P&A Grant Thornton: Unlocking the potential for growth of its clients and people

April 1, 2019 | 9:15 am

In its 31 years of providing outstanding assistance, insights, and expertise to its clients, P&A Grant Thornton continues to be a leading professional services firm that constantly aims to unlock the potential for growth of its partner companies, its communities, and its people.

Formed in 1988 as Punongbayan & Araullo (P&A) by two prominent figures in the accounting profession — Benjamin R. Punongbayan and Jose G. Araullo — P&A Grant Thornton has made its mark in the professional services industry, supporting and contributing to the development of organizations throughout its history.

Not only does P&A Grant Thornton makes its mark locally, but also on a global scale when it joined as a member firm of Grant Thornton International Ltd., one of the world’s leading organizations of independent assurance, tax, and advisory firms.

The clientele of P&A Grant Thornton consists of privately owned enterprises, listed companies, and public sector organizations. These organizations go to the well-known firm for its “global scale, quality, industry insight, and deep technical expertise.”

P&A Grant Thornton offers services such as audit and assurance covering annual and short-period audits, review engagement, due diligence and acquisition audit, and special audit using agreed-upon procedures, among others; tax advisory, compliance, education, and advocacy; business process solutions that include accounting, staff augmentation, offshoring, and payroll processing; and advisory services covering business risk, business consulting, transactions, and human capital.

Its head office is located on Ayala Avenue in Makati City, with offices located at Dasmariñas City in Cavite, Cebu City, and Davao City.

As it goes past its third decade carrying a well-nurtured heritage, P&A Grant Thornton commits to providing a distinctive client experience that sets the firm apart from others, while building better working relationships with dynamic organizations.

In an e-mail to BusinessWorld, Maria Victoria C. Españo, chairperson and chief executive officer of P&A Grant Thornton, shared the firm’s plans for this year that are in line with its vision to be the preferred business advisor of dynamic organizations.

“We will engage and update our clients on the latest business developments and opportunities through our annual CEO Business Forum, our thought leadership columns, our technical and regulatory alerts, our client seminars and, most importantly, through discussions, conversations and fora,” Ms. Españo announced.

“We will engage and update our clients on the latest business developments and opportunities through our annual CEO Business Forum, our thought leadership columns, our technical and regulatory alerts, our client seminars and, most importantly, through discussions, conversations, and fora.”

Ms. Españo added that P&A Grant Thornton aims to provide actionable insights into how their clients can take advantage of trends and innovations in order to pursue their business goals.

The firm, Ms. Españo observed, has encompassed over an entire generation in the business scene; and as time saw changes, she pointed out that the biggest change in the industry is the outlook of Filipino enterprises.

“They no longer think local, or even regional, but global. They’ve also invested in various industries, rather than just banking on one expertise,” Ms. Españo explained.

With this, P&A Grant Thornton stays ahead of the game “by keeping our ears on the ground and collaborating with our stakeholders, such as government agencies, professional bodies and organizations, and clients,” said Ms. Españo.

As P&A Grant Thornton banners its commitment to unlock the growth potential of its clients, the firm looks at two opportunities. First, an opportunity lies in sustainability reports, which publicly listed companies are mandated by the government to publish. “One of the opportunities that we see is helping such large enterprises report their sustainability efforts both in their financial statements and in their sustainability report,” Ms. Españo said.

The firm also spots another avenue of opportunity in threats that might infiltrate technology. “With the increasing use of technology in our lives, we also see a rise in the use of technology with malicious intent,” Ms. Españo added. “Cybersecurity and technology risks are a growing concern of our clients, and we see a lot of potential advising companies on protecting themselves from cyberattacks and data breaches.”

As much as the firm strives to contribute to the growth of its clients, it also aspires to develop the full potential of its people.

“We prepare our new CPAs to be ready and to continuously keep themselves abreast of developments. Most importantly, we want our people to have a business mind-set of understanding what matters most to clients,” Ms. Españo said.

Isla Lipana & Co.: Always responding to the needs of the times

April 1, 2019 | 9:10 am

In the ever-competitive Philippine accounting scene, Isla Lipana & Co. enjoys a level of prestige that is hard to rival. Its inspiring longevity has a lot to do with it.

Founded in 1922, it is the oldest operating professional services firm in the country. Its near-century of existence speaks volumes about its ability to keep up with the rapidly changing times and even with cutthroat competition.

The firm, formerly known as Joaquin Cunanan & Co., also owes its high repute to an unwavering commitment to quality, not only in the field of accounting, but also in audit and assurance, deals and corporate finance, consulting and tax planning.

And as a member of 250,000-people-strong transnational network of the professional services juggernaut PwC, the firm holds itself to high local and international standards.

As it approaches its 97^th year, Isla Lipana & Co. aims to “disrupt” and “constantly transform” itself — terms that are so frequently heard from tech companies. “Agility and developing new expertise quickly are critical to being responsive to client needs in this age of automation and speed,” said Atty. Alexander Cabrera, chairman and senior partner of Isla Lipana & Co./PwC Philippines.

Atty. Alexander Cabrera, chairman and senior partner of Isla Lipana & Co./PwC Philippines

“Agility and developing new expertise quickly are critical to being responsive to client needs in this age of automation and speed.”

He sees growth opportunities particularly in auditing and the need to recruit the talent to perform it. “For example, auditing a bank, a technology company, or an organization that is leveraging blockchain requires a huge amount of expertise. And if you don’t have that expertise because all you have are people who only understand the numbers, we miss the bigger risks, including: ‘Are they actually doing the right things?’ ’How is this company able to perform at the level they do, and report the way they do?’ ‘And do these things coincide?’,” he said.

Data will be critical to Isla Lipana & Co.’s endeavor. Atty. Cabrera said that lack of clean, relevant and stable data is holding back organizations from moving aggressively on artificial intelligence, which he believes will have significant impact on businesses in the next five years.

“The availability of key skills to achieve that kind of data does affect growth prospects,” Atty. Cabrera said.

The firm also strives to further enhance its work culture. “We know there is always more we can do to improve the experience of working at PwC. Making sure our people have a good work-life balance remains a priority,” he said.

He continued, “Here, we need to work harder as our global survey says that only 65% of PwC people feel that the people they work for are considerate of their life outside work, which is not as high as we would like. That’s why we invest in programs to help our people work flexibly and manage their energy and personal well-being so they can be their best selves at home and at work.”

Even as the firm addresses that critical internal concern, Isla Lipana & Co. manages external issues, including increasing competition, especially from those that employ the tactic of undercutting prices, and pressure brought about by regulations.

“These drive us to keep our focus on quality by continuously conducting stringent monitoring of engagement quality and delivery capability, involving the more senior members (i.e., partners) of the engagement team, and embedding PwC professional behavior in everyone’s DNA while being supported by technology,” Atty. Cabrera said.

The same determination is shown by the firm in its efforts to create positive social change. Among its notable corporate social responsibility programs is the “Seat of Hope” project, in which the firm donates chairs and desks to select schools in different parts of the country, hoping to make even a small dent in the chronic shortage of basic school equipment affecting public schools.

Another education-related initiative of the firm is its scholarship program. Under it, financial assistance is extended to undergraduates studying accountancy and those reviewing for the certified public accountant licensure exam.

In addition to these, the firm conducts tree-planting and tree-potting activities, provides financial help to victims of calamities, backs shelter reconstruction programs in different communities, and trains farmers and owners of small and medium-sized enterprises in the basics of business and accounting.

Isla Lipana & Co., which in 2017 was the second most sought-after auditing firm by corporates in the country, according to the 2018 edition of the Top 1000 Corporations in the Philippines of BusinessWorld, is all set to reach greater heights this year.

“We see more opportunities to grow our practice by increasing our market share, both in audit, risk assurance, tax and advisory services, while guided by our purpose to build trust in society and solve important problems,” Atty. Cabrera said.

Reyes Tacandong & Co. (RT&Co.): Trailblazing a path toward digital transformation

April 1, 2019 | 9:05 am

By Bjorn Biel M. Beltran, Special Features Writer

Technology has already made itself integral to modern business. From fields of health care, to automobiles, to agriculture, among many others, technology has disrupted how established companies have traditionally run their businesses, opening the way for digital natives and future-forward entrepreneurs to take center stage.

Even in the Philippines, the impact of technology has changed the nature of modern business, driving companies to seek innovation and to shift to new strategies to adapt to a changing world. In the field of accounting, things are no different.

“Because of technology, the traditional brick-and-mortar model of doing business no longer applies. With this change in doing business, risks that face companies and the related services that businesses require have correspondingly changed as well,” Roman Felipe S. Reyes, chairman of Reyes Tacandong & Co. (RT&Co.), told BusinessWorld in an e-mail.

The accounting firm, which first started operations in mid-2010 with only 20 employees, has grown to over 800 employees across multiple branches in the country. After only eight years of operations, the firm has established itself as among the country’s most trusted experts in digital transformation, due diligence, tax, advisory services and audit, with branches in key cities like Davao, Cebu, Iloilo, and a recently opened office in Clark.

In its short history, RT&Co. has accumulated extensive experience in all industries, both public and private, including general manufacturing, semiconductors, telecommunications, power generation, real estate, mining, transportation, utilities, media and entertainment, hotels, services, health care and shipping, including those companies registered in special economic zones or the Board of Investments.

The knowledge and expertise puts the firm in a good position to face the future considering the technological changes in this age of disruption. It aims to grow to a thousand people by 2020, to become a professional services firm that can offer guidance to companies in an increasingly digital world.

Roman Felipe S. Reyes, chairman
of Reyes Tacandong & Co.

“In any business, competition will always be present. As we do not want to lose focus of what we want to achieve and where we want to be, we do not look at competition. Instead, we only look at ourselves and evaluate our performance with the measurements we have set for ourselves.”

“When RT&Co. initially started, we wanted to be known as the go-to firm for due diligence services. With technological development we have seen around us, our direction now is to become the first truly Filipino digital transformation consulting firm of CPAs, lawyers and other professionals,” Mr. Reyes said.

“To date, we are on track with our projected growth. By 2020, our target is to be 1,000 in number so that we will have competent professionals to provide the relevant services needed by businesses in this age of disruption,” he added.

RT&Co.’s main strategy relies on the fundamental principle in business that the right people can achieve great results. In striving to become a firm of 1,000 professionals in the fields of digital transformation, due diligence, tax, advisory services and audit, the firm ensures that the future it will create for its business is healthy and sustainable, one with a strong core value offering and a skilled and principled team that is dedicated to helping clients achieve their goals.

“In RT&Co., we treat our employees like family because as a professional services firm, our people are our key asset,” Mr. Reyes said.

“As such, in line with the technological changes, we are preparing our people for the competencies needed by our clients. Talent retention, however, remains to be a key concern particularly when we are competing with employment opportunities abroad and multinational companies with business process outsourcing and shared services operations in the Philippines,” he added.

Through a clear, shared vision of providing the very best solutions for its people, RT&Co. hopes that its value-laden approach to business can help it attract more talent and clients looking for a trusted partner in navigating a changing world.

After all, thriving in a progressively more complex environment does not only rely on offering the best skills needed for the job. It also needs a company putting value into the relationships it builds with its team and its clients and looking forward to a future where it can continually exceed the expectations it sets for itself.

“In any business, competition will always be present. As we do not want to lose focus of what we want to achieve and where we want to be, we do not look at competition. Instead, we only look at ourselves and evaluate our performance with the measurements we have set for ourselves,” Mr. Reyes said.

Navigating a more dynamic world

April 1, 2019 | 9:00 am

By Mark Louis F. Ferrolino, Special Features Writer

The local finance and accounting industry continues to thrive on the back of the country’s growing economy and the rapidly evolving advances in technology. While these open opportunities for growth, such factors also bring challenges to industry players to remain relevant and competitive.

In 2018, the Philippine economy grew by 6.2%, down from 6.7% in 2017, and the slowest in the past three years. Despite this, it is still among the fastest economies compared with many of its Asian peers.

For this year, analysts project the economy to grow faster as the government ramps up its “Build, Build, Build” program, and as slowing inflation spurs consumer spending, among others.

Considering the positive long-term outlook for the country’s economy, Maria Victoria C. Españo, chairperson and chief executive officer of P&A Grant Thornton, a Philippine member firm of Grant Thornton International, believes that the local finance and accounting industry is truly in an “exciting time.”

“As we continue to see a vibrant investment climate, businesses are looking for ways to introduce new products and services and to enter new markets, whether within the country or beyond Philippine shores. These dynamic organizations look at professional services firms to assist and support them as they navigate through the opportunities and challenges that they face in this ever-growing economy,” Ms. Españo told BusinessWorld in an e-mail.

“Thus, we see the players in the finance and accounting industry activity participating in capital-raising activities, restructuring, mergers and acquisition, as well as projects involving business transformation,” she added.

Reyes Tacandong & Co., a member firm of RSM network, echoed the same sentiment. The firm shared in an e-mail to BusinessWorld that the growth of the country’s economy, together with the challenges being faced by businesses in this age of disruption, has increased the need for more strategic and innovative but responsible finance executives, auditors and professional services consultants with integrity.

In addition to the country’s evolving economic landscape, the industry is significantly being shaped by technological advances that create possibilities for industry players to be more innovative in delivering their services.

Digital transformation and the innovations associated with it, including artificial intelligence (AI), big data, cloud computing, machine learning and robotic process automation, among others, have been much talked about in recent years.

Ms. Españo said that AI and automation are now changing how work and businesses are done. “We want to apply these technologies to the profession, so that we can redirect our time to providing ideas and industry insights,” she said.

On big data, she believes that the world’s most valuable resource is no longer oil, but data. However, the vast amount of information between professional services firms and their clients, according to her, is not yet well utilized, much less maximized.

To stay ahead of the game, professional services firms today are digitizing, virtualizing and automating their processes from inside and out, she said.

Isla Lipana & Co., the Philippine member firm of the PwC global network, observed the same trend. In an e-mail to BusinessWorld, it noted that audit and advisory technologies are constantly being improved to keep up with the intensely competitive nature of the industry.

“We now see Big Four firms and the like developing their own technologies or leveraging the resources of their networks,” said Atty. Alexander Cabrera, chairman and senior partner of Isla Lipana & Co./PwC Philippines.

On the other hand, Atty. Cabrera noted that the clients’ implementation of their own digital transformation programs have resulted in more challenging business models.

To deal with complex areas like audit of blockchain and AI-enabled applications, Atty. Cabrera said that some cutting-edge software and technologies have also been developed. These new technologies are expected to drive more insights — financial and non-financial — from traditional audit work, he added.

“These changes have prompted both industry players and their clients to upskill their people and do internal process re-engineering to achieve efficiency. And as clients fast-track the implementation of technology initiatives (both for internal and external uses), industry players respond likewise and are increasingly looking for engineers and data scientists. They will complement the accountants and lawyers, making for a multidisciplinary work force,” Atty. Cabrera continued.

As RT&Co. noted, accountants that are not up to date on international standards, local regulatory requirements and technological advancements will not be able to provide the services needed, unless they are able to catch up with the pace of developments in these areas.

“Accountants connected with the bigger firms are more likely to be more informed and updated with the changes brought about by technology and the disruption it brings. However, the traditional accountants belonging to the small firms and individual practitioners are at risk of eventually being displaced, especially as our regulators implement initiatives in the desire to catch up at least with the ASEAN region and with international standards,” Roman Felipe S. Reyes, chairman of RT&Co., said.

In light of all the changes, industry regulators, such as the Public Company Accounting Oversight Board, the Securities and Exchange Commission (SEC) Oversight Assurance Review, the Bureau of Internal Revenue, the Bankers Association of the Philippines, the Insurance Commission, and the National Privacy Commission, just to name a few, remain strict. Compliance rules have also have become more stringent.

As Atty. Cabrera described, the industry has been facing “increased pressure from regulators.” He said that regulators have implemented a quality review process that is aimed at improving the quality of audits performed by Philippine accounting firms.

P&A Grant Thornton’s Ms. Españo also noted that regulators have become more vigorous with accreditations and reviews and are more firm in looking into the way auditing firms are providing services.

“As financial reporting become global and more complex, there is a greater focus on audit quality and compliance,” she said.

To address the increasing call for quality work, P&A Grant Thornton, for instance, has been taking the following major steps: engaging in proactive discussions with government regulators; strengthening internal processes; and intensively training people on recent developments standards, especially changes to regulations.

Meanwhile, in terms of growth prospects, the local industry players believe that several factors will make accounting practice in the country grow in importance. These include increasing demand for good corporate governance and transparency, companies’ plans for expansion, and clients’ increasing confidence in professional services firms as business advisors.

Ms. Españo said that organizations nowadays are very much expected to become good corporate citizens. This involves protecting data and information of the stakeholders, accounting for and reporting on the organization’s impact on society, and introducing more diversity in senior management.

“While large enterprises want to comply and even become their industry’s benchmark, they need advice on how to begin the process towardsgood corporate governance,” Ms. Españo explained.

Isla Lipana & Co., on the other hand, is banking on family enterprises and start-ups that are aiming to grow their businesses in and outside the country. In this regard, they need professional accounting firms to help them prepare for big financing and capital-raising activities.

Moreover, the firm also sees growth opportunities for advisory and assurance services.

“The increasing complexity of business, the emergence of new technologies, the regulatory environment, and increasing stakeholder interest have driven demand for our broader assurance services, particularly in areas such as cybersecurity and privacy, advanced data analytics, as well as enterprise systems solutions. Companies are seeking broader digital solutions and insights to address governance, risk and compliance,” Atty. Cabrera said.

For her part, Ms. Españo said that organizations today recognize professional services firms as trusted business advisors, rather than just external auditors or tax consultants.

“Companies are asking their auditing firms for solutions to complex business concerns. As a result, more and more professional services firms are seeing growth in advisory services, which include services related to business risk and business consulting,” she said.

Looking forward to where the industry will be five years down the line, Ms. Españo expects that more firms will embrace smart technologies — not just the big firms, but even emerging firms and individual practitioners.

“Technological advancements give us tools to continue to improve the efficiency and effectiveness of our work in an increasingly complex business environment, but there is still a need for the professional evaluation, judgment and skepticism that business advisors like us bring to the task,” she said.

Assuming that AI will greatly change the way organizations operate, Atty. Cabrera said that they at Isla Lipana & Co. are imagining an industry where client service delivery will be highly dependent on technology, by a mobile, virtual and contingent work force.

For its part, RT&Co. raised concern about who will likely dominate the local finance and accounting scene. Mr. Reyes said, “The Philippines may become dominated by big foreign accounting firms, until and unless we repeal the law to protect Filipino CPAs and ensure — Filipino First.”

Analysts see March inflation slowdown

April 1, 2019 | 12:32 am

By Melissa Luz T. Lopez
Senior Reporter

INFLATION likely maintained its descent in March as rice and food prices dropped further, analysts said in a BusinessWorld poll.

A poll among 13 economists yielded a 3.5% median inflation rate for the month, which if realized will be slower than February’s 3.8% pace and the 4.3% rate posted in March last year. This also falls within the 3.1-3.9% estimate range given by the Bangko Sentral ng Pilipinas (BSP) on Friday.

This will keep inflation on a downtrend for the fifth straight month, and may turn out to be the slowest since January 2018.

The Philippine Statistics Authority will release official inflation data on Friday.

Inflation averaged 4.1% for the first two months, just a notch beyond the central bank’s 2-4% target range for 2019.

“[T]he food component will likely be the biggest drag on price pressures given the recent implementation of the rice tariffication law as well as the normalization of supply chains after the supply side shocks in late 2018,” said Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila. “Utility prices are still lower year-on-year, while education will show deflation until the base effects wash out by 3Q 2019.”

However, economists also flagged persistent upside price pressures from higher world crude prices which are pushing up transport costs, as well as the possible impact of a dry spell.

“We’re seeing continued tapering of inflation as the combined effects of last year’s monetary policy initiatives and better supply-side conditions are felt. However, exogenous drivers such as rising global oil prices must be monitored,” added Robert Dan J. Roces, chief economist at Security Bank Corp.

Alvin P. Ang, director of the Ateneo Center for Economic Research and Development, gave a 3.8% forecast for March, saying that higher oil prices as well as water supply issues in parts of Metro Manila may have pushed utility costs up for the month. He was referring to supply interruptions for customers of Manila Water Co. The utility firm has since announced that it will waive minimum fees for affected customers, which will be reflected in April bills.

Still, market watchers broadly expect the inflation slowdown to persist, which could pave the way for policy easing from the BSP in the coming months.

POLICY IMPLICATIONS
“Looks like the expected sustained downtrend in inflation will be enough to drive the central bank to cut rates in May,” said Katrina Ell, economist at Moody’s Analytics.

The BSP kept interest rates at the 4.25-5.25% range at its March 21 meeting, saying that monetary authorities still need to observe price trends before they start reversing the cumulative 175 basis point increases they fired off in 2018.

New BSP Governor Benjamin E. Diokno has said that he sees room to ease key rates, but clarified that monetary authorities still have to confirm if the slowdown in price increases will be sustained.

Victor A. Abola, economics professor at the University of Asia & the Pacific, said he sees a cut in the 18% reserve requirement for banks to come first before a cut in the policy rate: “The latter should come in Q3 when inflation goes down below three percent year-on-year.”

The BSP’s next rate-setting meeting — the third for this year — is scheduled to be held on May 9.

Realty price increases ease in Q4 2018 — BSP

April 1, 2019 | 12:31 am

PROPERTY prices increased slightly in the last three months of 2018, marking the smallest increment in over a year.

The latest residential real estate price index (RREPI) of the Bangko Sentral ng Pilipinas (BSP) showed that home prices edged up just 0.5% in the fourth quarter, coming from the 4.4% pace recorded in July-September and the 5.7% climb seen a year ago.

Townhouses and condominium units led price increases during the period, while the price tags for duplex and single-detached homes even slipped compared to the previous year.

The RREPI measures the average change in home prices across building types and locations, allowing the central bank to closely monitor the real estate market and detect potential bubbles.

The BSP currently limits a bank’s real estate exposure to 20% of its total loan portfolio, which includes both residential and commercial properties.

Townhouse rates saw the biggest hike that quarter, increasing by 11.4% versus the 8.1% climb it posted back in October-December 2017. While that marked the fourth straight quarter of double-digit increases in townhouse prices, it was the slowest in a year.

Condominium prices inched up by a mere 0.6% nationwide, the slowest since at least 2016.

On the other hand, duplex units saw prices slashed by 3.7%, while single detached or attached homes also saw prices drop 1.9%.

By location, home prices in Metro Manila grew by 1.6%, versus a 0.8% decline in housing costs in the provinces. Duplex prices in Metro Manila plunged sharply to just a third of their value compared to the fourth quarter of 2017 while condominium rates were flat. Townhouses offset this drop with a 19.4% rise in prices, together with a four percent price increase for single homes.

Outside the capital, duplex prices surged by 23% year-on-year, although this accounted for a small share of the total. Townhouse prices rose by seven percent, condominiums up by 6.1%, while the cost for single homes — the top choice in the provinces — dropped by 2.7%.

“[T]he decline in prices of single detached houses outweighed the increase in prices of duplexes, townhouses, and condominium units,” the BSP said.

For the entire 2018, the cost to acquire homes rose by an average of 2.9% in the Philippines, easing from the previous year’s 3.6% climb.

About 75% of the home loans were used to acquire new properties, half of which were for condominium units, 39.8% for single detached houses and roughly a tenth for townhouses. — Melissa Luz T. Lopez

Cavite government eyes P200B from bonds to help finance airport

April 1, 2019 | 12:30 am

THE PROVINCIAL government of Cavite said it is now looking at a bond float to help finance construction of a $10-billion airport at Sangley Point.

Cavite 7^th district Rep. Jesus Crispin C. Remulla said the government is looking to raise P200 billion (about $3.8 billion) for the airport project by forming a consortium with some of the biggest banks in the country.

“We’re looking towards getting an independent financial consultant to make sure that our financial framework is viable… We are looking towards a bond float to start everything out, with the province as one of the initiators of the bond float,” he told reporters on Wednesday.

“Initially we’re looking at P200 billion, which should be enough,” he added, noting the local government may “tweak” the proposal to fit a tighter budget.

The Cavite government submitted its Sangley airport proposal to the National Economic and Development Authority (NEDA) last year that seeks to add two runways at the former US naval facility. It also indicated a partnership with a Chinese firm. NEDA returned the proposal to the local government earlier this year because of lack of financial details.

Mr. Remulla said on Wednesday that Cavite’s government had since moved to iron out the financial aspect of the project. “We had initial talks already, but we have to finalize our plan to have an independent financial consultant so we can form the consortium that can actually plan out the financing and the sharing and the feasibility, the actual feasibility with money on the table,” he said.

He added he wants the project to be a Filipino endeavor for now. “The Chinese may come in as investors and contractors, but right now, we’re looking towards local financing because there’s too much controversy regarding China money, so we might as well… There’s enough money in the country for that.”

Transportation Secretary Arthur P. Tugade had said he would give the Cavite government until mid-2019 to finalize its airport proposal, after which the Department of Transportation (DoTr) might consider other options.

“I’m talking to them and I told them I will put a deadline. I’m thinking within the year. Mid-year or… There’s got to be some deadlines,” he said in a media briefing on Tuesday.

Sought for his reaction, Mr. Remulla said he “respects” the deadline of Mr. Tugade, but he is “not sure” if the local government will be able to meet it.

“It’s good that he has a deadline. But definitely, we are looking at what would be best for the moment and for the future. We cannot just submit something that is not thoroughly vetted out,” he said.

“We will have to resubmit a new proposal to NEDA and DoTr, hopefully before June 30.” — Denise A. Valdez

Philippines’ Overall Consumer Outlook Index

April 1, 2019 | 12:30 am

Never waste a good crisis

April 1, 2019 | 12:27 am

THE leadership and the management of Manila Water squarely took responsibility for inability to provide 24-7 service in many parts of its concession area. And voluntarily waived fees in the several hundreds of millions, despite the absence of any such obligation under its concession agreement. Such act of corporate governance and responsibility is exemplary, and from my recall, unprecedented in the Philippines. Especially since, in the view of many, the fundamental shortcoming is not theirs, but government’s. More precisely, that of the MWSS in the last administration. Despite repeated warnings of the two concessionaires at that time, MWSS abysmally failed to develop a single water source, not a single stone was turned or a shovel lifted, even as they barred the concessionaires from developing such. The “original sin.”

I reprint below excerpts from my October 2013 column, “Being Water Secure.” MAP President Riza Mantaring described it as “prescient.” I do so to provide perspective on where we were, why we are where we are, and most importantly, the way forward.

Quote:

Water security is ensured only when long-term investment and financing for the sector are sustainably and efficiently done to meet the needs of a growing population, the economy and the environment. This was the clear message delivered at a recent forum on Water Security organized by Finex.

IFC Resident Representative Jesse Ang said in the forum that while the Philippines is not yet considered a water-scarce country, management of the resource needs to be strengthened. Former MWSS Administrator Dr. Lito Lazaro explained why: “With the improved efficiency of both Manila Water and Maynilad in reducing previously big leakages (non-revenue water) the gain to Metro Manila is almost like building a new huge dam.”

Dr. Lazaro was too modest to discuss the benefits reaped over 16 years of the highly successful “largest water privatization” in the world: the broad public welfare gains, not just in water security, but in environmental protection, health, and outreach to poor communities. In short, clean water made available to Mang Juan. As CEO of MWSS, he was one of the three architects, under the direction of President Ramos, who made this privatization happen. The other two were then DPWH Secretary Virgilio Vigilar, and Mark Dumol, his Chief of Staff.

The success story of this privatization is objectively and engagingly told in a book Built on Dreams, Grounded in Reality, by former UP School of Economics Dean and our only living National Scientist in Economics, Dr. Raul Fabella. Chapter 4, “The Privatization of MWSS: How and Why It Was Won” had this to say:

“The privatization of MWSS was clearly a triumph of the principle of comparative competence-the private sector proved more competent at the delivery of water and sewage services than the state. It is now considered a singularly successful structural reform in the annals of Philippine political economy.”

The welfare gains for the public is a matter of public record. In the Joint Statement on Water Public Private Partnership (PPP), the Foundation for Economic Freedom, the Management Association of the Philippines, the Employers Confederation of the Philippines, and Philippine Chamber of Commerce and Industries noted that the water PPP has “contributed much to improve public welfare by having more than doubled the number of customers served, provided 24 hour water service availability that meets health standards, while addressing the needs of millions in the poor communities. The improvements in service delivery came after the two concessionaires poured in a combined P105 billion in investments to expand and upgrade the water and sewage network, achieved without adding to government’s fiscal burden or public debt exposure.” They further lamented that it’s a pity that this “successful, internationally recognized model PPP has not been replicated outside Metro Manila where the water situation remains at pre-privatization MWSS standards.”

It is disturbing indeed that instead of building on this success and nurturing the greater water security achieved over the years, we now observe populist myopic demands, not just by the usual suspects from the protest industry, but by MWSS itself, for arbitrary reductions in water rates — already the lowest in the country, and compare favorably internationally. This will inevitably compromise water security over the medium and long term as needed investments for maintaining service quality and protecting the environment are neglected.

The Japanese Chamber of Commerce and Industry was quite emphatic in this regard: “We view the MWSS’ unilateral and arbitrary act of changing the terms or interpretation of the concession agreement, in total disregard of the contractual rights and intent of the parties, with grave concern.” Such unilateral populist action by government agents is referred to in regulatory economics literature as “administrative expropriation,” a form of “government opportunism” inflicted on captive investors in utilities. ( Spiller and Tommasi, Handbook of New Institutional Economics).

There are a number of issues in the dispute notices that the two concessionaires submitted for international arbitration, ranging from the computation of the appropriate discount rate (allowed rate of return) to the disallowances pertaining to past and future investments, and incredibly, a reinterpretation 16 years hence, of treatment of corporate income taxes.

The one item of contention that calls for comment is on who is responsible for investing in new raw water sources — a key element to water security. The insistence of the current MWSS management that investments in such are excluded under the Concession Agreements, and therefore disallowed in the tariff rate setting, squarely contradict the intent of the Agreements. More fundamentally, given MWSS, and government’s, dismal track record in public service provision — especially when contrasted with the two concessionaires’ — such revisionist interpretation will certainly bring us back to pre-privatization water insecurity.

Mark Dumol was categorical on what they had in mind: “Without any doubt, the original intent of the MWSS concession agreement was that all aspects of the provision of potable water, from raw water sourcing to treatment to distribution would be the responsibility of the concessionaires.”

I also consulted Dr. Lito Lazaro on this and he said “in my mind it was clear that raw water development is the responsibility of the concessionaires. How can the concessionaires be held to their targets if they are not responsible for the raw water development, since complying with the targets assumes that water is available?”

This unilateral reinterpretation by MWSS now risks all the gains achieved in one and half decades.

End of quote.

Sadly prophetic. But all is not lost. Thanks to short term measures being undertaken collaboratively by MWSS, Manila Water and Maynilad, the current supply deficit of 9 percent will likely be brought down to zero by June.

But this crisis would have been wasted, if we fail to address the roots of the problem, the non-development of new water sources. Two musts:

a) Government must fast-track the development of the Kaliwa project. We need the Duterte political will referred to by Sec Dominguez recently in connection with BBB.

b) “The private water concessionaires, being accountable for rendering water service to the public, should be allowed the option to provide raw water supply for their respective zones” ( MAP, Finex, FEF et al March 25 Press Statement).

Finally, this “crisis” would be a good trigger for government to review its basic approach for funding water and sewage. The three T’s, Taxes, Tariffs and Transfers, and the proper shares are a policy/political decision. Angat was funded by taxes. Transfers, usually from donor institutions, are limited and unpredictable. The literature is full of robust findings that tariff mode is the most sustainable. Given the still regressive Philippine tax system, and coupled with a “lifeline” rate for the poor that we have, the tariff mode is the most equitable and most conducive to conservation efforts.

In the same way that the “inflation blip” last year led to the game-changing reform of rice policy, let’s use this “water shortage blip” to address the underlying problem of lack of raw water and failure to adhere faithfully to the Concession Agreements in language and spirit.

My plea to authorities: “Never waste a good crisis.”

Romeo L. Bernardo is Vice-Chairman of the Foundation for Economic Freedom and GlobalSource Partners Philippine Advisor. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

MORE local government responsibility

April 1, 2019 | 12:26 am

The official campaign period for local and Congressional candidates for the May 2019 started last Friday, March 29. Tens of thousands of candidates plus their supporters went out on the streets and reached out to media to get the support of the undecided.

Also last Friday, I attended the “Benchmarking Cities: A roundtable discussion on infrastructure” sponsored by KPMG Manila, the speaker was Richard Threfall, the global head of KPMG Infrastructure. While Manila is not part of their initial coverage of cities in their report, a lot of the issues covered have relevance to the metropolis.

skyline sketch

Local government responsibility and irresponsibility is the topic of this column’s Market-Oriented Reforms for Efficiency (MORE) series.

Last Friday this column discussed about fiscal irresponsibility of the national government as it keeps borrowing even without economic turmoil or crisis and the public debt stock keeps rising, already at P7.78 trillion as of end-2018 and interest payment alone at P349 billion that year.

One reason for that is the frequent free-riding attitude of most local government unit (LGU) leaders and congressional legislators. Many local projects are created and expanded without using local resources and rely on national funding. The result is having the national government in perennial budget deficit while LGUs have fiscal surplus, shown in their positive ending balance. Also many LGUs are still heavily reliant on their share of internal revenue allotment (IRA) from the central government (table 1).

Many LGUs in Metro Manila do not follow this high IRA dependence, they rely more on local taxation, especially on business registration and real property tax (RPT), plus various regulatory fees and charges (table 2).

While low IRA dependence by these rich LGUs is commendable, it has also unleashed an itch for more taxation mentality at the local level. Many residents of Metro Manila are pampered with local government welfarism (free healthcare, free movies for senior citizens, protected squatter housing, etc.) which further attracts rural migration to the metropolis.

Both national and local governments should learn to respect the people’s right to keep more of their income and savings as a sign of fiscal responsibility. They should realize that the tax-tax-tax mentality for whatever populist agenda is a sign of public irresponsibility.

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers

minimalgovernment@gmail.com

The decline of Philippine political parties

April 1, 2019 | 12:24 am

What has happened to Philippine political parties?

The political party is defined as an organization of individuals bound by common vision, values, program and public policies, and its goal is to win political power through free and fair elections. A political party has a clear position on each major issue that society faces. And even though one party can have similar positions with others on some issues, still each party remains distinct from the rest, in terms of its ideology, its value and culture, and its whole program.

To be sure, some political parties like the Communist Party of the Philippines or CPP prefer the extra-legal route to achieve political power. The CPP is outside the legal system, and yet in the Philippines, it is arguably the most consistent in upholding an ideology and a program. Further, it is the most organized and the most disciplined political party. Despite having the positive attributes of a political party, the CPP is weak in electoral politics and cannot win national elections.

But what about the mainstream political parties? They are far from being the ideological and programmatic parties. These parties have names that describe them to be “nationalist,” “democratic,” and “liberal.” However, these are nominal descriptions; they exist only in name. In actuality, the majority of the members of such political parties are far from being nationalist, democratic, or liberal. The majority of them are not loyal to any party, and they can easily switch from one party to another, seizing any opportunity to join the party in power.

The Nacionalista Party (NP) and the Liberal Party (LP) claim to be the oldest political parties in the Philippines. But this is inaccurate since the Partido Komunista ng Pilipinas (PKP), whose progeny is the more militant CPP, was established in 1930, much earlier than the LP’s creation. The NP was founded at the turn of the 20th century, with the aim of gaining independence from US colonialism through peaceful transition. The LP was a faction that broke away from the NP in the immediate aftermath of World War II.

Nothing actually distinguished the LP from the NP when they split, except for the LP excuse to separate — that it constituted the “liberal wing” of the NP. The truth was that the LP became the vehicle for Manuel Roxas to run for the Presidency and challenge the candidacy of Sergio Osmeña, the NP stalwart.

Party switching of a candidate seeking the Presidency happened again in 1965 when Ferdinand Marcos transferred from the LP to the NP in order to run against the incumbent President Diosdado Macapagal. Marcos’s victory in 1965 was his stepping stone to becoming a dictator.

Jose Maria Sison also known as Amado Guerrero, the founder of the CPP, thus described the NP and LP as not being different from each other; that one is Coca Cola and the other is Pepsi Cola.

The installation of the Marcos dictatorship led to the abolition of the two-party system. Marcos created his Kilusang Bagong Lipunan (KBL) and allowed inconsequential parties to operate. But these parties were either the “loyal opposition” or were KBL’s junior partners.

The downfall of the dictatorship was orchestrated mainly by movements. And in reaction to the dictatorship as well as to the failed two-party system of the post-war, pre-martial law era, the 1987 Freedom Constitution instituted a multi-party system. However, in this set-up, the victory particularly in the presidential elections was determined by a plurality, not by the majority.

The multi-party, plurality system has not transformed the political parties into ideological or programmatic parties. Rather, political parties have become vehicles for personalities to have a machinery. Thus, Fidel Ramos resuscitated a moribund Lakas; Joseph Estrada had different party affiliations before creating his Pwersa ng Masang Pilipino; Gloria Arroyo formed Kabalikat ng Mamamayang Pilipino (KAMPI); and Rodrigo Duterte used Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban).

Duterte is a curious case. He, who does not hide his fascination with Marcos and his being authoritarian, is the current chair of PDP-Laban, which was formed to fight the dictatorship and which describes its ideology as “democratic socialist.”

Duterte calls himself socialist although it is doubtful that he is one. At the height of the election campaign, when asked about his economic program, Duterte’s curt reply was that he would copy the platform of the other candidates.

And for the mid-term elections in May 2019, Duterte is linked to two political parties, PDP-Laban and his daughter Sara Duterte Carpio’s Hugpong ng Pagbabago. Strange still is the decision of Hugpong to field 13 candidates, but voters will elect 12 senators. The oddest part is that Duterte has endorsed candidates not necessarily because of their party affiliation (that they are either PDP-Laban or Hugpong candidates) but because they are his personal choices.

But the main opposition party has not behaved as an authentic political party either. The Liberal Party, acknowledging its unpopularity, hides behind the shibboleth “Otso Diretso,” although not all the candidates are LP members. The unity of “Otso Diretso” as a party is its being anti-Duterte. But being anti-Duterte is not enough to build a solid political party. It is reported, for instance, that a senatorial candidate of “Otso Diretso” is against reproductive health although the LP is associated with reproductive health reforms.

The recent developments, with Duterte’s attitude and behavior towards political parties being the foolish of all, solidify the view articulated by social scientists like Paul Hutchcroft that Philippine political competition is defined by personalities, by patronage, and by feeble parties. Hutchcroft traces the problem as far back as the US colonial period when the US continued the patronage system imposed by Spanish colonialism and further abetted it through its own “institutional innovations.”

The question then is whether path dependence has determined the Philippine political system. That is, our history has structured and constrained the system, making reforms difficult to take root.

Further, the present conditions, not only nationally but also globally, indicate a predisposition of voters to strongmen and simplistic solutions as well as a tendency to reject programmatic parties.

In a word, we cannot expect the rules of the game to change soon.

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

The Phoenix on the Nile

April 1, 2019 | 12:24 am

Egypt is an old soul in an old body that would not die. The idea of mummification is 3,100 years old, Egyptologist-archeologist Mohammed Abdel Aziz (not Arabian, not African, but proudly Egyptian) says, as he points up to the heavens to emphasize Eternity. In Saqqara, north of Memphis, there are 118 pyramids to house the sarcophagi of mummified pharaohs and noblemen. The Djoser pyramid capped with luminescent limestone to mimic the rays of the morning sun towers 62 meters (203 feet) but still the Khufu pyramid of Giza, the largest Egyptian pyramid and one of the seven Wonders of the Ancient World, reaches up an awesome 146.7 meters (481 feet). A narrow shaft that comes from the pinnacle to the burial chamber directs the sunlight to the deceased pharaoh’s mummified body and lifts his soul to the heavens and to the gods. It is the story of Resurrection and Eternal Life.

No, not slave labor as they show in movies about Egypt, but excavations unearthed organized communities of hired stoneworkers and masons who built the pyramids and the temples, Aziz says. Non-believers in the local gods would not be allowed to work there. But many did, as the government supported these some 10,000 workers who were rationed 30 cows and 300 sheep every quarter, and provided huge hospitals. But it was hard work. These workers chiseled some 2,300,000 blocks, each one weighing approximately 2 ½ tons from quarries to build Khufu’s great pyramid, for example. These stone blocks were moved on sledges up and down the Nile River — to the West bank, the place of the Dead for the pyramids and catacombs, and to the East bank, for the temples where the people honored the gods. Houses for the living on the East bank were made of brick, which were easy to repair in the destruction of the seasonal flooding of the Nile — symbolic of the impermanence of mortal life, while tombs were made of stone, symbolic of the permanence of Eternal Life.

Without the Nile River, there would be no Egypt, Aziz declares. In ancient times the Nile River would predictably rise and flood Egypt in mid-July. He describes how people would leave their houses go up the banks to avoid the flood for four months. But after the waters have receded, the silt deposited on the banks would be so rich that the harvest was guaranteed to be bountiful. The people developed a system of storing grain during years of prosperity to safeguard against the years when the floodwater did not rise high enough and they would experience a famine. And the state would determine by the “Nile-o-meter” (the chiseled-on notches on the stone flanks of the river) how high the floods rose that year, ergo how much the corresponding taxes would be imposed on the people.

The Nile flows from south to north, stretching 4,187 miles across the entire length of Egypt. It has three major tributaries: the White Nile from Lake Victoria weaving through Uganda and Sudan and intersecting with the Blue Nile from the highlands of Ethiopia, by Lake Tana. The final major tributary, the Atbara also comes from the Ethiopian highlands. Aziz counts six rapids called “cataracts” rolling from the Nile’s steep plunge into a natural canyon between Sudan and southern Egypt. Notice that North of Cairo, the Nile splits into two branches (or distributaries), the Rosetta Branch to the west and the Damietta to the east, Aziz says. Looking at the map upside down (as the Nile flows from south to north), he points out that this forms a “V”, symbolic of the pyramids and the final funneling into that sacred prism of life on earth fed from the Eternal Life.

Note, Aziz says, that Egyptians are direct descendants of Noah, survivors of the biblical Great Flood that first destroyed the world. From Shem’s brother Ham came Misraim, founder of the Egyptian race (the lighter-colored Egyptians) of the Northeast, or Lower Kingdom; from Kush came the descendants who settled in the Upper Kingdom (South) who founded the Nubian race (later Ethiopian), those with darker skin. There is no discrimination between white-colored and dark-colored skin in the highly-evolved Egyptian culture, before or now, Aziz says.

Talk of knowing about taming the floods — from the Noah experience. Early on, the pharaohs had already thought of evening out the flooding from the Nile River, to correspondingly even out the harvest. A system of canals and irrigation called “Shadouf” where gate valves distributed Nile water to the farms. This was the season of plenty, as recorded in the Bible (Genesis), with Joseph (later called Israel) son of Jacob and Rachel, rising from slavery to being the alter ego and adviser of the pharaoh — and the chief master planner of the harvest system dependent on the Nile.

Through invasions and colonizations after the time of Christ (A.D.) the glory of Egypt faded in the grasping hands of foreign rulers, Aziz laments. He particularly regrets the exploitation by the Romans, who carried off the bounty from the Nile — silently but emphatically protested by the native Egyptians, who surreptitiously imbedded the greed of Rome in the design of the Roman columns brought into Egyptian architecture. Look at the sheaves of wheat stalks carved onto these Roman columns in the temples for the Roman gods, Aziz says — Egypt was Rome’s wheat basket.

From the time of Rameses II the Suez Canal was already there to facilitate travel from the Nile River to the Red Sea. Centuries passed, with Egypt in control of the Canal, even through the 15th century, when European expeditions found the Suez Canal an easy short cut to new lands to conquer. Nearing the 19th century, the French won a concession from the Egyptians to build and operate the Suez Canal for 99 years. In the World Wars, the Canal became a strategic factor, with the British controlling it and the Egyptian government. Finally, the British ceded control (and hefty revenue!) of the Suez, until the new Egyptian hero, Egyptian President/General Gamal Abdel Nasser nationalized the canal and owned all revenues from it in 1956.

Perhaps the very nationalistic Aziz feels strongly against the British, and even the US because of their coveting the Suez Canal and damming the Nile River — two most critical elements to Egypt’s life and glory. The first attempt of building a dam near Aswan was in the 11th century by the Fatimid Caliph. It was only in 1898 that the British successfully built the Aswan “Low dam” that partially controlled the flooding of the Nile. The colonial exploitation of the agricultural bounty continued through the wars, Aziz says, until the overthrow of the King Farouk by General Nasser, considered the “new Saladin” reminiscent of the first sultan of Egypt and Syria, and mentor to the first attempts at Arab reunification. Nasser was the leader of the first “Arab League.”

No, Egypt did not flip-flop loyalty between the US and the USSR, nor was he “playing both sides” in the Cold War, Aziz clarifies. The USSR gave the best bid to build, operate and transfer the Aswan High Dam to completely control the flooding of the Nile to maximize agricultural production, especially for Egypt’s primary export, cotton. A reservoir, the gigantic man-made Lake Nasser can provide six years supply of water to Egypt, Aziz says, if suddenly there is no water at all. For this reason, the Aswan Dam is the most guarded facility in Egypt.

So, Aziz, why is today’s Egypt so haggardly old and dusty; there seem to be few nice-looking buildings even in Cairo. There are hardly any new cars on the main streets and many low rise buildings are unfinished, with brick walls that have open windows with no awning or frames, seemingly unlived-in, except for the ground and lower floors. The tax on new cars is 140%, Aziz says, and the houses are unfinished (upper storeys waiting for sons of families to live in when they get married), again to avoid high taxes on developed property.

From a touristy horse-driven calesh ride through the poor district, swarms of little children rushed out from the tenement housing to cry out “Money, money!” begging for doleouts. In the sand-floored Nubian homes, little children asked tourists for ballpens and pencils, for them to use in school. At a Nile River cruise, young boys dived for money thrown into the waters, and on the streets, frayed-robed men peddled cheap souvenirs, chanting “one dollah, one dollah.” Don’t worry about the poor in Egypt, Aziz says. A family of five gets about US$15-18 food ration of bread, sugar, oil and rice, on top of free housing and medical care.

Aziz, the true anthropologist, wanted to show Joy Roa’s small tour group what the real Egypt is: a phoenix, the “Bennu,” sacred bird of Heliopolis associated with the sun and representing the ba or soul of the sun god, Ra. Egypt will rise from the ashes and be great again, Aziz is sure. He is confident that the very popular President Abdel Fattah al-Sisi, four years into his six-year term, and sure to be reelected for another six years, will carry Egypt through to new glory — like the Bennu.

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

ahcylagan@yahoo.com

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