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PHL-made products recognized at Great Taste Awards

MOUNT MAYON Premium Pili Nuts — Ecuadorian cacao received a three-star rating at the 2018 Great Taste Awards.

NINE PHILIPPINE-MADE products were recognized at the 2018 Great Taste Awards, with a pili nut snack receiving the highest three-star ranking.
The Great Taste Awards, considered the “Oscars” of the food world, is organized by the Guild of Fine Food. Last year, only two Philippine-made products were recognized by the awards.
Mount Mayon Premium Pili Nuts — Ecuadorian cacao flavor received a three-star rating at the Great Taste Awards. Made by Zambales-based Subic Superfood, Inc., the pili nuts are coated with cacao and organic coconut sugar.
The Himalayan Pink Salt flavor of Mount Mayon Premium Pili Nuts also awarded two stars. Subic Superfood cultivates and harvests its pili nuts at the foot of the Mt. Mayon in Albay, Bicol.
The products of Davao City-based Malagos Agri-Ventures Corp. drew the most attention among the Philippine goods at the Great Taste awards this year.
The Malagos 65% Dark Chocolate received two stars, an upgrade from last year’s one star ranking. The Malagos 100% Unsweetened Chocolate again received a one-star award under the hot drink category which includes chocolates. The two products were also recognized in last year’s awards.
New to the 2018 Great Taste Awards’ list are Malagos 72% Dark Chocolate and Malagos 100% unsweetened chocolate — both chocolate bars.
Another awardee was Auro Chocolate for its chocolate bars — 74% Dark Chocolate of Saloy origin and 64% Dark Chocolate of Davao origin.
Meanwhile, Le Potager, Inc., which carries The Fruit Garden Food Products brand, took home one star for its Pineapple Coco Rhum Jam.
The company is one of the exporters assisted by the Department of Trade and Industry’s (DTI) Export Marketing Bureau under its Regional Interactive Platform for Philippine Exporters Plus program which aims to enhance products of Philippine exporters.
“Fruit Garden is the first and only Filipino company in the Jam Segment to be selected due to its product’s distinct taste which is achieved by its cooking process in copper cauldrons, in small batches, under strict quality control. The Fruit Garden also takes pride in the achievement of its unique flavor, made of local ingredients,” the DTI said in a Wednesday statement.
Great Taste is the largest and most trusted accreditation scheme for fine food and drink. It supports, promotes and mentors artisan food producers who want to supply the United Kingdom’s independent retail sector and overseas stores selling fine food.
Since 1994, more than 120,000 products have been put through this robust judging process wherein they are blind-tasted by select chefs, buyers, fine food retailers, restaurateurs, food critics and writers.
For this year, producers entered 12,634 products. Of this, only 37% were accredited: only 1.52% or 192 foods achieved the most coveted rating, three stars; 9.55% or 1,207 items grabbing two stars; and 25.76% or 3,254 were awarded a 1 star. — Janina C. Lim

How PSEi member stocks performed — August 22, 2018

Here’s a quick glance at how PSEi stocks fared on Wednesday, August 22, 2018.

 
Philippine Stock Exchange’s most active stocks by value turnover — August 22, 2018

DoF says tax cuts starting to reflect in retailers’ results

THE DEPARTMENT of Finance (DoF) said lower personal income tax rates brought about by the Tax Reform and Acceleration and Inclusion (TRAIN) law are starting to show up in the sales results of major retailers in the first half.
“The significant growth in sales reported by retail establishments and restaurants point to the fact that people now have more money to spend as a result of the hefty (income tax rate) cuts under TRAIN, which are now benefiting 99% of our taxpayers,” Finance Assistant Secretary Antonio Joselito G. Lambino II said in a statement yesterday.
The DoF cited the first half sales growth reported by some of the country’s largest retailers like Robinsons Retail Holdings Inc. (38%), Philippine Seven Corp. (22%), Puregold Price Club (13%), and Max’s Group Inc 912%).
The DoF estimates that the law has unlocked P12 billion worth of disposable cash for consumers.
TRAIN exempted taxpayers earning P250,000 annually from paying income tax and reduced the tax rates for those earning below P8 million annually — which represents 99% of taxpayers.
It also simplified donor and estate taxes, but removed some value-added tax exemptions, increased rates collected on fuel, automobiles, tobacco, coal, minerals, and some financial taxes; and imposed new levies for sugary drinks and cosmetic procedures.
Last week, the DoF briefed the Senate on TRAIN’s role in the rise in commodity prices, arguing that the law accounted for 0.4 percentage point of July inflation of 5.7%. Instead it said the surge in global fuel prices, domestic supply issues, and a weak peso had a more significant impact on prices.
The DoF has said that greater liquidity unleashed by TRAIN pushed up demand and in turn, raised goods prices. — Elijah Joseph C. Tubayan

Tax reform not to blame for FEMSA exit, DoF says

FINANCE Undersecretary Karl Kendrick T. Chua expressed doubts that tax reform was behind the divestment of a Mexican bottler that held the Philippine franchise for Coca-Cola products.
“I do not know the real reason why they decided to leave the Philippines. The first package of tax reform also imposed taxes on fuel companies and coal producers, and cigarette manufacturers, but they didn’t leave,” he said at a briefing on tax reform, referring to the decision of Coca-Cola FEMSA S.A.B de C.V. to sell its stake in the Philippine bottling operation for Coke products back to The Coca-Cola Co.
“Maybe FEMSA left for some other reason. In our opinion, tax reform was not very related” to the divestment decision,” Mr. Chua said.
This ran counter to comments made by Coca-Cola FEMSA chief executive officer John Santa Maria Otazua in an Aug. 17 teleconference with investors. Mr. Santa Maria said the new tax on drinks sweetened with high-fructose corn syrup (HFCS), which is used in Coca-Cola production, dampened imports of the sweetener and caused prices of cane sugar to rise.
The tax reform law “put restrictions on sweetener imports” and led to “soaring local prices of sugar. Prices of sugar have been up, up to 50%,” he said.
Mr. Chua said President Rodrigo R. Duterte and Speaker Gloria M. Arroyo are serious in bringing about tax reform regardless of the difficulties in getting the legislation approved, amid resistance from legislators concerned about its impact on prices.
“The President has said that tax reform is critical to his program, while Speaker Arroyo is taking it very seriously,” Mr. Chua said, adding that the Department of Finance (DoF) will continue to work with legislators to effect the passage of the necessary measures.
The first package of tax reform was known as Tax Reform for Acceleration and Inclusion (TRAIN) and focused on lowering income tax rates, freeing up disposable income for spending on consumer goods. On the other hand, TRAIN also raised taxes on fuel, sweetened drinks, automobiles, and coal, among others.
Mr. Chua was speaking at a briefing on the progress of tax reform, the second package of which has been named the Tax Reform for Attracting Better and Higher Quality Opportunities (TRABAHO) bill. TRABAHO focuses on rationalizing investment incentives while lowering corporate income tax.
Asked to comment on the House version of the TRABAHO bill, Mr. Chua said: “We continue to reach out to the Congress and the public in order to arrive at a reform that balances all interests.”
The DoF, Mr. Chua said, had intended the second tax reform package to be revenue neutral. “So for every peso that we save in unnecessary incentives, the idea is… to return (the savings) to those 90,000 small businesses who are paying 30% and now will pay less,” he said, adding that the DoF version imposed revenue-performance conditions on corporate tax cuts. The House, however, wants an “automatic reduction of two percentage points every two years,” he added.
Moody’s Investor Service vice-president and senior credit officer Christian de Guzman has said that “the absence of conditionality between the rationalization of fiscal incentives and the cuts in the corporate tax rates poses some risk” to the DoF’s goal of revenue neutrality. According to Mr. Chua, the government is expected to forego P62 billion in revenue in the package’s first year of implementation in 2021, for which the government will need to compensate by eliminating even more “unnecessary incentives.”
Mr. Chua is optimistic that the latest tax reform legislation will be approved before the 2019 midterm elections. “They are also evaluating the budget. That also means they will see the need for the tax reform. We all want a big budget but that would not be possible without tax reform. Whether or not there is an election, I think this is an important reform and I think Congress understands that especially when you need a budget that needs to be funded well.”
As for concerns that there will be job losses as a result of the TRABAHO bill, Mr. Chua said: “We are going to help all the firms as necessary. And those (incentives) that prove unnecessary, we believe they will continue to operate and invest. And we also have the lowering of the corporate income tax rate from 30% to 20%, which will create a lot of opportunity for expansion and job creation. So, I want to clarify that we do not expect any job losses, but there will be an adjustment fund just in case.” — Arjay L. Balinbin

DBM releases P2.29B for Marawi safety net

THE DEPARTMENT of Budget and Management (DBM) said it released P2.29 billion for social projects under the Marawi City Rehabilitation and Recovery program.
Department of Budget and Management (DBM) logo
The social projects, carried out by the Department of Social Welfare and Development (DSWD), include the Basic Transitory Family Support Package worth P1.43 billion for 25,537 displaced families.
Recipients will also get an additional P675.20 million from the Provision of Livelihood Settlement Grants program.
The release also includes a P183.02-million Operational Support Fund for administrative expenses.
The funding is taken from the Marawi Recovery, Rehabilitation, and Reconstruction Program (MRRRP), which is supported by the P25.5 billion 2018 National Disaster Risk Reduction and Management (NDRRM) Fund.
“Notably, P10 billion has been appropriated in the FY 2018 General Appropriations Act (GAA) under the Marawi Recovery, Rehabilitation, and Reconstruction Program. To date, a total of P4.59 billion out of the P10 billion allocation has been released for the purpose,” the DBM said.
Earlier this month, the Department of the Interior and Local Government (DILG) said it will construct a P76-million water system to serve more than 2,156 households by December 2019.
The government is responsible for rehabilitating outside the city’s most affected area, as well as the providing for the needs of families, while a private consortium is responsible for the rehabilitating ground zero, where work is expected to begin next month. — Elijah Joseph C. Tubayan

Corporate farming act offers incentives to firms producing rice and corn

A LEGISLATOR has filed a bill granting incentives to firms that successfully bring corporate efficiencies and the ability to tap financing to the process of producing rice and corn.
House Bill 8076, filed by Bohol Representative Erico Aristotle C. Aumentado, is known as the proposed Corporate Farming Act, which outlines tax exemptions for companies that manage to bring efficiencies to rice and corn farming.
“To promote rice and corn self-sufficiency and ensure food security, it is necessary to implement a viable national program that will encourage corporate farming,” Mr. Aumentado said in the explanatory note.
The measure proposes to exempt corporations from customs and duties on the importation of seed, fertilizer, machinery and other agricultural implements, as authorized by the Agriculture and Fisheries Modernization Act of 1997.
It also calls for value-added tax (VAT) exemptions on similar imports as authorized by the Tax Reform Act of 1997.
The bill will also grant a capital gains tax exemption to corporations or partnerships buying or transferring idle agricultural land to engage in corporate farming.
Mr. Aumentado added that the bill will consider loans taken on by such firms as helping banks comply with the Agri-Agra Reform Credit Act of 2009, which requires financial institutions to lend 25% of their portfolios to agriculture and fisheries ventures. Of this quota, at least 10% must be issued to agrarian reform beneficiaries.
Mr. Aumentado also said corporations or partnerships have “the option to sell all the produce or only the excess of their employees’ consumption requirements.
The measure requires that corporations or partnerships that opt to join the corporate farming program, as designed by the Department of Agriculture, should have been organized “under the Philippine laws and operating at a profit for the last four years.”
Participants may choose to manage production on their own on land that may either be purchased or leased, or partner with farmers’ groups through contractual agreements. — Charmaine A. Tadalan

DoE authorizes grid impact studies for 5 projects

THE Department of Energy (DoE) has authorized five power projects to conduct separate studies on their impact on the transmission grid, with the projects potentially adding 1,233 megawatts (MW) to the country’s capacity.
Based on latest DoE data, the five projects obtained clearance to conduct the studies in July, with Limay LNG Power Corp. accounting for the bulk of the expected new power capacity at 1,100 MW for a combined-cycle gas turbine project in Limay, Bataan.
The Limay project is the biggest of the 37 projects cleared for grid impact studies (GIS) so far this year. The DoE’s power planning and development division did not immediately respond when asked about details of the project.
The rest of the five projects are renewable energy developments that range in capacity from 14 MW to 80 MW. Limay LNG Power, which obtained its GIS clearance on July 18, has been added to the DoE’s list of “indicative” projects or those that have yet to close a financing contract as well as secure the relevant permits.
Most indicative projects have yet to schedule their target testing and commissioning dates as well as their target commercial operation date.
Of the remaining four projects, the biggest is Manresa Power Corp.’s 80-MW San Jose del Monte solar power project in Bulacan that was cleared on July 9.
Three of the projects are in the Visayas, with North Negros Biopower, Inc. accounting for the biggest at 25 MW for its biomass power plant project in barangay Santa Teresa, Manapla, Negros Occidental.
Petrowind Energy Inc. was cleared for a 14-MW second phase of its wind power project in barangay Nabas, Malay, Aklan.
The project is an expansion of its P4.5-billion, 36-MW wind farm in Nabas for which it was able to secure a guaranteed feed-in-tariff of P7.40 per kilowatt-hour for 20 years.
PetroWind is a joint-venture firm owned by Singapore-based CapAsia Asean Wind Holdings Cooperatief UA (40%), EEI Power Corp. (20%) and PetroGreen Energy Corp. (40%). PetroGreen is a 90%-owned subsidiary of Yuchengco-controlled listed firm PetroEnergy Resources Corp.
Astronergy Development Pagadian, Inc. rounds out the five GIS-cleared projects in July with its 14-MW Banale solar power plant in barangay Banale, Pagadian City in Zamboaga del Sur. — Victor V. Saulon

Agriculture dep’t planning tech cooperation with Indian state

THE Department of Agriculture (DA) said it hopes to cooperate with the Indian state of Uttar Pradesh to develop farm technology appropriate for Philippine conditions.
Undersecretary for Agribusiness and Marketing Jose Gabriel M. La Viña told BusinessWorld that the DA plans to form a technical working group (TWG) follows the visit of a delegation from the Uttar Pradesh state government earlier this month.
“We basically exchanged ideas on farming. I was interested in how they are using technology to help the farmers,” he added, noting that the main point of interest is “using technology to increase productivity.”
Uttar Pradesh recently donated around 5 hectares of land for the International Rice Research Institute to use in field studies.
In a social media post on Wednesday, Agriculture Secretary Emmanuel F. Piñol, facing down budget cuts, injected a note of urgency to the search for technology to improve productivity, and said rice import are not the solution to ensure food security.
“Relying on imports and reducing government expenditure on the rice program would drive farmers away from their rice farms,” he added.
The National Rice Program had its 2019 budget reduced by 37% to P7.41 million.
“They will either venture into other crops or lease their land. When this happens, the country will be highly dependent on imported rice and the rice exporting countries can dictate prices.”
Domestic rice production is sufficient for 93% of demand, which the DA is hoping to raise to 95%. — Anna Gabriela A. Mogato

DoLE to appeal injunction against order on PLDT workers

THE Department of Labor and Employment (DoLE) said it will file a motion for reconsideration with the Court of Appeals in a bid to overturn an injunction against the enforcement of a DoLE order to PLDT, Inc. calling on the telco to grant regular status to contractual workers.
In a briefing on Wednesday, Aug. 22, DoLE officer-in-charge Assistant Secretary and Bureau of Labor Relations (BLR) Director Benjo Santos M. Benavidez said “We are filing through the OSG (Office of the Solicitor General) a motion for reconsideration” on the PLDT injunction.
On July 31, the court granted PLDT an injunction on a DoLE order to grant regular status to more than 7,000 contractual workers.
“While it is true that there are functions or activities that may be contracted out, our position is that (they) should be contracted to a legitimate contractor,” Mr. Benavidez said.
He said a legal contractor “must have the capitalization and the equipment to perform the job being contracted out.”
When asked about the prospects for the motion, he said: “There are still legal remedies and we will exhaust all legal remedies even up to the Supreme Court (SC).”
The July 31 ruling said that the labor department had “no substantial evidence” and the issuance of the regularization orders by DoLE Secretary Silvestre H. bello are purely speculative.
In its 59 page MR, DoLE said that they did not take “mere allegations” in the findings made by the DoLE NCR Regional Director nor did it make “unfounded conclusions of law.”
Regarding CA’s ruling that PLDT was denied the right to present their side to DoLE, DoLE’s MR said “PLDT cannot claim it was denied due process because it was afforded a fair and reasonable opportunity to explain its side.”
The CA also ordered for DoLE to recompute the monetary awards PLDT owes its workers, to which DoLE’s MR said its computations aren’t arbitrary since it was subjected to “layers of painstaking review, based on the substantial evidence at hand.”
“These pieces of evidence include not only the inspectors’ interviews, but more importantly, a plethora of documentary evidence such as payrolls, payslips, proofs of payment, positions papers, rosters of workers, employee’s manuals, company rules, release and quitclaims, contracts of employment, service agreements, correspondences, affidavits, bank transaction receipts, and other employment records,” the MR added.
PLDT said it has no comment on the planned motion.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Gillian M. Cortez

Not enough inspectors to enforce work safety law, DoLE says

THE labor department said it does not have enough inspectors to enforce the recently-signed Occupational Safety and Health Standards (OSHS) law.
“It’s a challenge for the Department of Labor and Employment (DoLE)… but we continue to request that we be given additional inspectors,” Bureau of Labor Relations (BLR) Director Benjo Santos M. Benavidez said in a news conference on Wednesday.
Bureau of Working Conditions Director IV Ma. Teresita C. Cucueco also cited as an enforcement challenge the need to make companies aware of the law.
“Awareness of the provisions of the law and provisions on how to comply is one thing DoLE has to ensure,” she stressed.
DoLE is currently in the process of drafting the Implementing Rules and Regulations (IRR) for the law.
“In the drafting of IRR, there will be public consultations especially with employers, workers and safety advocates,” Ms. Cucueco said.
“While we are drafting the IRR, we can start with an education and information drive,” Mr. Benavidez said.
The OSHS Bill or Republic Act 11058 was signed by President Rodrigo R. Duterte on Aug. 17.
“This is a landmark legislation aimed at the full well-being of our workers,” Labor Undersecretary Joel B. Maglunsod said.
“RA 11508 covers all establishments, projects, and sites including those in the ecozones. It stipulates the duties and rights of employers and workers,” he added.
Mr. Maglunsod also explained that the law will help protect workers hired by the government to build infrastructure, leading to the creation of 1.8 million jobs in the construction sector. He said th construction industry will be the focus of safety enforcement.
DoLE said the law stiffens penalties for violators.
“While we have penalties and special laws, the Revised Penal Code and others especially, this law imposes additional penalties and that is the administrative fine of P100,000 per day of violation until the violation is corrected,” Mr. Benavidez said.
He added that the fines will be used to help finance the training of inspectors, which is currently unfunded. — Gillian M. Cortez

What does digital finance really mean?

“Innovate or die” is driving many companies to constantly improve themselves in order to compete in today’s fast-paced environment. While the digital age brought about many breakthroughs, it also led to the demise of others like Blockbuster, Nokia and Kodak. Today’s top brands may face the same fate if they do not continuously innovate.
Prior to the digital age, the role of finance and accounting people was very simple: to ensure that transactions are properly accounted for and that appropriate financial reports are prepared and submitted to various stakeholders. Licensed CPAs such as myself train for years to become the perfect “traditional accountant,” who can accurately record and post entries and generate reports that management or the government requires. Today, robotics process automation and artificial intelligence have made their way to the market, aiming to replace finance people in the performance of tasks representing the “low-hanging fruit” on the road to greater automation, such as transactional processing and data visualization.
During my time as an accounting lead for a shared services center, top management wanted to take advantage of digitalization by adopting a system that enhances performance reporting. Accountants were forced to learn performance management, proper project management, and business requirements development. To maximize the value of the finance function, they also demanded that capable finance personnel participate in internal improvement projects, and that the organizational structure be made leaner and more efficient. Everyone was forced to learn new skills and adapt to help the business compete.
With digitalization, certain skills of traditional accountants (e.g. data crunching, posting of accounting entries, etc.) are slowly becoming obsolete. Thus, roles within the finance function must adapt to these changes. Digital finance is not just about technology. It is about the finance function holistically leveraging people, organization and technology to take on proactive roles and provide more value to the business in the digital age. So, what must the finance function do?
First is business partnering. Supported by robust planning, budgeting, analysis and reporting processes and tools, timely and actionable information can now be easily generated. With access to quality data, the finance function can provide valuable performance and predictive insights as well as collaborate with the business to assist in informed decision making and achieve favorable outcomes.
Let’s take the case of how an automotive company regained its competitive edge for instance. In the past decade, this particular company had been incurring losses due to its production of various car models that the sales team thought the market demanded.
Due to constant pressure from its leadership and resource constraints, the sales team partnered with the finance team to report and assess the performance of each of the company’s products — including generated revenue and incurred costs. To their surprise, only a number of their product lines were profitable and the company was actually investing significant production and marketing costs in products that were unprofitable. This led to future collaborations between the sales and finance teams to identify where to smartly place investments to generate optimum profit.
Another role that the finance function needs to fulfill is to continuously drive improvement. With increasing competition and limited resources, operating an efficient and cost-effective back office is very important. Increasing the capacity for value-added services and developing scalable service delivery models to support growth should be part of the finance function’s priorities. This is an opportunity to go digital because there are countless technological enablers that can help the business improve the accuracy and efficiency of performing traditional repetitive and voluminous accounting processes (e.g. billing, processing payments, etc.). Taking these burdens off of finance personnel will give them time for more value-added tasks. In recent studies, 25 to 45% of typical finance function processes have been found to be avoidable through automation and continuous process and/or organizational improvements. CFOs and finance personnel should take the initiative to ensure that the finance function keeps its costs low while being as efficient as possible.
According to a benchmark conducted for finance functions around the world, top finance teams operate at 36% lower cost than average performers. Top CEOs and CFOs are leveraging acquired business skills of their finance teams and making them more valuable by providing such personnel with transformation responsibilities on top of their day-to-day activities. The nature and extent of such responsibilities can either be intra-finance functions (e.g. finance personnel continuously striving to spot and implement areas for continuous improvement within their operations) or inter-finance functions (e.g. working with top management to define a new target operating model, working with IT to define new technology requirements, etc.).
Despite all these developments, the future of finance still lies in the hands of people and not machines. It is true that technology is currently a major issue and that CFOs should still make technological improvements a priority. However, priority should also be placed on building new skills to make the finance function more effective such as improving business collaboration and increasing the quality of interactions and relationships. These are necessary skills to execute the new roles of the finance function in the digital age. After all, the power to enable deep organizational change through valuable actions (e.g. analysis, enabling insightful decision making, conducting meaningful business interaction, etc.), leveraging available technology, redefining the finance operating model and seeking out continuous improvement still rests with the CFO and finance personnel.
Forward-looking and high-performing CFOs and finance functions are already taking action because of a strong belief that finance has a key role to play in helping companies respond to their respective business environments through informed decision-making and scalable operations. Finance functions that do nothing not only risk being irrelevant to the business, but also risk the very survival of their companies.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd. The content is for general information purposes only, and should not be used as a substitute for specific advice.
 
Bryan Christopher O. King Kay is a manager with the Finance Consulting practice of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd., a Philippine member firm of the PwC network.
bryan.king.kay@pwc.com

Beyond the Money: ‘Build, Build, Build’-ing Better Policy

By Cesar Purisima and Caitlin MacLean
IN AN effort to sustain economic growth, the Philippine government is turning to infrastructure development with its bold P9-trillion “Build, Build, Build” program. The buildup is expected to bolster job creation and address constraints in mobility and connectivity.
crane
Gridlock in Metro Manila cost the capital region an estimated P3.5 billion in lost productivity per day in 2017, according to JICA. Congestion reduces quality of life by entrapping millions of residents in time-wasting black holes. In the countryside, the archipelagic nature of the country limits ground, sea, and air connectivity, costing missed economic opportunities to address poverty.
But the outlook is promising. In what is a rare, opportune occasion in Philippine history, the massive undertaking of Build, Build, Build is being pursued when it’s needed most, and when the nation’s fiscal position is healthy enough to help support it.
CRITICAL VICTORY
The Philippines has recently embarked on two of its largest projects yet — a 38-kilometer stretch of train tracks and an overhaul of Manila’s Metro Rail 3. As with all projects, they are backed by a mix of tax revenues, sovereign bond issuances, official development assistance (ODA), foreign and domestic loans, and public-private partnerships (PPPs).
The government scored a critical victory when it enacted the first package of its landmark Tax Reform for Acceleration and Inclusion Act this year in a bid to raise around P786 billion in additional revenues over five years, 70% of which will be allocated to infrastructure development. The Philippines also secured P389 million in credit and pledges from China and another P480 million from Japan.
To support the infrastructure agenda, other kinds of investments need to be considered. Beyond the money, some of the most important investments to be made now are soft ones to strengthen policies and institutions. As project pipelines and capital needs expand, the Philippines will increasingly require a more conducive environment to infrastructure investment from a very liquid private sector.
Broadly, this entails having a clear, long-term vision for infrastructure development and a cohesive plan with national and local stakeholders on board.
For this plan to be effective, it needs to be binding — transcending the six-year term that a single administration holds, and carrying a nonpartisan, long-term mandate.
Second, an ideal implementation framework addresses investor concerns on transparency, investor asset ownership, right-of-way, and fairness. Predictability helps build investor confidence. This means that the enforcement of contracts awarded in transparent, competitive processes needs to be respected and protected from undue interference from any branch or level of government.
Investors also appreciate consistency and clarity of plans — both regarding the strategy for high-profile assets (e.g., the overall airport strategy for Metro Manila) and the method of implementing projects through competitive bidding, whether proposals are solicited or unsolicited, and whether they are from foreign contractors participating in an ODA project.
Encouraging competition and maintaining a level playing field will ensure the government gets the most bang for its buck, while potentially lowering user fees and improving the quality of services. It is therefore important to foster genuine competition within the private sector for infrastructure development.
ENHANCING PPP
Third, continue improving our procurement processes. Beyond standardizing contracts and permits, the key challenge is finding the right balance between the speed of implementation and maximizing value for money. For example, concerns regarding the glacial pace of project approval and cumbersome procurement steps under the PPP framework need to be addressed by reforming these very rules and processes, and not by totally abandoning the framework as a viable method of implementation.
Procurement laws are worth revisiting. The practice of doing preventive maintenance is painfully restrictive in the public sector, and so are rules mandating the purchase of the least-cost instead of the best-value products. Again, finding the balance between prudence and value in making infrastructure investments is key.
Fourth, private capital isn’t enough by itself. Private expertise and skills are critical to the delivery of better quality public goods and services. By enhancing PPP frameworks, for example, the country can better facilitate the transfer of private-sector expertise, management, and technology to the public sector.
Beyond training and exposure, exceptions to the Salary Standardization Law for highly technical positions in government should be explored, as it only makes sense to incentivize talent in the public sector commensurate with the private sector. With these exceptions, the ability of government agencies to package and execute big projects can be improved over time.
Fifth, look at financial tools to attract private-sector investment and participation in the infrastructure push. These can include providing better fiscal incentives such as government funding for canceled or delayed projects, as well as credit enhancements for the private-sector undertaking of development risks.
These are some of the initial insights the Milken Institute gathered from a workshop on infrastructure finance with stakeholders. The government is acting on initiatives that address them. For the infrastructure program to succeed, the private sector and civil society need to collaborate on these opportunities in a proactive and constructive manner.
Hard and soft investments go hand in hand with building a path towards a golden age of infrastructure development. As the Philippines carries on with these ambitious plans, there is no better time to build, build, build better policy and stronger institutions than now.
 
Cesar Purisima is an Asia Fellow at the Milken Institute. He previously served as the Philippines’ secretary of finance and secretary of trade and industry. Caitlin MacLean is the senior director of innovative finance at the Milken Institute.

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