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PCC says third-player success to depend on regulatory reform

By Denise A. Valdez
Reporter
THE Philippine Competition Commission (PCC) said policy reforms are needed in the Department of Information and Communications Technology (DICT) and the National Telecommunications Commission (NTC) to ensure that the telecom industry’s third player can compete effectively with incumbents PLDT, Inc. and Globe Telecom, Inc.
In a phone interview last week, PCC Commissioner Johannes Benjamin R. Bernabe told BusinessWorld the regulator has flagged the need for reforms to the DICT and NTC, as early as the release of the terms of reference for selecting the third player.
“[W]e in the PCC sat down with NTC and DICT and emphasized to them that what they are providing in terms of frequencies, rights and assets for the third telco will not be sufficient to ensure the third telco will be as competitive and expand its business operations post-award. We pointed out critical regulations that need to be revisited,” he said.
Mr. Bernabe said some examples of these regulations are the distribution of spectrum among the telcos, the allocation of second generation (2G) frequency to the third player, and infrastructure sharing among service providers.
The government is giving the third player radio frequency bands of 700 megahertz (MHz), 2100 MHz, 2000 MHz, 2.5 gigahertz (GHz), 3.3 GHz and 3.5 GHz. Despite this, Mr. Bernabe said PLDT and Globe still own more spectrum for their operations, raising the need to look into spectrum distribution.
“We are for a more rational spectrum (distribution) program. They’re (DICT and NTC) in agreement but the timeline and modality of implementing this program will take time,” he said.
Mr. Bernabe said some options it laid out to the NTC include a clawback option on some frequency currently owned by PLDT and Globe, via a mechanism like increasing the annual spectrum user fee to push the incumbents to give up underutilized frequency.
Another is the ongoing review of PLDT’s and Globe’s acquisition of the 700-mHz band from San Miguel Corp. “[I]n the approval process of NTC of the co-use of these frequencies, there are conditions attached, and among those are improved internet access, improved speed and quality… The natural consequence… is if there has not been significant improvement then NTC can also claw back some of these frequencies currently held by PLDT and Globe,” he said.
The commissioner also noted that the third telco will not be awarded frequency for 2G rollout, as these are exclusively held by the PLDT and Globe. He said PCC data shows only 60% to 70% of the population owns smartphones, and therefore the remaining 30% to 40% are limited to network services powered by 2G such as text and voice messaging.
“Because the third telco doesn’t have the frequencies to have these services, they’re not able to serve 30% to 40% of the market. One solution is come up with a circular which mandates PLDT and Globe to allow the third telco to co-use or engage in roaming,” he said.
With regard to infrastructure, Mr. Bernabe said the government must also start working on the infrastructure sharing policy that would allow more than two tower companies to operate. This way, the third player may start operations without deploying its own cell sites.
The government presented in September a draft policy on infrastructure sharing which limits the installation of towers to only two registered tower companies. Review of stakeholders’ comments on the proposed policy is still pending at the DICT.
Mr. Bernabe said although the commitments of the third player are time-bound, the PCC believes it is not impossible to fulfill, contrary to the doubts raised by PLDT and Globe.
“I think it’s fairly realistic… Of course it’s unrealistic to expect that in six months or one year that the third telco would pose a significant challenge already to the two dominant players. It will require time. But if they play their cards right and all these regulatory reforms are put in place, they can do it,” he said.
The government declared last week the consortium of China Telecommunications Corp., Dennis A. Uy’s Udenna Corp. and Chelsea Logistics Holdings Corp., as well as franchise holder Mindanao Islamic Telephone Company, Inc. (Mislatel) the third player. The group now has 90 days to submit its business and rollout plans to the NTC, among others, before it is given the frequency bands and Certificate of Public Convenience and Necessity (CPCN).
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.

DICT to work with DTI to upgrade MSMEs’ e-commerce capabilities

THE Department of Information and Communications Technology (DICT) will soon partner with the Department of Trade and Industry (DTI) to promote best practices in e-commerce among exporters.
Undersecretary for DICTs Regional Operations and Countryside and ICT Industry Development Monchito B. Ibrahim said the partnership upgrades one of the agencies’ projects which currently links 2,000 micro, small and medium entrepreneurs (MSMEs) with strategic outsourcing partner-firms.
“We’ll be working with DTI’s Export Marketing Bureau… we think e-commerce will be more effective for the exporters,” Mr. Ibrahim told BusinessWorld on the sidelines of an event in Makati City.
“We’ll probably do the training. And then they will take charge of identifying which is the right market for our exporters,” he added.
He said DICT’s role will focus on honing exporters’ digital marketing strategies to help them be noticed online.
“More importantly, it’s not just trying to build online presence. It’s how to digitally market your products… Digital marketing is very important. They need to learn it. That’s where we can win,” Mr. Ibrahim added.
He said the growth of Philippine MSMEs is lagging those in other Southeast Asian countries due to the country’s “very very low adoption” of e-commerce technology.
“Look at Vietnam, what helped their MSMEs grow? It’s actually E commerce,” Mr. Ibrahim said, adding that MSMEs from Vietnam, Laos, Cambodia and Myanmar re active in e-commerce platform Lazada.
Although he noted that e-commerce may not be the solution for all MSMEs, especially those serving small targeted areas, “for exporters, it will be the most important multiplier, increasing the market access.”
The Asian Institute of Management’s research arm, Rizalino S. Navarro Policy Center Competition (RSN-PCC), recently released a 2018 SME survey, “Drivers of SME Competitiveness in the Philippines” which found that 94.8% of the 480 respondent-firms it surveyed use digital tools in their businesses to various degrees.
A total of 39% said digital tools are very important for finance and accounting purposes. Other important aspects that digital tools can improve are operations, customer relations and inventory management.
However, SMEs had limited exposure to more advanced technologies for business such as cloud-based tech, digital payments, credit and debit card transactions, and social media use.
“SME productivity can benefit more from levelling-up their usage of more advanced technologies such as cloud-based tech, digital payments, credit and debit card transactions, and company websites,” the RSN-PCC survey found.
“Increasing awareness of the benefits of these technologies, even the use of social media for business, can influence SMEs to use these technologies to increase their productivity,” it added.
Mr. Ibrahim said the DICT and DTI may first focus efforts in the Caraga region where exporters, based on the DICT’s own rural MSMEs-linking project, showed “tremendous” potential for e-commerce.
“We are still studying it but I think and really believe this will be a significant solution to be able to bring our MSMES to be significant global players.”
In 2016, MSMEs accounted for 99.6% of operating firms in the Philippines, while contributing 4.9 million jobs or 63.3% of the total that year, according to the Philippine Statistics Authority.
The PSE estimates that MSMEs account for 25% of the Philippines’ total export revenue while 60% of all exporters in the country belong to the MSME category.
Most MSMEs are able to export via subcontracting arrangements with large firms, or as suppliers to exporting firms. — Janina C. Lim

DA to lobby for increase of biofuel content in diesel for gov’t use

AGRICULTURE Secretary Emmanuel F. Piñol said he will lobby for the increase of coconut oil content in fuel to 5% from 2% for fuel used by the government, bringing the biofuel standard to B5 from B2.
Speaking to reporters, Mr. Piñol said, “We will be pushing for the increase of coconut oil used in diesel fuel, from B2 to B5, but only for government procurement, so that we will not stir the hornet’s nest as far as inflation is concerned. Our proposal involves fuel used by the military and government agencies. Our purpose is to absorb the excess copra,” he said, referring to the coconut product from which oil is extracted.
Mr. Piñol said that the Philippines has an excess of 300,000 metric tons of copra currently.
Earlier, Mr. Piñol announced that the Philippine Coconut Authority (PCA) will push for the increasing of B2 to B5 even for commercial use — a move which the Independent Philippine Petroleum Companies Association (IPPCA) and Senate chair for energy and economic affairs committees Sherwin T. Gatchalian opposed, citing the negative impact on consumers.
Mr. Piñol initially said that the increase of biofuel content will help the copra industry and also help the environment because biofuel burns more cleanly.
IPPCA said that with the adoption of the Euro 4 fuel standard, “there is no compelling reason to add or increase the biodiesel blend, given that the current diesel standard is already very clean. At the same time, increasing the blend will have an impact on the price of diesel. Why should motorists be made to subsidize another industry?”
Senator Gatchalian, meanwhile, said such a move is not advisable, as the added costs will come on top of the increase of fuel prices brought about by tax reform. — Reicelene Joy N. Ignacio

Gov’t debt service bill rises 21% in Sept.

GOVERNMENT DEBT service increased in September, driven by higher interest payments to domestic lenders, the Bureau of the Treasury (BTr) said.
The government settled P38.59 billion worth of debt in September, up 21.71% from a year earlier.
The debt payments were 67.52% lower month-on-month.
Of the September payments, 84.67% or P32.68 billion went to interest, up 23.77% year-on-year.
In September P5.92 billion went to principal settlements, up 11.66% from a year earlier. All principal payments went to external lenders.
Overall debt serviced in the nine months to September was P620.54 billion, up 6.5% from a year earlier.
This is equivalent to 84.57% of the P733.74 billion debt service budget for the year, based on the latest Budget of Expenditures and Sources of Financing (BESF) document.
Interest payments accounted for 43.72% of the total in the nine months to September, or P271.33 billion, which grew 8.97% year-on-year. Amortization payments meanwhile amounted to P349.21 billion, up 4.59% higher from a year earlier. — Elijah Joseph C. Tubayan

Corporation Code amendments seen signed before end-2018

THE SIGNING into law of the bill amending Batas Pambansa 68, or the Corporation Code of the Philippines, is expected by year’s end, Camiguin Rep. Xavier Jesus D. Romualdo said.
“The House, Senate, and SEC (Securities and Exchange Commission) have been working very closely on the bill and so all we’re very much aligned with regard to the final version,” Mr. Romualdo told BusinessWorld in a phone message on Saturday.
“We’ll conduct the bicam on Monday and we expect to hold just one meeting. If everything goes as planned both Houses could ratify already next week and the President could sign it next month,” Mr. Romualdo, vice chair of the committee on the revision of laws, said.
The House of Representatives and the Senate are set to hold on Monday the bicameral conference committee session to reconcile House Bill No. 8374 and Senate Bill No. 1280, principally authored by Mr. Romualdo and Senator Francis Joseph G. Escudero, respectively.
Both bills proposed to allow the perpetual existence of corporations and lift the five-person minimum requirement in forming a corporation; but differed on a key provision which seeks to remove the requirement of subscribed-for and paid-up capital stock for purposes of incorporation.
In the present Code, corporations may be created with at least five incorporators, and may exist for up to 50 years, renewable for a period not exceeding 50 years.
Further, it was provided that at least 25% of the authorized capital stock must already be subscribed and at least 25% of the total subscription must be paid upon subscription.
This particular provision was omitted in the House version, but was retained in the Senate Bill. Asked whether the House contingent will adopt the Senate version, Mr. Romualdo said “we’ll have it removed.”
“The update to me by our Committee Secretariat, who have met with their Senate counterparts in preparation for the Bicam, is that the Senate is inclined to agree,” he also said.
The measures will also strengthen the SEC through additional powers of investigation and increased penalties.
The present Code only imposes a fine of P1,000 to P10,000 or imprisonment of 30 days to five years for violations of its provisions; whereas in the proposed measures, penalties range from P1,000 to P5 million.
Among others, the SEC may fine those held in contempt P30,000 with a daily fine of P1,000 until the order, decision or subpoena is complied with. Meanwhile, administrative offenses may cost corporations P5,000 to P2 million worth of fines with daily fines of P1,000 to P2 million. Violations may also lead to the issue of a cease-and-desist order; the suspension or revocation of the certificate of incorporation, and dissolution of the corporation and forfeiture of its assets. The Commission may impose any or all of the sanctions depending on the nature, effects, frequency and seriousness of the violation. — Charmaine A. Tadalan

EU-PHL Business Network cautions against solar national franchise

THE EUROPEAN Union-Philippine Business Network (EPBN) has cautioned against the passage of House Bill 8179, which will grant Solar Para sa Bayan Corp. a license to operate nationwide.
“We think that should be properly looked at by Congress before passing it,” said Ruth Yu-Owen, chairperson of the EPBN Energy Efficiency and Renewable Energy Committee, during the Energy Smart Mindanao 2018 conference in Davao City organized by the European Chamber of Commerce of the Philippines on Nov. 22.
Ms. Owen, asked for comment during the open forum, said the EPBN had a meeting recently to formalize the group’s stand on HB 8179, but a policy paper has yet to be released.
“We believe that the franchise given to one entity, that may not be exclusive according to the (proposed) law, but the provision is giving a lot of advantage,” she said.
HB 8179 will grant Solar Para sa Bayan — a company led by Leandro L. Leviste, son of outgoing Senator Loren B. Legarda — a franchise to construct, install, operate, and maintain power and minigrid systems anywhere in the country.
“And we believe in competition, give everyone equal opportunity. They do say that it is not exclusive, but it is difficult for like an SME (small and medium enterprise), for example, to go to Congress and have a franchise similar to what is given, or to be given to Solar Para Sa Bayan,” said Ms. Yu, who is also vice-president for external affairs of the Philippine Energy Efficiency Alliance.
The EPBN, a project co-funded by the EU and implemented by a consortium of European Chambers of Commerce based in the Philippines, has a Renewable Energy and Energy Efficiency Advocacy Paper 2018, where it expresses support for increased green energy use in the Philippines.
It notes the pending law on energy efficiency and conservation (ECC), which covers incentives, among others provisions. The Senate version was approved in February this year, while the House consolidated version passed committee level in August.
“This is significant in expanding the use of energy-efficient technologies, and in attracting foreign investors in the energy sector. In addition, this will serve as a legislative framework key to a sustainable and secure Philippine energy system,” the EPBN said in the paper.
The Association of Mindanao Rural Electric Cooperatives, Inc. (AMRECO), meanwhile, expressed full opposition to HB 8179.
“We are opposing that bill… we, the electric cooperatives in Mindanao, and Luzon and Visayas, are going to Congress to defend our stand,” said Adelmo P. Laput, president of AMRECO’s Power Supply Aggregation Group.
The National Association of General Managers of Electric Cooperatives and Philippine Rural Electric Cooperatives Association earlier issued a statement against the bill.
The Philippine Solar and Storage Energy Alliance (PSSEA) has also questioned the proposal. — Marifi S. Jara

Initial talks on US-PHL FTA seen possible next year

THE Philippines and the United States may start next year initial talks for a free trade agreement (FTA), in the form of a “scoping exercise” to determine the extent of the future talks’ coverage.
Asked for updates when Manila and Washington can start preliminary talks, Trade Secretary Ramon M. Lopez, in a mobile message last week, said: “Considering the ongoing activities, this may start next year.”
While dealing with a mounting trade dispute with China, the US has been aggressive in working to secure bilateral deals with other countries and upgrading trade relations with other partners as well.
Mr. Lopez met with Deputy US Trade Representative for Asia, Europe, the Middle East, and Industrial Competitiveness, Jeffrey D. Gerrish, at the 26th annual summit of the Asia-Pacific Economic Cooperation.
Manila and Washington recently announced the resolution of long-standing issues in their Trade and Investment Framework Agreement, which allows both sides to make progress towards an FTA..
The issues involve customs valuation, intellectual property rights, market access for Philippine agricultural products in the United States, and international standards in automotive safety and food hygiene.
The Philippines and the US also moved forward from technical and policy dialogues on the National Retail Payments System and other measures related to electronic payment services, including domestic retail debit and credit electronic payment transactions.
Meanwhile, developments include the official inclusion of travel goods in the Generalized System of Preferences (GSP) Program last year.
Priority issues such as the Philippine request for exemption from the US safeguard measures on solar cells and tariffs on steel and aluminum will continue to be discussed.
Bilateral trade between the two countries was $27 billion in 2016, of which merchandise goods accounted for $18 billion and services close to $9 billion.
The Philippines is also a beneficiary of the US GSP covering over 3,000 products, whose GSP status is reviewed every three years. GSP items enjoy duty-free access to the US. About $1.5 billion worth of Philippine goods enter the US at zero tariff.
Meanwhile, two-way investments are estimated at around $7 billion. — Janina C. Lim

Can the public sector spearhead digital transformation?

(First of two parts)
In recent articles published in this column, we have highlighted the growing need for digital-ready leadership and the digital transformation of organizations. In today’s challenging environment, leaders must assume the main responsibility of fostering a company culture which is receptive to innovations in both internal methods and offered services.
The digital revolution has proven itself to be the way of the future, and companies need to keep up with their markets to stay competitive.
But when we talk about the bigger picture, we must realize that progressive and widespread digital transformation is not only a business or corporate concern. A large part of the success of digital leadership in the private sector is dependent on the digital readiness and inclusivity promoted in the public sector. Without the deep and proactive support of government, long-term digital leadership initiatives cannot achieve the momentum and wide dispersion necessary for mainstream adoption.
This idea was touched upon during the last ASEAN Outlook Conference 2018, as discussed in the recently released publication EY ASEAN Perspectives: Governance & Public Sector. Southeast Asia is considered one of the fastest-growing economies around the world, largely due to its expanding e-commerce industry and inventive digital technology. These have led to new and challenging ideas that were not as relevant to industries decades ago, such as online privacy, cyber-terrorism, and data security.
However, these indicators of digital progression do not necessarily apply to all economies in the region. According to the MasterCard-Fletcher School Digital Evolution Index, there are still significant gaps between developing and developed economies in Southeast Asia. These include differing local policies, varied consumer behavior, and most specially, the inconsistent digital infrastructure from country to country.
Thankfully, such hurdles are not impossible to overcome. But just as business leaders are called upon to adapt to digitally-savvy roles, the public sector must also meet the challenge of digital transformation by creating a local environment that is conducive to connectivity, promotes technological advancements leveraged for government use, and enables both businesses and the citizenry to actively acquire digital literacy. Primarily, leadership from this level must be spearheaded by local government if digital transformation and readiness are to reach regional levels of success.
It is only through this streamlined effort that we can maximize the growth potential brought about by digital technology — growth that could be worth up to $625 billion in increased efficiency, new products, and enhanced services by 2030. This is the estimate by the Masterplan on ASEAN Connectivity 2025, and it speaks volumes about the future expansion of the digital era.
Encouragingly for the Philippines, both public and private sectors are already implementing digital initiatives, although there is still much foreseeable work to be done.
First, there is clear merit in reviewing and harmonizing existing regulations and policies concerning digital infrastructure. Take for example the driving message from a recently concluded conference on digital future, organized by the Carlos P. Romulo Foundation. A pertinent talking point was that issues surrounding our digital infrastructure should be addressed sooner rather than later. A timely example of its urgency: the rate in which basic financial transactions are now conducted solely online, greatly increasing security risks.
Simply put, analog-era policies can no longer keep up with the digital trends and regulatory bodies are unable to predict what will arise next. Developments in technology are outpacing our country’s regulatory ecosystem for it, and this hindrance could devolve healthy competition and regional alignment with the rest of the ASEAN region.
The second concern that should be prioritized involves the actual building and scaling of digital infrastructure. In June, the Philippines went down one rank in the latest Ookla Speedtest Global Index. This monthly comparison of internet speed data from around the world has ranked the country at 96th place for mobile internet speed, and 83rd place for fixed broadband speeds. Government policies must address the margin of difference in our connectivity infrastructure as the country steadily moves towards a more digitally-inclusive economy. One such relevant instance exemplifying this was recorded back in 2017, where 3% of the Philippines’ gross domestic product (GDP) was from digital services such as cloud, Internet of Things (IoT), and artificial intelligence (AI). These findings, sourced from IDC and Microsoft’s joint research on Unlocking the Economic Impact of Digital Transformation in Asia Pacific, place the Philippines on the trajectory towards digital innovation in the next four years. If we are to meet such growth expectations, the public sector should no doubt double the effort in modernizing and institutionalizing basic, proper, and up-to-speed digital infrastructure for both businesses and citizenry.
Although these may seem like isolated incidents that hinder the expansion of a digital economy, they should be addressed as early as possible by the government. Touching upon the ASEAN goal of maintaining the region’s place as a fast-growing economy, it will be difficult for cross-country collaboration among our markets if one country does not properly regulate its digital infrastructure, or discourages new participants in the blossoming, new-age industry.
In the second part of this article, we will continue the discussion of the public sector’s role in facilitating, monitoring, and supporting the ongoing digital transformation in the Philippines.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
 
Wilson P. Tan is the Vice Chairman and Deputy Managing Partner of SGV & Co.

Price controls on medicines: The zombie is back!

On Nov. 15, the technical working group organized by the Senate Committee on Trade, Commerce and Entrepreneurship chaired by Senator Pimentel met on the proposed Senate bill that would create the drug price regulatory board or DPRB.
The proposed law would empower the DPRB to cap prices of drugs and medicines, and to sanction non-compliant pharmaceutical companies and medicine retail outlets.
Its purpose is to “effectively reduce the cost of drugs or medicines.” Now who could be against that?
But “tales as old as time” tell us that price capping could not deliver sustained affordability and accessibility of medicines to the poor, or of any basic necessity for that matter subject to price caps.
Price capping may be helpful for a limited duration, as in times following natural calamities when markets are temporarily dysfunctional and lacking adequate competition to bring prices back to their normal levels. Once markets recover, those controls are lifted.
But when price capping is permanent as in having a DPRB to chop off prices of medicines, suppliers would skip the local market.
Price-capped medicines become increasingly scarcer, pushing their prices to increase. Moreover, the medicines purchased could be of questionable quality, as some of them may be obtained in informal markets.
That price controls are incapable of achieving their good objectives in the longer term have been shown in several countries and in several other markets like low-cost housing, food, petroleum, credit, and other essential commodities.
Senator Zubiri authored the DPRB bill, a counterpart bill to the House of Representatives, which Congressman Biron introduced.
Price capping of medicines is not new. Congressman Biron proposed it in 2009, but his bill did not make it, because it was a non-starter for promoting medicines access.
With these bills in both Houses of Congress, their authors are trying to resuscitate a zombie. With their bills, both authors would reduce rather than expand access to medicines in our country in the long run.
The proposed laws are motivated by the claim that local medicine prices are higher than those paid in other countries. That may be so. But we don’t know why they may be so. While the World Health Organization had compiled country and international benchmark prices of medicines in doing the price comparisons, it did not make adjustments for differences in time, exchange rate, policies, and other factors between countries.
Without knowing if we are comparing correctly medicine prices and why external prices are lower, resort to price capping risks is like giving the wrong medicine to the patient.
But suppose the comparisons were correct. Competition, not price capping, turns out to be more effective in reducing medicine prices. In 2009, the DoH price capped five medicines under its Maximum Drug Retail Price (MDRP) program and several other medicines under its Government Mediated Access Prices program.
Competition, not price capping. Figure 1 charts the weighted average price of medicines by type of manufacturer. Even before MDRP in 2009, prices of originator medicines controlled by multinational companies had already been going down. The sharp drop of originator medicines can be attributed to the MDRP. But their weighted average medicines prices of originator medicines continued to slide down because of the shifting market shares in favor of generic medicines (see chart).
drugs
Competition would just force those multinational companies to bring down their prices once generic drugs and medicines enter the local market.
Generics firms benefit from the R&D of originator companies. After their medicines go off patent, generic companies produce their own versions of these medicines, which compete with their parent originator medicines. This competition causes medicine prices to go down.
If the DPRB focuses its price axing powers on originator medicines, it risks originator companies deciding against introducing price capped medicines in our country. This would deprive generic firms opportunities for diversifying their medicines portfolio, keep medicines supply high, and offer competition to originator companies to bring medicine prices down.
We all aspire for universal access to medicines. Strengthening competition in the local medicines market rather than controlling the prices of drugs and medicines is the way forward. We had seen it work and it could be made to work more effectively.
Expanded pooled procurement. Making the local medicine market larger is crucial to make the competition more effective in lowering prices. Not only should the government pool procurement of medicines by several public sector entities in our country, it should also allocate more budget for medicines. The deeper and expanded public sector would attract more suppliers in the market and give it leverage in negotiating medicine prices to go down further.
The expanded competition as more suppliers are attracted to bid in expanded public sector markets makes medicines more affordable to the general population. More importantly, the public sector is now in a better position to give drugs and medicines to the poor at no cost to them.
It is noted that despite the drop in the prices of medicines in 2009 because of MDRP, the “poor still find it difficult to buy the number and quality of drugs they need to cure or control their illnesses,” according to one study.
But we have two problems: the DoH has still to learn to fully absorb its budget, and secondly its procurement planning and distribution capacity is weak. Even at current levels of budget for medicines and drugs, we already hear procured drugs that remain unused in public health centers. So if Congress gives more taxpayer money to the DoH for this, this waste can only grow larger.
Hybrid PPP. Thus pooled procurement needs to be complemented with a hybrid PPP. The DoH outsources procurement planning and distribution of medicines. There could be two PPPs: one for planning and another for distribution. The private sector has relatively the experience in undertaking these functions more efficiently.
 
Ramon L. Clarete is a professor at the University of the Philippines School of Economics.

The rainbow after the rain

“At the end of the rainbow, you’ll find a pot of gold,” the old song goes. The rainbow points to where, in folklore, the leprechauns buried their riches.
But in the rural areas of the Philippines, as in most of Asia, little children entranced by the beautiful colors of the rainbow are told not to point at the rainbow. Your point finger will be cut off, the grandmas say. Pointing at the rainbow is taunting the gods because the rainbow is said to be an irascible deity in early cultures. In pagan-Christian syncretism, the rainbow is a symbol of God’s infinite power as He promised He will not destroy the world by floods again, as He did in Noah’s time. But you do not point to the rainbow and “collect” on God’s benevolence.
So, what did Chinese President Xi Jinping mean, exactly, when he described ties with the Philippines as “rainbow after the rain,” even before his state visit November 20-21 (2018) to Manila? Did he allude to the metaphoric gold of the leprechauns at the end of the rainbow, with near-exclusive trade and business offered in adulation by his professed admirer President Rodrigo Duterte? Indeed, it had been “raining” antagonism in the administration previous to Duterte, which initiated the arbitral case that led to the Hague ruling of July 12, 2016, awarding certain areas in the disputed South China Sea to the Philippines, based on the incompatibility of the Chinese claims with the 1982 UN Convention on the Law of the Sea (UNCLOS). Rain: that nasty arbitral ruling against China; rainbow: new, improved China-Philippines economic (and maybe political/military) relations.
That was two years ago, when Duterte had just started his six-year term as president, and thereafter he visited China, where his host, Xi, promised him some $24 billion in Chinese projects and financing (nytimes, Nov. 19, 2018). A few weeks before that, Duterte had publicly said that “the Philippines (was) being treated like a dog by Washington and would be better off with China” (abs-cbnnews.com Nov. 19 2018). Perhaps feeling reinforced by the “pot of gold” (promises) from China, Duterte was emboldened to antagonize the US further by openly saying, “Bye, bye America. We do not need you. Prepare to leave the Philippines. Prepare for the eventual repeal or abrogation of the Visiting Forces Agreement (VFA)” (newsweek.com, June 30, 2017). Duterte also hinted at a move toward China as retaliation for continued US criticism of the country’s human rights record under his leadership (Ibid.).
“I simply love Xi Jinping,” Pres. Duterte said in April. “He understands my problem and is willing to help, so I would say, ‘Thank you, China’” (nytimes.com, Nov. 19, 2018). But Xi Jinping, President for life of the People’s Republic of China, General Secretary of the Communist Party and Chairman of the Central Military Commission (CMC) with no term limits, has been wooing not only Duterte. “China has dispersed tens of billions of dollars in loans since 2013 as it expands its political influence globally, countering the American hegemony that characterized the post-World War II order, especially in Asia,” one report pointed out (AFP News Nov. 20, 2018).
“President Trump didn’t start a trade war with China — he’s trying to end and win the trade war that China launched against the US,” Fox News said (July 28, 2018). “America’s trade deficit with China is so large it almost defies comprehension. Since 2012, our yearly deficit in the trade of goods with China has consistently topped $300 billion. Last year, it was over $375.5 billion. In the first five months of this year it topped $150 billion,” the news report lamented (Ibid.). It seems Xi Jinping has found and helped himself and China to that pot of gold that America has squirreled away, since the postwar rehabilitation and boom, at the end of the proverbial rainbow of prosperity.
Nations are now being pressured to choose sides in the US-China trade war, it would seem, with economic-need levels as tempting near-term bases for long-term alliance. At the 2018 Asia-Pacific Economic Cooperation (APEC) summit in Papua, New Guinea, US Vice-President Mike Pence cautioned countries in the Indo-Pacific region, “Do not accept foreign debt that could compromise your sovereignty. Protect your interest. Preserve your independence. And just like America, always put your country first” (straitstimes.com, Nov. 18, 2018). Pence warned against falling into the Chinese debt trap and pitched for leaning to America: “We don’t drown our partners in a sea of debt. We don’t coerce or compromise your independence. We do not offer a constricting belt or a one-way road,” he said, in a ‘clear swipe at China’s Belt and Road Initiative, a Beijing-backed trillion-dollar infrastructure spending drive’ (Ibid.).
And in the Philippines, barely any projects have materialized on China’s $24 billion in investment pledges two years ago, prompting deepening concerns that Pres. Duterte has undermined the country’s sovereignty with little to show in return, analysts say (bworldonline.com, July 26, 2018). Only one loan agreement worth $73 million to fund an irrigation project north of Manila, and two bridges funded with Chinese grants worth up to $75 million were started, according to Economic Planning Secretary Ernesto Pernia (Ibid.). From both sides, the common excuse is the long and tedious bureaucratic processing of the grants/ loans, and the implementing sub-contracts.
At Xi Jinping’s official visit to Manila last week, he and Pres. Duterte witnessed the signing of 29 memoranda of understanding (MoUs), ranging from trade and finance to agriculture and infrastructure, culture and people-to-people exchanges, as well as oil and gas development (China Global Television Network [cgtn] Nov 21, 2018). “If the MoU on the oil and gas cooperation can introduce real results, that will set an example for other countries in solving the South China Sea dispute,” Professor Dai Fan of the Jinan University said (Ibid.). “Under Duterte, the Philippines has forward-deployed its geopolitical concessions…We have been used by China” Richard Heydarian, non-resident fellow at ADR-Stratbase Institute, a think tank, said in an interview (bworldonline.com, July 26, 2018). “Duterte will need the Chinese president to put his money where his mouth is, and help him justify his concessions to a historic rival,” Heydarian added (abs-cbnnews.com, Nov. 19, 2018).
A historic rival, China, is Pres. Duterte’s new rainbow of hope to achieve his legacy and honor as an achieving president in the likes of his admired former dictator Ferdinand Marcos (martial law 1972-1986). But Chinese committed investments in the Philippines in the first half of this year were just $33 million, about 40% of that of the United States and about a seventh of Japan’s, according to the Philippine Statistics Authority, a similar trend the previous year. Chinese exports to the Philippines grew 26% in 2017 from a year earlier, outpacing its imports from Manila, which grew 9.8% (abs-cbnnews.com, Nov. 19 2018). True, net foreign direct investment from China surged to $181 million for the first eight months of this year, from $28.8 million for all of 2017, according to the Bangko Sentral ng Pilipinas (BSP) — but again, these benefit the Chinese investors more for the attractive returns for them vis-à-vis the Filipinos’ temporary enjoyment of these funds.
Then, what rainbow was Duterte pointing at? In our culture, one does not point at the rainbow and dictate on the gods to give you your pot of gold.
“Duterte’s naivety with China has been a slam dunk strategic coup for China, no doubt about it,” Prof. Heydarian says (Ibid.). Indeed, the “rainbow after the rain” belongs to Xi Jinping, not to Duterte.
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com

Should we be worried about the fiscal deficit?

My fears were put to rest after I spoke to DTI Secretary Ramon Lopez during the monthly meeting of the Spanish Chamber of Commerce.
As my regular readers know, I have expressed my concern about the state of the country’s finances, particularly, our rising debt levels and fiscal deficit on numerous occasions.
For those unaware, a fiscal deficit occurs when the total revenues of government are less than its expenditures. As of the end of September, our fiscal deficit widened by a whopping 78% to P378.2 billion from just P213.1 billion last year. This is equivalent to 3% of GDP, which is the ceiling set by government.
There is still one quarter to go and if the current trend continues, we will likely overshoot the maximum tolerable fiscal deficit by a whole percentage point. Why is this alarming? Because the deficits will have to be financed by more debt.
As of the end of July, public debt already stood at P7,043 billion, representing approximately 41% of GDP. To increase our load of debt will erode this ratio.
There is nothing wrong with amassing debt, so long as you can pay it. Problem is, our Gross International Reserves (GIR) have been deteriorating too. GIR is the amount of foreign currency deposits, bonds, gold and special drawing rights held by a country. It serves as our buffer to pay for our imports and maturing obligations. From a high of $86.12 billion in September 2016, it plummeted to just $74.8 billion last October, the lowest in seven years.
At the heart of the problem is our trade deficit. Data covering January to September shows that imports rose by 16.2 % to $80.66 billion while exports slipped by 2.1% to $50.75 billion. This brought about a trade deficit of $29.91 billion, nearly twice the deficit registered last year.
The noxious combination of declining exports, ballooning imports, rising public debt and declining gross international reserves can be seen as a general weakening of the economy. It makes us more vulnerable to external shocks. This is the reason for my unease.
NECESSARY AND TEMPORARY
If anything, Secretary Lopez put things in perspective and this helped assuage my doubts about the economy’s health.
On spiking imports and consequent widening of the trade deficit, Sec. Lopez assured us that this is not only necessary, it is also temporary.
It is necessary because a large chunk of our imports are steel and cement, both vital components to government’s infrastructure program. Demand for cement is now at some 28 million tons a year, nearly twice the level between 2000 and 2010. Demand for steel has tripled to 9.82 tons per year. This just goes to show that infrastructure projects are well under way and that capital formation is on the rise.
Import statistics also show an influx of capital equipment. This indicates that more factories are being built, all of which will contribute to the economy’s productivity and export earnings.
The gaping trade deficit is also temporary. It will begin to ease once the US-China trade war cools off and new factories presently under construction come on line and begin their export operations.
On foreign direct investments, last year, the country realized $10.2 billion worth of FDIs, the highest intake ever recorded. In the first eight months of 2018, FDIs already stood at $7.4 billion, 31% higher than the same period last year. The Secretary is confident that $12 billion in FDIs can be realized in 2018. Exports are bound to catch up given the number brick and mortar factories presently being built.
While the Philippines has largely been dependent on electronics to drive its exports, the mix is becoming increasingly diverse. Emerging industries are auto parts, aerospace components, design-based furniture and garments and chemicals, said the Secretary.
It is not likely that we will realize a balance of trade surplus in the medium term. The deficit will persist for as long as the catch-up in infrastructure continues. What we can reasonably count on is its gradual narrowing.
As for the fiscal deficit that has already hit its ceiling last September, DBM Secretary Ben Diokno is of the opinion that it will not deteriorate further in the 4th quarter but will in fact improve. He sees importation and expenditures easing as government has already front-loaded spending in the first nine months of the year. I still have my doubts, but time will tell if Sec. Diokno is right.
REASONS TO BE OPTIMISTIC
If there is anything to be optimistic about, it is the manufacturing sector, declared the Secretary. The country is in the midst of a manufacturing resurgence after a deceleration that lasted three decades. From 2010 to 2017, manufacturing clocked in an average growth rate of 7.6%, outpacing the growth of the service sector. This shows that we are on track towards industrialization.
No surprise, food and beverage manufacturing lead the charge in both size and growth rates. This is due to our enormous domestic market and to a smaller degree, international demand. Also on the fast track are domestic appliances, chemical products, auto parts and mineral products.
Tourism is another bright spot. Sec. Lopez and I both agree that tourism will play an increasingly important role in the economy for its ability to generate foreign exchange instantaneously. It is unlike manufacturing plants that require a two year gestational period. Revenues from tourism can offset the fiscal deficit.
There is no denying the pent-up demand for inbound travel to the Philippines. What has held us back is the lack of provincial airports and lack of roads to connect tourist destinations.
The good news is that these impediments are slowly being addressed. Soon to join the newly inaugurated airports in Mactan, Lagundian, Puerto Princesa and Iloilo are new gateways in Panglao (to be inaugurated this week), Clark and Bacolod. In terms of road connectivity, the DPWH is now constructing 6,480 kilometers of roads within 49 tourism clusters across the country.
Tourism arrivals from January to August this year registered an 8.5% growth to 4.9 million visitors, despite the closure of Boracay. The country will likely surpass its target of 7.2 million visitors and will generate some $9.4 billion in revenues. The goal is to generate $17.7 billion on the back of 12 million visitors within three years.
As far as the BPO industry goes, Sec. Lopez assures the group that the BPO industry will continue to expand despite the widespread adoption of artificial intelligence. The thrust for the Philippines is to be the operator and maintenance provider of artificial intelligence across the globe.
As far as inflation goes, we should see some improvement this November, assures the Secretary. Inflation should ease to between 5 to 6%, from a high of 6.7%. With the tariffication of rice fully implemented and money supply restricted with successive interest rates hikes, our economic managers believe that the worse is over. Inflation for next year is seen to hover between 3.5 to 4.3 percent.
MISSING PIECE
If Sec. Lopez’ statements are anything to go by, it can be said that the economy is on an even keel, notwithstanding fiscal deficit pressures.
Still, I argue, the economy is not running on all cylinders. While the economy is growing apace driven by domestic consumption and government spending, the equation is not complete without exports driving the economy too. Only with the three components in place can we truly generate wealth.
The fact that we are in the midst of a manufacturing resurgence is a good sign. It means that merchandise exports will grow in step. However, the 7.6% growth of manufacturing is not enough. Growth needs to reach 15 to 20% if we are to approximate the export levels of our ASEAN neighbors.
Consider the difference. Philippine merchandise exports amounted to $68.71 billion last year. Compare this to Thailand’s $237 billion, Vietnam’s $214 billion, Malaysia’s $176 billion and Indonesia’s $169 billion. The Philippines has a lot of catching up to do.
The fly to the proverbial ointment is the restrictive provisions of our Constitution in as far as foreign investors are concerned. The Philippines has the most restrictive investment environment in ASEAN — no surprise, it also has the lowest shares of FDIs among the ASEAN 6.
A more liberal investment climate translates to more FDIs to build plants and factories. This redounds to higher export earnings.
Earlier this month, five investments areas were released from the foreign investment negative list. They consist of businesses related to Internet services, higher education, training centers, adjustments and lending companies and investment houses. While welcome, I don’t think this will make a significant dent in our FDI performance.
What we need is to liberalize such industries as land development (when land is owned), Build-Operate & Transfer deals, and retail operations above $200,000 capitalization. The 40% equity restriction on Filipino companies and land ownership must be rationalized too. Only then can we be regionally competitive.
These restrictions are embedded in the massively flawed 1987 Constitution and it would take an act of Congress to undo.
The story of the Philippines is still being written. While the economy is fraught with defects, we can rest in the fact that organizations like the Spanish Chamber of Commerce stay vigilant and keep our economic managers on their toes. We can also be assured that there are competent technocrats like Sec. Lopez who champion reforms.
 
Andrew J. Masigan is an economist

Upsilon’s progressive legacy (or why Upsilon should not be associated with Marcos)

The University of the Philippines (UP) is again in the news.
The good news: Its underdog varsity team, the Fighting Maroons, is having a winning streak and has a good chance of playing in the UAAP (University Athletic Association of the Philippines) finals. UP edged Adamson, thanks to teamwork in which the league’s most valuable player, Bright Akhuetie, a Nigerian, scored the winning basket in the dying seconds. One more win versus Adamson brings UP to the finals, enough reason for UP, usually a cellar dweller in the basketball league, to celebrate.
Akhuetie’s performance was all the more extraordinary, in light of his condition wherein he suffered from flu before the game. Worse, he suffered discrimination from some fellow students belonging to the Upsilon Sigma Phi fraternity. One scurrilously called him UP’s “pet gorilla.”
Which brings us to the bad news: Exposed to the public was the online conversation of the fraternity members that contained a lot of slanderous, misogynistic, hateful, intolerant, inflammatory statements. These fraternity members assaulted women, gays, blacks, Moros, Leftists, and others.
It is right and just for the public to condemn the statements and actions of these fraternity members. Even Upsilonians have expressed their disapproval and anger.
UP President Danilo Concepcion, an Upsilonian himself, issued a strong statement, and I quote part of what he said:
“Let me now speak as an Upsilonian.
“It personally pains me for my fraternity, which is celebrating its Centennial, to have been associated with these posts. They do not represent what we have stood for all those years, as they bring us back to the darkness rather than the light.
“But my pain cannot be compared to that of those maligned by their posts, and I assure the University community that I will do all I can, both as President and as a fellow of the fraternity, to root out this problem and to instill or reaffirm a culture of respect, tolerance, and decency within Upsilon and our entire fraternity system.”
Indeed, this notorious behavior of some Upsilonians is a disservice of unfathomable depths to the fraternity. It comes at a time that the fraternity is celebrating its 100th year. It also comes at a time it is seeking to revise its image of being a fraternity of villains, a fraternity of Marcos.
During the course of its centennial celebration, the fraternity, which takes pride in striving for leadership, has not given any public recognition to Marcos, the only Philippine president it can claim. Wenceslao Q. Vinzons, a fighter for independence, and a true war hero (unlike Marcos who had to burnish his reputation with fake medals), has become Upsilon’s model. The fraternity has likewise honored fellows — the living and the dead — for their significant contributions in different fields and disciplines. But Marcos is excluded. (Other Upsilonian politicians, even the good ones like Ninoy Aquino, have likewise been excluded from receiving recognition during the centennial celebration. Perhaps, this is the tradeoff to prevent Marcos from being recognized.)
That Upsilon was Marcos’s fraternity does not mean that Upsilon is a Marcosian fraternity. Yet the perception that Upsilon is a bad fraternity because of its association with Marcos refuses to die. The bad behavior of some fraternity members as exemplified by the malicious, defamatory online chats reinforces this view.
The post from someone with an assumed name “Tita Maroon” is a typical sentiment: “I won’t be surprised kung brod ninyo si Satanas. Oh wait brod nyo nga pala si Marcos.”
Any large organization, be it a fraternity, a political party, the Catholic Church, a revolutionary organization, or a civic club, cannot predict the goodness (or badness) of its recruits. In Upsilon’s case, it was a misfortune (in hindsight) that Marcos became a member of the fraternity.
It is inaccurate to say that Upsilon is packed with pro-Marcos (or for that matter pro-Duterte) fellows. Upsilon is likewise the fraternity of anti-Marcos fellows — Ninoy Aquino, Jake Almeda Lopez, Senseng Suarez, Armando Malay and son Ricardo, the Laurels, the Yabuts, Behn Cervantes and his communist comrades like Mel Glor and Mer Arce, among many others.
Also worth noting is the decency of some of Marcos’s classmates and fraternity cohorts. The respected journalist RenatoTayag, was Marcos’s law classmate and fraternity brother, but he was never part of the Marcos shenanigans. Another Marcos cohort, now 104 years old, is Delfin Gonzales. At his age, he is still capable of posting intelligent Facebook messages. And he is anti-Marcos and anti-Duterte!
During my days at UP Diliman, I was witness to how Upsilon residents engaged in the anti-dictatorship struggle. Some of them were my close friends — the late Juanito Yabut and the late Luis Taylor.
And so, Upsilon must take pains to restore the honor of the fraternity. Here, history is a guide.
Upsilon was founded by a group of masons who were at the forefront of the struggle for Philippine independence. Freemasonry was a progressive force throughout the world, which sought enlightenment, freedom, and liberty. The Filipino revolutionaries and reformists of the 19th century drew inspiration from Freemasonry. Masons composed the leadership and membership of the Propaganda Movement and the Katipunan
I recall the late Al Simbulan’s view (discussed in a still unpublished manuscript) that Rizal had the intention of using the Masonic Lodges as his organization to launch the Philippine revolution. Upon the defeat of the Philippine revolution, the struggle for freedom and independence took various forms. Philippine masons, for one, continued the struggle through legal means.
This then is the background of Upsilon’s founding. The Upsilon credo is heavily influenced by the principles of Freemasonry. The emphasis is on attaining “the ideals of peace and freedom for all peoples,” on upholding the “spirit of self-negation for the greater good,” on promoting “mutual aid and affection.”
Returning to its progressive roots should be its key message, as Upsilon Sigma Phi celebrates its centennial.
And such transformation will be good news and a cause for celebration for the whole of UP. Winning the UAAP championship will merely be a bonus.
The author is not a fraternity member. He is a barbarian.
 
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.
www.aer.ph

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