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Metro Pacific says to complete Axelum deal by yearend

TOKYO, Japan — Pangilinan-led Metro Pacific Investments Corp. (MPIC) remains keen on acquiring a stake in listed coconut products manufacturer Axelum Resources Corp. despite the challenges faced by the latter.

Chaye A. Cabal-Revilla, MPIC’s chief finance officer, said during a media briefing last week that the due diligence for the transaction is still being processed and is aimed to be finished by yearend.

“Yes [we are still interested]. I think from our own perspective and theirs, we want to be able to close it hopefully by the end of the year, subject again to the extended due diligence and them being able to explain their forecast and the results and outcome of their numbers,” said Ms. Cabal-Revilla, who is also the conglomerate’s risk and sustainability officer.

She said the due diligence for the acquisition has been extended by both parties from the original Oct. 31 deadline since the expected outcome of Axelum’s performance in the earlier due diligence “has not happened.”

“We did the due diligence early last year towards the end of the year, and early this year also. But through the unfolding of results in 2023, they’ve been very far from their numbers,” Ms. Cabal-Revilla said.

“We have to dig deeper into the assumptions and the key performance indicators,” she said. “And then next week, we will have a meeting with them and then we will see their forecast for 2024.”

Axelum recently disclosed incurring a net loss of P428 million as of September, reversing its P717.28 million net income a year ago. The company’s top line fell 19% to P4.28 billion from P5.31 billion previously.

“The group is still affected by consumer spending in the US which slowed down in 2023. Recession fears rippled across the US economy and weighed on retail consumers who tried to control their spending, thus lower orders for the first half of 2023 as compared [with] 2022,” Axelum said in a disclosure. 

The company added that while demand for coconut products started to recover in the third quarter, sales for the third quarter were 25% lower than the level in the same quarter in 2022.

In February, MPIC announced that its agriculture unit, Metro Pacific Agro Ventures, Inc. (MPAV) was acquiring a 34.76% stake in Axelum for P5.32 billion, in a bid to strengthen its presence in agribusiness.

MPAV plans to acquire 1.19 billion common shares and 200 million redeemable preferred shares in Axelum.

“This investment into Axelum will mean more income opportunities for coconut farmers, as well as a broader landscape for Philippine agriculture,” MPIC Chairman, President, and Chief Executive Officer Manuel V. Pangilinan said. 

Meanwhile, Ms. Cabal-Revilla said the deal’s valuation is still being finalized “because the company has not met their targets and it will re-forecast their numbers.” 

“Axelum envisages the US market to be back to pre-pandemic levels. But it has not. Most of Axelum’s market is outside the US,” Ms. Cabal-Revilla said.

“The US has been a problematic area for them. So, they have to take a look at their sales distribution, their logistical costs, etc. Those are the things that they’re taking a look at,” she added.

MPIC is one of three key Philippine units of First Pacific, the others being Philex Mining Corp. and PLDT Inc.

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. — Revin Mikhael D. Ochave

Rates of Treasury bills, bonds seen to track secondary mart

BW FILE PHOTO

RATES of Treasury bills (T-bills) and bonds (T-bonds) on offer this week could follow the movements of secondary market yields amid hawkish signals from the US Federal Reserve.

The Bureau of the Treasury (BTr) will auction off P15 billion in T-bills on Monday, or P5 billion each in 91-, 182- and 364-day papers.

On Tuesday, it will offer P30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and nine months.

Rates on the T-bills could increase, while T-bond yields could dip, following the movements seen at the secondary market due to hawkish signals from the US central bank, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bill rates went up by 1.35 basis points (bps), 6.14 bps, and 0.89 bp week on week to end at 6.1845%, 6.4582%, and 6.5917%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the rate for the 10-year bond dropped by 25.62 bps to end at 6.7416% on Friday.

The Fed kept its benchmark interest rate steady at the 5.25%-5.5% range for a second straight time during its Oct. 31-Nov. 1 meeting.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The US central bank will next meet on Dec. 12-13 to review policy.

A trader added in an e-mail that the government securities market has been “quiet” since the release of October inflation on Tuesday.

The trader expects the rate for the 10-year bond to range from 6.7% to 6.8%.

Headline inflation for October eased to 4.9% from 6.1% in September and 7.7% in October 2022. This was also below the 5.1-5.9% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

October inflation was the slowest pace in three months or since the 4.7% in July, but marked the 19th straight month that inflation breached the central bank’s 2-4% target.

Last week, the government raised P13.22 billion via the T-bills it auctioned off on Monday, short of the P15-billion program, even as total bids reached P32.316 billion or double the amount on offer.

Broken down, the Treasury made a full P5-billion award of the 91-day T-bills, with tenders for the tenor reaching P14.79 billion. The average rate for the three-month paper rose by 0.9 bp to 6.352%. Accepted rates ranged from 6.334% to 6.374%.

Meanwhile, the government borrowed only P4.5 billion through the 182-day securities, short of the P5-billion program, despite bids for the paper reaching P7.176 billion. The average rate for the six-month T-bill stood at 6.536%, up by 7.4 bps, with accepted yields ranging from 6.495% to 6.55%.

The government raised just P3.72 billion via the 364-day debt papers, short of the P5-billion plan, despite bids reaching P10.35 billion. The average rate of the one-year T-bill inched down by 0.1 bp to 6.591%. Accepted yields were from 6.57% to 6.6%.

Meanwhile, the reissued 10-year bonds to be offered on Tuesday were last auctioned off on Oct. 24, where the government raised P30 billion as planned for an average rate of 6.954%.

The government plans to borrow P225 billion from the domestic market this month or P75 billion via T-bills and P150 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — Aaron Michael C. Sy

From FAPE/PEAC to PhilEd

PHILIPPINE STAR/EDD GUMBAN

We recently presented a paper at the 5th Paderanga-Varela Memorial Lecture entitled “Alternate Service Delivery Systems: Health and Education.” In that lecture, we looked at the Department of Health (DoH) and the Department of Education (DepEd) as service delivery systems, delivering healthcare and education respectively.

We concluded that the service delivery system of the DoH is far superior to the DepEd for two main reasons. The first is that the DoH has devolved its hospitals to the local government units while the DepEd has not. Secondly, the DoH has spun off its health financing into the Philippine Health Insurance Corp. (PhilHealth) while the DepEd has not. In this article we argue for the creation of the Philippine Education Development Fund (PhilEd).

When Isidro Consunji, President of DMCI Holdings, Inc. was asked by his officers what the role of his Chief Financial Officer (CFO) would be, he gave a three-word answer, “Fund my dreams.”

Likewise the role of PhilEd would be to fund the education dreams of all Filipinos especially the neediest and most deserving.

Filipinos have three dreams in education. The first is to enroll in a chosen course in the school of their choice. This dream will be funded by the School Vouchers Program which will now be transferred from DepEd to PhilEd.

The second dream, especially for Filipino parents, is to save enough money to fund the college education of their children, hence the prevalence of pre-need Educational Plans. Unfortunately, most of the pre-need companies went into bankruptcies causing financial ruin and emotional distress to their plan holders. There has been a massive market failure and so government must intervene. But intervention should not involve the government offering educational plans but rather in insuring these plans. Just as the Philippine Deposit Insurance Corp. (PDIC) insures the bank deposits of Filipinos, so will the PhilEd insure their educational plans. Just like PDIC which is funded from the premiums paid by the banks, PhilEd will fund this program from the premiums by the educational plan companies. PhilEd will be ideally suited to do this as it could swap the failed educational plans with school vouchers from its repository of school vouchers.

The third dream is based on the realization of Filipino school graduates that their learning must continue even as they leave their alma maters. For in this modern age, the fount of personal knowledge must continuously be replenished. In healthcare, we have the Health Maintenance Organizations (HMOs) which continuously monitor and minister to our health. We need Lifelong Learning Organizations (LLOs) to continuously monitor and minister to our learning. HMOs exist in the Philippines. LLOs do not. In partnership with the international development agencies and the private sector, PhilEd will create this industry. The international development agencies will provide the technical assistance grants that will create the developmental and regulatory framework for the industry while the private sector will organize the LLOs. PhilEd will be the “bastonero” or project manager, managing the project as well as mobilizing government support and assistance.

FAPE or the Fund for Assistance to Private Education was a part of the Special Fund for Education set aside by the American government in 1963 from the surplus funds authorized by the War Damage Act of 1962 and organized under Executive Order 156 issued by President Ferdinand Marcos on Nov. 5, 1968.

From the initial seed money of $6,154,000 or P215 million (based on the 1968 peso to dollar exchange rate), the FAPE fund in 55 years had barely grown to P277 million. In contrast the trustees managing the fund have expanded their services, basically as service provider to the DepEd. As a consequence, it has been spun off as a separate organization, the Private Education Assistance Committee (PEAC).

Over the years, PEAC has evolved into co-implementing externally funded programs, namely the DepEd’s Education Service Contracting (ESC), Teachers’ Salary Subsidy (TSS), the SHS Voucher Program (SHS VP), the In-Service Training (INSET), and the Bayanihan for Basic Education (BBE) as well as implementing internally funded programs of assistance for private education in the areas of training, school quality assurance, school improvement programs, and grants programs.

In sum, the PEAC has been an effective instrument to operationalize “complementarity” between private and public schools as provided in the Philippine Constitution. It has also been an incorruptible partner of the education agencies in efficiently co-implementing national subsidy programs for students and teachers in private schools.

We propose that FAPE/PEAC structure and organization be moved to PhilEd. Operationally this would mean folding into PhilEd, the roles and responsibilities of FAPE and PEAC as well as their financial resources.

Folding FAPE/PEAC into PhilEd would mean the transfer of the funds of FAPE amounting to P277 million as of May 31, 2022 as well as the assets and liabilities of PEAC amounting to P567 million as of May 31, 2022.

The DepEd programs presently being managed by PEAC and lodged in the DepEd budget such as the Educational Service Contracting (ESC) of P9.3 billion in School Year 2021-2022, the Senior High School Voucher Program of P20.3 billion in School Year 2021-2022, and the Teachers Salaries’ Subsidy of P793 million in School Year 2021-2022 will now be lodged in PhilEd.

The present Board of Trustees of the Fund which consists of the Secretary of Education as Chairman with the Director-General of the National Economic and Development Authority, the three Presidents of the Association of Christian Schools, Colleges and Universities (ACSCU), the Catholic Educational Association of the Philippines (CEAP) and the Philippine Association of Colleges and Universities (PACU) shall also constitute the proposed Board of Trustees of the PhilEd.

The management team of PEAC will be the incoming management team of PhilEd.

Interestingly, PhilHealth, in addition to premiums collected from members as well as subsidies from local governments who have enrolled indigents in the program, receives a share of the “sin taxes” collected from Tobacco and Sugar Sweetened Beverage. The justification for this is that tobacco smokers and sugar sweetened beverage drinkers impose an additional burden on the healthcare system of the Filipinos and so must contribute to their health services. In Fiscal Year 2022, this amounted to P74 billion.

Moreover, under the Universal Health Care Law, PhilHealth receives 50% of the government share from the income of the Philippine Amusement Gaming Corp. (PAGCOR) as well as 40% of the Charity Fund of the Philippine Charity Sweepstakes Office (PCSO). In 2022, this amounted to P188 billion.

In like manner, in addition to the school vouchers funded under the Expanded Government Assistance to Students and Teachers in Private Education Act, we suggest that PhilEd be allocated a share of the taxes imposed on our extractive industries. This is based on the argument that the depletion of our natural resources can only be justified if the taxes collected will enhance our human resources.

Like PhilHealth, PhilEd could also be mandated to receive a percentage from the collection of documentary stamps which have recently been raised.

Finally, PhilEd can be given access to the Special Education Funds of the local school boards of the Local Government.

Congress enacted Republic Act 7875, known as “The National Health Insurance Act of 1995,” which created PhilHealth. We are hoping some members of Congress would file a Universal Education Financing Law which would create PhilEd.

 

Dr. Victor S. Limlingan is a retired professor of AIM and a fellow of the Foundation for Economic Freedom. He is presently chairman of Cristina Research Foundation, a public policy adviser and Regina Capital Development Corp., a member of the Philippine Stock Exchange.

Do you want your clothes to shrink our forests?

STEVEN KAMENAR-UNSPLASH

DO YOU know what you’re wearing? I don’t just mean if it’s a shirt or a jumper, or whether it’s designer or fast fashion. I’m talking about the fabric — and its source.

Cotton is fairly recognizable, and many know wool comes from sheep. But do you know that linen is made of the blue-flowered flax plant? That cashmere and mohair come from different breeds of goat, while angora comes from a type of rabbit? And polyester and polyamide are made out of oil?

Perhaps the least well-known origin story, and one of the most significant for the climate and biodiversity crises, is that fabrics such as viscose, lyocell, and modal were once trees.

These materials, known collectively as man-made cellulosic fibers (MMCFs), are made of dissolved wood pulp and account for just over 6% of our clothing. Yet production is growing as brands seek more sustainable materials. These forest fibers tend to use less water and energy than other types of fabric. They also have the potential to be fully biodegradable (depending on which chemicals are used to treat and dye the fabric) and come from a renewable resource. So far, so good.

The problem is that any wood-based supply chain comes with risks of deforestation, water pollution, soil erosion, biodiversity loss, and clashes with indigenous communities who rely on the forests to survive and maintain their way of life. Canopy, an environmental nonprofit focusing on protecting ancient and endangered forests, estimates that 300 million trees are cut down for MMCFs every year, and there have been reports linking rampant deforestation with some of the world’s largest pulp and viscose producers. 

Clothing companies need to do more to ensure that the viscose they’re using is sustainable, and not contributing to the loss of precious carbon sinks around the world. They also need to take the initiative to educate their own consumers about what their clothes are made of.

The way to truly ensure that a viscose skirt isn’t a product of land-grabbing or deforestation is a traceable supply chain. That’s where non-governmental organizations such as PEFC and FSC come in. They set the standards by which forests and products can be certified as sustainably managed or sourced. Standards may vary depending on a country’s needs but, in general, forestry companies must show they’re protecting ancient or veteran trees, managing in a way that promotes biodiversity and protects species, limiting pesticide use, and not converting established woodland into monoculture plantations.

In the case of PEFC, a forest is inspected by a third-party auditor who decides whether it meets the specific national standard for a sustainably managed forest. While the certificate is for five years, the forest undergoes annual audits to make sure it’s still performing well. There’s a separate process for the rest of the supply chain, too, in which every legal owner of the forest product is audited for a chain-of-custody certificate. This is to ensure that the forest-derived materials are certified and tracked throughout the manufacturing process and that each stakeholder meets certain labor requirements, including no child or forced labor. If everyone in the supply chain — from forest to shelf — partakes in this, the end result is a stamp, assuring customers that the product — whether a PG Tips box or timber for construction — is responsibly sourced.

About 60%-65% of MMCFs are certified by FSC or PEFC, which includes raw materials from sustainably managed forests and controlled low-risk sources. That leaves as much as 40% of viscose coming from risky sources. Certification within the fashion industry is also not currently adopted beyond the fiber level, so most consumers have no credible way of verifying whether the garment they’re buying is linked to a deforestation source.

Of course, some shoppers might not know that some fabrics come from forests in the first place. Julia Kozlik, textile program lead at PEFC, told me that even just a few years ago, many fashion brands wouldn’t have made the connection either. But new regulations such as the European Union Deforestation Regulation and the Green Claims Directive are forcing companies to become much more aware of what’s happening in their supply chains. About 50% of the fashion brands that have engaged with PEFC now have policies or targets to only source from certified sustainably managed forests. The value of creating a fully traceable supply chain for brands is that they’re able to make verified green claims about their sourcing.

But there’s still work to be done. At a workshop I attended, multiple barriers to adopting a fully traceable and certified MMCF supply chain were raised, ranging from cost and the burden of extra paperwork to a lack of consumer awareness.

The real barrier is that the supply chain for fashion is complicated and fragmented. But it’s possible to achieve traceability, as the paper industry has shown. Several random items on my desk — a birthday card, a box of Band-Aids, a packet of tissues, a book — all have some form of certification label printed on them to show that the paper came from wholly or partly sustainable sources. The apparel industry isn’t starting from scratch here; it has a well-used template to copy from with established procedures and organizations in place.

It’s positive that brands are starting to properly vet their products, and we might start to see those PEFC or FSC stamps on clothing tags soon.

There’s still the larger question of consumer education, though. If shoppers don’t know that their clothes came from trees, they won’t question how those trees are harvested. And if they’re not raising those questions, then some brands may continue to resist moving toward true traceability.

This is my way of telling you to find out what you’re wearing. If it’s not clear right away, you should demand information. — Bloomberg Opinion

Now Corp. warns of more  cyberattacks next year

THE PHILIPPINES may face more cybersecurity attacks in 2024 and the coming years, an official of Now Corp. said, as he outlined the company’s plan to strengthen infrastructure enterprises through cybersecurity solutions.

“Expect more hacking, expect more breaches because we are at the center of a geopolitical crisis. It is not surprising and not possible to deny that we have problems,” Mel V. Velarde, chairman of Now Corp., told reporters at a press briefing last week.

Geopolitical tension may fuel more cyberattacks, he said, citing that the ongoing conflict in the West Philippine Sea may escalate cyber risks.

He added that the majority of the country’s networks remain untrusted making them prone to attacks as cyberattackers are becoming more sophisticated.

The Philippines has been hit the most by cyberattacks among its Southeast Asian peers this year, according to a recent report released by Palo Alto Networks.

Twenty-nine percent of Filipino organizations have reported an increase in cybersecurity-related incidents of 50% or more, with 51% saying that they are at high risk from threats, according to the report.

This year alone, several government agencies have experienced cyberattacks. For instance, the Philippine Health Insurance Corp. was hit by a Medusa ransomware where more than 600 gigabytes worth of its members’ data were obtained.

The listed telecommunications company said together with affiliate Now Telecom Co., Inc., it launched end-to-end solutions to combat threats to physical and digital infrastructures.

“Deploying untrusted hardware and software including sensors and devices without rigorous vetting can open the door for unauthorized surveillance on both sensitive enterprise data and individuals, effectively turning what should be a protective measure into an unintended self-inflicted breach,” said Rene L. Rosales, president of Now Telecom.

Now Telecom has business operations in telecommunications, media and technology.

The companies’ “Technologies on Demand Assist You” or TODAY is a cyber threat assessment program designed to identify and address vulnerabilities in private and public sectors.

The company described the program as an “ecosystem of trusted global technology,” which may include cloud-based enterprise endpoint devices, sensors, handheld devices, and video security systems.

“We understand the critical nature of highly sensitive personal information, and this program protects the data integral to the functioning and trust of key industries like finance, healthcare, government services, and utility providers,” said Henry Andrews B. Abes, president and chief executive officer of Now Corp. — Ashley Erika O. Jose

Globe says Q3 broadband speeds improved

GLOBE Telecom, Inc. has improved its broadband speeds in more areas in the third quarter, the listed telecommunications company said.

“The significant enhancements in our connectivity speeds underline Globe’s unwavering commitment to our customers. As we usher in a digital era, we are steadfast in ensuring that every Filipino enjoys seamless connectivity, propelling the Philippines further into the digital revolution,” Raymond Policarpio, vice-president for brand management of Globe’s broadband business group, said in a media release on Sunday.

The company recorded significant download speeds improvements in Candelaria, Quezon at a 138.38% increase; Poro, Cebu at 111.96%; Mabinay, Negros Oriental at 94.36%; Doña Remedios Trinidad, Bulacan at 93.48%; and Iloilo at 69.54%.

Globe said these improvements were brought about by the company’s continuous network improvements. To date, the company has built around 833 new cell sites and upgraded 5,395 mobile sites.

Separately, the company said that it had closed the sale of its 100 towers to Phil-Tower Consortium, Inc. (PhilTower) for P1.5 billion.

Globe said that it has cumulatively closed the deal for 810 of its 1,350 towers to PhilTower, adding that there will be multiple closing dates.

In September last year, Globe signed an agreement with PhilTower for the sale of its telecommunication towers and related passive infrastructure for P20 billion, adding that it anticipates an estimated post-tax gain of around P5.2 billion from the transaction. — Ashley Erika O. Jose

Bank loans to MSMEs expected to rise, but remain under mandated 10% quota

BANK LOANS to micro, small, and medium enterprises (MSMEs) are expected to rise next year but remain under the mandated quota of 10% of lenders’ total loan portfolio as estimating credit risk for small businesses continues to be difficult.

“Booking sufficient MSME loans would be a challenge to a number of banks, especially those not really targeting or just beginning to target this segment. Estimating the credit risk of this segment is inherently difficult given the lack of information or reports,” University of the Philippines Los Baños economics senior lecturer Enrico P. Villanueva said in a social media message.

In the six months through June, loans extended by the banking industry to small businesses amounted to P461.387 billion, just 4.71% of their total loan portfolio of P9.8 trillion.

This was 3.1% higher than the P447.69 billion in loans they extended to the sector in the same period in 2022.

Mr. Villanueva added that banks are likely to continue paying the penalty for non-compliance.

Republic Act No. 6977 or the Magna Carta for MSMEs mandates banks to allocate 10% of their credit portfolio for small businesses to boost the sector — 8% for micro and small enterprises (MSEs) and 2% for medium-sized enterprises.

However, banks have long opted to incur penalties for noncompliance instead of taking on the risks associated with lending to small firms.

Mr. Villanueva added that banks are just starting to build their risk models for the small businesses sector and that delinquency rates for businesses are still difficult to gauge.

“We are not saying or concluding that their default rate is higher, it is just harder to estimate their capacity to pay or tendency to default,” he said.

However, MSME loans could ramp up when rates begin to ease, he added.

“If rates remain high, banks may maintain their stricter credit standards and not lend much, or lend very selectively. Credit standards may ease if rates fall,” Mr. Villanueva said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message that MSME loans could also be boosted if inflation eases further next year.

MSME loans could grow faster than corporate loans but slower than consumer loans, Mr. Ricafort said. He added that small business borrowings could still grow by double digits or by more than 10%. 

Banks’ loans to small businesses could still be below the 10% quota as these are no longer allowed to be part of the reserve requirement, he added.

“Now that new MSME loans are no longer part of the reserve requirement calculation for banks since June 30, 2023, but effectively offset by lower reserve requirements since then, the said loans could still be below the quota set by regulators, unless there is a significant increase in demand for MSME loans,” Mr. Ricafort said. — Aaron Michael C. Sy

Jollibee pursuing initiative to expand small-farmer sourcing

BW FILE PHOTO

By Adrian H. Halili, Reporter

JOLLIBEE Foods Corp. (JFC) is pushing to expand sourcing from smallholder farmers via partnership programs, its social responsibility arm said.

“Right now, we are planning to reach more smallholder farmers,” Jollibee Group Foundation (JGF) Senior Program Officer Jan Paolo Vicente said over the weekend.

“The company’s directive is to increase the amount of produce that we get from them,” Mr. Vicente added.

JGF has signed up 25 farmers’ groups to its Farmer Entrepreneurship Program. The partners have delivered more than 10,000 metric tons of crops to JFC commissaries for processing.

He said that this year, the foundation has partnered with five groups to deliver crops to Jollibee commissaries.

The company seeks out clusters of 10 to 15 farmers to partner with.

One of JGF’s partners in Galimuyod, Ilocos Sur — Sacred Heart Savings Cooperative (SHSC) — aims to deliver 160 metric tons of white onions for the 2024 cropping season.

Business Development Center Head for SHSC Stephanie Labcaen told reporters that the group delivers about seven to 10 tons of onion per week.

Ms. Labcaen added that onions delivered to the Jollibee commissary in Calamba, Laguna are subjected to quality control tests.

The group’s Consultancy and Marketing Specialist Mario Collado said purchasers have adjusted the farmers’ onion quota to about 2,000 kilos from the 2,500 kilos originally, in anticipation of the effects of El Niño.

The government weather service projects the peak of the El Niño at late 2023 and early 2024.

“Cropping season (for onions) is usually from October to March,” Mr. Collado added. “But if farmers want to plant in the off-season, they can sell their product in local markets.”

About 80% of crops harvested go to company commissaries, while the remaining off-sized produce are sold locally.

CREATE MORE: Creating more troubles

NICOLAS SPEHLER-UNSPLASH

In 2021, the Philippine government legislated a breakthrough reform called the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

CREATE, formerly packaged as the TRABAHO or CITIRA bill, was commended by different stakeholders, including Action for Economic Reforms, for rationalizing fiscal incentives by making incentives performance-based, time-bound, and targeted.

For more than 20 years, the Philippines had an outdated and arbitrary incentive system that excessively awarded fiscal incentives to investors, generally in perpetuity, that resulted in billions of pesos in forgone revenues.

CREATE provides stringent economic criteria for the qualification of industrial activities for incentive packages. The firms that are granted incentives are required to meet target performances for continuous grants as periodically monitored by the Fiscal Incentives Review Board (FIRB).

The law also reduced corporate income tax rates as a stimulus measure intended to help businesses recover from the pandemic-induced recession and make Philippine taxes more competitive. The lowering of the corporate income tax would nevertheless have an impact on revenue generation for the longer term, but this problem could be alleviated by recovering huge forgone revenues through CREATE’s rationalization of fiscal incentives.

Unfortunately, less than three years after its enactment, the government is amending the law through House Bill 8968 or the CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) Bill, currently being sponsored in the House Ways and Means Committee by its Chair, Representative Joey Salceda.

CREATE MORE essentially renders CREATE toothless. According to Mr. Salceda himself during a Nov. 7 hearing, CREATE MORE “essentially abolishes FIRB.” The governance issue CREATE aims to address, expressed through the FIRB, is the very purpose of the law.

The champions of CREATE made it clear from the beginning that CREATE is a structural reform whose gains will not be reaped in the immediate term. The benefits of rationalizing fiscal incentives will be truly and fully realized, not immediately, but in a number of years.

Despite this, after the passage of the law in April 2021, our net foreign direct investment (FDI) reached its highest point, at $12 billion, a 75.7% increase from 2020. The share of net FDI increased significantly in 2021, more than doubling from the 33.8% share in 2020. From April 2021 to August 2023, the FIRB has granted incentives to 45 big-ticket projects with a committed investment capital of P721.3 billion.

The ostensible purpose of CREATE MORE is to clarify the implementation of VAT (value-added tax) regimes for registered business enterprises. But the issues raised regarding the CREATE Act do not relate to the law itself, but arise from the implementing rules and regulations (IRR) and administrative issuances of relevant agencies.

The Department of Finance (DoF) and lawmakers have acknowledged inconsistencies between the law’s provisions and its IRR, as well as Bureau of Internal Revenue (BIR) revenue regulations and circulars. This has led to erroneous interpretations.

One of the issues is the perverse incentive caused by the revenue targets set for the BIR. To hit these targets, the BIR is stricter in collecting taxes, including refunds, and often denies enterprises their VAT refunds.

However, to address these issues, it is not necessary to amend the CREATE Act; clarifying the IRR and other issuances would suffice.

The Ease of Paying Taxes (EOPT) bill, which has hurdled bicameral ratification and is awaiting the signature of the President, already addresses these tax administration problems by simplifying the process for VAT refunds. Further, putting in place a data-driven tax administration system with features such as the digitalization of invoices (e-invoices) would enhance efficiency and enable tax compliance.

What is most concerning is that CREATE MORE kills the heart of the fiscal incentive reform by stripping the FIRB of its powers.

The heart and soul of CREATE is in the FIRB, housed in the DoF. The FIRB, under CREATE, is tasked to strengthen the governance of fiscal incentives through a rigorous, fair, and transparent system. CREATE MORE removes the FIRB entirely.

The bill empowers the President to motu proprio grant incentive packages, paving the way for investment promotion agencies to circumvent the FIRB process. Under the present law, the President has the residual power to grant incentive packages, but the president’s decisions are based on the criteria and recommendations of the FIRB.

Further, CREATE MORE creates new overgenerous and even unwarranted and abused incentives, defeating the very purpose of the law of rationalizing incentives.

The looseness of giving incentives being pushed in CREATE MORE will erode government revenues further. The DoF estimates that CREATE MORE will lead to billions of pesos of forgone revenues annually. This will further endanger the narrowing fiscal space. The consequence of the loss of revenues is to borrow more or tax more. Thus, the risk of a credit downgrade and its effects on investments and growth become more real. Hastily undoing a crucial reform so soon after its enactment will spell out more trouble for investor confidence.

In short, CREATE MORE is no longer rationalization, but fragmentation, politicization, and arbitrariness. It creates a situation for the rise of rent-seeking and subdues the merit of rigor, transparency, and accountability.

We reject any attempt to undermine the jurisdiction and oversight functions of the FIRB. Removing the FIRB defeats CREATE’s objective of strengthening the governance of fiscal incentives through a rigorous, fair, and transparent system.

Representative Salceda swiftly passed a good version of CREATE in the House as early as September 2019, more than a year before the bill’s enactment into law in 2021. Reformers expect Mr. Salceda, an economist who was instrumental in the success of a number of tax reforms, to defend the essential features of CREATE and resist its dilution the way he did as the bill’s sponsor.

Congress must protect CREATE, a hard-won and game-changing victory for the Filipino people. If Congress and the Executive insist on pushing for CREATE MORE, they must protect the core of the reform, which is granting fiscal incentives based on rigor, merit and performance, fairness, and transparency through the FIRB. Otherwise, CREATE MORE will mean creating more troubles.

 

Pia Rodrigo heads the health policy team of Action for Economic Reforms.

Tech rider

PHOTO BY KAP MACEDA AGUILA

Amid a surfeit of China auto brands, GAC Motor wants to stand out through technology

OBVIOUSLY, there is a need for clarity and definition in the middle of a chorusing din of voices. That’s exactly the case in the surge of Chinese auto brands in the Philippines.

As the “made in China” stigma has largely fell by the wayside evidenced by the healthy sales of vehicles manufactured there (and we should include marques that are not Chinese ones), the floodgates have seemingly opened. We are spoiled by an embarrassment of riches — and that’s always good in the name of competition as companies try to outdo each other with value-for-money offerings and such. Brands cannot afford to be complacent or to be content to sink in the background of mediocrity or common ground.

GAC Motor is keenly aware of this, and is doing the needful to not only tread water, but to get ahead of the field. “The Chinese market is the most competitive market in the world,” began GAC R&D Center Vice-President Fan Zhang, in response to a question from “Velocity.” “There are so many brands, and each one of them is trying to become strong — to take a good share of the market.”

The fully-owned subsidiary of Guangzhou Automobile Group (GAC GROUP) prides itself as a “national high-tech enterprise dedicated to the production and sales of internationally advanced vehicles, components, powertrain, automotive supplies and R&D of automotive engineering technology.” However, building a brand’s credibility, as many know, is not just about marketing spins and campaigns, but the actual meat of what it stands for — evidenced in its activities, products, and what it spends on.

In GAC’s case, a compelling statement that speaks to vehicle quality and more is a considerable investment in research and development.

Media delegations from the Philippines and Malaysia recently visited its massive R&D facility in Guangzhou — the nexus of a multi-country network “primarily responsible for planning, formulating, and implementing product development and new technology strategies for self-owned brands such as GAC Motor and GAC Aion.” Other R&D facilities are located in Xiamen, California, Milan, and Shanghai.

GAC also maintains its own domestic, “first-class large-scale test sites and bases such as intelligent network laboratories.” Manning these facilities are over 6,000 “independent R&D professionals” from over 10 countries, seeing to earnest work on pushing the envelope in so-called “three electrics” areas — electric power, electric control, and electric drive — plus intelligent connectivity.

“For GAC, we’ve come a long way. From the beginning, we’ve set a target for our brand that we don’t want to go for cheap products. We want to provide quality products for our customers,” added Mr. Fan, who once worked alongside renowned Filipino car designer Winifredo “Wini” Camacho at Mercedes-Benz.

Here in the Philippines, the GAC brand continues to assume an upward trajectory — finding increasing resonance among car buyers. GAC Motor Philippines recently recorded its “best-ever October performance” with total retail sales spiking by a whopping 523% year-over-year to 268 units. This is another obvious feather in the cap of the distributor since coming under the aegis of established multinational firm Astara. All told, GAC has registered YTD sales of 1,488 units — plus 305% over last year’s total during the same period.

In a statement, GAC Motor Philippines noted that sales are being driven by the all-new GS3 Emzoom (with YTD sales of 423 units since its launch four months ago) and seven-seater GS8 SUV (378 units sold YTD). Meanwhile, 124 units of the Emkoo were sold in October, and the Empow moved 118 examples.

Said GAC Motor Brand Head Franz Decloedt, “We move closer to our target of breaking 2,000 units by yearend, and this achievement bolsters our commitment and confidence in providing our customers with the utmost experience, encompassing exceptional vehicles, top-notch after-sales service, and enhanced accessibility through an expanded network of dealers.” The company is “on track” to realize 20 dealerships by the end of the year.

“Aim small, miss small,” is among the memorable lines from two seemingly disparate flicks: The Patriot and American Sniper. This tenet applies not only to the obvious topic of marksmanship, but to a myriad of areas. For sales and marketing, the “aim small, miss small” wisdom means being both purposeful and, well, not taking a sledgehammer to do work entailing finesse.

That makes sense for GAC as well as it distinguishes itself from the pack. Continued Mr. Zhang, “We enter the market’s mid-to-premium sector… there are at least two pillars we are working on. First, we need to provide good-quality products; quality means good build and service as well that can ensure the comfort and pleasure of our customers who use our products. The second pillar is applying new and high technology… then in terms of the appearance of the car, we try to utilize our global design competence to give them… a fashionable, desirable look. Internally, we use a very strong engineering space and also the latest results of our advanced technologies.”

At GAC, nowhere is high technology more apparent than at its so-called “smart factories,” particularly at GAC Aion, the “strategic core platform of GAC Group for the development of new energy vehicles featuring intelligent connectivity.”

GAC Aion is said to be the first factory of its kind in China that is devoted exclusively to the production of “new energy” vehicles, “adhering (to) the technological route of EV+ICV (pure electric + intelligent connected vehicle).” A walkthrough (sorry, we couldn’t take photos) revealed the extensive use of robots on the factory floor. In a release, GAC said that these facilities extensively incorporate IoT and big data, to realize smart manufacturing. “It’s also an intelligent eco-factory integrating digitization, intelligence, and comprehensive energy utilization, which enables users to deeply participate in defining automobiles and possesses the capability for personalized customization.”

At the moment, GAC Aion boasts two plants churning out 400,000 units a year — representing a “compound annual growth rate of over 120% and firmly maintaining a top-three position in the industry for production and sales.”

A further snapshot of all the cutting-edge stuff the GAC Group is working on can be gleaned at the GAC Technology Museum — a compendium of the past, present, and a tantalizing future. GAC appears to be working on so many things at the same time, with each vehicle release becoming a true showcase and, again, snapshot in time of what its people have come up with — such as advancements in battery tech, powertrains, and even the user experience.

The end-goal is to be able to showcase GAC’s “product value compared to competitors,” asserted Mr. Zhang. “So far, we have been successful in China. We want to maintain and extend this kind of success into the international market.”

Phoebe Philo’s fashion frenzy: Why her much-anticipated collection sold out within hours

THE DESIGNER, Phoebe Philo.

BRITISH luxury fashion designer Phoebe Philo OBE (Officer of the Order of the British Empire), debuted her long-anticipated eponymous label to critical acclaim at the end of October. Despite the eye-watering price tags, the small range of clothing, accessories, jewelry, and footwear — only available on the Phoebe Philo website — virtually sold out within hours.

But Ms. Philo is no stranger to fashion frenzies. Her 2005 Paddington bag, created during her tenure as creative director at French designer Chloé, became an instant and enduring “It bag” that sold out before it even hit the shelves.

Having stepped out of the fashion limelight in 2017, Philo has spent the past two years building anticipation for her return, initially teasing her hordes of loyal fashion fans — known as “Philophiles” — by announcing as long ago as 2021 that she was working on her own brand launch.

In June 2023 a post on her Instagram account stated the “inaugural collection will be revealed and available in September 2023.” Registration opened in July, but the launch was delayed until October 30, so the first that most people saw of the collection was when it went live on her website.

In today’s era of 24/7 social media content, old marques are revived and new fashion brands are launched supported by expensive marketing campaigns. These leverage the celebrity power of influencers and brand ambassadors, social media posts, advertising and editorial photo shoots, runway shows and red carpet appearances.

In the absence of this kind of 360-degree marketing, and in the fickle and fast-moving world of fashion, how did Ms. Philo manage to maintain her profile during her hiatus and then virtually sell out within hours of her new brand launch? Not to mention ensuring that social media and the world’s fashion press are all abuzz with talk of her return?

BRITISH WUNDERKIND
Ms. Philo trained at London’s Central Saint Martins College, graduating in 1996 a year after Stella McCartney who she later joined as assistant for ready-to-wear collections at French luxury house Chloé. Ms. McCartney was Chloé’s creative director from 1997 to 2001 and when she left, Ms. Philo took over, leading the house until 2006.

Under Ms. Philo, Chloé became the go-to label for the cool, fashion-conscious woman, with her blending of bohemian floaty fabrics with tailored pieces. A fashion house’s creative director sets the tone for its collections and often, as in Philo’s case, embodies the ideal brand customer. Her fans wanted to be dressed by her so as to be like her, generating an estimated $300 million for Chloé’s owners Richemont.

With sales predicted to rise, it must have been challenging when Ms. Philo took an official extended maternity leave, and later resigned from Chloé, citing a desire to spend more time with her young family.

For most of us, Parisian luxury labels are the stuff of fashion fantasies, symbolized by the glamorous lifestyles of the rich and famous. But behind the fantasy, luxury fashion is big business. Bernard Arnault, founder, chairman and Chief Executive Officer of the world’s largest luxury goods company LVMH (Louis Vuitton Moët Hennessy) topped the world’s richest list in 2022 with an estimated net worth of $187.6 billion (£152.8 billion) in October 2023.

In luxury fashion, sales of handbags drive profits, and designers who can deliver a big-selling “It bag” keep the backers happy. So, it made perfect business sense when LVMH made Ms. Philo creative director and board member of the French Maison Céline in 2008.

During her decade there Ms. Philo honed her pared-back luxury aesthetic becoming the fashionistas’ fashionista, making the brand both critically and financially successful, including producing several bestselling handbags. Ms. Philo promoted intelligent dressing and shared her admiration for cultural icons, such as American novelist and essayist Joan Didion who featured in a 2015 campaign. Named International Designer of the Year by the Council of Fashion Designers of America (CFDA) in 2011, by 2014 Philo was named as one of Time Magazine’s 100 most influential people.

According to her entry on the Business of Fashion’s top 500, “Phoebe Philo’s work at Céline redefined what women aspire to wear.” Her look trickled down, the silhouettes and color palettes inspiring and informing the fashion of popular high-street brands.

After 10 years at Céline, Ms. Philo presented her final collection at Paris Fashion Week in March 2018 — but, despite stepping back from the industry, her aesthetic lived on thanks to tribute social media accounts such as @oldceline dedicated to the memory of Ms. Philo’s star pieces.

Ms. Philo’s “seasonless” debut collection features ready-to-wear, leather goods and accessories, and feels very much like a continuation of her work at Céline. Alongside tailored wardrobe classics in colors such as dusky pink and “shroom,” standout pieces include a shearling sheepskin coat, hand-combed embroidered dresses and separates, an oversized biker jacket, statement sunglasses, square-toed shoes, an oversized Cabas tote bag and a “Mum” bracelet and necklace available in gold or silver.

With high prices, quality materials, limited and local production runs, Ms. Philo’s new venture perfectly chimes with the current trends of sustainable “quiet luxury” investing in high-quality, minimalist and timeless pieces, signaling just enough for those who know. — The Conversation via Reuters Connect

 

Natascha Radclyffe-Thomas is a Professor of Marketing and Sustainable Business at the British School of Fashion (GCU London), Glasgow Caledonian University.

Jetti reopens flagship retail station in Pasay

INDEPENDENT oil company Jetti Petroleum, Inc. is resuming the operations of its flagship retail station in Pasay City after temporarily closing it for renovation for almost four years.

“The station shares its location with Jetti’s Business Center building, which will be housing several food and retail outlets, making the Jetti Macapagal Station an ideal destination hub for one’s fuel needs as well as other services,” the company said in a media release.

The oil company reopened its retail station on Thursday at Macapagal Ave. within Pasay City’s central business district after closing it in December 2019.

Jetti said that it has invested around P15.5 million for the renovation. It said that the reopening was designed to “suit today’s more practical needs” by placing a pump island configuration and providing cashless transactions.

The station also provides an air and water service bay and access to comfort room facilities.

“Jetti Macapagal Station is the company’s flagship station and is part of a new design concept that shares the same space with the company’s corporate headquarters,” Jetti President Leo P. Bellas said. 

“The company strategically envisioned this property to be a landmark point of destination that will also embody our slogan [Gasolina ng Bayan] and continue providing quality fuels to consumers at fair prices,” he added.

Jetti started the operations of its first retail service station in 1999 and opened the Macapagal flagship station in 2004. The company began the conversion and renovation works of the property to make it a two-building complex with a gas station in 2019.

The company said that its Macapagal station “has been a strategic fuel/service hub” for motorists and public utility vehicle services alike, as well as “a popular weekend gathering site for weekend bike/cyclists and enthusiasts.”

With 200 stations by yearend, Jetti is targeting to have 300 stations by the first quarter of 2025 with an allocated capital expenditure of P1.5 billion. — Sheldeen Joy Talavera

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