking-related illnesses cost the economy some P177 billion last year in the form of healthcare costs, productivity losses, and premature deaths. That money could have been used to raise the abjectly low salaries of government employees by a fifth. Maybe they’d then not be so tempted to ask for “transaction fees.”
Recent articles say the DOH shouldn’t be given more money because it can’t spend all the money it’s already given. Have you ever heard such nonsense? Everyone agrees the Philippine health service has to be massively expanded and improved.
As to revenues, studies have conclusively shown that raising prices raises revenues even with the fall in volume. In our own study that measured the impact of the earlier proposed sin tax bills, results showed that additional revenues can reach as high as P68 billion. Even though volume falls, total revenue rises; the examples mentioned earlier confirm this.
The government is desperate to achieve an investment level credit rating, and rightly so. If that level is granted, the Philippines will enjoy lower rates when borrowing abroad and a signal will be sent to investors that this is a safe place to invest. We get jobs created. International credit rating agencies have been monitoring the progress of sin tax reforms, for the revenue-generating impact and message that this is a government making tough decisions and doing the right thing is necessary if they are to upgrade. Choosing the bill to pass will be a crucial decision.
The Department of Finance estimated an additional P60 billion into government coffers if the original Abaya bill (HB 5727) backed by the administration passed into law, or P30 billion in the case of the amended version that the House passed. Sen. Ralph Recto’s recommendation would have given a miserable P15 billion. It’s a relief this is now out the window. Let’s hope Sen. Frank Drilon moves quickly to issue a new, more responsible committee report. I feel sure he will. More next week
Stocks shine as Thais, Filipinos nurture stability
By Pamela Sampson
7:57 am | Thursday, October 18th, 2012
BANGKOK —The two Asian nations with the region’s best-performing stock markets in the past year are unlikely havens for investors: Thailand and the Philippines. Both are better known for troubled politics and natural disasters, but have outshone higher-octane neighbors as new leaders nurture relative calm.
The PSE benchmark in the Philippines has soared 29 percent in the last 12 months and Thailand’s SET index is up a whopping 33 percent. By contrast, an index compiled by MSCI that tracks stocks in 12 Asian countries is up a ho-hum 2 percent. The Shanghai Composite Index in rising power China has sunk nearly 14 percent.
The Philippines, long regarded as an economic backwater blighted by a succession of deeply corrupt governments, has gained a measure of credibility due to the stability ushered in by the 2010 election of President Benigno Aquino III. Analysts credit him with boosting investor confidence by cracking down on corruption and living up to his promises of openness and good governance.
Thailand too has benefited from an improvement in its politics, although it’s unclear whether the current stability will be enduring. The country seemed to be veering toward civil war in 2010 when deadly street battles raged in Bangkok between the army and loyalists of Thaksin Shinawatra, the populist prime minister ousted in a 2006 coup.
Local stock brokers were resigned to the Thai market lagging its potential but the landslide election victory in 2011 of a pro-Thaksin party and the popularity of the country’s first female prime minister, Thaksin’s younger sister Yingluck, have boosted confidence. Lately, Thai stocks have also got a fillip from big-spending government policies that include efforts to overhaul flood defenses after a widespread inundation wrecked industry last year.
For both countries, the perception abroad that they have become a bit less risky has drawn renewed attention to their selling points.
One of the high notes for the Philippines is its newly minted status as a creditor nation, the first time in 40 years. Its foreign currency reserves total $80 billion, while foreign debt is about $65 billion. Theoretically, the country could pay off all its foreign obligations and still have $15 billion in cash left over, said Alfred Dy, head of Philippines research at CLSA Asia-Pacific Markets.
“It’s the opposite of the countries in the West, where there’s a lot of external debt,” Dy said.
The country’s accumulation of foreign exchange is driven by two sources: remittances, or money sent home to the Philippines by citizens who work abroad, and the dramatic growth in outsourcing.
The remittance trend began as early as the 1960s, when Filipino nurses traveled to the US to work the night shifts at hospitals—hours that American nurses didn’t want to work. Today, more than one in 10 Filipinos out of a population of 95 million lives abroad for work. They sent home $20 billion in 201—more than double the amount in 2004.
The fact that they are spread across the world—in the Middle East, in America, throughout Asia—also spreads the risk if a particular region goes into an economic slump.
Meanwhile, a boom in business outsourcing, enabled by the high level of English proficiency in the Philippines and its young workforce, racked up $14 billion in 2011—soaring from $3 billion that was earned just seven years ago. The Philippines now rivals India as a global outsourcing giant.
These trends have insulated the Philippine economy from the export-reliant doldrums being experienced elsewhere in Asia.
“We don’t rely as much as other countries on exports,” Dy said. “It’s really more of a service economy, it’s sending people abroad and getting contracts on business outsourcing, which makes the Philippines a bit unique.”
“Even if the global economy slows down, we think these two items will be relatively resilient compared to traditional exports,” he said.
In Thailand, the government’s drive to boost investment and growth after massive flooding decimated industry last year has helped to make it a favorite of stock investors.
Thailand’s economy shrank 10.7 percent in the last quarter of 2011 after the country’s worst flooding in more than half a century disrupted operations at more than 1,000 factories, bringing the country’s key automotive and computer parts industries close to a halt.
But ever-resilient Thailand is bouncing back. The Asian Development Bank predicts Southeast Asia’s second-biggest economy will grow 5.2 percent this year and 5 percent in 2013.
Investors view positively measures Thailand has taken to increase domestic consumption, such as raising the daily minimum wage to 300 baht ($10) and offering rebates to first-time car buyers.
“It’s enabled households to have more disposable income and spend more,” said Frederick Gibson, associate economist at Moody’s Analytics. “I think the market has taken that as a positive sign, that households will have the ability to spend and that hopefully will have a positive impact on growth.”
Thailand’s public debt load as a percent of the economy—relatively low at 40 percent—means the government has the leeway to undertake expansionary fiscal policies, such as corporate tax cuts and other measures, said economist Eugene Leow of DBS Bank Ltd. in Singapore.
The country also has mapped out major infrastructure projects, including flood prevention measures, in the next few years.
“There are a lot of projects in the pipeline,” Leow said. “All these projects will cushion any slowdown.”
So of the two stock markets, which might be the better bet for investors wanting to take the plunge into Southeast Asian equities?
Herald van der Linde, head of equity strategy for Asia Pacific at HSBC, said he believes the Philippines stock market has become one of the most expensive in the world.
Van der Linde especially likes Thai banks since demand for financial services is growing fast. Like elsewhere in Asia, Thais have begun to invest in their own local markets and investment products, breaking from the traditional way of stashing wealth into houses and land, van der Linde said.
“Thailand, coming from a low base, is not that expensive yet. So if I had to put my money somewhere, I would put it in Thailand,” he said.
Businessman Manuel V. Pangilinan is on a three-day business mission to Vietnam to scout for investment opportunities, particularly on toll road and water services.
Inquirer sources said Pangilinan flew to Ho Chi Minh with a high-powered team to join a big group of Filipino businessmen looking for expansion opportunities in the Southeast Asian neighbor.
Apart from toll road and water services, sources close to Pangilinan said the Filipino chief executive of First Pacific Co. Ltd. was also looking for opportunities in mining, hospitals, power, media, food and agribusiness in Vietnam.
Pangilinan met with the Philippine Business Group Vietnam (PBGV) on Tuesday to discuss investment opportunities in a forum co-organized by First Metro Investment Corp., the sources said. PBGV is a business association that serves as a voice of Philippine businesses in Vietnam.
Joining Pangilinan in the three-day Vietnam trip that ended Wednesday were Metro Pacific Investments Corp. president Jose Ma. Lim, MPIC chief finance officer David Nicol, Philippine Long Distance Telephone Co. vice president Rafael Bejar, Metro Pacific Tollways Corp. president Ramon Fernandez, Manila North Tollways Corp. president Rodrigo Franco, Maynilad Water Services president Victorico Vargas and Maynilad senior vice president Patrick Gregorio.
As part of his itinerary, Pangilinan met over dinner Le Hoang Quan, chair of the Ho Chi Minh City people’s committee, which acts as the executive arm of the provincial government.
Pangilinan was expected to relay First Pacific’s investment philosophy and market presence in the region. The sources said the growing demand for basic services in Vietnam prompted First Pacific to look closely at developing infrastructure partnerships there, particularly in toll roads and water services.
According to the PBGV website, the first Philippine company to set up shop in Vietnam was Unilab in 1990. Among PBGV member companies are United Pharma (Vietnam) Inc., San Miguel Brewery Vietnam Inc., San Miguel Phu Tho Packaging Co. Ltd., San Miguel Yamamura Haiphone Glass Co. Ltd., Univeral Robina Corp., San Miguel (Vietnam) Co., Jollibee Foods Corp., Jollibee Foods Corp., Splash International and Century Food group.
The Ayala group has also entered the Vietnamese market with the acquisition of a significant minority interest in a leading infrastructure company and a bulk water supply company both based in Ho Chi Minh City. Ayala Corp. and subsidiary Manila Water Co. earlier announced a deal to buy a 10-percent stake in Ho Chi Minh City Infrastructure Investment Joint Stock Co. (CII) and a 49-percent stake in Kenh Dong Water Supply Joint Stock Co. (Kenh Dong). In addition to water infrastructure, CII holds toll road concession agreements such as the 15.7-kilometer expansion of the existing Ha Noi Highway which connects the northeastern part of Ho Chi Minh City to Bien Hoa, an industrial center located in the southern part of Vietnam.
Money goes where it grows. This is a fundamental tenet among investors, and the move of Manuel V. Pangilinan to look for investment opportunities outside the Philippines hews to it. It’s interesting that the decision of the high-profile businessman and sports patron to lead a high-powered team on a three-day visit to Vietnam last week came at a time when he is experiencing a series of unfortunate events, whether involving business or not, at home.
On the business front, MVP’s latest setback was the breakdown in talks to acquire GMA Network, a P52-billion deal that could have fit well into the convergence strategy of his telecom units PLDT and Smart/Piltel/Sun Cellular. Then there was the matter of the tailings leak from Philex Mining Corp.’s Padcal mine in Benguet, which has finally been plugged. There is likewise the issue on the connector road project to link the North and South Expressways. MVP’s group had submitted an unsolicited proposal to the government to undertake the project, but then came another connector road proposal from his chief rival in business, San Miguel Corp.’s head honcho Ramon S. Ang. To avoid accusations of favoring one over the other, President Aquino instructed all concerned departments to allow the two connector road projects to proceed.
Earlier, MVP suffered a setback in the Supreme Court, which decided that PLDT had exceeded the constitutional limit on foreign ownership. The high court only recently ruled with finality on the matter, rejecting the motion for reconsideration submitted by the MVP group. PLDT now has to issue more voting preferred shares to bring down the ownership of foreigners in the telecom giant to the constitutional limit of 40 percent.
Outside of business, MVP also had a falling out with Ateneo de Manila University, which he had supported financially through the years. In a statement, he cited his differences with his alma mater on two critical issues—the controversial Reproductive Health bill and the equally controversial mining industry.
The Metro Rail Transit 3 project is quite another business issue that has saddened the MVP group. Through Metro Pacific Investments Corp., the MVP group offered more than $1 billion to the government to acquire and expand the mass transport system. After months of studying the matter and saying it wanted transparency in all its undertakings, the Aquino administration instead approved early last month a bidding for the P8.6-billion MRT 3 capacity-expansion project.
Perhaps the biggest issue that posed a big influence on MVP’s desire to look elsewhere for business growth involves the SCTEx. In November 2010, his Manila North Tollways Corp. (MNTC) won the 25-year contract to operate and maintain the 94-kilometer Subic-Clark-Tarlac Expressway, subject to the approval of the Office of the President. But such an approval never came as Mr. Aquino’s economic officials said the government needed to gain more money from the SCTEx project. Subsequent negotiations prompted the MVP group to submit a revised proposal.
Last week, the President said he had not yet signed the SCTEx concession agreement with MNTC because the government was still reviewing the terms. But as he announced this, some of his officials indicated that Malacañang would soon issue an order to rebid the SCTEx contract as the revised MNTC offer was supposedly still insufficient to address the government’s desire to get more out of the Philippines’ longest expressway.
The MVP group, in effect, stands to lose the SCTEx toll project after going through two administrations and two rounds of negotiations. Imagine its disappointment at this changing of the rules. An official from the MVP group had warned that if Malacañang would indeed order a rebidding, the transaction would not sit well with the group’s creditors. A rebidding of SCTEx will also be seen as an opportunity for MVP’s main business rival—San Miguel’s Ang—to snatch the SCTEx contract.
It is certainly the duty of the government to maximize the benefits to the country of any project that it hands over to the private sector. This, however, should not be at the expense of losing the trust and confidence of investors in the regulatory framework of the Philippine economy.
It is remarkable that the Philippine economy has been showing dynamism this year so far, even with a sluggish world economy. This implies that the energy driving our economic growth lately is coming from within. Indeed it is internal demand—that is, we Filipinos ourselves purchasing our goods and services—that has provided the current impetus for heightened economic activity, thereby providing increased jobs and incomes for Filipinos. I will explain some of the evidence on this below.
In basic economics, we are taught that the products and services produced in the economy are bought by four major sectors: private consumers for their consumption needs; businesses and firms for their real investment requirements such as structures, equipment and materials; government for public infrastructure and services, and for its own consumption requirements like office supplies and equipment; and foreigners who buy our products and services as we export them abroad, or buy them here as tourists. Growth in spending by any or all of these would propel growth in the economy as a whole, as increased demand for goods and services would certainly draw a response of greater production on the part of the economy’s producers.
What’s more, any rise in spending by any of these four sectors of the economy provokes a multiplier effect that leads to even more growth in economic activity. This is because any new spending leads to a chain reaction of new incomes and consequent new spending. If a company spends P100 million on a new factory, this turns into P100 million in total incomes received by contractors, engineers, construction workers, suppliers of equipment and construction materials and others. But that’s not the end of it. Those various people now have more money to spend or save as they choose. If people save P20 out of every additional P100 income they receive on the average, then the original P100 million of investment spending turns into a new round of P80 million in spending on various things such as food, clothing, appliances, etc. that those construction people normally spend their incomes on. And since anyone’s spending turns into someone else’s income, that second-round P80 million in incomes turns into a third round of spending amounting to P64 million. This becomes yet another round of incomes spurring yet another round of spending, and so on down the line.
Ultimately, the P100 million originally spent by the investing firm will actually create five times as much (P500 million) total production and incomes. The mathematically inclined can figure out that if the saving rate is 20 percent or 0.2, the multiplier works out to be one divided by that, or five. So if people tend to save less, say 10 percent, every spending gets multiplied by even more (that is, 10) and generates 10 times more production and incomes in the economy. And even more so if those savings are kept within the country, so that the banks receiving them could further put that money to work within our domestic economy, say by lending the savings to a company that would invest it in a new factory—thereby repeating the same story above.
Official data suggest that there is indeed more domestic spending by consumers, investors and government lately, even as foreign purchases of our products (especially in Europe) had slowed down due to their own homegrown difficulties. In particular, government spending for both its consumption requirements and for public construction has dramatically swung around from a negative performance last year. In the first half of the year, government consumption spending grew 12.3 percent, a dramatic turnaround against the 4.6-percent drop in the same period last year. Government construction spending jumped 55.4 percent after falling 51.1 percent last year. The government, stung by criticisms that it directly dragged down the economy last year with reduced spending as it worked to plug corruption loopholes, has now come back with a vengeance. And this time, having done what it did last year, it has greater confidence that the money it spends goes (mostly?) to the intended purposes, rather than be siphoned off to bank accounts abroad and killing the usual multiplier effect. (Remember the question on why a neighboring country that appears to have as much corruption as we do manages to have its economy grow faster than ours? The explanation offered has been that their corrupt officials keep the money at home, while ours stash the money abroad.)
The data show that firms’ investment spending on durable equipment, breeding stock and orchard development and on intellectual property products have likewise sped up significantly from last year’s pace. Private consumption growth is similarly brisk at 5.7 percent. Interestingly, among the strongest sources of growth in people’s spending are communication (with our continuing fascination for ever more sophisticated smart phones), restaurants and hotels, and recreation and culture. These suggest to me that domestic tourism has been a particularly important driver of our growth. One only needs to experience the now common flight delays and overcrowded airports to be convinced that Filipinos are traveling a lot more—and perking up the economy in the process.
The good news is that spending by foreigners on our products—i.e., our exports—has lately resumed growth after contracting last year. Even then, the latest figures suggest that the export turnaround may be tentative. But I wouldn’t lose sleep over this one. After all, our economy is now speeding along on its own steam, through the Filipinos’ own spending, multiplier effect and all.