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Sin no more

“Republic Act 10351, or the Sin Tax Reform Law, is one of the landmark legislations under the Aquino Administration. It is primarily a health measure with revenue implications, but more fundamentally, it is a good governance measure. The Sin Tax Law helps finance the Universal Health Care program of the government, simplified the current excise tax system on alcohol and tobacco products and fixed long standing structural weaknesses, and addresses public health issues relating to alcohol and tobacco consumption” (www.dof.gov.ph/index.php/advocacies/sin-tax-reform).

“Many thought it was impossible to pass the Sin Tax Reform Bill: the enemy is strong, loud, organized, and has deep pockets. But, as we have proven time and again, nothing is impossible with the Filipino nation rowing in one direction, heart in the right place, and ready to stand up for its principles,” President Benigno S. Aquino III said at the signing of the Sin Tax Reform Act, December 20, 2012 at Malacañang Palace.

Though civil society rallied for its approval, and the bill was certified urgent by Pres. Aquino, it took months of deliberations before Congress passed the Sin Tax Law (STL), finally winning by just one vote in the Senate. It has been hailed as “the single most important health policy legislation of the past decade” in the Philippines (Kaiser, Kai, Caryn Bredenkamp, and Roberto Iglesias. 2016. Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development. Directions in Development. Washington, DC: World Bank).

The 2016 World Bank review cited above critiqued STL’s performance in the last three years of the Aquino administration, at the cusp of its conveyance to Pres. Rodrigo Duterte’s management. By law, a congressional committee was mandated to review the impact of the STL in July 2016.

“We consider the Sin Tax Law or Republic Act 10351 to be a very good law. Our position is to fully implement the law and let it run its course,” the new Finance Secretary Carlos Dominguez III said in a statement (The Philippine Star Dec 9, 2016). The STL provided for a multiyear transition to a new tax regime, with full implementation stretching to 2017 when all cigarettes will be subject to a single unitary excise tax of ₱30 ($0.70) per pack after a quadrupling of the lowest excise tax tier of ₱12 in 2013 from ₱2.72 in 2012. After 2017 the excise tax would be increased automatically by 4 percent per year. The STL retained revenue earmarking for tobacco-growing regions (almost equal to 15 percent of tobacco revenues), with a major increase in these transfers slated for 2015, based on 2013 revenue realizations (World Bank study, 2016).

By 2016, the STL beneficiary, the Department of Health (DOH) budget was triple its 2012 level (in nominal terms), reaching ₱122.6 billion. By end-2015, the coverage of the poor and near-poor in the National Health Insurance Program (Philhealth) tripled to 15.3million families (Ibid.). Sin tax revenues were also subsequently used to subsidize the insurance coverage of senior citizens, further expanding access to care among the more vulnerable. Moving to a unitary excise tax (abolishing the easily manipulated multi-layered ad valorem taxes) promoted greater transparency and accountability in the allocation of health insurance subsidies by using existing official poverty-targeting mechanisms and by mandating annual accountability reports on the implementation of the STL by all concerned agencies (Ibid.).

To Sec. Dominguez’s consternation, instead of the mandated review of the landmark STL, the House Ways and Means Committee approved within a record one week House Bill 4144, which reversed the STL, and aimed to bring back the onerous two-tier tax system (lower tax for cheaper cigarettes), which under RA 10351 was set to be unitary beginning Jan. 1, 2017 (The Philippine Star, op. cit.). The Department of Finance already had its plan to raise excise tax on tobacco and alcohol anew by 2018 under its comprehensive tax reform program (CTRP).

Civil society and social rights groups protested rabidly on the to-and-fro for the new Sin Taxes in the House of Representatives, especially that 85 percent would be earmarked for Universal Health Care (UHC) and 15 percent for displaced/reoriented tobacco farmers. The DoF had warned that no way would the maximum tax proposed by Representatives of P45/pack be enough to fund even the first year of UHC’s implementation (2020). The program is estimated to cost around P257 to 258 billion, which the government can cover from its current funding sources from the national budget, the Philippine Amusement and Gaming Corp. (PAGCOR) and the Philippine Charity Sweepstakes Office (PCSO) in the amount of P195 billion. But without “sin” tax reform, UHC will be left with a funding shortfall of around P62 billion (dof.gov.ph).

“Sin taxes are not whimsical impositions by greedy governments. Such taxes are carefully calibrated according to the social costs incurred by consumption of certain products,” Sec. Dominguez said (dof.gov.ph May 17, 2019). After two and a half years of both houses of Congress flip-flopping on the tax rates, Senate Bill 2233 (basically adopted from the DOF and DOH recommendation) was approved with a vote of 20-0, increasing the excise tax on cigarettes by P45 per pack effective Jan. 1, 2020; P50 per pack in January 2021; P55 per pack in January 2022 and P60 per pack effective Jan. 1, 2023. This will be followed by a five-percent annual tax hike starting Jan. 1, 2024 (The Philippine Star June 4, 2019).

Finally, finally. But some mischievous minds are saying that it was curious that after that much delay in deciding on the sin tax rate increases, it was signed immediately by both Houses of Congress (overnight transmission and uncharacteristic approval in toto by the Lower House), and delivered practically at the close of the 17th Congress. Siempre naman, the May 13 mid-term elections were just over. Was it not good timing for incumbent legislators to wash hands and show pro-tobacco lobbyists: what can we do — there is social clamor for the urgent health issues on addictive tobacco use, and the DOF clamor to fill the funding gaps of UHC. Neat escape, because if ever there was indeed some lobbying against the increased sin taxes, “utang na loob” or the debt of gratitude would not be on the incoming 18th Congress but would be extinguished with the outgoing 17th Congress.

The World Bank review of the STL recognized “a challenging (Philippine) political economy characterized by pronounced rent seeking and elite capture… in which special interests had often proved hostile to major reforms seeking to serve the broader public interest” (Kaiser, et. al., op. cit.). But the tobacco industry is big, and formidable. Area planted in 2017 stood at 31,214 hectares which produced 48.22 million kilograms of tobacco, of which 58.61 million kg valued at $319 million, increasing five percent increase in both volume and value per year.

(Philippine Star June 11, 2018). The Philippines and Indonesia are among the countries with the highest numbers of smokers worldwide, according to a research study which shows 35 percent smokers among Filipino men, a number which remained the same until 2015.

What can the government do, besides doling the placebo of increased “Sin taxes” to save the lungs of smokers (and secondary-smoke foisted on non-smokers)? “Our Department of Health (DOH) estimates that 87,000 Filipinos succumb annually from complications caused by cigarette smoking. In other words, ten Filipinos die every hour from cigarette-smoking related illnesses,” Senator Franklin Drilon said of the Sin Tax Law (inquirer.com March 03, 2014).

Perhaps Pres. Duterte should ban tobacco smoking, and stop tobacco planting and manufacturing for local and for export, instead of over-exerting for War on Drugs. “You are for human rights; I am for human life,” he says.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

Coffee enterprise hoping to promote peace in conflict areas

By Vincent Mariel P. Galang
Reporter

SOCIAL enterprise Coffee For Peace, Inc. said it hopes to promote coffee growing in conflict areas with an eye towards meeting domestic demand which is currently served largely by imports.

“The concept of “Coffee for Peace” started during our involvement in peace and reconciliation in 2007 in the Pikit area of Midsayap (Cotabato). We were listening to the stories of conflict about land and resources from two different parties, the Bangsamoro Maguindanao people and migrants from the Visayan region. We observed that serving coffee to them to sit down and dialogue, facilitates clarification of issues that would lead to conflict resolution,” Felicitas B. Pantoja, chief executive officer of Coffee For Peace (CFP), told BusinessWorld in an email interview.

Incorporated in 2008, Coffee For Peace aims to promote harmony within communities through joint coffee production by training them to produce coffee.

Ms. Pantoja said 70% of Philippine coffee demand is serviced by imports from Vietnam, Indonesia, and Malaysia.

The company mainly targets communities in conflict areas which have standing coffee trees.

“These areas are mostly where our tribal communities live, and where some rebels are hiding. These also should be forested, but due to indiscriminate logging practices by private companies and slash-and-burn farming by some tribal communities, those areas are left barren and with only cogon grass for cover,” she said.

Ms. Pantoja said that coordination with the local government is a must, but it is important to not look like they are teaming up with the government or with the rebels to achieve reconciliation.

“As a developmental social enterprise, we have to classify which level of conflict we have to enter. First, we respond to the communities’ demand. It involves a lot of listening and social preparation,” she explained.

To date, CFP has trained around 880 farmers in six locations. The company has two cluster communities in Davao Del Sur; three clusters in Bukidnon, one in Mt. Matutum; two communities in Kalinga; one in Mindoro; and one in Antique.

“The communities in Mindanao Island are mostly reconciled communities. They are the communities in low-level conflict and that is why they are able to progress because of the reduced threat,” she said.

Aside from providing a livelihood, it has also helped increase their income by 300%. It has also reforested 21% of the areas in which it operates.

With an initial capital of P500,000, the company has been able to sell over 2,000 kilos of roasted coffee beans annually across the country, as well as to customers in Canada and the United States.

Its other products include green coffee beans and blends served in its coffee shop. The company is looking into producing Arabica coffee, since it has identified various Arabica sub-varieties in the country like Typica, Mysore, Yellow Bourbon, Red Bourbon, Mondo Novo, and Pacamara.

It is now working on building a Food and Drug Administration (FDA)-approved facility for roasting coffee beans to maximize its distribution in supermarkets, grocery stores and trade fairs.

“We are also working on recycling our waste into a product that can earn money like the coffee pulp. Once all of this is set up, we can replicate the model in other countries and we can use this for social franchising,” she said.

“The skill of conflict management helps the community remain intact. Of course, there will always be conflict, but what matters is how you handle it. And these is where we guide the natural peace leaders in the group,” she said.

DMCI on track to complete 2nd tower of Davao project by March

DMCI Project Developers, Inc. said it is on track to complete the second building of its residential condo complex in Davao City by next year.

In a statement, the Consunji-led property developer said it has completed structural work for the 20-storey Belvedere tower of Verdon Parc, located in Ecoland Drive corner Peacock Street in Davao City. The company will be able to deliver units to owners by March 2020.

The company, also known as DMCI Homes, added that construction for the third and fourth towers of Verdon Parc is ongoing, as they target to turnover the units by February 2021 and October 2021, respectively.

Verdon Parc’s first tower was turned over to owners in January 2017.

The entire project stands on a three-hectare property that gives people a view of Samal Island and Mount Apo. It offers units sized from 28 to 56.5 square meters. Prices start at P3.19 million.

Amenities include a kiddie pool, lap pool, gazebo, fitness gym, open lawn, entertainment room, children’s play area, and podium deck area, among others.

Verdon Parc is DMCI Homes’ first project in Mindanao, as its developments are mostly located in Metro Manila. The company said it is building up its land bank to continue expanding in the country, ending the first quarter with 150 hectares or P10.2 billion worth of land under its portfolio.

DMCI Homes will be launching ten projects valued at P104 billion this year located across Quezon City, Las Piñas City, Pasig City, Mandaluyong City, and the City of Manila. It is also set to unveil its first project in Cebu.

The company will also be turning over two residential towers this year, namely the Surya and Raja buildings of Alea Residences in Bacoor City

DMCI Homes saw its net income rise five percent to P481 million in the first quarter of the year, even as revenues slipped two percent to P4.4 billion.

The firm is part of diversified engineering conglomerate DMCI Holdings, Inc., which has core interests in coal mining, water, construction, nickel mining, and off-grid power services. — Arra B. Francia

Barcelona style

IT’S easy to write a love letter to a city like Barcelona in Spain. The capital of Catalonia, it was settled by the Romans and its age shows in its architecture built upon centuries and centuries of care and a reverence for beauty. Barcelona has also served to nurture several artists, including the famed Surrealist Salvador Dali.

For about five years now, BD Barcelona Design has been available in the Philippines through Abitare Internazionale. BusinessWorld visited the Makati store last week to see the items by BD Barcelona Design, with the help of the brand’s General Manager, Jordi Arnau.

Mr. Arnau pointed out that the brand was established in 1973, at the tail-end of the Francoist fascist regime. The brand was founded by a group of about 20 architects, and the brand was initially named Bocaccio Design, named after a famous nightclub in Barcelona at the time — Mr. Arnau compared it to Studio 54 in New York — and there, the architects rubbed elbows with the likes of Gabriel Garcia Marquez and Mario Vargas Llosa. The brand was also named so in honor of the nightclub’s owner, who was one of their first investors.

The brand was risque back in 1973: while they are proud of coming up with the first design-influenced range hoods and mailboxes, they also came up with a vase shaped like a penis, and then an avant-garde lamp that snaked on the floor, and in the advertisements, around a nude model. “That was very risky, 1973. I’m still amazed that they did it,” he said about the penis vase. It wasn’t only risque aesthetically speaking: the conservative mores of the Francoist censors could have sent them all to jail.

The designs are a lot more restrained now: BusinessWorld saw a minimalist cabinet sewn with thread called the Couture, a white console carved with reliefs, and then chairs overflowing with stuffing called the Grasso.

But what is in Barcelona that pushes people to push boundaries, to risk offending sensibilities and the loss of life and limb just to create? The ambitious Sagrada Familia church, still in construction since 1882, sends the message that the people of Barcelona can, and will, try anything. But before the buildings, there came the people, and Mr. Arnau describes them so: “The character of the people there is very daring. They like to take risks, and innovate. Innovation is something that’s very Catalan.”

But Francoist Spain was different, and everywhere you looked then, there was a roadblock to expression, which is important to art and design as breathing is to a person. Mr. Arnau talked about how the brand flourished despite the repression. “The architects, they traveled around with their families. They were 30 years old, and they came from families [that were] very advanced in culture.”

In many states where freedom is dimmed, literature is there to provide a light, as it did back in the 1970s for this group of avant-garde artists and designers: “They couldn’t find nice designs, but you could find nice books, and read.”

Speaking of the Sagrada Familia, it was created by famed architect Antoni Gaudi, who died in 1926. He changed the face of Barcelona, giving it an otherworldly air with the influence of Art Nouveau. We’ve also spoken about surrealist Salvador Dali, whom we invoke again, because part of BD Barcelona’s work involves adapting the works of both, and turning them into furniture that you can purchase. For example, chairs by Gaudi are recreated by the brand, while Dali’s Mae West Lips sofa is sold by the brand. Objects from his paintings are also given new life in three dimensions, as real, solid furniture that you can sit on. “We were very good friends with Salvador Dali,” Mr. Arnau recalled. “We were in touch with him, and his secretary, and we got the rights for them to put… them in production.”

We’ve mentioned artists, and architects, but what do they have to do with a very technical field, that of industrial design? Mr. Arnau speaks of the intersectional relationship between the fields. “It is said that every architect should design a chair. A chair is one of the most complex [pieces]… that you can make.”

“The best designers of the 20th century, all of them were architects.” — Joseph L. Garcia

Gov’t securities to fetch lower rates on demand

GOVERNMENT SECURITIES on offer this week will likely fetch lower rates amid strong demand for the debt papers and as they track the movement of US Treasuries.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today, broken down into P4 billion and P5 billion for the three- and six-month instruments, respectively, and P6 billion in one-year papers.

The Treasury will also offer on Tuesday reissued 20-year Treasury bonds (T-bond) amounting to P20 billion with a remaining life of 19 years and seven months.

A bond trader said in an interview on Friday that the yields on the T-bills on offer today will likely slip by 10-15 basis points (bp) across all tenors from the previous auction.

Last week, the Treasury fully awarded the T-bills it placed on the auction block, borrowing P15 billion as planned out of tenders totalling P49.6 billion. Rates of the three-month, six-month and one-year IOUs declined to 4.992%, 5.4% and 5.498%, respectively.

At the secondary market on Friday, yields on the 91-, 182- and 364-day T-bills stood at 5.042%, 5.345% and 5.457%.

“We still see strong demand on the short end — that’s why we still expect lower yields. It will also track the US Treasuries,” the trader said.

The 10-year US Treasury yield fell to a 20-month low of 2.08% on Friday after the US Labor Department reported job creation of only 75,000 in May, way below the market consensus of 180,000.

“The market may continue to monitor the US Treasury yield movement come auction date,” Robinsons Bank Corp. peso debt trader Kevin S. Palma said in a mobile phone message Saturday.

He added that T-bill rates will likely plummet by 15-25 bps across the board to track the week-on-week drop in yields at the secondary market.

“Market has shrugged off faster-than-expected May inflation print because BSP (Bangko Sentral ng Pilipinas) Governor [Benjamin E.] Diokno was quick to address knee jerk concerns after he assured that inflation is still on a downward trend for the rest of the year,” Mr. Palma said.

Inflation last month accelerated to 3.2% from the 3% booked in April, driven by higher prices of food and non-alcoholic beverages as well as water, electricity, gas and other fuels.

Mr. Palma added that strong demand will persist on banks’ reinvestment requirements due to T-bills worth P14.3 billion maturing on June 11.

Meanwhile, for the 20-year T-bonds, he expects the average rate to settle within 5.2-5.35% — much lower than the last successful auction of the tenor — and to be in line with prevailing yields the secondary market.

The BTr did not accept any bids for its P20-billion offer of reissued 20-year bonds at an April 24 auction.

Had the Treasury made a full award, the papers would have fetched an average rate of 6.215%, down 50.1 basis points from the 6.716% fetched when the debt notes were first offered on Jan. 22 and the 6.75% coupon.

Based on the PHP Bloomberg Valuation Service Reference Rates, the 20-year bonds were quoted at 5.492% on Friday.

“Rosy Philippine economic outlook coupled with a possible [US Federal Reserve] easing as soon as fourth quarter of the year will catapult demand for this auction,” Mr. Palma said.

Meanwhile, the first trader expects the 20-year T-bonds to fetch a rate of 5.3-5.45%.

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in T-bills and P120 billion in T-bonds.

It is looking to raise some P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal

Cross country with the Volvo XC40

Text and photos by Manny N. de los Reyes

ENTHUSIASTS of Swedish premium car maker Volvo know that the title of this article is redundant. That’s because the “XC” in the model name of this week’s test car stands for “Cross Country.”

The XC series of Volvo began with the XC70 of 2003. That long-lived model (its two generations ran until 2016) had a huge “CROSS COUNTRY” decal on its tailgate. That seminal XC model was joined by the XC90 large SUV and the midsize XC60, both of which are still on the market and helping Volvo achieve record sales growth in the last few years.

Then just two years ago, Volvo launched its groundbreaking XC40 compact SUV. The year after that, it was awarded European Car of the Year. Not bad, considering there were new models launched by Mercedes-Benz, BMW, Audi, Porsche, and other European brands that were strong contenders for the award.

The XC40 is a landmark model for Volvo, as it’s the very first compact SUV for the Swedish car maker. The XC40 completes Volvo’s global lineup of premium SUVs, completing the triumvirate with the midsize XC60 and the large XC90 flagship. The XC40 marks, for the first time in Volvo’s long, illustrious history, three new premium SUVs in what is the fastest growing segment of the world car market.

The XC40 is the first model on Volvo’s new Compact Modular Architecture (CMA), which will underpin all other upcoming cars in the 40 Series including its upcoming electric vehicles.

The new CMA delivers an energized feel — alert, precise, responsive and connected — perfect for winding country roads or busy urban traffic while still delivering Volvo’s renowned superb riding comfort.

Volvo’s CMA-based cars have an electro-mechanical rack and pinion steering system that delivers the precision the latter is known for and the effortless maneuverability of electric assist. As you would expect from a Volvo, its clever software is optimized for all weather conditions.

The XC40 offers a selection of optional Drive Modes — Eco, Comfort, Dynamic, Off-Road, and Driver-Defined — that tailor the driving experience according to driver preference and driving conditions.

I got to drive the flagship XC40 — the P3,895,000 T5 R-Design variant. (The range starts at P3,350,000.)

The all-wheel drive XC40 T5 R-Design is powered by a turbocharged 2.0-liter four-cylinder petrol engine with developing 247hp and 350Nm of torque. It’s mated to an 8-speed Geartronic automatic transmission with paddle shifters.

INTELLIGENT SAFETY
Thanks to a suite of driver-assist safety systems, Volvo brings a new safety standard to the compact luxury SUV segment with the XC40. The car is designed to reduce driver distraction and the so-called cognitive load on the driver. Volvo believes that with safety and driver assistance systems actively identifying and mitigating potential conflicts, driving becomes more enjoyable and stress-free.

Features optimized for city driving include a high seating position that gives the driver a clear view of the road, the latest generation City Safety, a 360-degree camera, and Cross Traffic Alert with brake support to assist the driver in reversing and parking situations. Volvo’s cutting-edge Pilot Assist enables semi-autonomous driving during parts of the daily commute.

Needless to say, the XC40 comes with standard Volvo safety features such as ergonomic seats with anti-submarining protection, Side Impact Protection System (SIPS), and Whiplash Protection System (WHIPS), Volvo-invented three-point safety belts and advanced restraints system, and a range of air bags all designed to help protect the occupants in the event of an accident.

Run-off Road Mitigation, Oncoming Lane Mitigation, Driver Alert Control, Road Sign Information, and Lane Keeping Aid are also some of the advanced safety systems that can be found in the XC40.

HUMAN-CENTRIC CONNECTIVITY
Volvo’s Swedish engineers and designers approach connectivity, entertainment, navigation, and car control systems from a completely different perspective — a human-centric one. This has led to a more thought-through and curated approach to connected services, native applications, and smartphone integration.

The Swedes understand that certain technologies are essential in today’s connected world. Making them easy, safe and enjoyable to use in a car is Volvo’s primary concern. Anything that does not actively add to the user experience is not included. Only the most relevant and recent technology is used. This in-car user interface is what Volvo calls Sensus.

Volvo’s cutting-edge Sensus solution is based on the concept of a fully connected and enjoyable experience in the car. The company uses the latest and most relevant technology to deliver a superior user interface and an enjoyable user experience based on what people want and what makes their lives easier.

Volvo understands what people want — seamless connectivity and an easy-to-use interface that allows them to access services and applications that they have become used to outside the car.

Sensus is designed around five basic behaviors and desires: Entertainment, Connectivity, Navigation, Services, and Control. By delivering a suite of applications and interfaces that support these basic and most human of requirements, Volvo has created an award-winning and groundbreaking approach to in-car technology — not surprising from a country that brought you the innovation and elegant simplicity of Ikea and Spotify.

SWEDISH STYLE
Individualism is at the center with the new colorful Volvo XC40. The XC40 takes Volvo into new areas and allows its designers the freedom to create a car that brings a vibrancy, individuality, and playfulness heretofore unseen in the brand — or even in its small premium rivals.

Volvo chief designer Thomas Ingenlath wanted the XC40 to be a fresh, creative, and distinctive member of the Volvo line, allowing its drivers to put their personality in sheetmetal form. He describes XC40 drivers to be interested in fashion, design, and popular culture, and often live in large, vibrant cities — and want a car that reflects their personality.

Street fashion, city architecture, high-end designer goods and popular culture were all sources of inspiration as Volvo’s design team defined materials, patterns and color options for the new XC40.

The XC40 offers a broader and more playful color palette as well as dramatic two-tone applications you’d otherwise only see in a Mini Cooper. The XC40 is, hands down, the most expressive model in Volvo’s portfolio — even considering its coupe, convertible and hatchback stablemates, past and present.

With all these features and more, European premium SUV connoisseurs can expect the XC40 to deliver benefits that will bring go-anywhere motoring to the next level. With expressive design, solid all-around performance, ingenious storage, and uniquely Scandinavian style, build quality, and luxury, the Volvo XC40 is set to raise the bar in the genre.

Duterte’s chance to be immortal

What would it take to have the Philippines progress from a “good” nation to a “great” nation in three years?

The list is kilometric. But let me pare it down to the realm of economics and what is realistic.

To be a great nation, we must: bring unemployment rate down to below 3 percent; elevate nominal per capita income from US$3,730 to US$4,500 a year, putting us in the upper middle income category; reduce the current account deficit from nearly 3 percent of GDP to within one percent; maintain the ratio of government debt to no more than 50% of GDP; boost gross international reserves from US$83 Billion to US$95 Billion, sufficient to finance seven months of imports; and of course, rise in competitiveness from 56th position last year to 38th, the level of Thailand today.

Having a s strong economy opens the doors to other fields of development. It will allow us to further upgrade our infrastructure. It will allow us to have an armed forces with credible defense capabilities. It will give us the means to finance progressive educational programs to leapfrog in the fields of engineering, the sciences, creative thinking and innovation. It will enable us to deepen the coverage of universal healthcare and education subsidies. It will permit us to invest in sports development. It will enable us to widen our diplomatic reach and give the country a louder voice in international fora. This, among many others.

Many frowned at how the political opposition (the Liberal Party) is not aptly represented in Congress and the Senate. The legislature, many say, has become a virtual rubber stamp for Malacañang’s agenda. Be it as it may, this may be a good thing. For the first time since Marcos’ Batasang Pambansa (the Philippine’s legislative body from 1978-1986), the Palace has complete sway over the legislature and can virtually dictate the laws deliberated upon and passed. It has a chance to obliterate the impediments to our development and install statutes that would set us up nicely for decades to come.

The country’s greatest weakness is its manufacturing sector and to restore its vibrancy is to unlock the nation’s full potential.

Many believe that the country is already in the midst of a manufacturing resurgence, what with the manufacturing sector clocking in an average growth rate of 7.6% between 2010 and 2017. The statistics, however, are deceiving. The truth is that nearly 45% of our entire industrial output is attributed to food and beverage manufacturing of which 90% are consumed locally. Everything else, we import — from simple construction materials to chemicals, from food ingredients to plastics, from textiles to heavy equipment.

How weak has our manufacturing sector become? A good barometer is our merchandise exports.

Last year, revenues derived from merchandise exports amounted to just US$67.49 Billion. It was a fraction of Vietnam’s US$245 Billion and Thailand’s US$252 Billion. It is also a fraction of our imports bill which topped US$108.9 Billion. This resulted in a massive trade deficit of US$41.41 Billion, the biggest shortfall in our history. If not for revenues derived by service exports (IT-BPO), OFW remittance and tourism, the country would have fallen into a balance of payments crisis.

Interestingly, 49% of our exports are made up of electronics and semiconductors; 14.3% are composed of computers and electronic machines; 3.3% are composed of technical/medical apparatus; and 1.8% are attributed to ships and sea crafts. The balance is made up of fruits, gems, minerals and ores. We have become over-dependent on just a handful of products and lost our competitiveness in auto manufacturing, smartphones, agro-industries (e.g., frozen prawns), furniture, toys, housewares, footwear, garments, textiles, paper & pulp, leather goods, jewelry, rubber and plastic, among many others. These industries continue thrive in Vietnam and Thailand.

Four impediments have dragged down our manufacturing sector and stood in the way of our industrialization. They are:

• Expensive power cost

• Expensive logistics cost

• The negative list of industries in which foreign investors can participate

• Low government spending on research and development

To rid the country of these impediments requires acts of congress. This is where President Duterte’s sway over the legislature comes in.

IMPEDIMENTS EXPLAINED
Power Cost. The Philippines’ expensive power cost is the greatest disincentive to foreign investors and the most serious barrier to industries. It is the reason why multi-national corporations choose to build their manufacturing plants in Vietnam and not in the Philippines. For instance, despite the many competitive advantages of the Philippines, Samsung chose Vietnam over us for its US$2 Billion smartphone manufacturing facility purely because of more favorable energy costs. As a result, we lost out on the windfall of capital formation, recurring export and tax revenues, jobs for our people and technology transfer. This is a story we hear over and over again.

To quantify just how expensive our power rates are, the approximate base power cost in Manila is $0.20 per kilowatt hour compared to $0.08 in Hanoi and $0.12 in Bangkok. Add to this the deluge of taxes imposed by government which are passed on to the consumer. They include VAT, local franchise tax, missionary electrification tax, environmental tax, feed-in tariff and system loss charges. With all these add-ons to our electric bill, the Philippines is priced out of the market.

So this begs the question — how do we push down the price of electricity? One solution often put forward is for government to subsidize the power industry. To this, some quarters say that to offer energy subsidies provides industries with an artificial, unsustainable advantage whilst putting stress on the national budget.

I say that the cost of subsidies have to be weighed against its benefits in terms of job creation and its economic multiplier effect. I reckon the advantages far outweigh the costs. Besides, our neighbors are directly and indirectly subsidizing their power cost, why shouldn’t we? We need to step-up our game for our manufacturing industries to thrive. Otherwise, it will go through a slow painful death.

Government should ask the question — has the EPIRA Law of 2001 worked to our advantage or against it? Has our power cost structure helped build industries or render them uncompetitive? The state of our manufacturing industries says it all. EPIRA should be amended as it is the greatest stumbling block to our industrialization.

Given the scandalous profits earned by power companies and their immense lobbying power, only the President can persuade the legislature to revisit EPIRA.

Logistics Cost. Being an archipelago, we need an extensive network of roads, bridges, railways and airports to connect our islands. Government’s Build.Build.Build program has begun to address this. More importantly, however, is to improve and expand the cargo handling facilities of our seaports. In most advance countries, a vessel can dock, unload and reload in one day. It takes two to four days to do this in our ports due to congestion. The cost of downtime is passed on to the consumer. In addition, despite passage of R.A. 10668 or the Liberalization of Philippine Cabotage, inter-island cargo shipping is still operating as an oligopoly. This needs to be revisited.

Again, most local shipping lines are owned by families entrenched in the political field. Only the persuasive power of the President can overcome this.

In parallel, we need to accelerate infrastructure spending to between 5-7% of GDP from now until 2022 to truly drive down logistics costs.

Negative List for foreign investors. To open medium to large scale retail operations, private practice, build-operate & transfer contracts, utilities operations and broadcasting industries to foreign investors will open a floodgate of foreign capital and a massive infusion of technologies. The 60-40 equity ownership of companies is also outdated.

To correct this requires an amendment of the Constitution. Again, only the president can mobilize the legislature for charter change.

Research & Development. A UNESCO study shows a direct relation between R&D spending and economic and social development. The higher the R&D budget, the more rapidly industrialization takes place and consequently, the faster social development goals are met. In 2017 the Philippines spent .7% of GDP on R&D while South Korea spent 4.3%, Singapore spent 2.2%, Thailand spent 5%; and Vietnam spent 2%.

The fruits of R&D spending are not immediately apparent and therefore hard to justify when deliberating the national budget. Due appropriations can be made towards R&D if it is mandated by the Palace.

The legislature may not have the ideal mix of oppositionists. This may be the best thing that had happen to us since reforms can sail through with relative ease and without being diluted.

Everything lies on the President. His hands is the power to correct flawed laws and enact better ones. On his hands lies the opportunity to make the nation move forward to greatness. If he does, he will prove to be the vanguard we all waited for — our very own Lee Kwan Yew. For this, he will be immortal. Let’s hope the President uses his power in this way.

 

Andrew J. Masigan is an economist.

Palay farmgate price continues to fall in late May

THE AVERAGE farmgate price of palay, or unmilled rice, fell 0.2% week-on-week during the fourth week of May to P18.20 per kilogram (kg), the Philippine Statistics Authority (PSA) said.

The PSA said the average wholesale price of well-milled rice fell 0.1% week-on-week to P39.44. At retail, it rose 0.1% to P43.10 per kg.

The wholesale price of regular-milled rice fell 0.2% week-on-week to P35.73 during the period. At retail, the price increased 0.03% to P38.76.

The farmgate price of yellow corn grain during the period declined 0.6% week-on-week to P13.97 per kg. The average wholesale price fell 8.8% to P18.43 and the retail price decreased 4.2% to P23.96.

The average farmgate price of white corn grain fell 1.4% week-on-week to P16.11. The average wholesale price fell 1.5% to P22.41, and the average retail price remained at P29.12 for a seventh straight week.

The implementation of the Rice Tarrification Law, or the liberalization of rice imports, has been pressuring the price of palay, the form in which domestic farmers sell their rice, in the past few months. The prospect of buying cheap foreign rice has given traders more leverage in the market while also dampening farmers’ planting intentions.

Tariffs collected from the rice imports will finance the P10-billion Rice Competitiveness Enhancement Fund, which will support farm mechanization, high-yielding rice seeds, credit support, and training for farmers. — Vincent Mariel P. Galang

How soy milk made this family a $1.5-billion fortune

JULIAN ARNOLD was the US commercial attache to China in 1936, when he gave a talk about the virtues of the soybean.

He called it “The Cow of China,” explaining that the legume packed just as much nutrition as milk. The speech so inspired Lo Kwee-seong that he founded his own soy milk company four years later in Hong Kong, billing it as a nutritional supplement because the working class couldn’t afford milk during war time.

Today, Vitasoy International Holdings Ltd. sells its products in 40 markets, from the US to Australia, with mainland China accounting for more than half of its revenue. Shares of the soy milk maker have surged more than 3,500% since the company’s 1994 initial public offering, and eight members of the Lo family are reaping the rewards. They’re worth a combined $1.5 billion, according to the Bloomberg Billionaires Index.

A spokeswoman for the company declined to comment.

The global soy milk market reached $15.3 billion in 2018, and sales of flavored soy milk are expected to grow 6.3% annually from 2019 to 2025, according to an April report by Grand View Research, Inc.

Vitasoy, a supplier for coffee giant Starbucks Corp., is now one of Hong Kong’s most recognizable brands with its products sold in convenience stores, supermarkets and online. Its shares, which climbed to a record Tuesday, have surged 44% this year, trouncing the 3.5% gain for the benchmark Hang Seng Index.

DRINK UP
Vitasoy posted revenue of HK$4.45 billion ($567.6 million) for the six months ended Sept. 30, a 22% increase from a year earlier, and a “promising growth outlook” should attract more institutional investors, said Alice Leung, a Hong Kong-based analyst at KGI Securities Co. “The company has demonstrated a solid track record.”

Mr. Lo died in 1995, a year after the IPO, when Vitasoy had a market value of about $200 million. Several other family members are still involved in the firm, including his son Winston, who’s the chairman. Winston’s sister Yvonne, nephew Peter and daughter May are directors. Peter is also chief executive officer of restaurant operator Cafe De Coral Holdings Ltd. Today, Vitasoy is worth about $5.8 billion

As the company approaches its 80th birthday, Hong Kong has become a mecca for billionaires and multimillionaires. Vitasoy has re-branded its soy milk products as a healthy and natural food just as many Asians are finding they struggle with lactose intolerance, according to the US National Library of Medicine. It has also diversified to offer tofu, purified water, juices and lemon tea, a must-have summer quaff for young consumers in Hong Kong and mainland China.

Victoria Mai, a 25-year-old civil servant from Dongguan in southern China, said she buys 24-count packs of soy milk and lemon tea every three months.

“Vitasoy drinks have a magical effect on me,” she said. “It refreshes me whenever I feel exhausted from work.” — Bloomberg

Suited and booted London Fashion Week Men’s

LONDON — Tailored suits and leisure wear took center stage at London Fashion Week Men’s this weekend, where designers presented their latest offerings for spring wardrobes.

Designers young and established are holding spring/summer 2020 catwalk shows and presentations until Monday, including the likes of Alexander McQueen, Edward Crutchley, QASIMI and Xander Zhou.

London’s central Jermyn Street, known for its menswear stores, hosted an open-air catwalk show on Saturday.

In Britain, spending on menswear rose 3.5% to £15.5 billion ($19.7 billion) last year, according to market research firm Mintel, which estimates a similar growth in 2019.

But growth in the British menswear market is seen slowing, with spending estimated to rise 15.4% in the five years to 2023 versus 26.6% growth in the previous five years, it added.

“Although the British menswear market continues to perform well, growth is slowing as the market is becoming more mature while a reliance on discounting is holding back value growth,” Samantha Dover, Senior Retail Analyst at Mintel, said.

Though smaller in size than similar events held in fellow fashion capitals Milan, Paris and New York, London is known for its traditional tailors as well as its emerging designer talent.

London Fashion Week Men’s runs until Monday. — Reuters

Debt yields end lower on Powell’s dovish remarks

By Christine J.S. Castañeda
Senior Researcher

YIELDS on government securities (GS) went down last week as they tracked the movement of US Treasuries following dovish remarks from the Federal Reserve.

On average, debt yields — which move opposite to prices — went down by 26.6 basis points (bp) week-on-week, according to the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of June 7 published on the Philippine Dealing System’s website.

“[M]arket [tracked] the movement of US Treasuries given the outlook for the Fed to cut rates within the year,” Nicholas Antonio T. Mapa, senior economist at ING Bank N.V.’s Manila branch, said in an email.

“Higher-than-expected inflation for May did little to deter bond bulls with BSP (Bangko Sentral ng Pilipinas) Governor indicating that rate cuts were still likely, although he did pledge to remain faithful to being data dependent,” he added.

“With BSP holding on to its 2.9% inflation forecast for the year and the 3.1% in 2020, market saw more reason to drive the rally further given the dovish Fed,” Mr. Mapa said.

Meanwhile, Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), said GS yields declined “despite the slight uptick in the latest inflation data after some Federal Reserve officials already signaled openness to Fed rate cuts.”

On Tuesday, Fed Chair Jerome Powell said in a speech that the US central bank is “closely monitoring the implications” of Washington’s ongoing trade tensions with China and Mexico on the US economy and “will act as appropriate to sustain the expansion” amid a robust labor market and with inflation within its two percent target.

This comes after St. Louis Fed President James Bullard said a cut in interest rates “may be warranted soon” to help re-center inflation at target and counter the risks from an escalating trade war.

On the other hand, headline inflation stood at 3.2% in May, faster than the previous month’s 3% but still lower than the 4.6% posted a year ago, Philippine Statistics Authority data showed.

The latest inflation print fell within the BSP’s 2.8-3.6% estimate range for the month but was higher than the 3% median in a BusinessWorld poll of 11 economists.

The May print caused inflation to average at 3.6% for the first five months, past the midpoint of the central bank’s 2-4% target range and also above the 2.9% full-year forecast average.

BSP Deputy Governor Diwa C. Guinigundo said following the release of latest inflation data that drivers of price increases “remain on the supply side and therefore generally temporary.”

At the close of trading last Friday, GS yields went down across the board. The 91-day Treasury bill went down by 25.6 bps to yield 5.042%. The 182- and 364-day debt papers likewise declined by 22.4 bps and 21.3 bps, respectively, to fetch 5.345% and 5.457%.

Rates of the two-, three- and four-year bonds also went down by 25.8 bps (5.271%), 26.9 bps (5.258%) and 28.3 bps (5.249%), respectively. Yields on the five- and seven-year debt papers likewise dropped 29.5 bps (5.246%) and 30.6 bps (5.253%).

Yields on the 10-, 20- and 25-year notes also went down by 33.1 bps, 25.9 bps and 22.9 bps, respectively, to end at 5.217%, 5.492% and 5.733%.

For this week, RCBC’s Mr. Ricafort said: “[L]ocal interest rate benchmarks (PHP BVAL yields) could still continue the easing momentum/trend as seen for seven straight weeks already for most tenors specially if global crude oil prices at the very least sustain among four-month lows or if they ease further, that may support further easing of both inflation and local interest rates.”

For ING’s Mr. Mapa: “Market will continue to take its cue from the movement of Treasuries as the market for US bonds, in turn, take their cue from global growth prospects and the Fed dot plot.”

“We have a fresh 20-year bond auction [this week] which should give some indication of investors’ demand for the long end,” he added.

Toyota Vios Racing Festival returns to Clark

TOYOTA MOTOR PHILIPPINES (TMP) continues the waku-doki of the Vios Racing Festival by taking the race back to its roots at the Clark International Speedway. Catch the action this weekend as celebrities, car clubs, Toyota owners, and motoring media take it pedal-to-the-metal in two exciting formats: Autocross Challenge and Circuit Championship. Admission is free, and gates open at 9 a.m. of Saturday, June 8.

“It’s the first time that the all-new Vios model will be tested at the racetracks since its debut as a pace car in 2018’s Filinvest leg. We made sure that aside from speed, the Vios is also a built for precision and safety,” announced TMP Vice-President Elijah Marcial.

The One Make Race (OMR) Vios racecar has been modified for optimum handling and performance given the two different racing formats. The Autocross Challenge is a timed competition wherein drivers navigate through an obstacle course one at a time; while the Circuit Championship is the classic format wherein all drivers are simultaneously competing against each other during laps.

This year, there will be three categories for the Vios Circuit Championship: Sporting Class, Promotional Class, and Celebrity Class.

Once again, TMP is inviting all Toyota owners — regardless of car model and year, given they can drive manual transmission — to share their thoughts online for a chance to race at the Vios Autocross Challenge. No prior motorsports experience is required. The Facebook promo can be accessed through this link: http://bit.ly/joinVRF.

The five lucky winners with the best captions will be contacted by official representatives from Toyota Motor Philippines, and will be provided with race-ready Vios units during the event.

The Toyota Vios Racing Festival is held in cooperation with Bridgestone; supported by Petron, Motul, and Rota; and other sponsors Brembo, Denso, AVT, 3M, OMP, and Tuason Racing.

For more updates on Toyota events, visit TMP’s official Web site at www.toyota.com.ph and follow the official Facebook page at www.facebook.com/ToyotaMotorPhilippines.

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