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Dealing with the most constructive yet destructive force in the financial sector

By Mark Louis F. Ferrolino, Special Features Writer

For several decades, traditional banks have held a dominant market share with little modification to their business models. These businesses, however, are now facing new pressures as technological advances have taken financial sector by storm, which resulted in the entry of new market players offering consumers a different approach to financial services.

It is now becoming obvious that technological change is the most constructive, and at the same time, the most destructive force in the financial ecosystem today. Incumbents — even established giants — have to adapt, or else they will be left behind as the storm of disruption gets stronger.

This had been one of the key insights discussed at the recently concluded BusinessWorld Economic Forum held last May 30 at the Grand Hyatt Manila in Taguig City, with the theme “The Future of Business: Next-Wave Disruptions and Opportunities.”

In one of the afternoon sessions titled “Financial Technology and the Future of Money,” industry leaders, composed of Frost & Sullivan Asia Pacific Managing Director and Partner Shivaji Das, Bank of the Philippine Islands Chief Digital Officer Noel A. Santiago, FinTechAlliance.ph Founding Chairman Lito M. Villanueva, and Bangko Sentral ng Pilipinas (BSP) Senior Director and Officer-in-Charge for Fintech Sub-Sector Vicente T. De Villa III, discussed how recent technological trends and developments are affecting the financial landscape.

DIGITAL DISRUPTION IN THE FINANCIAL INDUSTRY

According to Mr. Das who opened the session, key technologies, such as natural language processing, augmented reality, virtual reality and cognitive computing, are shaping the financial industry by bringing an array of innovation opportunities. These include personalized virtual banker, augmented banking, biometric mobile wallet and virtual branch, among others.

Shivaji Das, managing director and partner of Frost & Sullivan Asia Pacific

Considering the various benefits of technology, he said that traditional banks and financial institutions have given importance to digital transformation in recent years.

The J.P. Morgan Chase & Co., an American multinational investment bank and financial services company, for instance, has invested a lot in financial technology (fintech). The firm allocated more than $11.5 billion for its technology spending in 2018 and devoted $3 billion to technology innovation in machine learning and robotics, among others.

The approach of exploring and integrating technologies in their businesses has helped traditional banks improve their performance in finance, customer service innovation, business innovation, and efficiency and employee capacity, Mr. Das said.

Having a population with a median age of 24 (which comprised of a segment considered as the most digital native) and a double digit growth in Internet access and smartphone penetration, Mr. Santiago believes that the Philippines is now ready for digital shift. The biggest opportunity, among others, he said, is that 95% of transactions in the country are still done via cash and cheque.

Noel A. Santiago, chief digital officer, Bank of the Philippine Islands

“This is very right for digitalization. The country is ready, the population is ready,” Mr. Santiago said, noting that banks must continue to innovate then. “It is a business imperative for banks all over the world, especially in emerging market that the pace and promise of innovation are being fulfilled. Banks must do more to keep up or they will left behind,” he said.

Many banks, however, are not innovating as fast as they should be to remain competitive, said Mr. Santiago. Citing a survey conducted by Inclusive Digital Finance, he shared that 80% of thrift, rural and cooperative banks as well as microfinance firms in the country are not ready to embrace digital technology.

To help banks with their digital transformation journey, Mr. Santiago said that they need to capitalize on infrastructure and delayer with technology, while fortifying their security. Banks should also prepare for open banking, adapt a mobile-first and innovation mind-sets, and consider customer experience as one of their top priorities.

“We really have to put digitalization as part of our imperative,” Mr. Santiago said, noting that such transformation will reduce the cost of banks and will therefore permit a much higher level of engagement to segments who need access to financial services.

Aside from bringing profound changes on how financial services are being offered, the waves of digital innovations have also influenced how consumers complete their payment transactions, giving way to a cash-lite society.

Lito M. Villanueva, founding chairman of FinTechAlliance.ph

Mr. Villanueva said that digital trends shaping the future of money are already being observed. One of which is the decreasing usage of cash. China, for example, has recorded a staggering mobile transaction volume of about $41.5 trillion in 2018. Meanwhile, in Sweden, only one in 10 consumers paid for something in cash.

Other trends cited by Mr. Villanueva include growing smartphone ubiquity; increasing disintermediation; and accelerating usage of distributed ledger technology, a consensus of replicated, shared and synchronized digital data geographically spread across multiple sites, countries or institutions.

A cash-lite economy has several benefits, said Mr. Villanueva. It promotes transparency, cultivates cost and process efficiencies, generates more data, provides convenience, and levels the playing field.

“Providing a delightful customer experience will always be the end-goal of any digital initiatives,” Mr. Villanueva explained. “As we often hear, technology is the best equalizer, especially driving financial inclusivity.”

However, technology alone is not enough to reach and cater to the unbanked and underserved Filipinos. Mr. Villanueva said that it also requires a concerted efforts from different sectors.

“Collaboration and synergy are critical to the success of this objective. This challenge is too enormous, too important for any single player to take on their own. Let’s put all our hands on deck. The more united we are, the swifter we create a digital economy that uplifts the lives of every Filipino,” Mr. Villanueva said.

SECURING A COMPETITIVE ENVIRONMENT AMIDST DIGITAL REVOLUTION

Playing its crucial role in creating an enabling environment alongside emerging technologies, the BSP, according to Mr. De Villa, has launched several initiatives aimed at allowing industry players to take full advantage of innovations without compromising consumer protection, security and financial stability.

Vicente T. De Villa III, senior director and officer-in-charge for Fintech Sub-Sector, Bangko Sentral ng Pilipinas

“We always endeavor to provide an environment that encourages financial innovation. We want to see the development of new and innovative financial services that can help advance inclusive growth and deliver more efficient financial services to the general public,” Mr. De Villa said. “We seek to continually build a regulatory environment that allows innovations to flourish yet still mindful that risks must be effectively managed and consumer welfare remains protected.”

In this case, Mr. De Villa said that BSP ensures proportionality in the practice of supervision, maintains multi-stakeholder collaboration, and guarantees that innovations always work for the benefits of the consumers.

Among others, the BSP espouses a flexible “test-and-learn” approach to financial innovation that provides an opportunity for innovators to participate in the financial system as players in their own right or as partners of more traditional players like banks. The central bank also launched the National Retail Payment System, a policy and regulatory framework that aims to establish a safe, efficient, reliable, affordable and inclusive retail payment systems in the country.

“We strive to maintain a forward looking approach to ensure that regulatory and supervisory frameworks are in tune with the emerging trends and developments. We continue to improve our capabilities for more proactive surveillance and monitoring of market so we can readily adjust to future challenges and opportunities ahead,” Mr. De Villa said. “We endeavor to promote financial innovation, while, at the same time, establishing adequate safeguards to manage relevant risks.”

Looking at the future, Mr. Das said that banking will evolve to leverage technology in ways that will have a much deeper implication to customer service than current use cases. By 2030, he sees that the banking service provider landscape will consist of different types of firms who, in order to remain competitive, will attempt to leverage certain advantages that are difficult for others to replicate.

The exciting possibilities of next-generation technologies

The global economy is undergoing disruptive changes prompted by the emergence and adoption of technologies such as mobile and cloud computing, cryptocurrency, the Internet of Things, autonomous driving system and artificial intelligence (AI). While these innovations have raised a wide variety of concerns, including fear of widespread job losses, they have no doubt been instrumental in the creation of better and often cheaper products and services and enabling start-ups to challenge the dominance of established players, at least in industries where barriers to entry are low. And the possibilities they offer are exhilarating.

Last May 30, BusinessWorld, the country’s most read and most respected business newspaper, held its fourth Economic Forum at the Grand Hyatt Manila in Taguig City, which revolved around the theme “The Future of Business: Next-wave Disruptions & Opportunities.” The fourth and final session of the day-long conference that drew hundreds of participants focused on next-generation technologies and the future of economy.

That session featured five prominent personalities in the local business community: Andrés Ortola, country general manager of Microsoft Philippines; Kevin Andrew Tan, chief executive officer of Alliance Global Group, Inc., a conglomerate with interests in food and beverage and real estate industries, among others; Maria Francesca Tan, chief executive officer of the MFT Group of Companies, a private equity firm; Jojo Gendrano, first vice-president and head of core business solutions at PLDT Enterprise, the business-to-business arm of PLDT; and Aileen Judan-Jiao, president and country general manager of IBM Philippines.

Andrés Ortola, country general manager of Microsoft Philippines

Artificial intelligence, on which his presentation centered, was described by Mr. Ortola as a game-changer. Microsoft, he noted, believes that artificial intelligence does three significant things: empower developers to innovate, empower organizations to transform industries and empower people to transform society.

There are now millions of developers using Microsoft Azure Cognitive Services that help them “build intelligent applications without having direct AI or data science skills or knowledge,” a page on Microsoft’s Web site explains. “The goal of Azure Cognitive Services is to help developers create applications that can see, hear, speak, understand, and even begin to reason.”

Mr. Ortola showed some findings of a 2019 study conducted by Microsoft and IDC Asia/Pacific, a provider of market intelligence and advisory services, that suggested that AI would accelerate the rate of innovation improvements in the Philippines.

Of the 1,605 business leaders in the Asia-Pacific region who participated in the study, 109 were from the Philippines. When these Philippine-based business leaders were asked the question, “With the introduction of AI, what is the percentage of additional new innovative products and services your organization expect[s] to produce today and in three years from now?” their answers were 32% and 56%, respectively.

The study also suggested that AI would nearly double employee productivity gains in the country. The respondents saw a 27% improvement in productivity gains among employees today and expected that number to increase to 52% in 2021.

When it comes to using AI to transform societies, Mr. Ortola brought up their company’s “AI for Good” program. One project of that program is “Seeing AI,” an app that “narrates the world around you.” Designed for the “low vision community,” it harnesses the power of AI to describe people, text and objects.

Aileen Judan-Jiao, president and country general manager of IBM Philippines

Meanwhile, according to Ms. Judan-Jiao, the market is entering a new chapter in cloud and digital; whereas the first chapter is all about consumer-driven innovation, digital and AI experimentation and public cloud, the second chapter concerns enterprise-driven innovation, the embedding of digital and AI in the business and hybrid cloud.

She noted that unprecedented technological, social and regulatory disruptions are giving rise to the next era of business reinvention, with business platforms at its heart.

She devoted the rest of her talk to automation, and how intelligent automation in particular is reshaping the future of work, and how industries, from insurance (for underwriting risk and modelling) to telecommunications (for predictive maintenance) to health care (for sepsis outcome prediction), are embracing AI. She also remarked on the potential of quantum computing to revolutionize entire industries, like pharmaceuticals and transportation.

Maria Francesca Tan, chief executive officer of the MFT Group of Companies

In her presentation, Ms. Tan provided a list of industries that she thinks are worth investing in: health care, finance, industrial, food and beverage and technology. To be able to meet tomorrow’s challenges, she offered two solutions that companies may want to consider: evolve through robust internal operating controls and processes and evolve through value creation and operational excellence. She also listed the three trends that would shape the future of investment: artificial intelligence, health tech and co-working.

Jojo Gendrano, first vice-president and head of core business solutions
at PLDT Enterprise

Mr. Gendrano, in his talk, noted how mobile technology has made a leap roughly every 10 years (from 2G to 3G to LTE and now to 5G). 5G, the fifth-generation cellular network technology, promises Internet speeds that are multiple times faster than 4G currently offers. It was also noted in his presentation that 5G is “ultra-reliable” and able to support low-latency communications.

Technology, according to Mr. Tan, is evolving faster than our needs, and it enables brands to enjoy a competitive edge and a positive reputation.

Kevin Andrew Tan, chief executive officer of Alliance Global Group, Inc.

He discussed some business trends during his presentation. The first is that people nowadays are always connected, spending hours on the web and checking their phones frequently. Another is the emergence of an on-demand society, in which businesses are valued based on the speed of their response. Then there’s the sharing economy. The fourth trend Mr. Tan mentioned is the social impact that customers today look for. He noted that people consider the value a business brings to the society and that businesses with positive impact grow faster.

Mr. Tan went on to discuss some endeavors of Alliance Global companies. One of the companies under the conglomerate, McDonald’s Philippines, is making customer experience in its stores more interactive through digital technologies. Meanwhile, Megaworld Corp. has been integrating smart home technology into its properties, like The Albany in Taguig City.

More economic measures pushed

THE 17TH CONGRESS, which closed its third and last regular session on Tuesday, passed an “acceptable” number of laws, key officials of business chambers said, but noted the lack of measures on economic liberalization.

Business leaders, in separate interviews, commended the 17th Congress for passing “landmark legislation,” but pushed for other measures to increase investments and boost the economy.

“Overall, I think the number of laws that have been passed is acceptable. The laws passed are slightly higher than the 16th Congress, but much lower than the 15th,” Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon said in a phone interview on Thursday.

Tuesday marked the last session day of the 17th Congress. Bills that failed to secure both chambers’ final approval will have to be filed and go through public hearings and plenary debates anew in the 18th Congress which opens on July 22.

The PCCI chief noted in particular Republic Act (RA) 11223 or the Universal Health Care Act, which will provide health care to all Filipinos; RA 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which reduced personal income tax while tweaking levies on selected goods; and the measure further increasing excise tax rates for tobacco products, which was passed last week and is awaiting President Rodrigo R. Duterte’s signature.

British Chamber of Commerce of the Philippines (BCCP) Chairperson Chris Nelson, in a phone interview on Thursday, also noted RA 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act.

“The 17th Congress passed landmark legislation like the Ease of Doing Business, Balik Scientist, TRAIN, Extending Drivers License and Passport Validity, Agricultural Free Patented Reform, Central Bank Reform, National ID, Department of Housing, among others that will help make the country more competitive,” Federation of Filipino Chinese Chambers of Commerce & Industry, Inc. (FFCCCII) Trade and Industry Committee Chairman George Siy said in a text message on Friday.

ECONOMIC LIBERALIZATION
Meanwhile, the business groups said the sector was left wanting more economic measures, specifically those opening the country to more foreign investments, which they hope incoming legislators can act on once they start their terms.

“I was looking for the passage of the Retail Trade Liberalization Act. I was also looking at the Foreign Investments Act, both of which are to drive more foreign direct investments,” BCCP’s Mr. Nelson said.

He also pointed out the delay in the issuance of the implementing rules and regulations of RA 11032. “I think the Ease of Doing Business Law will, once it’s fully implemented, have a great benefit on the country. But it’s not yet fully implemented,” Mr. Nelson said.

PCCI’s Mr. Barcelon added that the sector is still awaiting the passage of the measure proposing to reduce the corporate income tax in the Philippines — currently the highest among Association of Southeast Asian Nations members.

“I think the one that we’re still waiting for is the reduction on the CIT, corporate income tax. Other than that, we haven’t seen any laws that really will help boost the economy,” he said.

He said he hopes the 18th Congress will also pass proposed amendments to the 82-year-old Public Service Act, which will lift foreign ownership limits in certain sectors, as well as other measures that will reduce prices of basic goods and improve human resources.

“The Public Service Act, it would be good, or even logistics. There should be more competition that opens up for investors to come in so that the cost can be lowered,” he said.

“What we look forward to is for the government to pass laws that would help reduce the cost of living. I hope the 18th Congress would be able to act on some of this. The priority bills of the President, I think only less than half were passed during the 17th Congress,” Mr. Barcelon said.

“Our leaders showed amidst differences, we must work for the country. Given the regional competition happening, now more than ever, we have to row forward together to overcome and ride the upcoming tides,” FFCCCII’s Mr. Siy said.

Out of 28 measures in the Common Legislative Agenda for the 17th Congress approved by the Legislative-Executive Development Advisory Council, lawmakers were able to pass 14, including three bills that form part of the government’s Comprehensive Tax Reform Program.

Two are still awaiting Mr. Duterte’s signature (the security of tenure bill and the bill increasing taxes on tobacco products), while one priority measure that hurdled Congress was vetoed (coconut levy fund bill). — Charmaine A. Tadalan

SSS hires fund managers for P7B in investments

THE Social Security System (SSS) has hired local fund managers to manage P7 billion of its Investment Reserve Fund (IRF) over two years to boost its financial standing, it said in a statement over the weekend.

SSS President and CEO Aurora C. Ignacio said the pension fund allocated the total equally to three Balanced Fund mandates, three Pure Equity Fund mandates, and one Pure Fixed Income Fund mandate.

“The SSS management believes that it can benefit from the investment value-added services of the fund managers such as training, access to proprietary investment analysis and information and access to business analytics,” Ms. Ignacio was quoted as saying in the statement.

SSS deployed P1 billion each to Rizal Commercial Banking Corp., BPI Asset Management and Trust Corp. (BPI AMTC) and ATRAM Trust Corp. under the Balanced Fund mandates.

Meanwhile, the fund managers for the three Pure Equity Fund mandates were BPI AMTC, Metropolitan Bank and Trust Co. and Philequity Management, Inc., also with P1 billion apiece.

BPI AMTC will likewise manage P1 billion under the Pure Fixed Income Fund mandate.

The P7 billion awarded to fund managers is out of the P9-billion investment portfolio the pension fund opened for bidding last year. The total was divided equally among the three investment instruments. According to the bid documents, the firms will manage SSS’ funds for two years.

“The remaining P2 billion allotted for two local fund managers will be opened for rebidding this year,” Ms. Ignacio said.

The SSS is allowed to appoint local or foreign fund managers to manage its IRF.

At end-2018, its reserve fund stood at P495.6 billion, the pension fund said. Bulk or 43% of its investible funds is in government securities, while about 19% is in equities. Another 19% is allocated for loans to SSS members, while 8% is in corporate notes and bonds, 7% in real estate, 3% in bank deposits, and 1% in mutual funds.

In July last year, SSS invested P3 billion of its investment reserve fund in three local mutual funds, divided equally between Philequity Management, Inc., Sun Life of Canada Prosperity Balanced Fund, Inc. and Philippine Stock Index Fund Corp.

The state pension fund is eyeing to finally invest overseas as its new charter allows a bigger chunk of its reserve fund to be parked in foreign-currency securities.

Republic Act No. 11199 or The Social Security Act of 2018 — the amended charter of the Social Security Commission, which is the policy-making body of the SSS — allows the pension fund to put up to 15% of its investible funds in foreign currency and investment-grade instruments.

The funds can be invested overseas, provided that the instruments are listed in bourses and that the issuing company has a proven track record of profitability over the last three years.

The SSS also wants to hire fund managers and advisers for its offshore investments. — RJNI

DICT hopes to give Mislatel permit to operate this month

By Denise A. Valdez
Reporter

THE Department of Information and Communications Technology (DICT) said it is targeting to award the Mislatel consortium with its frequencies and permit to operate by the end of this month, as the incoming third telecommunications player expects to begin operations by 2020.

DICT Acting Secretary Eliseo M. Rio, Jr. said the Mislatel consortium is in the process of securing the go signal from the Securities and Exchange Commission (SEC). After getting the SEC’s nod, only then can the DICT award the certificate of public convenience and necessity (CPCN) to the group.

Aside from the CPCN, the government is set to award the Mislatel consortium with frequency bands of 700 megahertz (MHz), 2100 MHz, 2000 MHz, 2.5 gigahertz (GHz), 3.3 GHz and 3.5 GHz.

“They are now working for the approval of their consortium with our SEC. By the end of this month, they will be given their frequencies and their permit to operate, or CPCN,” he said during the DICT’s third founding anniversary at the Quezon City Circle on Sunday.

The Mislatel consortium is the winner of the government’s bid for a new telecommunications player last year, where it sought for a competitor to industry giants PLDT, Inc. and Globe Telecom, Inc. It is composed of China Telecommunications Corp., and Davao-based businessman Dennis A. Uy’s companies — Udenna Corp. and Chelsea Logistics Holdings Corp.

Under the terms of reference for the third telco bidding, the winning bidder should secure “SEC clearance that the terms of the Bidding Agreement comply with the relevant rules on the limitation of foreign equity ownership.”

Mr. Rio told reporters he is hopeful the group will secure SEC approval this week so the DICT may proceed with the awarding of frequencies and CPCN to Mislatel immediately.

“Pag nakuha nila yun, hopefully by this coming week, pwede na sila magpunta sa DICT. But they still have to post a performance bond of P25.7 billion bago ibigay ng DICT yung kanilang CPCN at yung mga frequencies (Once they get the SEC approval, hopefully by this coming week, they can go to the DICT. But they still have to post a performance bond of P25.7 billion before the DICT can give their CPCN and the frequencies),” Mr. Rio said.

Mislatel Spokesperson Adel A. Tamano confirmed in a mobile message to BusinessWorld the group has started the process for its SEC application, but cannot guarantee that it will get the SEC nod this week.

“We have started the process for our SEC application. When we get the CPCN will be dependent on the SEC, NTC (National Telecommunications Commission), and DICT. And we are doing the steps needed to comply to get the CPCN,” he said.

Mislatel earlier said it aims to start commercial operations in the second quarter of next year.

Mr. Rio noted once the government gives the CPCN and frequencies to Mislatel, it will start monitoring Mislatel’s compliance to its commitments, such as the fulfillment of its promise to provide an average broadband speed of 27 Megabits per second (Mbps), cover 37.03% of the national population and invest P150 billion in capital and operational expenditure in the first year of its operations.

If Mislatel fails in fulfilling its commitments, the government will recall the CPCN and frequencies it will award to the group.

“We are promising our people that by next year, they will feel a very big improvement in our ICT environment, because by that time, we will have the third telco operating already…. By next year, the DICT envisions a faster, reliable and consistent internet connection brought on by helping market competition of telcos,” Mr. Rio said.

Approved building permits up 10.4% in Q1 2019

Approved building permits up 10.4% in Q1 2019

G20 finance chiefs to say trade row ‘intensified’

FUKUOKA, JAPAN — Group of 20 finance leaders said on Sunday that trade and geopolitical tensions have “intensified” but failed to express a pressing need to resolve them, in a final draft communique that said global growth is likely to pick up.

After rocky negotiations that nearly aborted the issuance of a communique, the finance ministers and central bank governors gathered in Fukuoka, southern Japan, affirmed language on trade issued in Buenos Aires last December.

“Global growth appears to be stabilizing, and is generally projected to pick up moderately later this year and into 2020,” said the final draft, seen by Reuters.

“However, growth remains low and risks remain tilted to the downside. Most importantly, trade and geopolitical tensions have intensified. We will continue to address these risks, and stand ready to take further action,” the communique said.

The communique also said that G20 finance leaders had agreed to compile common rules by 2020 to close loopholes used by global tech giants such as Facebook and Google to reduce their corporate taxes.

The Buenos Aires G20 summit in December 2018 launched a five-month trade truce between the United States and China to allow for negotiations to end their deepening trade war. But those talks hit an impasse last month, prompting both sides to impose higher tariffs on each other’s goods as the conflict nears the end of its first year.

The G20 finance leaders’ final communique language excluded a proposed clause to “recognise the pressing need to resolve trade tensions” from a previous draft that was debated on Saturday.

The deletion, which G20 sources said came at the insistence of the United States, shows a desire by Washington to avoid encumbrances as it increases tariffs on Chinese goods. The statement also contains no admissions that the deepening US-China trade conflict was hurting global growth.

The International Monetary Fund warned last week that the trade conflict would cut global growth next year, and financial markets had sold-off heavily as US-Sino ties soured.

US Treasury Secretary Steven Mnuchin said on Saturday he did not see any impact on US growth from the trade conflict, and that the government would take steps to protect consumers from higher tariffs.

TRUMP-XI SUMMIT
The widening fallout from the U.S.-China trade war has tested the resolve of the group to show a united front as investors worry if they can avert a global recession.

The bickering over trade language has dashed hopes of Japan, which chairs this year’s G20 meetings, to keep trade issues low on the list of agendas at the finance leaders’ meeting.

Mr. Mnuchin said U.S. President Donald Trump and Chinese President Xi Jinping would meet at a June 28-29 G20 summit in Osaka.

Mr. Mnuchin described the planned meeting as having parallels to the two presidents’ Dec. 1 meeting in Buenos Aires, when Trump was poised to hike tariffs on $200 billion worth of Chinese goods.

Mr. Trump took that step in May and will be ready to impose similar 25% tariffs on a remaining $300 billion list of Chinese goods around the time of the Osaka summit.

At the Buenos Aires meeting, the G20 leaders described international trade and investment as “important engines of growth, productivity, innovation, job creation and development. We recognize the contribution that the multilateral trading system has made to that end.”

The leaders in that communique called for reform of the World Trade Organization rules that were falling short of objectives with “room for improvement,” pledging to review progress at the Japan summit. — Reuters

Megaworld wants townships to switch to RE sources by 2025

By Arra B. Francia
Senior Reporter

MEGAWORLD Corp. wants all of its townships to be fully reliant on renewable energy sources by 2025, in a bid to make its developments sustainable for the future.

“Our goal by 2025 is all of our townships will have renewable sources,” Megaworld Chief Strategy Officer Kevin Andrew L. Tan told BusinessWorld in a recent interview.

“We want to switch our supply to renewable sources. So we’re asking all of our power suppliers to make that switch already. That will be the transition for the next three years,” Mr. Tan added.

The listed property developer currently has 24 townships across the country, the latest of which is called Empire East Highland City which is being developed with its subsidiary Empire East Land Holdings, Inc. The 24-hectare estate is located along F. Felix Avenue in Cainta.

Megaworld’s other townships include Eastwood City in Quezon City; Newport City in Pasay City; McKinley Hill, McKinley West, Uptown Bonifacio, and Forbes Town, all in Fort Bonifacio, Taguig City; The Mactan Newtown in Cebu; Iloilo Business Park in Mandurriao, Iloilo City; Sta. Barbara Heights in Iloilo; and Boracay Newcoast in Boracay Island, among others.

In line with its “live-work-play” concept, Megaworld townships have a mix of residential, office, commercial, and retail establishments.

Mr. Tan said the company will implement the shift by township, with the first changes to be seen in Iloilo Business Park.

“We are actually doing it in Iloilo first, given that there’s some new developments there on the distributor side and the supply side. We piloted our solar power there,” he explained.

Iloilo Business Park spans 72 hectares and is the company’s largest investment in Western Visayas. Megaworld is spending P35 billion to develop residential condominiums, office towers, a lifestyle mall, hotels and convention centers, retail areas, and a transport hub in the township in the next 10 years.

The company also said it will incorporate solar panels into the roof of its P1.2-billion Upper East Mall inside its Upper East township in Bacolod City. The three-storey mall will be Megaworld’s first green mall featuring sustainable and energy efficient designs.

Megaworld grew its net income attributable to the parent by 16% to P3.8 billion in the first quarter of 2019, after consolidated revenues also increased 15% to P14.9 billion.

It is spending P65 billion in capital expenditures this year to support the property development in its townships.

The company is part of tycoon Andrew L. Tan’s holding firm Alliance Global Group, Inc., which also has core interests in liquor, gaming, quick-service restaurants, and infrastructure development.

Jollibee targets to open 5 more Guam stores within next 5 years

HOMEGROWN food giant Jollibee Foods Corp. (JFC) is expanding its footprint in Guam as it plans to have five stores in the US island territory in the next five years.

In a statement over the weekend, JFC said it plans to increase its presence in Guam following the opening its first store there last April which showed the strong demand for customers.

“As a growing business center and an island of incredible diversity and taste, Guam will make a great home for Jollibee…We are very excited to be here, and are looking forward to what lies in store as we grow to five stores over the next five years,” JFC Chief Executive Officer Ernesto Tanmantiong said in a statement.

The listed firm’s first store in Guam seats 205 people and is located across Micronesia Mall in Dededo, the island’s most populous village.

“As we grow our business in Guam, we are excited to contribute to the local economy through employment. In fact, 100% of our staff at our store in Guam are locals and permanent residents of Guam,” according to Dennis Flores, who sits as the JFC head of international business for Europe, Middle East, Asia, and Australia.

The Guam store marks JFC’s 38th store located in American states and territories, including New York, Florida, Texas, California, and Hawaii.

At the same time, the company is also looking to have 150 stores in the US and 100 stores in Canada in the next five years. It also has 50 stores planned for Europe, 25 of which will be located in the United Kingdom.

JFC’s international stores look to woo overseas Filipinos working in different parts of the world. It has also attracted local customers, particularly in its Vietnam, Brunei, Singapore, Hong Kong, and Manhattan stores.

The company said it will open at least 500 new stores this year, equally split between the Philippines and overseas locations. Most of the new international stores will be in Vietnam at 120, while 40 will be opened in North America.

JFC allotted P17.2 billion in capital expenditures to support this aggressive expansion and old store renovations.

Store count by the end of the first quarter stood at 4,543 across different brands such as Jollibee, Chowking, Greenwich, Red Ribbon, Mang Inasal, Burger King, and Pho24.

JFC posted a 14.7% drop in net income attributable to the parent to P1.54 billion in the first quarter of 2019, amid a 14.1% increase in revenues to P40.35 billion. The company was weighed down by the consolidation of recently acquired US burger chain Smashburger, as well as slower same-store sales growth due to high inflation for the period. — Arra B. Francia

Lopez-led EDC signs deal to supply clean power to Batangas medical center

FIRST GEN Corp. said it signed a two-year contract with a Batangas-based medical center to supply power for its operations.

In a statement over the weekend, the Lopez-led firm said together with its subsidiary Energy Development Corp. (EDC) it signed the deal with Mary Mediatrix Medical Center (MMMC) to supply one megawatt (MW) of geothermal power from its Bacon-Manito (Bacman) geothermal power plant in Bicol.

“This contract symbolizes our commitment not only to our partnership but also to our environment. It is a good opportunity that First Gen-EDC offered us this alternative energy solution,” MMMC President and Chief Executive Officer Robert M. Magsino was quoted in the statement as saying.

“Not only will we be able to generate substantial savings through this initiative, but we will still be able to deliver high quality healthcare services to our patients without compromise,” he added.

First Gen’s EDC is one of the largest geothermal producers across the globe and the leading renewable energy company in the country with an installed capacity of 1,475 MW.

MMMC is a hospital in Southern Luzon that started operations in 1994 and has been awarded an ISO 9001:2008 in 2013, or a certification on quality management system.

“Geothermal power provides clean, renewable and reliable energy source that allows us to reduce our operation’s negative impact to the environment by reducing our carbon footprint. With this in mind, we look forward to mutually beneficial and strong partnership with First Gen-EDC,” Mr. Magsino said.

First Gen earlier said it is setting aside up to $250 million for this year’s capital expenditure, most of which will be used by EDC.

“For consolidated [capex], it’s about $220 to $230 [million], bulk of that will be with EDC, it’s about $150 [million], then the rest would be with gas,” Emmanuel P. Singson, First Gen Corp. senior vice-president and chief financial officer, said.

However, EDC President and Chief Operating Officer Richard B. Tantoco said the consolidated amount could reach $250 million to include additional budget for a geothermal-related project.

“Some of it will be for projects, and then some of it will be for things that we’ll do in the power plant like cooling tower upgrades,” he said. “So it’s investments that will optimize the assets’ flexibility.”

First Gen posted an attributable net income of $41.4 million in the first quarter, up 104.4% than in the same period last year due to higher contributions from its subsidiaries. — Denise A. Valdez

Kia PHL keeps this year’s sales target at 10,000

KIA Philippines is keeping its sales target at 10,000 units for this year, amid expectations that the auto industry is poised for a recovery.

“We’re keeping the target for now because we’re not yet in the middle of the year,” Kia Philippines President Emmanuel A. Aligada told reporters in Pasay City last week.

He backed the forecast of the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) that sales will improve in the second half, adding Kia’s sales growth is “up and running” compared to the industry’s overall growth.

Kia Philippines is targeting to sell 10,000 units in 2019, a surge from 2,238 units sold in 2018. Last year’s sales were 57% lower than 2017’s, as demand for new cars plunged due to higher taxes and rising inflation.

However, Kia’s January to April sales is already “a little over” 2,000, marking a 35% growth from the comparable period last year and nearing the full-year 2017 sales.

“We’re working still on the same elements, product lineup, awareness, [which] is a concern because we’re absent for a long time so we’re catching up on that,” Mr. Aligada said.

Ayala Corp., through its subsidiary AC Industrial Technology Holdings, Inc., acquired the distributorship for Kia vehicles in the country. The move intended to revamp the Kia brand as well as expedite its domestic growth.

Aside from expanding its dealership network, the company is working with banks to offer low downpayment options for auto loans. The promo allowed a downpayment of P13,000 for some Kia models, significantly lower than the previous minimum of P50,000.

Kia has teamed up with five banks for the promo, namely Bank of Philippine Islands, Inc., BDO Unibank, Inc., East West Banking Corp., Rizal Commercial Banking Corp. and the Philippine National Bank.

“We came up with a new low downpayment program about last month and I think that is what is getting a lot of reaction in social media,” Mr. Aligada said, adding the company has been receiving a flow of inquiries after the new offer.

He said Kia is in talks with three more banks to expand the promo.

At the same time, Kia is eyeing to roll out one more model toward the end of the year.

“The one that we will launch, it will be a popular vehicle… Smaller than the SUV…. Smaller than the Sorrento and Sportage,” Mr. Aligada said.

So far this year, Kia brought in the sports sedan Kia Stinger, a revamped Kia Forte, and the China-manufactured Soluto. — Janina C. Lim

The wisdom of the great unwashed?

Francis Galton, the great Charles Darwin’s half cousin, first noticed a curious fact in 1907: the average of the guesses of members of the crowd on the weight of an ox in the Plymouth country fair proved more accurate than the opinions of each selected recognized expert among the crowd. There is wisdom in the crowd. “Consensus forecasts” is one modern reincarnation; but now it is the average of a “crowd of experts.” The “Delphi method” goes further by using a crowd of experts who, in later rounds, are allowed to modify original predictions based on knowledge of results in earlier rounds with the expectation that the opinions will converge to the true value. The collective intelligence revealed by “social swarms” of networked players mediated by a collective intelligence platform follows the same logic in the digital space, and with surprisingly accurate predictions. The failures of collective rationality are, however, no less spectacular — booms and busts in stock market, Tulipmania, Ponzi schemes, Benito Mussolini, Hugo Chavez.

Surowiecki (2004) set down the conditions that make for one and not the other — members of the crowd must have their own pertinent private information (diversity) and coldly decide based on this information, not on how others decide (independence). These conditions are hard to satisfy in real life but seemed so in the Galton meat market experiment. On the other hand, the wisdom of the crowd becomes spectacularly wrong when decisions are subject to emotion (mobocracy), imitation, herd behavior or information cascades — that is, when individual decisions are made based on how others decide.

In a democracy, majority voting and one-man-one-vote is the platform that mediates collective decision-making. Socrates (sic Plato’s Republic) attacked democracy as a prescription for chaos and advocated totalitarianism under an enlightened dictator as ideal, pointing to the Spartan monarchy as evidence. This was the dominant opinion until the French Enlightenment philosophers chafing under the absolute monarchy of the Bourbons dared to reflect on democracy as alternative to absolute monarchy. One result of enduring beauty is the Condorcet Jury Theorems due to French Academy member Marquis de Condorcet. He proved that with enlightened voters (competence of greater than even chance to be right), the decision of the crowd is likely to be more accurate than that of the monarch; more so with a larger polity; with unenlightened voters (mobs), the monarch beats the crowd and more so in larger polities. Condorcet paid the highest price for the truth of his own theorem — he was arrested and imprisoned by the rampaging Montagnards mob and died, some say poisoned, in his cell. The conditions for the validity of Condorcet are identical to those that validate Galton’s “wisdom of the crowd.” Galton, unbeknownst to himself, had stumbled on Condorcet a century later. It took another 50 years, around the 1950s, for the world, now beknownst to itself, to formally rediscover Condorcet.

Why are we in June 2019 harping over these rather abstruse if remarkable social science moments? In May 2019, the Philippine polity voted overwhelmingly to reaffirm its faith in President Rodrigo Duterte. The people dealt the opposition’s Ocho-Diretso slate a 0-8 thrashing. And few will say that it was a flawed election; the results hued closely to pre-election surveys. Prominent journalist and respected social critic, Vergel Santos’ op ed article entitled “The Philippines Just Became More Authoritarian, Thanks to the People,” in the New York Times suggests that vox populi has been heard. It was not a stolen election and, however distasteful the result to some people, it is the people’s decision.

One reading is that the people have reaffirmed its social contract with Dutertismo: less political space in return for more economic space. The people have voted to hand the last bastion of check and balance, the Philippine Senate, to Duterte. He now has a free hand. Did the Great Unwashed give the prim and proper of the Philippines a lesson in discernment? Only time will tell.

And what can this mean? For one, oppositionist obstructionism can no longer be blamed for meager progress in the economic space. Consequently, there is less call to extend a state of emergency in Mindanao to the whole country. Will this new boost of power be used to enable the market to expand economic space? Or will it be used rather to indulge in populist excess that stifles the market? This is the mother of all questions. Deng Xiaoping of China used his autocratic power to enable the market towards shared prosperity; Hugo Chavez of Venezuela used his electoral reaffirmation to pursue aggressive populism that killed the market and engendered shared poverty.

In its first three years, Dutertismo has hued gingerly to the shores of respect for the market; Duterte has largely, if with some slips, honored his promise to leave economic policy to his economic team. What will the next three years bring? Beware of populist excess either from Duterte or from his zealous appointees. It can empty the treasury and leave little for growing the economic pie; it can sap the energy of the market as will the proposed ENDO law. Populist excess was what first denied Metro-Manila water concessionaires the rightful reimbursement for contracted income tax privilege and then penalized them for the water crisis not their making. But it was not Duterte’s; it was the water regulator’s altogether, perhaps misreading the boss’ intentions á la Becket. When Duterte at first correctly concluded that the regulators should be fired for incompetence but then switched to threats to review and void the concession contracts, he was letting his populism trump the market. Unilateral dissolution of contracts without adequate compensation would stifle the market and usher in the twilight of the “rule of law.” That is the Rubicon that not even the reaffirmed Duterte can cross without self-damage.

The great Enlightenment theologian and philosopher, St. Thomas Aquinas, identified the Rubicons that not even the Almighty God can cross — HShe cannot sin; HShe cannot clone Himerself, and HShe cannot make a triangle with more than 180 degrees. Either action will destroy the very essence of Godhead. Likewise, trifling with the rule-of-law will destroy economic progress and turn the triumph of the May elections into the curse of the Great Unwashed.

 

Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology and now an Honorary Professor at Asian Institute of Management. Weaving ideas in coffee shops is an integral part of his day. He gets his dopamine fix from hitting tennis balls with wife Teena and bicycling.

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