By Erika Denise L. Dizon, Special Features Writer

A shift of power was in order following the Philippines’ May 2016 national elections, where former Davao Mayor Rodrigo R. Duterte and ex-solon Maria Leonor “Leni” G. Robredo emerged winners of the presidential and vice-presidential race, respectively.

The recently concluded BusinessWorld Economic Forum last July 12, 2016 gathered leaders from various industries to address subjects concerning the economic landscape under the new administration. The whole-day event went by the theme, “Chartering Progress to 2020,” and focused on issues like regulation, disruption, regional integration, and capacity.

Tax reform a key priority

The forum’s first session came to grips with the topic of “Succession and Transition,” revolving around the question: How should companies navigate the economic terrain under the new government? Moderating the discussion was BusinessWorld editor Timothy Roy C. Medina, who was also joined by five panelists standing for different sectors including government.

One key priority of the Duterte government is to map out a tax reform plan that would benefit Filipinos from all classes, a subject that was tackled by Rustan’s Commercial Corp. President Bienvenido “Donnie” V. Tantoco III and Insular Life Chief Executive Officer Nina D. Aguas .

Representing the retail market, Mr. Tantoco believes most industries would want a simple tax system that encourages more corporations to participate. “Where we are right now is the tax rates are relatively high,” he said. Despite that, he thinks it has helped the previous administration create a better system of generating income.

Ms. Aguas, on the other hand, talked about Singapore’s efficient tax design, which the Philippines could garner lessons from. She praised it for its ease of compliance, reasonable tax rates, and pre-auditing measures to prevent room for corruption.

Getting things done faster

Touching more on the transition aspect, National Economic Development Authority chief and University of the Philippines School of Economics professor Ernesto M. Pernia asserted that the Duterte administration plans to “get things done faster” amid this period of change.

He added that the current government plans to continue the “good” macroeconomic policies of the previous cabinet and make a “big push” towards regional and rural development. Mr. Pernia also said they want to ensure that economic growth is distributed across income classes and regions.

Although gross domestic product (GDP) growth was one of the proud achievements of the past administration, he repeatedly noted that the current government wants to attain inclusive growth and give equal chances to everyone. Mr. Pernia projects GDP to boost between a range of 7% and 8% in 2017.

Aside from that, the government aims to reduce the country’s poverty incidence from 25% to 17% by the end of its administration.

Alaska Milk Corp. President and CEO Wilfred Steven Uytengsu, Jr., who spoke for the food and beverage industry, talked about the administration’s plan of bringing down food prices and how it would affect food companies and its stakeholders.

He said that the industry looks forward to seeing red tape slashed and believes that eradicating smuggling will keep a level-playing field for the private sector.

Infrastructure

On Manila’s port congestion scenario, Mr. Uytengsu said that even though it has improved significantly, there is always more room for development. When a suggestion of creating better highways came up, he said: “Continuing to invest in infrastructure is not an option; we really need it today and for the future.”

Megaworld Corp. Commercial Division First Vice-President Kevin L. Tan then answered the question of how private real estate companies could help the Housing and Urban Development Coordinating Council, headed by Vice-President Maria Leonor “Leni” G. Robredo, attain its goals.

Mr. Tan said that making government processes efficient can speed up the course of construction, which would eventually enable the private and public sector address issues on housing collectively.

Forum delegates were given a chance to ask panelists questions soon after the session ended. Highlights of the Q&A portion comprise of queries on overpopulation and a general economic development plan for the archipelago.

Erika Denise L. Dizon (@erikadzn on Twitter) finished BA Journalism from the University of Santo Tomas.

By Janina C. Lim, Reporter

Ore prices are getting a boost from an unlikely source, but analysts see this upswing as temporary.

President Rodrigo R. Duterte has been talking tough on mining, capping that with last month’s appointment as Environment and Natural Resources secretary of a known industry opponent, self-styled environmentalist Regina Paz “Gina” L. Lopez of the Lopez Group, which has investments in one of the country’s biggest media companies as well as in the largest geothermal energy producer.

“The much-anticipated climb in global nickel prices finally happened last week [July 4 to July 8], with help from no less than President Duterte himself,” Luis A. Limlingan, managing director at the Regina Capital Development Corp. (RCDC), said in an e-mail to BusinessWorld.

“International sentiments converged on the idea that Duterte could impose an Indonesia-style raw ore ban, on an anti-mining platform, and disastrously disrupt Chinese supply chain,” Mr. Limlingan said.

In January 2014, Indonesia, which accounts for approximately 15% of global ore supply, imposed a ban on ore exports. Top nickel importer, China, has since turned to the Philippines, whose capacity to export nickel however is lower than Indonesia’s.

Before its ban took effect, Indonesia produced 72,000 metric tons a month of nickel ore and concentrates, nearly threefold that of the Philippines’ 27,700 in 2013.

“Another factor pushing nickel prices are expectations of lower nickel pig-iron exports from the country,” Mr. Limlingan said, adding that Chinese imports of local ore fell 27% in the last five months.

Gina Lopez appointment a trigger

Philippine ore producers had warned that output would be cut down this year due to low prices.

Koichi Ishihara, vice-president for marketing and procurement at the country’s top producer, Nickel Asia Corp. (NAC), expects global supply to turn into a deficit starting June.

“As forecasted, tight supply was well confirmed among nickel players in early Q2 (second quarter) but nickel price didn’t react so much,” Mr. Ishihara said in a mobile message.

The appointment of “Gina Lopez just gave a trigger to the [nickel] price increase,” Mr. Ishihara said.

Tight nickel supply is expected to persist until next year, but the world’s inventory “is too huge so [nickel] price increase will be capped at [a] certain level,” he said.

NAC has forecast nickel prices at approximately $11,000 per ton, or no more than $12,000 towards the end of the year.

Supply deficit, weak dollar

Ralph Christian G. Bodollo, equity research analyst at RCBC Securities, Inc., cited Australia’s BHP Billiton, the world’s largest miner, which is projecting a rebound in nickel ore prices through the second half of this year.

The rebound is seen due to an expected supply deficit. A price slump since last year compelled nickel producers to cut output, but demand is seen to persist. BHP Billiton forecasts a recovery of as much as 15% from the May level to $9,926 per ton by year-end.

“In my own view, the weak (US) dollar, which may still go down further in the year due to the gloomier probability of Fed rate increases, would also contribute to nickel ore price recovery this year or early next year,” Mr. Bodollo said.

The US Federal Reserve in its last policy meeting dropped hints it would go slow in raising interest rates, pressuring the greenback.

“This may cause an uptrend in nickel ore prices and once that uptrend appears, the whole industry will accelerate the inventory buildup, thereby stimulating demand further, again in my view,” Mr. Bodollo said.

RCDC’s Mr. Limlingan cited historical data, which shows nickel has the greatest upside potential when the overall commodities market is in bullish mode.

“RCDC would like to point out that 2016 might not be as optimistic as think tanks wanted it to be, coming into the seventh month without as much as a fundamental lead on nickel’s comeback,” he said.

“Although nickel’s fundamentals do not appear completely bullish, metals are getting [a] push from investors jumping into the industrial metal complex,” he added.

Regulatory risk

Another key risk on the domestic front is a hostile regulator.

Last June 21, Ms. Lopez accepted the President’s offer to head the Department of Environment and Natural Resources. On that day, the mining and oil sub-index of the Philippine Stock Exchange lost 4.09%.

Ms. Lopez’s first directive left no doubt as to her position: audit all mining operations to check their compliance with environmental standards and freeze applications for new projects.

She also ordered the suspension of two nickel miners in Zambales, citing the Writ of Kalikasan issued by the Supreme Court and a halt to all mining operations ordered by the newly installed provincial governor.

This reduced by half the number of operating nickel miners in the country.

“[Mining] companies are always at the mercy of commodity prices which they cannot control. Equally important or if not more important, the regulatory risk in the mining sector is high that even if you have favorable metal prices, a hateful government regime can bring mining companies to their knees,” RCBC Securities’ Mr. Bodollo said.

“The case of Gina Lopez’s appointment as DENR Secretary was a case [in] point,” he said.

JANINA C. LIM (@YnaCarlosLim on Twitter) covers the agriculture and environment beats for BusinessWorld.

By Bienvenido S. Oplas, Jr.

Worsening traffic congestion in Metro Manila and other big cities in the Philippines has led people to believe that this will negatively affect people’s health, temper, and eventually, the economy. Thus, the solution is to decongest heavily urbanized cities and spread out development and modernization to the peripheral cities and provinces.

This subject was partly tackled during the first BusinessWorld Economic Forum last July 12, 2016 during the panel discussion about succession and transition. Among the speakers were Ernesto M. Pernia, Socioeconomic Planning secretary; Kevin L. Tan, senior vice-president & head of Megaworld Lifestyle Malls, Megaworld Corporation; Bienvenido V. Tantoco III, president of Rustans Commercial Corporation; Nina D. Aguas, CEO of Insular Life; and Wilfred Steven Uytengsu, Jr., president and CEO of Alaska Milk Corporation.

 

Although the focus of the discussion was about how companies prepared for smooth corporate succession, the speakers also provided a wider perspective and tackled some national issues and transition. All agreed that Metro Manila is very congested and that developments should be driven to less urban and rural areas. Mr. Tan in particular highlighted that many real estate developers are going out of Metro Manila because there are more developments in several provinces and big cities, more BPOs, other businesses.

If we look around the world, each country has one or more political and/or financial capital and these places experience congestion where the demand for certain services outpaces the supply. This happens because congestion is natural and part of human nature’s demand for socialization and interaction. It is faster and easier if the office, the kids’ school, the bank, grocery store, car repair shop, etc. are just a few kilometers away instead of dozens or hundreds of kilometers.

Let us check the degree of congestion of the Philippines compared to other ASEAN nations, and from two small, highly congested neighbors. A 50-year gap, 1964 to 2014, table is constructed. The per capita income in purchasing power parity (PPP) valuation over a 30-years gap is also shown.

What the above table shows are the following:

1. Highly-congested Singapore, Macau, and Hong Kong also have very high per capita income. There are many explanations for this and the efficiency gains of having almost everything nearby is definitely one of them. Brunei is a different case, small population but relatively big land area rich with energy resources for export, like natural gas.

2. Less-congested Cambodia, Myanmar, and Laos also have low per capita income of only $5,100 or less. Again, there are many reasons for this and the inefficiencies and inconvenience of being far from various economic units like big banks, big grocery stores, etc. should be one of those reasons.

3. The Philippines is second most congested country in the ASEAN after Singapore. Its population has more than tripled over the past 50 years.

Let us check the numbers for Metro Manila. From 636 square kilometers originally, the megacity now has a land area of 644 square kilometers (owing to reclaimed areas at the CCP-SM MOA) and a population of 12.877 million, as of the August 2015 census. Based on these numbers, its population density is 19,995 persons/sq. kms., comparable to that of Macau.

But one report says World Bank data shows that Metro Manila has a 1,300 square-kilometer land area as of 2010. Or a population density of 9,906 people per sq. km. in 2015, still higher than those in Singapore and Hong Kong.

So if congestion is natural for people, how can we optimize and benefit from the presence of many people per square kilometer of land?

1. More land reclamation. The 800 or so hectares in the CCP-SM MOA-Entertainment City have created lots of businesses and jobs for Filipinos. The planned additional reclamation projects in Manila Bay should proceed, and at a fast rate.

Aside from creating new lands in the sea, there is also a need to remove huge volume of silt, mud, and solid wastes in river beds of the Pasig, Las Piñas, and Marilao rivers that drain into Manila Bay. These smelly solid wastes cannot be brought to dumpsites where most LGUs declare a “not in my backyard” (NIMBY) policy.

2. More skyways, elevated interchanges and U-turns, tunnels. Traffic congestion is an engineering problem with engineering solutions. Such solutions should veer away from hiring more traffic officers and officials, avoid having more stoplights. Instead, officials should build more hard infrastructure that can provide service to the public and motorists 24/7 for decades to come.

3. More trains, LRT/MRT, running along C5 and C6, above ground and underground, extending north and sound, east and west, of Metro Manila. In Tokyo, Seoul, and Singapore, it is common to see multi-level train stations and shops underground. Public Private Partnership (PPP) schemes are already existing to encourage more private funding and construction of these projects.

4. More low-cost medium- and high-rise residential condos. This immediately frees up space for more urban forestry and public parks, unlike in horizontal low-cost housing. Multiple regulations and taxation by both national and local governments should also decline. These are costs that are ultimately passed on to condo unit buyers and renters, that make vertical housing less affordable to the poor and lower middle class.

People and businesses respond to incentives and disincentives. If there are many disincentives and inconvenience in taking (often multi-ride) public transportation, then more people will drive their cars or motorcycles, which contribute to heavy traffic congestion. Government taxation and regulations that distort the market for urban transportation, housing, and other services should be reduced.

Bienvenido S. Oplas, Jr. (@noysky on Twitter) is a Fellow of SEANET and President of Minimal Government Thinkers. minimalgovernment@gmail.com