CADET First Class Jaywardene Galilea Hontoria, valedictorian of the Philippine Military Academy (PMA) Alab Tala Class of 2018, receives the Presidential Saber Award from President Rodrigo R. Duterte during the graduation ceremony held March 18 at Fort del Pilar in Baguio City. Mr. Hontoria, who hails from the town of Pavia in Iloilo province, will receive a house and lot in Iloilo City.
See related story Sons of OFW, farmer top PNPA, PMA classes.
AN industry group has urged the Department of Trade and Industry (DTI) to conduct an investigation after finding substandard rebar being sold in Central Luzon.
In a statement sent to reporters over the weekend, the Philippine Iron and Steel Institute (PISI) recommended that the agency’s Consumer Protection Group conduct an “immediate” audit in the region amid “the very high incidence” of substandard reinforcing steel bars produced and “openly sold” in the region.
The agency was also asked to issue show-cause orders to manufacturers and importers found responsible for supplying substandard rebar.
The group said it conducted on Feb. 28 test purchases with 14 random sellers across the provinces of Bulacan, Pampanga, Tarlac and Nueva Ecija to verify the complaints which it has been receiving for the past four weeks.
It found 10 samples of underweight or undersized rebar sold in eight hardware stores; one sold a sample with marginal elongation; and another sold rebar with a diameter of 9 millimeters which is below the nominal diameter indicated under the Philippine National Standard (PNS) 49:2002.
“Based from the results of the recent market test-buy and even from the series of previous activities done by PISI, it was proven that there were really substandard rebars sold in the market,” PISI said in a separate report dated March 14.
“This is obviously a burden not only from the legitimate rebar producers and/or manufacturers, but mostly, the great effect would be to those consumers using substandard rebars without their due knowledge. The fraudulent selling of substandard rebars compromise safety of the general public.” — Janina C. Lim
THE ROAD congestion problem in Cebu City’s south district has affected the collection of garbage in the area. Roberto Cabarrubias, head of the city’s Department of Public Services, said garbage personnel can only make the rounds and collect trash in the south about five or six times a day due to traffic, down from at least 10 times in the past. He said even garbage trucks that service the north are affected because they also have to go to the transfer station in the south. — The Freeman
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FIRE FIGHTERS battle the fire that hit the Waterfront Manila Pavilion Hotel & Casino on the morning of March 18. Initial reports from the Manila Disaster Risk Reduction and Management office indicate four people died and at least six others injured.
THE natural gas discovered in the Alegria field in southern Cebu can supply the requirements of a small power plant, the Energy department said, adding that plans are underway to build a 60-megawatt (MW) facility.
“They are already working, preparing a small power plant that will be fueled by natural gas. It’s only small but that will again help the Visayas [and] Cebu,” Department of Energy (DoE) Secretary Alfonso G. Cusi told reporters.
He said the exact capacity of the power plant has yet to be finalized although initial estimates are at 60 MW. The operator of the Alegria field is China International Mining Petroleum Co. Ltd. (CIMP).
Last week, the DoE and Hong Kong-based CIMP signed a joint declaration of commerciality, paving the way for the resources — both crude and natural gas — in Alegria to start flowing.
CIMP, the holder of Petroleum Service Contract (SC) No. 49 covering the Alegria oil field, started exploration and drilling activities in 2009, although the DoE and the service contractor established only in 2016 that the area has commercial quantities of natural gas.
CIMP discovered an estimated 27.93 million barrels of oil (MMBO) with a possible production recovery of 3.35 MMBO or a conservative estimate of 12% of total oil in place, the DoE said earlier.
For natural gas, it said about 9.42 billion cubic feet (bcf) of reserves were found, with the recoverable resource estimated at 6.6 bcf or about 70% of the total natural gas in place.
It also said that based on the development plan drafted after the initial testing, the natural gas and oil production of the field may last until 2037.
Mr. Cusi said that on a daily basis, the two oil wells in Alegria are capable of delivering 180 barrels each.
“That means 360 barrels per day from the two wells. This is crude oil. [CIMP] is ready so we’re just scheduling when will be the first delivery, first output,” he said.
“It will help the local economy because it will support local industry, like cement factories and the local industries that are using crude oil as fuel. So that will be a big help,” he said.
Mr. Cusi said over the past hundred years attempts had been made to recover crude oil in the area.
“It’s only now that there is this kind of development,” he said.
Mr. Cusi said the sharing of Alegria’s output is 60% in favor of the government and 40% for CIMP.
“At the beginning it will be — 90% will be for the capital recovery, then the 10% will be shared 60-40, 60% [in favor of the] government,” Mr. Cusi said, adding that the 90% share of CIMP was meant to allow the operator to recover its investment. — Victor V. Saulon
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THE national government’s budget use slowed down in the first two months compared to the same period a year earlier, the Department of Budget and Management (DBM) said.
The overall budget utilization rate was 64% at the end of February, down from 79% posted in the same period last year. In January the usage rate was 33%.
A total of P324.09 billion of the P507.48-billion authorized was spent during the two months, leaving some P183.38 billion unspent.
The usage rate is based on the Notice of Cash Allocation (NCA) — a disbursement authority issued by the DBM to government agencies, allowing them to withdraw funds from the Bureau of the Treasury to settle their spending requirements in contracted projects.
DBM Undersecretary Laura B. Pascua, meanwhile, said that the end-February figures may reflect some payments that will be settled later in the year.
“We requested agencies to give us additional data on their APs (accounts payable), but to use their extra NCAs to settle their APs first,” she said in a mobile phone message yesterday.
“We can expect APs to be settled mostly in March and April,” added Ms. Pascua.
The Commission on Elections’ NCA utilization rate was the highest among all agencies at 90%, as the 2019 midterm elections draw near.
It left P293.48 million unused of the P2.95 billion in authorized funds.
This was followed by the Office of the Vice-President with a 79% utilization rate, leaving P22.3 million unused of the P106.2 million.
The Department of Tourism, meanwhile, turned in a performance of 78%, leaving P148.15 million unspent of the P678.47 million authorized.
The Department of Social Welfare and Development had the lowest budget use in the first two months of the year at 26%, leaving P17.97 billion unspent of the P24.22 billion total for NCAs.
Agencies have until the end of the quarter to fully utilize their budget allotments.
The DBM shifted to a cash-based appropriation scheme in 2017, which limits all payments for contractual obligations within a fiscal year. — Elijah Joseph C. Tubayan
THE PHILIPPINES became a net borrower in 2016 as investments surged by double digits, outpacing a pickup in savings amid aggressive spending by the government for infrastructure and also spending by households, the central bank said.
“The domestic economy ends its 13-year streak of net lending to the rest of the world (ROW) and becomes a net borrower in 2016,” the Bangko Sentral ng Pilipinas (BSP) said in its latest Flow of Funds report published over the weekend.
All sectors — financial firms, non-financial corporations, the general government, and households — generated savings during the year worth P3.46 trillion, 9.7% higher than the P3.155 billion tallied in 2015. Philippine companies made P2.021 trillion in aggregate savings, supported by high profits especially for manufacturing, construction, and service-oriented industries.
“Developments in the domestic front supported the broad-based expansion in saving, particularly, favorable labor market conditions, steady inflows of Overseas Filipinos’ remittances, improved tax revenue collections, and profitable business operations,” the report read.
Meanwhile, Filipino consumers also made P614.5 billion to post a slight dip from the previous year as household spending outpaced income growth, the central bank said.
The general government also yielded P582.1-billion savings as tax collections of local government units “improved.” Banks generated P242.7 billion savings in 2016 from bigger interest incomes on the back of “intensified lending activities.”
On the other hand, real investment surged by 24.4% year on year to P3.516 trillion which was higher than savings, largely due to capital accumulation led by local corporates and the government.
“This is in light of heightened construction activities and significant importation of capital goods in the telecommunications, power, and transportation industries during the year, the central bank said, adding that “aggressive spending on infrastructure projects and modernization of the country’s defense system” boosted state spending.
Government spending amounted to P2.549 trillion in 2016, up 14.3% from a year earlier although short of a P2.646-trillion program, according to the Bureau of the Treasury. The stronger spending helped boost economic growth to 6.9% in 2016, faster than 2015’s 5.9% pace.
These developments drove the Philippine economy to become a net global borrower, as it sought additional funds beyond the cash available onshore.
The government was a net borrower of P261.6 billion that year as it sourced funding from currency and deposit withdrawals, the issuance of debt papers, and loans.
“[T]he low interest-rate environment, market volatility, and dynamic real investment activities stimulated the demand for loans from the financial system,” the BSP also noted, with loan transactions rising by 30.4% to reach P1.557 trillion.
The Philippines borrows from both local and external sources to help fund its budget deficit and support a growing economy, particularly to support the ambitious P8.44-trillion infrastructure spending plan of the Duterte administration until 2022. — Melissa Luz T. Lopez
For almost all countries in the Association of Southeast Asian Nations (ASEAN), small and medium-sized enterprises (SMEs) are the primary engines for economic growth and development. With the creation of the ASEAN Economic Community (AEC) in 2015, reports have indicated that anywhere from 88.8% to 99.9% of total businesses in ASEAN member nations are SMEs, and account for 51.7% to 97.2% of total employment. On its website, the ASEAN also highlights the importance of SMEs in income and employment generation, gender and youth empowerment and sustainable economic growth.
Given the significant role of SMEs in the region’s ongoing development, Ernst & Young (EY) Singapore, United Overseas Bank of Singapore and Dun & Bradstreet recently conducted a study of 1,235 SMEs in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam to find out whether ASEAN SMEs were transforming rapidly enough for the future. The study offers a broad look at current conditions, challenges and opportunities for SMEs. To narrow down the focus, this article will consider what the report views as key areas for effective and competitive transformation.
TECHNOLOGY
Unsurprisingly, many ASEAN SMEs (60%) see the need to invest in technology over other fixed assets in 2018 to help drive business performance. Specifically, 70% of SMEs are looking to invest in software to enhance digital and mobile engagement, such as through websites, social media and apps. That being said, respondents also indicated interest in cutting-edge areas such as robotics process automation, artificial intelligence and 3-D printing.
What we should note, however, is that most SMEs are still considering tools such as licensed software, customer relationship management and content database management that are hosted or run from their own systems. The study also shows that, at the moment, few SMEs are considering the use of Software-as-a-Service (SAAS), and are not aware of the efficiencies that pay-per-use software can bring to the organization, such as in business processes like accounting, invoicing and payroll.
SAAS offers more flexibility and scalability for small businesses since they only pay for what they use, and can easily add on new functionalities as the business expands or the number of users grow, without the need for significant additional capital investment.
FINANCING
Currently, most ASEAN SMEs are generally satisfied with their primary financial providers, with 47% of respondents intending to retain their current financial service relationships. It is noteworthy, though, that 37% of ASEAN SMEs would like to elevate their level of engagement with their financial service providers, and be given more personalized attention and differentiated products, rather than simply being considered a retail customer. This is particularly the case for SMEs that have global or regional operations — they need financial service providers that don’t just offer efficient transaction and operational support, but can also serve as international trade partners, providing banker’s guarantees, services for import and export operations, as well as support in managing international credit risk.
Interestingly, 16% of ASEAN SMEs want to explore new nontraditional bank and financing providers. This is particularly the case for newer SMES that do not yet have a solid financial track record or those operating in cyclical industries with limited affordable and timely financing choices. Some SMES have also reported that loan approvals can take from 15 days to many weeks, which is clearly an area of improvement for financing institutions.
In such cases, more ASEAN SMEs are considering exploring alternative financing platforms, such as crowdfunding, private equity finance and government financing. For example, in Thailand, the Digital Economy Promotion Agency helps innovative software firms qualify for financing from the state-owned Thai Credit Guarantee Corp.
More opportunities are opening up for non-bank digital SME lenders, such as peer-to-peer (P2P) crowdfunding platforms specifically tailored for SMEs, notably in areas such as invoice financing, online trade financing and e-commerce financing. The report mentions that there are already various P2P financing platforms available, globally and regionally, with some platforms specifically emerging in Southeast Asia, such as Crowdo, CoAssets, Funding Societies and B2B FinPAL.
GOVERNMENT SUPPORT
Given the pivotal role of ASEAN SMEs in sustaining regional economic development, it becomes even more vital for member governments to help sustain SME development. Some of the areas where respondents hope to get more government support are as follows:
• Creating sustainable business environments through simplified legal and regulatory frameworks and good governance
• Developing capital and infrastructure in emerging markets
• Assisting in capital funding, technical and creative support
• Providing guidance and support in Information Technology (IT) and digital innovation
• Providing support manpower and talent management
Many respondents indicated that, among these important areas, they would find the most value in government assistance to adopt digital technologies for greater automation and better cost efficiencies, as well as regulatory environments that do not penalize innovative risk taking. Some other steps that ASEAN governments may take, if they do not already exist, are: establishing a credit bureau that helps establish credit standings for smaller enterprises; creating government credit guarantee institutions to help SMEs qualify for loans; incorporating bankruptcy regimes into financial development agendas; establishing industrial parks with appropriate infrastructure; hosting industry clusters to position their countries in new sectors, such as biomedical, digital science, and global arbitration, among others; and reducing regulatory red tape to help SMEs overcome cumbersome regulations, foreign investment limits and other limitations.
While the existing level of government support in ASEAN member countries is encouraging, more can still be done. In the Philippines, for example, the government has created programs that support SMEs, such as the Credit Surety Fund, which helps cooperatives manage and administer credit surety funds to give micro and SME entrepreneurs, cooperatives and nongovernment organizations better access to financing; the Pondo Para sa Pagbabago at Pag-asenso, a microfinancing initiative that aims to eradicate usurious money lending practices and help micro businesses find alternative legal microfinancing facilities; and the National Retail Payment System, which defines high-level policies, standards and governance principles covering retail payment operations and infrastructure, with the objective of developing digital consumer payments and more efficient retail payment systems.
OPTIMISTIC OUTLOOK
Currently, most of the respondents have an optimistic outlook despite global economic challenges in the areas of higher costs, reduced productivity and the inability to leverage new technologies quickly. This positive attitude may likewise be buoyed by the robust expectations for a successful and sustainable AEC integration.
With better digital and technological platforms, more supportive credit and financing options, and strong government support, it is very likely that ASEAN SMEs will better be able to progressively transform into economic powerhouses, both individually as companies and collectively as a regional business community.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Henry M. Tan is a Tax Partner of SGV & Co. and the Program Director of the Entrepreneur Of The Year Philippines program.
NAIA… Clark… Bulacan… Sangley… Twenty months into the Duterte administration and government has yet to decide where the country’s principal gateway will be. The clock is ticking with NAIA — Ninoy Aquino International Airport — imploding under its own weight. Last year, NAIA processed 42 million passengers, 11 million more than its true capacity.
The need to increase air traffic capacity is now more urgent than ever. With the economy growing at more than 6% a year, analysts expect air traffic to leapfrog to 47 million passengers in 2018 and onwards to 74 million by 2022. With no capacity-building programs put in place, NAIA will have no choice but to turn away flights, a situation that could be disastrous for the economies of the national capital region and the entire island of Luzon. Let us not forget, Luzon accounts for 73% of nation’s gross national product.
Recognizing the urgency of the situation, the Department of Transportation (DoTr) and the Bases Conversion and Development Authority (BCDA) have expedited the bidding and construction of a new passenger terminal at Clark. Built for 8 million passengers, the new terminal is meant to decongest NAIA by absorbing air traffic from passengers based in northern Luzon. Barring delays, it should be operational by the year 2020. It is a case of too little capacity, too late.
The good news is that two groups from the private sector have stepped up to the plate with proposals to modernize and expand NAIA’s capacity. This should provide instant relief.
The first tender is from a consortium composed of seven of the country’s largest conglomerates. Collectively known as the NAIA Consortium, they propose to invest $7 billion to expand NAIA’s passenger capacity to 65 million a year. This is in exchange for a concession period of 35 years. The second proposal was submitted by the Megawide-GMR Group who intends to invest $3 billion to increase NAIA’s capacity to 72 million. The Megawide-GMR proposal calls for a much shorter concession period of only 18 years.
I had the opportunity to study the Megawide-GMR proposal and have come to appreciate its merits. This is what I came away with.
CONCESSION TERM
On an investment perspective, both proposals can be deemed within range of each other given that the NAIA Consortium proposes to invest $2 billion to expand capacity to 65 million passengers over four years while Megawide-GMR intends to spend $2.9 billion to scale-up capacity to 72 million within the same amount of time.
The principal difference between the two is the concession term. The fact that Megawide-GMR proposes a concession period of only 18 years, half of what is asked for by NAIA Consortium, works to its advantage. A shorter concession period gives government the flexibility to pursue other capacity-building endeavors in less than two decades instead of being locked-in for three and a half. As we all know, flexibility is key given the rapid pace in which trends in air transport evolves. A shorter term will give government the latitude to shift strategies sooner to better serve the riding public.
STRATEGIC PARTNER
The NAIA Consortium has tapped Changi Aiports of Singapore as its strategic partner while Megawide is aligned with the GMR Group of India.
To many, Changi may be the more impressive partner given its renowned facility in the Lion City. What many may not realize is that Changi Airport operates much like the Singapore government in that the airport authority has sway over all facets of operations including baggage handling, immigration, customs, and air traffic control. In short, it operates with quasai-autocratic control. It has no experience operating in an environment where the Bureau of Immigration works with absolute autonomy, as does customs, quarantine, security, and other airport services.
This lack of multi-agency management experience is Changi’s Achilles heel. In fact, this was the reason why the government of Saudi Arabia terminated its contract to manage the new King Abdulaziz International Airport (KAIA) in Jeddah.
Changi operates a single airport facility with a passenger traffic of 62.7 million while GMR manages three airport facilities — in New Delhi, Hyderabad and Mactan — with a collective passenger flow of 94 million. What is notable about GMR is that it orchestrated one of the most dramatic airport transformations in history.
I still recall how the New Delhi Airport was a madhouse when I visited the Indian capital back in 2004. It was one of the worst airports I had been to. Fast forward to 2014 and it was voted the best high-volume airport in the world according to the Airport Service Quality (ASQ) rankings, considered the “Oscar Awards” among airports. The New Delhi airport was ranked number one in 2015 again, and number two in 2016, tied with Changi.
Our very own Mactan Airport, under the management of Megawide-GMR, staged a drastic transformation of its own. It is now a model of efficiency despite the terminal being more than 40 years old. While it is already considered the 13th best airport in Asia, we expect it to be in the upper tier when the new terminal is inaugurated this June.
As far as working relationships go, the Megawide and GMR groups have proven to work well together well with a track record of success to show. The NAIA consortium makes me uncomfortable given the fact that each conglomerate is a dominant player in their own field with the corresponding ego to match.
More than track record and management skills, however, my main discomfort with Changi is that it is a close geographic neighbor who is determined to maintain its position as the region’s aerospace hub. We should not write-off Manila’s potential to be the region’s principal gateway, as it was in the 1930s to the ’70s. After all, no other city can compete with Manila’s geographic advantage. It is not far fetched for us to aspire to regain that position as both the NAIA Consortium and Megawide do.
Having Changi operate our principal gateway posts a conflict of interest. We cannot expect it to employ strategies that undermines or compromises Singapore’s pole position.
EXPANSION PLANS
At the heart of the NAIA Consortium proposal is the construction of third runway on reclaimed land on Manila Bay. Apart from environmental concerns, this will post several logistical problems.
See, the position of a third runway at the edge of Manila Bay will be several kilometers away from the nearest terminal, in this case, Terminal 1. This will make taxiing to and from the runaway a process that could take at least 20 minutes. The time and distance will be inconvenient for all.
Moreover, since NAIA has a cross-runway configuration, the approach, departure, and missed approach procedures for a third runway will conflict with the protocols of the existing two runways, regardless of how the third runway is oriented. The net benefit of a third runway would be marginal at best, but one that will carry significant safety risks.
With a third runway in place, the NAIA Consortium foresees aircraft movements to increase from 40 to 52 per hour.
The Megawide-GMR proposal proposes to operate with the two existing runways. It will maximize capacities by constructing full-length taxi lanes parallel to both runways, augmented by several rapid exit taxiways. The idea is to have aircrafts exit the main runways at the soonest possible time, allowing it be used by the next departing or arriving aircraft. The second runway will be extended as well.
All things considered, the net result is that movements will increase from 40 to 60 per hour.
Apart from the airfield expansion, Megawide-GMR plans to expand Terminal 3 to occupy the entire stretch of Andrews Ave. It will also expand Terminal 2 to occupy the properties where the decrepit Philippine Village Hotel and the Nayong Pilipino are presently located. Terminal 1 will expand to have aprons and parking gates on either side of the building, the east side of which will connect all the way to Terminal 2. The fuel farm that presently sits between them will be relocated. With the expansion of these terminals, passenger capacities will top 72 million.
To prepare for future expansion, the area presently occupied by Lufthansa Technik will be made into a new terminal.
As I mentioned earlier, these are what I have found to be the merits of the Megawide-GMR proposal. No doubt, the NAIA Consortium’s proposal has its strong points too. I hope to be able to share them in this corner in the next few weeks.
The ball is now in the hands of the DoTr. They said that it will decide which proposal it will accept by April. Lets hope the announcement comes without delay. The clock is ticking.
Andrew J. Masigan is an economist.
Part 1 of this short study was published in this column on Feb. 15. Some corrections and adjustments are made here because of (a) lower coal consumption for power generation, and (b) using an incremental increase in coal excise tax.
Total coal consumption in 2016 was 23.2 million tons but one industry player informed me that not all of these were used for coal power plants. Some were used for cement plants and other industrial uses. The estimated amount used for coal power generation is 20 million tons.
Coal excise tax before TRAIN (Tax Reform for Acceleration and Inclusion) was P10/ton, the law has increased this per ton to P50 in 2018, P100 in 2019, and P150 in 2020. The incremental increase is used in the table below.
Meralco computation of oil cost for their captive customers based on November 2017 data was 0.6 centavos/kWh in 2018 when oil tax is only P2.50/liter. There are no projections for 2019-2020 so I estimated the numbers for these years using the respective oil tax rates of P4.50 then P6/liter.
Oil share in Meralco power distribution that period was only 0.9% of total. In 2016, oil share to total power generation nationwide was 6.2%. So a multiplier of 7x (= 6.2/0.9) is used for the national oil tax rate.
Before, VAT on transmission charge was minimal, it applied only on ancillary service. With TRAIN, the VAT is applied on other transmission costs (power delivery, system operator, metering, etc.).
Hike in universal charge is not included here but this might be minimal. Many island provinces and remote islands of big provinces get electricity from gensets running on diesel. The generation cost is naturally high, from P10-20/kwh but residents there are not charged that full amount, a big portion is subsidized and passed on to all other consumers nationwide via the universal charge.
Last month, the Energy Policy Development Program (EPDP) published a new study, “Electricity prices and TRAIN” by Dr. Ramon L. Clarete. It is a neat study because it considered variations in heat content per coal type (Yes, not all coal are the same, the same way that not all dogs are the same). For brevity purposes, I added only a portion of his table 5 which summarize the projected hikes in electricity prices because of TRAIN (see table).
So from my estimates, there will be a projected electricity price hike in centavos/kWh of 13.4 this year, nearly 20 in 2019, and 24.6 in 2020.
The estimates by Dr. Clarete are much higher. By 2020, 14 centavos/kWh for coal plants and P1.67/kWh for diesel plants. VAT on these hikes are not included yet, and VAT on transmission charge also not included.
In addition, Dr. Clarete used coal price for 2016 in his study. The average price per ton of thermal coal was $70 in 2014, $58 in 2015, $66 in 2016, $85 in 2017 (Q1-Q3), data from statista.com. In the first three months of 2018 it is around $100 average.
So with 2018 prices about 50% higher than 2016 prices, the projected rise in electricity price from coal plants would be higher than his estimated 14 centavos/kWh, perhaps could go up to 18 centavos or higher.
These costs are for direct household electricity consumption alone. Not included are pass-on rates in the form of higher prices by factories, schools and universities, shops and malls, hotels and restaurants, hospitals and airports, etc. These enterprises consume tens of thousands of kWh per month, the additional electricity cost will be passed on the consumers, which might affect sales and hence, affect future salaries and benefits of workers.
The tax hike for coal and oil products is among the worst mistakes of TRAIN law. Retaining the high 12% VAT is another. Government has no justification in making cheaper energy become expensive. We hope that these mistakes will be recognized soon so that succeeding TRAIN 2, TRAIN 3, etc. will either reverse them, or at least not them even worse.
Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
He always sat in front of the cash register. “Cabisé, wala bang size 4, children’s, nito (don’t you have size 4, children’s, of this style)?” the young mom would ask. Unspeaking, he would almost lazily lift the shoes to eye-level of the lady sitting on a high stool near the opposite wall. The lady-barker would nod to him in acknowledgement while chanting an endless staccato of something like: 4, 4-? B232; 6, 6-? A101; 5, 5-? C323; etc. as other customers asked for sizes. Then shoeboxes would intermittently drop from the open hole in the ceiling like presents from heaven. The awed little girl stood from the low-slung fitting-stool to find out — how does that happen? Is there a Wizard of Oz up in that ceiling, magically dropping the new shoes requested?
It was in the late 1950s, and Henry Sy’s small shoe retail store named Shoe Mart on Carriedo St. in Quiapo, Manila, was bustling with mothers jostling for black school shoes for their children at the nearing schoolyear-opening day. His no-frills, very basic made-in-Marikina shoes were cheaper than those of genuine-leather Gregg Shoes in San Juan. Besides, Mom says to her little kid, your feet grow so fast, you would need a size bigger come Christmas. “Tama na ’yang (that will suffice) Shoemart [brand].”
“Cabisé” roughly means “the head” or “the manager,” or in current slang, “Bossing.” Now, six decades after his humble beginnings, Henry Sy, the small-time “Cabisé” in white camisa-Chino (a cotton-knit undershirt) is the richest man in the Philippines. Sy has a net worth of $20 billion (P1 trillion), nearly double from last year’s $12.7 billion, and ranked 52nd worldwide. Sy has led the country’s billionaires for 10 years in a row, according to Forbes magazine (ABS-CBN News, March 7, 2018).
Henry Sy is known as the “Father of Philippine Retail” (pinoybusiness.com, Feb. 13, 2015). His first department stores (he expanded from shoes to clothing and houseware) in the 1960s to the 1970s were in Quiapo and then in Cubao and Makati City, where he competed in these locations with other department stores — C.O.D. (owned by Alex del Rosario), Assandas (owned by the Jethmal family) and the “classier” Aguinaldo’s (owned by Leonardo Aguinaldo). These department stores are down now, while Sy’s SM Prime Holdings has 67 malls located across the country, with about a dozen more scheduled to open by 2018. It also has seven malls in China, including SM Tianjin which is the second largest in the world. SM Supermalls has become one of the biggest mall operators in Southeast Asia. Combined, the company has about 9.24 million square meters of gross floor area (GFA) (Investors Kit — SM Prime Holdings, October 2017). The Sys also have a 34% stake in CityMall, a subsidiary of DoubleDragon Properties, which runs a chain of community shopping malls across the Philippines.
How could the poor 12-year-old little boy-immigrant from China have strategized and grown his fortune to such dizzying heights? With just a two-year Associate in Arts degree in Commercial Studies from the Far Eastern University (1950), he planned his conglomerate. He knew he needed a bank to provide cash management to suppliers and marketers, and in 1967 he bought Acme Savings Bank, which he then renamed Banco de Oro (BDO). With total assets of $46.8 billion, BDO is now the largest bank in the Philippines, 15th largest in Southeast Asia, 116th largest in Asia, and the 234th largest bank globally as of March 31, 2016 ( Forbes G2000, May 26, 2017). His smaller bank acquired China Bank with 295 branches (plus 72 China Bank Savings).
The SM Group has indeed focused on the Filipino consumer. As of end-2016, SM Development has 43 residential projects, six office buildings, and six hotels. The group has investments in gaming through 28% of Belle Corp., and in logistics with the acquisition of a 34.5% stake in Negros Navigation Co., Inc., the parent company of 2GO Group, Inc. It also has a 29.3% stake in Atlas Consolidated Mining and Development Corp., the 3rd largest copper producer in the world with its Toledo copper mine in Cebu (Rappler, June 28, 2017).
In education, SM Investments owns a 51.8% stake in Asia Pacific College (Ibid.). Business departments of schools and colleges have received donations from the SM Group. Miriam College, on the occasion of its 90th anniversary, received P100 million for an “innovation center” (Philippine Daily Inquirer, Sept 7, 2016). The University of the Philippines, Bonifacio Global City — built at a cost of around P400 million — was donated by the SM conglomerate led by Henry Sy, Sr. (Philippine Daily Inquirer, March 1, 2016). A business building was likewise donated to Assumption College, finished just this year. A 15-storey building for De La Salle University was built in 2012 at a cost of P1.4 billion (The Manila Times, March 1, 2016). To acknowledge Henry Sy’s dedication to education, he was conferred the degree of Doctor, honoris causa, by De La Salle University (bloomberg.com/research/stocks/people).
A doctorate, indeed. Those who earned their doctorates through the tears and fears of two years of academics plus two years of research and dissertation might look down at an honorary Ph.D. — but the claim to the honor must be in the doing and not in just knowing theoretically. But how has Henry Sy done this superman-size feat of rags-to-amazing-riches? He has rightfully identified what consumers want, and cashed in on that. Consumerism urged on by effective marketing and availability. Even pricing — Sy knows well the attraction of cheap items (mostly now imported from China) that by SM’s sheer volume of sales and economies of scale in supply can draw the crowds during the malls’ almost 12 hours of daily operation.
Perhaps Filipinos have become inured to the sight and fact of having an SM mall or an SM development (condominium, convention center, casino, whatever else) on every other block (exaggerating, but getting close to the truth). Even outside of Metro Manila, there is hardly a city without an SM presence. But should we get alarmed? No, contemporary Filipinos, old and young, like the malls — there is free air-conditioning, a clean and beautiful space to stroll, meet, eat, entertain, and shop, shop, shop. Some balikbayan vacationists note that there are hardly any families now who observe the de rigueur Sundayfamily lunch and togetherness of old — families now spend Sundays at the malls, eating at the array of mostly fast food offerings, hardly talking to each other because of the distractions and the noise. Games and recreation at the malls consume the attention of people, crowding out close interpersonal sharing and exchange of thoughts and experiences. Malling is the new bonding.
The negative social effects of spending too much time and money (on credit mostly!) at the malls are further emphasized by the subtle changes in religiosity and discipline. Going to Mass has become secondary to enjoying oneself at the malls. The Catholic Church and Christian groups have relented by holding Holy Mass and prayer meetings at the malls on the argument that considering the attraction of the malls, it might be the lesser evil to hold the “prayerful” crowd there than to lose them altogether if they prefer to go to the malls and later, if there’s time, to the churches.
So Henry Sy is the richest man in the Philippines. He is also the only Filipino who broke the top 100 of the world’s billionaires. Filipinos might not begrudge him his wealth from profits, from efficiency in honest enterprise. But perhaps there is something a little worrisome in the Marxian aphorism about the capitalist system: the rich get richer and the poor poorer. In the simple arithmetic of social economics, one takes from the other.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
