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Will a curfew ease overtourism in Seoul’s historic Hanok Village?

ENGLISH.VISITKOREA.OR.KR

SEOUL — Kwon Young-doo, owner of a private art gallery in Seoul’s historic Bukchon Hanok Village, is concerned about an impending curfew policy aimed at mitigating overtourism in the area.

The curfew, set for a trial in November and to be officially launched in March next year, will limit tourist access to specific areas of Bukchon from 5 p.m. to 10 a.m. Fines of up to 100,000 won ($72) will be imposed on violators.

“Who would want to visit?” said Kwon, the owner of the Asian Cultural Art Museum, who moved to the historic area 18 years ago. “They’ll leave with a bad impression of South Korea.”

Bukchon Hanok Village, with its narrow winding alleyways in hilly northern Seoul, dates back to the Joseon Dynasty (1392–1897). The area has become a popular tourist destination, especially after being featured on a TV show a decade ago.

Tourists and Koreans alike are drawn to the neighborhood for its quaint houses with signature wood columns and doors, a courtyard, and tiled roof.

However, increased tourism has become more than an inconvenience for the residents, who complain about noise, littering, public urination, and invasion of privacy.

Some tourists have been caught on surveillance cameras trying to enter private homes or peeking inside without permission, generating friction with locals.

Many residents have chosen to leave, leading to a 27.6% drop in the village’s population over the past 10 years, according to the Jongno district office.

The area attracted approximately 6 million visitors last year, compared with its resident population of around 6,100.

Chung Moon-hun, the Jongno district head, says the goal is to protect the rights of residents and the restrictions will be adjusted if necessary to make it effective. The area where curfew hours and fines will be imposed is approximately 34,000 square meters, about the size of five soccer fields.

But residents are skeptical about the policy’s effectiveness citing loopholes such as exemptions for tourists staying overnight in hanok accommodations. They also blame the proliferation of corporate-run hanok stays for disrupting their lives.

Since 2020, authorities have loosened restrictions on traditional Korean houses offering accommodation, resulting in a surge in corporate-run hanok stays in the residential areas, residents say.

In 2010, 10 traditional houses were registered in Bukchon under the name Traditional Korean Housing Experience Businesses; by October 2024, that number had ballooned to 116, according to the district office.

“People come for just a day to enjoy themselves, and the noise from parties is extremely loud,” said Kim Eun-mee, who lives next to a hanok stay. Clearing trash in front of her home has become a chore she has to tend to several times a day.

“It’s often difficult to maintain a normal daily routine due to disturbances like people dragging suitcases around even during the early hours, which frequently wakes me up.”

Lee Dong-woo, CEO of hanok stay booking platform BUTLER.LEE, said the business took off when owners who found it difficult to renovate or maintain old houses entrusted the property to hospitality businesses.

“These requests are driving the expansion, not because we are actively evicting current residents to operate hanok stays, which is completely untrue,” Lee who manages 17 hanok stays in Bukchon said.

Tourists, meanwhile, are divided over the curfew. Some agree the residents’ quality of life is important. Others chafe at the idea of getting fined for simply walking down a public street.

There are also questions about enforcement; how to tell tourists from residents, how to make foreigners pay the fine, and the language barrier. — Reuters

UBS report says wealthier clients became more cautious about art, sales dropped last year

COURTESY OF ART BASEL

NEW YORK — Global art sales fell 4% last year to around $65 billion, as the wealthiest buyers reduced purchases, according to the Art Market Report, published by Swiss bank UBS on Thursday.

The bank’s wealth management division advises clients interested in buying art, although it does not consider the purchases as investments.

Inflation, high interest rates, and political instability made the wealthiest clients become more cautious with art purchases and take more time deciding on potential acquisitions, according to the UBS Global Wealth Management chief economist Paul Donovan.

Sales volume at art auctions dropped 7% and at dealers, by 3%, mainly by slowing demand for more expensive art and purchases of average lower value.

The only country where art sales grew was China, which became the world’s second-largest art market after the US with a 9% rise in transactions to $12.2 billion. Mr. Donovan credits the higher activity by Chinese buyers to delayed post-COVID lockdown behavior, since China kept isolation measures longer than Western countries.

High interest rates and inflation contributed to the collapse of the most speculative art transactions, such as sales of digital art known as NFT, the UBS economist added.

NFT sales peaked at $2.9 billion in 2021 and were 51% lower than the peak last year. They do not seem to have recovered even later this year, Mr. Donovan said, after interest rates began dropping and other assets such as crypto currencies rose. — Reuters

Metro Manila office vacancy rate to rise to 20.5% by yearend — Colliers

AS OF THE end of the third quarter, Colliers data showed that office space vacancy rose to 18.6% from 18.3% the previous quarter due to space resulting from POGO lease terminations and nonrenewal of pre-pandemic leases. — PHILSTAR FILE PHOTO

THE OFFICE VACANCY rate in Metro Manila is projected to reach 20.5% by the end of the year, driven by the influx of new office space and the departure of Philippine offshore gaming operators (POGOs), according to property consultancy firm Colliers Philippines.

“We anticipate (office) vacancies to rise to 20.5% by the end of the year and end at flat net demand for the market mainly due to the POGOs exiting,” Colliers Director for Office Services Kevin R. Jara said during a briefing in Taguig City on Tuesday.

As of the end of the third quarter, Colliers data showed that office space vacancy rose to 18.6% from 18.3% the previous quarter due to space resulting from POGO lease terminations and non-renewal of pre-pandemic leases.

Mr. Jara said another 157,000 square meters (sq.m.) of POGO-occupied office space are expected to be vacated by the fourth quarter.

“These were the ones that we know and have officially notified their landlords that they’re not renewing their lease,” he said.

“57,000 sq.m. have already been vacated in the third quarter. That’s the immediate effect of the POGO ban,” he added.

POGOs, which are now officially known as Internet Gaming Licensees, were ordered shut down by the end of the year after the president announced a ban in July.

In terms of supply, Mr. Jara said Colliers is projecting an additional 119,000 sq.m. of office space by the fourth quarter.

“Then in 2025, we are expecting 615,000 sq.m. of new office stock, mostly coming in Cubao, North Edsa, and the Bay Area,” he said.

Mr. Jara said the average office rent is expected to be flat by yearend.

“It’s going to be an increasingly situational scenario for office occupiers taking up new leases. It would really depend on the building occupancy, age of the building, and portfolio situation of the landlord that is leasing the space,” he said.

Submarkets with substantial POGO exposure, such as the Bay Area, are expected to see a decline in rents by yearend.

On the other hand, submarkets such as Makati, Fort Bonifacio, and Ortigas are projected to see marginal increases in rents due to declining vacancy rates.

Mr. Jara also said the consultancy company has seen improvements in the transaction volume of office spaces led by the information technology and business process management sector and traditional office users.

“We think the market remains stable despite updates in regulation just over the past three months,” he said.

“We are still confident to see more opportunities arise, even with upcoming events in the US elections and with impending legislation such as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE),” he added. — Revin Mikhael D. Ochave

Ancient Pompeii site uncovers tiny house with exquisite frescoes

POMPEIISITES.ORG

ROME — Archaeologists in the ancient Roman city of Pompeii have uncovered a richly decorated but uncommonly small house with finely preserved frescoes of mythological scenes, the site said on Thursday.

The dwelling, called the House of Phaedra after the mythological queen of Athens who features in one of its wall paintings, sheds light on changing architectural styles in the first century AD, the Pompeii archaeological park said in a statement.

Unlike many of the houses excavated at the site, it was not built around the traditional Roman atrium, an open space with a pool for collecting rainwater.

Despite its small size, the house “strikes us for the high level of its wall decorations,” the statement said, noting they were of similar quality to much larger and more opulent homes near the new discovery, which lies in the center of the site.

The once-thriving city of Pompeii and the surrounding countryside in southern Italy was submerged by volcanic ash when Mount Vesuvius exploded in A.D. 79.

The eruption killed thousands of Romans who had no idea they were living in the shadow of one of Europe’s biggest volcanoes. It buried the city in a thick layer of ash, preserving many of its residents and buildings.

Besides the fresco of Phaedra and Hippolytus, who spurned her love, other mythological scenes adorning the vividly colored walls of the house include a sexual encounter between a satyr and a nymph, and gods who the site said may have been Venus and Adonis.

The building also boasts numerous smaller, but detailed and beautifully preserved patterns and scenes from nature. — Reuters

Meralco expects P16-B refund for customers

PHILIPPINE STAR/MICHAEL VARCAS

MANILA Electric Co. (Meralco) expects to refund around P16 billion to its customers once the energy regulator finalizes the fifth regulatory reset, which reviews and sets the distribution rates for 2022 to 2026.

The refund will be issued only if the covered years are deemed a “lapsed period.”

“Our initial estimate, for at least three years, would be around P16 billion. So, that’s a big, big, big relief for the consumers. That’s why we want to have that closure already,” Jose Ronald V. Valles, Meralco’s senior vice-president and head of its regulatory management, said on the sidelines of a briefing on Monday.

Under the Electric Power Industry Reform Act of 2001, or EPIRA, the Energy Regulatory Commission (ERC) is mandated to establish and enforce a methodology for setting transmission and distribution wheeling rates for a distribution utility.

Distribution utilities such as Meralco are subject to a performance-based regulation wherein they are required to undergo a rate reset process prior to the start of the next regulatory year.

The rate reset process is usually a “forward-looking” exercise that requires the regulated entity to submit forecasted expenditures and proposed projects over a five-year regulatory period for the ERC to review and adjust rates.

In March 2022, Meralco filed its application for the fifth regulatory period (5RP), which spans from July 1, 2022 to June 30, 2026.

Mr. Valles said that the P16-billion refund corresponds to the average weighted actual price over the approved maximum average price set by the ERC, which the distribution utility is permitted to charge for its provision of services.

He said that the company is awaiting the official decision from the ERC to start the preparations for the next period of rate reset beginning July 2026.

“We are waiting for the order because the release of that order will trigger the filing of that application for refund and the preparation for the filing of the 6RP because we don’t want the 6RP to be delayed again,” he said.

“We want to prepare this early for the 6RP because we have a full 21-month period under the rules to prepare for the reset,” he added.

Citing deliberations, ERC Commissioner Catherine P. Maceda told a Senate hearing earlier this month that the commission decided to forgo the regular regulatory reset due to the anticipation that it will not be completed until 2026.

The official order has yet to be posted as of press time.

Ms. Maceda said the performance-based regulation process should be based on forecasts and there are no current rules to address the lapsed period for private distribution utilities.

“The commission deliberated on this, and ultimately, the decision that prevailed was for the PBR (performance-based regulation) reset to be applied completely to the sixth regulatory period as two years have already passed under the 5RP,” she said. Ms. Maceda is referring to the years 2023 and 2024 as the lapsed period.

Meralco last underwent a rate reset process for the 4RP covering the period from July 1, 2015 to June 30, 2022, which accounted for a lapsed period.

In a decision dated June 16, 2022 and promulgated July 5, 2022, the ERC ordered Meralco to issue a refund worth a total of more than P40 billion, which is equivalent to 73 centavos per kilowatt-hour (kWh) following recalculations.

The commission resolved to recompute and finalize the provisionally approved Meralco’s rate amounting to P1.3522 per kWh. — Sheldeen Joy Talavera

AfD says Bauhaus displaced local traditions

COMMONS.WIKIMEDIA.ORG

BERLIN — It shaped modern industrial design and continues to inspire architects and product designers the world over, but to some on Germany’s far right, Bauhaus is nothing to celebrate.

As the East German city of Dessau prepares to celebrate next year’s centenary of the famed design school’s move there, the far-right Alternative for Germany (AfD) has urged local legislators not to glorify Bauhaus’ cosmopolitan style ethos, saying it negated regional traditions.

The AfD’s proposal, debated and roundly rejected by the state parliament of Saxony-Anhalt earlier this week, sparked a predictable outcry: Bauhaus was part of the interwar flourishing of German avant-garde culture that was stamped out by the Nazis when they came to power in 1933.

But for some, the content of the proposal was less significant than what it said about the party’s broader political strategy.

This year the AfD became the first far-right party to win a German regional election since World War Two, benefitting from a flagging economy but also by tapping into culturally divisive issues that crystallize splits over national identity.

“Culture war is their business model and provocation is their business model,” said Jan-Werner Mueller, a politics professor at Princeton University who studies populist far-right movements.

Elsewhere, the party has targeted authorities that use gender-neutral language and fly rainbow LGBTQ+ flags from municipal buildings, casting itself as a champion of traditional German grammar and family values.

Founded in 1919, the Bauhaus school set out to marry traditional craftsmanship with industrial production.

It became a magnet for designers from across Europe, many of them Jewish, and its very cosmopolitanism made it a cultural touchstone for post-war Germany as it looked for chinks of light in a history scarred by the genocidal crimes of the Nazis.

But that cosmopolitan spirit has been seized upon by some on the far right to portray the movement as un-German.

“The international spread of the Bauhaus style created a porridge-like homogeneity that displaced local architectural traditions,” the AfD’s legislative motion read, rejecting the “uncritical glorification” of the movement.

‘CREATING NOISE’
Around the world, the AfD is not alone among right-wing groups in rejecting modern architecture and design.

Donald Trump’s US administration sought to prescribe neoclassical architecture for all new federal buildings, while Hungary’s nationalist Prime Minister Viktor Orban has rebuilt much of the center of Budapest in a supposed restoration of its pre-war facade.

“The AfD has recognized the importance of the cultural sphere,” said Barbara Steiner, head of the Bauhaus Dessau Foundation. “Because you can use it to touch people’s hearts and emotions.”

The Bauhaus building in Dessau, with its distinctive steel window frames, unadorned facade and curved lettering is an international icon that inspired much post-war social housing, not all of which was successful or popular.

That has given the AfD space to argue that it is defending German culture by attacking the school and its legacy — including the clean, airy lines of Ludwig Mies van der Rohe’s architecture or Marcel Breuer’s iconic cantilever chair.

“They’re creating noise, showing that they are protecting their voters, defending high art and traditional values,” said Stephan Ehrig, a lecturer at Glasgow University.

The fact that the attack dismayed admirers of the Bauhaus style made it all the more effective as a tactic: polarization is good politics, he added.

During this week’s debate in Saxony-Anhalt, the AfD legislator behind the proposal, Hans-Thomas Tillschneider, told the legislature “your worship of Bauhaus seems very fragile … if our subjecting it to a little criticism might take your precious Bauhaus away from you.” — Reuters

Treasury bureau fully awards reissued bonds at lower rates

BW FILE PHOTO

THE GOVERNMENT made a full award of the Treasury bonds (T-bonds) it offered on Tuesday at a lower average rate on the back of strong demand for longer tenors amid better yields.

The Bureau of the Treasury (BTr) raised P15 billion as planned via the reissued 10-year bonds it auctioned off on Tuesday as total bids reached P43.277 billion, or almost three times the amount on offer.

This brought the total outstanding volume for the series to P251.85 billion, the Treasury said in a statement.

The bonds, which have a remaining life of nine years and two months, were awarded at an average rate of 5.87%. Accepted yields ranged from 5.828% to 5.89%.

The average rate of the reissued papers was 9.7 basis points (bps) lower than the 5.967% fetched for the bonds when they were last awarded on Sept. 17. This was also 38 bps below the 6.25% coupon rate for the issue.

This was also just 2 bps higher than the 5.85% fetched for the 10-year bond and 0.7 bp below the 5.863% quoted for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The government fully awarded its offer of reissued 10-year bonds as the average rate fetched was lower than the issue’s coupon and the yield quoted for the last issuance, the BTr said.

“It was awarded within the market’s expected range. You can see that there is appetite for duration as yields become attractive,” a trader said in a text message.

The T-bond offer was met with strong demand after the Bangko Sentral ng Pilipinas’ (BSP) latest cut in banks’ reserve requirement ratios (RRR) took effect on Friday, as this released about P400 billion in liquidity into the financial system, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP has reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5% effective Oct. 25.

It also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders was brought down by 100 bps to 1%. Rural and cooperative banks’ reserve requirement was slashed by 100 bps to 0%.

The yields fetched were aligned with secondary market levels amid market caution before the US presidential election on Nov. 5, Mr. Ricafort added.

The election for US president is expected to be close. Vice-President Kamala Harris, a Democrat, was leading Republican Donald Trump nationally by a marginal 46% to 43%, a recent Reuters/Ipsos poll showed, Reuters reported. Election Day in the US is Nov. 5.

Ten-year US Treasury yields eased to 4.2661% on Tuesday, after reaching the highest since July 11 at 4.3% overnight.

The US currency has also been buoyed by rising market expectations for an election win for Mr. Trump, whose tariff, tax and immigration policies are seen as inflationary, thus negative for bonds and positive for the dollar.

Tuesday’s T-bond auction was the government’s last offering for the month. It raised the planned P45 billion via the long-term papers as it made full awards of all its offerings.

With this, the BTr was able to raise P145 billion as programmed from the domestic market in October.

For November, the government is looking to borrow P90 billion from the domestic market, or P60 billion via Treasury bills (T-bills) and P30 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product this year. — A.M.C. Sy with Reuters

Globe completes P300-M tower sale to Unity Digital Infrastructure

TO DATE, Globe’s tower sale and leaseback agreement with Unity has generated a total of P3.7 billion. — GLOBE.COM.PH

GLOBE Telecom, Inc. has completed the sale of 25 telecommunications towers to Unity Digital Infrastructure, Inc. for P300 million.

This development marks the latest transaction of Globe’s tower sales to Unity, representing 68.7%, or 307 of the 447 towers to be acquired by Unity for a total of P5.4 billion, the Ayala-led telecommunications company said in a regulatory filing on Tuesday.

Unity is a joint venture telecommunications infrastructure platform of Aboitiz Infracapital, Inc. and global private markets firm Partners Group.

Globe expects an estimated pre-tax net gain of P1.8 billion once this transaction is finalized, the company said.

“This transaction will allow Globe to efficiently raise capital, redeploy capital from passive infrastructure to active equipment, improve balance sheet health, and leverage the expertise of tower companies,” Globe said.

To date, Globe’s tower sale and leaseback agreement with Unity has generated a total of P3.7 billion, its regulatory filing showed.

Aside from its agreement with Unity, Globe also sold 5,709 towers and related infrastructure to Frontier Tower Associates Philippines, Inc. and MIESCOR Infrastructure Development Corp. for P71 billion.

In July, Globe said it had fully closed the sale of 3,529 towers to be acquired by Frontier Towers.

Under this transaction, Frontier Towers will acquire 3,529 towers for P45 billion, while 2,180 towers will be sold to MIESCOR Infrastructure, a unit of Manila Electric Co., for P26 billion.

At the stock exchange on Tuesday, shares in Globe fell by P166, or 7.33%, to close at P2,100 each. — Ashley Erika O. Jose

Metrobank net income rises to P12.12B in Q3

METROBANK.COM.PH

METROPOLITAN Bank & Trust Co.’s (Metrobank) net income rose by 11.35% in the third quarter amid higher revenues as it booked growth in both interest and non-interest earnings.

The Ty-led bank’s attributable net profit stood at P12.124 billion in the three months ended September, up from P10.888 billion in the same period last year, the bank’s financial statement disclosed to the stock exchange on Tuesday showed.

This brought Metrobank’s net income for the first nine months to a record P35.729 billion, up by 12.4% year on year from P31.786 billion, “supported by the bank’s strong asset expansion, recovery in non-interest income and improved asset quality,” it said in a statement.

This translated to a return on equity of 12.93%, rising from 12.83% a year ago, and a return on assets of 1.48%, up from 1.46%.

“Our robust results reflect our strong drive to continue supporting the growing needs of our clients, all while preserving the health of our portfolio. We look forward to the positive impact of recent regulatory measures on the banking industry alongside improving economic outlook,” Metrobank President Fabian S. Dee said.

The bank’s net interest income went up by 4.1% to P27.752 billion in the third quarter from P26.658 billion a year ago.

This came as its interest earnings increased by 12.93%, driven by higher income from loans and receivables and investment securities. Interest expenses grew by a faster 30.94% in the period.

Net interest margin was at 3.9% at end-September, down from 3.93% a year ago.

Metrobank’s other income surged by 50.39% to P12.063 billion from P8.021 billion as it posted higher net trading, securities and foreign exchange gains and fee income in the quarter.

On the other hand, the lender’s total operating expenses went up by 17.25% to P20.597 billion from P17.566 billion amid higher manpower and miscellaneous costs.

Its cost-to-income ratio stood at 52.2% at end-September.

Metrobank’s gross loans expanded by 15.6% as of September.

“Commercial loans surged 16.6% as firms resumed capital spending and built up their inventories. On the other hand, consumer loans grew by 12.3% driven by a 16.6% rise in net credit card receivables and 15.7% growth in auto loans,” the bank said.

Despite the increase in its loans, Metrobank’s asset quality improved as its nonperforming loan (NPL) ratio eased to 1.59% as of September from 1.74% a year prior as it remained “prudent in its lending business,” it said.

“As a result, provision costs declined by 48.2% year on year. Nonetheless, NPL cover remains high, at 161.9%, providing a substantial buffer against any risks to the portfolio.”

Meanwhile, total deposits stood at P2.28 trillion as of September, with low-cost current and savings account or CASA deposits making up 62.3% of the total.

Its loans-to-deposits ratio went up to 74.4% from 62.62% a year ago.

Metrobank’s total assets stood at P3.34 trillion at end-September, and total equity was at P380.14 billion.

Its common equity Tier 1 ratio was at 16.3%, down from 17.59% a year prior, while its capital adequacy ratio was at 17.1%, lower than 18.42%. Still, both remained well above the central bank’s minimum requirements.

The bank’s liquidity ratio inched down to 47.49% from 48.89%, while its liquidity coverage ratio was at a “healthy” 258.4%.

The Metrobank Group had 956 branches, 1,303 on-site automated teller machines (ATMs) and 1,001 off-site ATMs as of Sept. 30.

Metrobank’s shares dropped by P3.20 or 4.07% to close at P75.50 apiece on Tuesday. — A.M.C. Sy

Pay up if you want to see Notre-Dame, French minister wants to tell tourists

NOTREDAMEDEPARIS.FR/EN

PARIS — France should charge visitors a small fee to see the Notre-Dame cathedral to help the country keep its world-famous churches and cathedrals in shape, the culture minister said.

Rachida Dati told newspaper Le Figaro in an interview published last week that by charging only 5 per visitor Notre-Dame could raise 75 million ($81 million) a year.

In France, where secularism is part of the national identity, the state is in charge of maintaining the country’s religious sites, including 15,000 classified as historic monuments, which are usually free of charge.

Notre-Dame has been undergoing reconstruction after a fire severely damaged its roof and spire. President Emmanuel Macron had pledged to rebuild Notre-Dame within five years, drawing massive private-sector financial support.

“As a good Christian, you are supposed to contribute and give some money to the church. But that’s supposed to be from your heart, not from charging the money,” said Soraya Arango, a tourist from Mexico who visited the cathedral.

French tourist Jean-Marie Delprat said he welcomed Ms. Dati’s initiative.

“One has to understand that it is necessary to do maintenance work, and not only here. There are other churches,” Mr. Delprat said.

Ms. Dati, a former Paris district mayor, also said tourists from outside the European Union should pay more to visit non-religious landmarks.

“Is it normal that a French visitor pays the same entrance fee to the Louvre as a Brazilian or Chinese visitor?” Ms. Dati said, adding: “I want visitors from outside the EU to pay more for their entrance ticket and for this supplement to go toward financing the renovation of our national heritage.”

The minister said many of the country’s famous buildings attracting millions of tourists per year were in a degraded state and that new funding sources were needed to address mounting preservation challenges, especially in the capital.

She said the ministry was working on implementing a new pricing policy, which is likely to require coordination with various public and private entities, from January 2026.

“A country that gives up on carrying out major cultural projects gives up on being a great nation,” Ms. Dati said. — Reuters

Can Philippine manufacturing ever recover? On coconut and cacao

FREEPIK

(Part 5)

We have considered at least two reasons why Philippine manufacturing never really took off in our development efforts.

First, we failed to address food security by giving short shrift to or neglecting the pre-condition to industrialization for a resource-rich and populous country like the Philippines, which is a green or agricultural revolution that characterized the first countries to industrialize in Europe, America, and Japan. The second policy mistake our leaders made was to rush head-on to capital-intensive, import-substitution and inward-looking industrialization, instead of first developing labor-intensive, export-oriented industries as our East Asian neighbors did.

There is no stopping us, however, from correcting these errors and removing the handicaps (high energy costs, inefficient infrastructures, and obstacles to doing business) in order to have a reasonable chance of competing with our ASEAN neighbors in export-oriented industries. At this late stage of global industrialization, some countries in Africa are still trying to replicate what the East Asian tigers did during the last century, benefiting from the “economic promise of the T-shirt” as David Pilling recently put it in the Financial Times (Aug. 29).

According to Pilling, “Benin, a nation of 13 million people, is trying to achieve what few African countries have managed: systematically transform raw materials — not just cotton, but also raw cashew nuts, soya, shea, and even human hair for wigs — into finished goods. Until now, like many poor countries, Benin has been trapped in a trading pattern in which it sells cheap raw commodities and imports finished goods.” These words apply perfectly to two raw materials we export: coconut and nickel ores. Philippine manufacturing can be given a big boost if we export high-value food products manufactured from coconut and processed nickel products which Indonesia is already doing.

As already mentioned, the emphasis on the importance of manufacturing for reaching high-income status can be explained by the way that sector makes more productive use of human resources than agriculture and most services. In a rough calculation, using macroeconomic data, one of our young economists at UA&P, Greg Mabaggu, divided total output (value added) per economic sector by the number of people employed by that sector and came out with the following comparative figures. Using the agriculture, forestry, and fisheries (AFF) sector as the standard of 1.0, manufacturing rated 50.8, mining 37.3, construction 4.2; electricity, gas, steam, etc. 502.6; water supply, sewerage, waste management, etc. 43.7. It is evident that the entire industrial sector has much higher labor productivity than agriculture, forestry and fisheries.

What about the service sector, which accounts for almost 60% of our GDP? Wholesale and retail trade, repair of motor vehicles and motorcycles rated 23.8, much smaller than manufacturing. Other service sectors are even less productive in using labor: Transport and storage rates 6.2, accommodation and food services rates 13; professional, scientific and technical activities, 19.2; administrative and support services, 5.2; education, 3.5; human health and social work, 13.2; and arts, entertainment and recreation, 13. These figures suggest that shifting more labor to manufacturing can lead to higher GDP levels and that manufacturing can afford to pay higher wages.

Unfortunately, of the 50.3 million workers employed, only 7.8% are in manufacturing. The AFF sector employs 21.2% of the labor force; construction 11.5%; mining and quarrying 0.6%; and electricity and gas, etc. 0.2% with total industry at 20.2%. Services account for 58.7% of total labor force with wholesale and retail, etc. at 21.1%, transportation and storage at 7.1%; accommodation and food service activities at 5.2%; education at 3%; all other service sectors employ less than 3% each. Those not classified (other service activities) total 6.3%. We can conclude from the above data that most of our workers (almost 60%) are in low productivity businesses.

This explains why economists would like to see more of our 50 million or so employed workers in manufacturing and the other sectors of industry and not concentrated in services. This is evidence that we have not truly industrialized. In fact, a recent chart that appeared in this paper, containing the latest data from the World Bank’s World Development Indicators, showed that labor productivity in the Philippines in 2023 was the fifth lowest in the East and Southeast Asian region. At $23,519, it was more than two times lower than the East Asia & Pacific’s average of $43,715 and the world average of $47,919 in 2023.

One of the most compelling studies about the primordial role of manufacturing to attaining First World status was that of a team of economists at the Asian Development Bank headed by Dr. Jesus Felipe, who is now the Chair of the Economics Department of my alma mater, De La Salle University, a contributor to this paper. The results of this study appeared in the Cambridge Journal of Economics (January 2019) in article entitled “Manufacturing matters… but it’s the jobs that count.” Let me quote from the Abstract: “We assemble a large database of countries’ manufacturing employment and output shares for 1970-2010. We ask whether increased global competition and labor-displacing technological change have made it more difficult for countries to industrialize in employment, and whether there are alternative routes to prosperity. We find that 1.) All of today’s rich non-oil economies enjoyed at least 18% manufacturing employment shares in the past; 2.) They often did so before becoming rich; 3.) Manufacturing peaks at lower employment shares today (typically below 18%) than in the past (often over 30%); 4.) Compared with employment, output shares are weak predictors of prosperity, and are under less pressure; and, 5.) Late developers’ manufacturing employment shares peak at much lower per capita incomes than previous studies have shown. We demonstrate that final result through regression analysis and simulation of the dynamics implied by our regression model. Becoming rich through industrialization has therefore become much more difficult. We argue in large part because of rapid growth in the manufacturing capabilities of some very populous countries.

These findings based on very hard evidence should give Philippine policy makers much food for thought. First, we have to do everything possible in the next 10 years or so to increase the share of manufacturing in total employment from the very low present rate of 8%, not to the practically impossible 20% or more attained in the past by countries like Taiwan and South Korea, but at least to double the rate to 16%.

A glimmer of hope for Philippine manufacturing was suggested by a recent report in September that the country’s manufacturing sector hit a more than two-year high, supported by a rise in new orders and production amid weak international demand, as reported by S&P Global. The domestic demand for manufactured products has reached such a high level that “overall new orders increased at much faster pace, despite demand for Filipino goods dropping notably in international markets.” Here again, we have proof of the advantage of a large, growing, and young population. We should give special attention to the manufacture of food products from the raw materials we grow. We have to “industrialize” agriculture.

One specific crop that should be given very serious attention is cacao, which we were a major producer of before the Second World War. As leading agribusiness economist, Ernie Ordonez, reported in a Philippine daily, the Ivory Coast — the top exporter of cacao in the world — is suffering shortages nowadays.

He advises that we help coconut farmers implement a superior multi-crop cacao system. Considering that two-thirds of the 3.6 million hectares of coconut trees have nothing planted between them, it would be profitable to help these farmers to cultivate cacao in between the coconut trees. In Ernie’s calculations, a cacao investment of only P47,454 per hectare can yield a net income of P130,313 per year, with a cacao tree being productive for 25 years. He suggests that we make use of part of the largely unutilized coco levy fund to fully support the plan of Agriculture Secretary Tiu Laurel and Philippine Coconut Authority Administrator Dexter Buted in fast tracking coconut intercropping by the small coconut farmers who are among the poorest of the poor in the Philippines.

As much as possible, we should not export the raw cacao but have our food manufacturers process them into chocolate candies that replicate the quality of the small producers in Davao and Bohol, who have already made a name for themselves in the global confectionery market.

(To be continued.)

 

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas@uap.asia

CEB boosts stake in ground handling firm 1AV to 60%

Founded in 2018, 1AV operates in 34 airports nationwide and plans to expand further to serve major domestic and international airlines. — CEBUPACIFICAIR.COM

CEBU AIR, Inc. (CEB), the publicly listed operator of Cebu Pacific, is increasing its equity stake in 1Aviation Groundhandling Services, Corp. (1AV), a company specializing in ground handling and logistical support services.

Cebu Air has executed a deed-of-assignment and subscription agreement to acquire 1.13 million shares of 1AV at a price of P100 per share, amounting to a total investment of P113 million, the company said in a regulatory filing on Tuesday.

Under this debt-to-equity conversion deal, Cebu Air said a portion of its loans and advances will be converted into 1AV equity by the issuance of an equivalent number of common stocks, pending the approval from the Securities and Exchange Commission.

This debt-to-equity plan will increase Cebu Air’s ownership in 1AV to 60% from the current 40%, making it the majority owner of the company.

As 1AV’s majority owner, Cebu Air will be able to integrate 1AV’s services more seamlessly into its operations, while also reducing operational costs and improving service quality, especially in ground handling and logistical support, it said.

1AV also stands to benefit from the transaction by reducing its debt and improving its overall financial health, Cebu Air said.

Founded in 2018, 1AV operates in 34 airports nationwide and plans to expand further to serve major domestic and international airlines.

To recall, Cebu Air had sold its majority stake in ground-handling service subsidiary 1AV to Philippine Airport Ground Support Solutions, Inc. (PAGSS), led by Jefferson G. Cheng.

Cebu Air said PAGSS and Mr. Cheng both agreed to convert their outstanding loans in 1AV, amounting to P34.23 million and P2.78 million, respectively, or a total of P37 million, into equity through the issuance of 370,000 common shares.

With this, PAGSS and Mr. Cheng remain minority owners of 1AV, collectively owning 40% of its stake.

PAGSS is a ground-handling service company based at Ninoy Aquino International Airport (NAIA).

At the stock exchange on Tuesday, shares in Cebu Air closed 65 centavos, or 1.98% lower, at P32.25 apiece. — Ashley Erika O. Jose