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PHL digital economy projected to reach up to $150B by 2030

The Philippines’ digital economy is projected to reach as high as $150 billion by 2030, an industry report showed. — PHILIPPINE STAR/EDD GUMBAN

THE PHILIPPINES’ digital economy is projected to reach as high as $150 billion by 2030 as the e-commerce boom continues, according to a report released on Wednesday.

The e-Conomy SEA report by Google, Temasek Holdings and Bain & Company showed the Philippines is forecast to reach between $80 billion and $150 billion in gross merchandise value (GMV) by 2030, slightly lower than its previous projection of $100-150 billion.

It projected that the Philippines’ internet economy will grow by an annual 20% to reach $35 billion by 2025. This 20% compound annual growth rate (CAGR) will be the fastest in Southeast Asia, along with Vietnam.

This year, the Philippines’ digital economy is projected to grow by 13% to $24 billion in GMV.

“While internet users in the Philippines are amongst the most engaged in the world, digital participation across sectors remains lower. This signals sizable headroom for digital economic growth over the medium to long term as incomes grow,” according to the report.

Digital economy growth will be mainly driven by e-commerce, which is expected to expand by 21% annually to hit $24 billion by 2025. E-commerce is forecast to reach $60 billion in GMV by 2030.

Online media is expected to grow by 19% annually to $5 billion by 2025, with its GMV seen to hit $10 billion by 2030. Online media covers advertising, music streaming, gaming, and video-on-demand.

Online travel, which includes flights and hotels, is expected to account for about $4 billion of the digital economy by 2025. The report projected 18% CAGR for online travel through 2025, which is slower than the previous forecast of 44%.

Transport and food delivery services are projected to grow by 19% annually to $3 billion by 2025, and to $5 billion by 2030.

“Both domestic and regional transport providers are expanding to outer cities to fuel long-term growth. To capture these segments, businesses have started growing their two-wheeler offerings as a more affordable alternative,” according to the report.

The Philippines’ digital financial service sector is expected to grow sharply through 2030, mainly driven by digital payments.

The report sees gross transaction value (GTV) in digital payments growing by 17% to $93 billion this year, and by 16% annually to $126 billion by 2025. Digital payments are expected to reach $220 billion in GTV by 2030.

“As digital payments gain traction, e-wallet and account-to-account (A2A) payment rails will see the fastest growth due to lower costs to merchants. Informal A2A payments, in particular, are expected to grow in merchant adoption as they look to sidestep formal registration of business accounts with digital payment providers,” according to the report.

Digital lending is projected to have a $7-billion loan book by 2025 before hitting $20 billion by 2030. Digital insurance and assets under management for digital wealth are also expected to grow significantly through 2030.

SOUTHEAST ASIA
Meanwhile, Southeast Asia’s internet economy is expected to grow by 11% year on year in 2023, slowing from last year’s growth of 20%, the report showed.

Google, Temasek and Bain also said the region’s internet economy is seen at $295 billion by 2025, down from a previous estimate of $330 billion.

“Digital economy sectors are showing positive growth trajectories, with travel and transport on track to exceed pre-pandemic levels by 2024,” they said in a joint statement.

The forecast cut is mainly due to a long-term goal change and a post-pandemic stabilization, and it should now be a fairly steady runway toward 2025, said Florian Hoppe, partner and head of Vector in Asia-Pacific, Bain & Company.

The region of 11 countries has more than half-a-billion people, with a predominantly young population, widespread smartphone usage and a growing middle class, making it one of the world’s fastest-growing internet markets.

Vietnam’s digital economy is expected to grow by 20% a year in 2023-2025 and is on track to reach around $45 billion by 2025, the fastest in Southeast Asia along with the Philippines, according to the report.

“Digital payment continues to grow in Vietnam driven by strong support from the government, investment from commercial banks and the widespread popularity of QR codes,” the report showed.

The trend is expected to accelerate as the country’s central bank promotes cashless payments in rural and remote areas, it added.

The report, which also covers Indonesia, Thailand, Vietnam, Singapore, Malaysia and the Philippines, showed private funding for digital economy-related sectors has declined to 2017 levels from record highs in 2021. But cash reserves for investments are still rising despite investors becoming increasingly cautious.

“To exit this funding winter, Southeast Asia’s digital businesses need to prove that quality deals with visible exit pathways are readily available,” according to the report. The decline is in line with global shifts toward high cost of capital and issues across the funding lifecycle.

Venture capitalists had $15.7 billion on hand to drive deals at year-end 2022, according to the report.

“It’s really a function of how quickly companies can pivot towards profitability. The sooner they play this out, the quicker funding will return,” said Fock Wai Hoong, head of Southeast Asia at Temasek. — A.E.O. Jose and Reuters

Earnings of PHL banks likely to peak this year

MARI GIMENEZ-UNSPLASH

EARNINGS of Philippine lenders will likely peak this year before growth moderates in 2024 and 2025 amid the Philippine central bank’s expected policy easing.

“The (banking) sector’s return on average assets could normalize to a long-term average of 1.2-1.4% over the next two years after peaking at about 1.5% in 2023. This is because net interest margins (NIM) will decline in line with policy rate normalization,” Nikita Anand, an analyst from S&P Global Ratings, told BusinessWorld in an e-mail.

Fitch Ratings Asia-Pacific Financial Institutions Director Tamma Febrian said the Philippine banking sector’s profit growth in 2024 would likely slow when the Bangko Sentral ng Pilipinas (BSP) starts to cut borrowing costs amid easing inflationary pressures. 

“We are factoring a moderate compression in NIM in 2024, but margins may narrow by more than we expect if policy rates were to decline faster or sooner than our projection, since loans tend to reprice more quickly than deposits under keen competitive pressures,” he said in an e-mail.

“A weaker economic outturn could also result in higher delinquencies and credit costs than our forecast, especially if it is coupled with prolonged inflation and a rise in the unemployment rate,” he added.

The Monetary Board delivered a 25-basis-point (bp) rate hike in an off-cycle move on Thursday, bringing the key interest rate to a fresh 16-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. earlier said interest rates might remain higher for longer, as inflation could still be above the 2-4% target through the first half of 2024.

Ms. Anand said S&P expects the BSP to cut rates by a total of 75 bps in 2024 as inflation eases.

“This should help contain asset quality risks. However, if inflation and rates remain high, default risks for some leveraged and low-income borrowers could increase. This will in turn increase credit costs and affect profitability,” she said.

The Philippine banking industry’s net income grew by 27.7% to P182.76 billion in the first half from P143.12 billion a year earlier, BSP data showed.

Other measures of profitability, such as return on assets (ROA) and return on equity (ROE) also improved in the first quarter. Ms. Anand said lending growth in the Philippines could improve over the next two years, as S&P expects Philippine gross domestic product (GDP) growth at over 6% in 2024 and 2025.

“Higher economic growth, along with lower inflation and interest rates, will support credit demand. We forecast credit growth of 10-12% in 2024, higher than the estimated 7-9% in 2023,” she said.

Outstanding loans issued by big banks expanded by an annual 7.2% to P11.06 trillion in August, data from the BSP showed. August also marked the fifth straight month of easing credit growth this year, as tighter monetary policy dampens demand for loans.

Fitch’s Mr. Febrian said a better Philippine economic outlook would likely translate into an uptick in loan demand, while keeping asset impairments “relatively steady.” Fitch expects GDP growth at above 6% in 2024.

The Philippine government’s efforts to boost public-private partnerships for infrastructure projects are also expected to lift credit growth, he added.

“Banks are also poised to benefit from wide interest spreads for longer if the policy rate remains high for longer, helped by banks’ continuing appetite to grow into higher-yielding loan segments. Further cuts in reserve requirements will also aid NIMs,” Mr. Febrian said.

Earlier in June, the BSP cut the reserve requirement ratio for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 9.5%. 

Meanwhile, Ms. Anand said credit losses in the Philippines would remain “flattish” in the coming years, as credit costs may stay at 0.6-0.7% of total loans in 2024. 

“We forecast a manageable deterioration in the nonperforming loan (NPL) ratio. Large corporates that form the bulk of the sector’s loan portfolio should be able to absorb the higher input and financing costs,” she said. 

The banking sector’s gross NPL ratio slipped to 3.42% from 3.43% as of end-July and from 3.53% a year ago. The NPL ratio in August was the lowest since 3.41% in April.      

Bad loans declined by 5.9% year on year to P442.9 billion at end-August. However, it was 0.6% higher than P440.1 billion at end-July.

“A sharp correction in asset prices would hurt asset quality given sizeable exposures to the residential and commercial real estate markets. Real estate loans form about 21% of sector loans with two-thirds of this being commercial real estate loans,” Ms. Anand said, noting that office vacancy rates remain elevated in Metro Manila.

“While a fallout in property sector is not our base case, it remains a key downside risk amid higher interest rates and a global slowdown,” she added. — Keisha B. Ta-asan

September NCR retail price growth slowest in 17 months

Parents and their children shop for shoes at a shop in Marikina City. — PHILIPPINE STAR/WALTER BOLLOZOS

RETAIL PRICE GROWTH of general goods in Metro Manila eased to a 17-month low in September, amid the slower annual rise in food costs, the Philippine Statistics Authority (PSA) reported on Wednesday.

Preliminary data from the PSA showed the general retail price index (GRPI) in the National Capital Region (NCR) slowed to 3.6%, easing from 3.9% in August and 5.9% a year earlier.

This was the slowest since 3.5% seen in April 2022.

General Retail Price Index in the National Capital Region

Year to date, retail price growth in the capital region averaged 5%, higher than 4% a year ago.

“The primary contributor to the deceleration in the annual increase of GRPI in NCR was the slower annual increase recorded in the heavily weighted food index at 6.2% during the month from 6.9% in August 2023,” the PSA said in a statement. 

Slower annual increases were seen in the indices for chemicals, including animal and vegetable oils and fats (2.8% in September from 3.1% in August), crude materials, inedible except fuels (3.6% from 3.8%) and manufactured goods classified chiefly by materials (2.1% from 2.3%).

Also posting lower markups were the commodity groups for machinery and transport equipment (1.3% from 1.4%) and miscellaneous manufactured articles (1.7% from 1.8%).

The PSA said the index for beverages and tobacco rose to 5% in September, slightly faster than 4.9% in the previous month.

On the other hand, the index for mineral fuels, lubricants and related materials declined by 1.9% in September, slowing from the 5% contraction a month earlier.

“The GRPI slowdown may be traced to slower incremental changes in price due to relatively lower markups being imposed,” John Paolo R. Rivera, president and chief economist at Oikonomia Advisory & Research, Inc., said in a Viber message. “However, this may not reflect in a lower inflation as we have seen in previous months when GRPI was slowing down but headline inflation is rising,”

In September, headline inflation quickened to 6.1% from 5.3% in August, but eased from 6.9% in September 2022. Inflation print was the fastest since April’s 6.6% and matched 6.1% in May.

Retailers may also be tempering their markups as they are aware of the lower purchasing power of consumers, he said.

Mr. Rivera said the trend shows that GRPI might continue to decelerate, although this is “still conditioned on supply-side and demand factors especially this holiday season.”

“Prices are usually elevated in the latter part of the year due to increased demand brought about by higher money inflows to consumers, allowing them to increase demand in the midst of supply-side constraints,” he added. — Abigail Marie P. Yraola

Jet fuel prices likely to decline through yearend — DoE

Image by Andy Choinski from Pixabay

By Ashley Erika O. Jose, Reporter

JET FUEL prices are expected to decline further until the end of the year as production scales up, the Department of Energy (DoE) said. 

“Jet fuel is kerosene-based, and we have the same projection; we are seeing the insufficiency gap narrow until the end of December, [so] oil prices will likely be lower by December,” Rino E. Abad, director of the Oil Industry Management Bureau at the DoE, told BusinessWorld by phone on Tuesday. 

For November, the Civil Aeronautics Board (CAB) has increased the fuel surcharge to Level 7 from Level 6 in October.

Fuel surcharge is an added fee collected by airlines, based on the movements in jet fuel prices. It is evaluated based on a one-month average of MOPS (Mean of Platts Singapore) prices.

Under Level 7 of the CAB matrix, airlines are allowed to collect a fuel surcharge ranging from P219 to P739 for domestic flights, and from P722.71 to P5,373.69 for international flights.

In September, the CAB raised the passenger and cargo fuel surcharge rate to Level 6 after keeping it at Level 4 in the three months to August.

In October alone, pump price adjustments stood a net decrease of P3.1 for gasoline, P2.95 for diesel and P2.5 for kerosene.

This week, fuel retailers implemented a mixed adjustment of petroleum products. Gasoline increased by P0.45 per liter; while prices of diesel and kerosene fell by P1.25 and P1.20 per liter, respectively. 

These price adjustments resulted in a year-to-date net increase of P14.20 per liter for gasoline, P10.45 per liter for diesel and P5.04 per liter for kerosene.

Fuel prices remain volatile, Mr. Abad said, citing the recent forecast of S&P Global Platts, where fuel production insufficiency is expected to be trimmed further by year end. However, oil input costs may still be affected by geopolitical conflicts, he added.

“As far as our analysis is concerned, our expectation is until December, we are seeing an insufficiency gap to narrow further brought by oil cut which means that production is increasing,” Mr. Abad said.

The Organization of the Petroleum Exporting Countries and their allies including Russia (OPEC+) in May announced further output cuts of around 1.16 million barrels per day from May through the rest of the year.

Low-cost carrier AirAsia Philippines said that it will continue to offer sales to offset rising fuel costs. 

“AirAsia guests can also seek further relief from the anticipated adjustments in ticket prices brought about by the volatility of global fuel prices by advance booking, especially for future travels as travel and vacation time peak in the remaining months of Q4 for many Filipinos,” Steve F. Dailisan, head for communications and public affairs at AirAsia Philippines, said in a Viber message. 

Meanwhile, Cebu Pacific will continue to seek measures to ensure accessible air fares as fuel accounts for 40-50% of its total operations’ cost.

“We encourage our customers to book their flights ahead to avail of more affordable fares. Cebu Pacific will stay true to its purpose of making air travel more accessible,” Alexander G. Lao, president and chief commercial officer of Cebu Pacific, said.

Flag carrier Philippine Airlines was also asked to comment.

SEC says proposed fee hike to have ‘very minimal’ impact on MSMEs

By Revin Mikhael D. Ochave, Reporter

THE Securities and Exchange Commission (SEC) said its proposed increase in fees will have a “very minimal” impact on micro-, small-, and medium-sized enterprises (MSMEs).

“It (the proposed hike in fees) is not exorbitant. We have to factor in inflation. The last time we increased [the fees] was many years ago…,” SEC Commissioner Javey Paul D. Francisco told BusinessWorld on the sidelines of the recent 49th Philippine Business Conference and Expo (PBC&E), organized by the Philippine Chamber of Commerce and Industry (PCCI).

Under the proposal, Mr. Francisco said that MSMEs would be required to pay an additional P500, raising the registration fee for new stock corporations from the current P2,000.

“The impact of the fees on MSMEs is very minimal; 51% of stock corporations that register with us only have a capitalization of P1 million. So if you have authorized capital stock of P1 million, at present, you’re going to pay a P2,000 registration fee. With the proposed increase in fees, you will be paying P500 more, at P2,500,” Mr. Francisco said.

“We did not come up with this (proposal) arbitrarily, or just the top of our head. The proposal was made based on market studies and other research. ” he added.

The SEC previously said the current rates have not been tweaked since 2017 and were based on a 2014 proposal.

Mr. Francisco added that the proposed fee hike would be beneficial for the SEC, as the commission does not receive government funding to boost its services and staff.

“We don’t get any support or any subsidy from the national government, and we have to upgrade our skills and staff as well, and even improve the quality and quantity of our personnel.”

“When you register, that is technically good for life. Unless you increase your capital stock or you do not submit reports,” he added.

Various business groups, led by the PCCI, recently sent a letter to the SEC, criticizing the corporate regulator’s proposal to increase its fees and charges, and calling it “anti-business” and “unnecessary.”

The business groups opposed the “unreasonable, if not obscene, fees and charges,” such as the proposal to charge corporate issuers one-fourth of 1% of total indebtedness for creating bonded indebtedness.

The business groups also disagreed with the proposal to charge a fee based on the total transactions cleared and settled in the previous year by the Securities Clearing Corp. of the Philippines and the Philippine Depository & Trust Corp., at rates of 0.1 basis point (bp) and 0.05 bp, respectively.

Meanwhile, Mr. Francisco disclosed that the SEC is scheduled to meet with the concerned business groups in the second week of November to discuss the proposed fee increase.

A case for Chilean pork

WHILE Chile is known for its fruit and wine exports, livestock sounds more like the playground of its neighbor, Argentina. However, on Oct. 13, Chile showed off its prowess in pork: several thousand metric tons of it, in fact.

At an event at the Grand Hyatt, the hotel’s executive chef Mark Hagan prepared Chi-Noy Adobo, Stir-fried Pork Liver, and Pork Flower Fat Inasal — all familiar flavors for a Filipino, but made with pork from Chile. Juan Carlos Domínguez, President of the Chilean Meat Exporters Association, ChileCarne, told BusinessWorld that they have only begun exporting pork to the Philippines last year. Last year, Chile exported 4,500 metric tons of pork to the Philippines, and is increasing that number to 6,000 this year. “We’re just starting,” said Mr. Dominguez.

“It’s not a problem of volume, it’s a problem of knowing each other, and know(ing) exactly which product you prefer,” he said. While the sheer weight of what they exported sounds huge, Mr. Domínguez insists that their edge is in quality. “You are looking for quality, not only volume. That is what Chile is offering. We have a really high-quality product.”

Chilean pork production, according to him, relies on three pillars: biosecurity, food safety, and sustainability. By biosecurity, he means that, “Chile has special conditions that we are protected (from) diseases that can affect our animals.” He notes that they were marked safe from the 2019 African swine fever outbreaks. While he credits safeguards from diseases to a “strong local authority,” he points out the country’s geographical destiny as its own protection: the Andes mountains, a desert, the Pacific Ocean, and even glacial ice. As for sustainability, they take water efficiency seriously and their farms are measured against international standards. Finally, Mr. Domínguez discusses other food safety measures they have in place: for example, they haven’t used growth hormones in their pigs since 2006. “We also enrich the environment of the pigs, so they can live and move free(ly) in the farms,” he said.

As he points out, Chile only has a population of 18 million, so a lot of their produce goes towards export. This is why they’ve taken the effort of studying what their export consumers need, tailor-fitting them to preferences in fat content and other such factors. According to him, Filipino consumers like “a little bit of fat, but not inside the muscle.”

As we’ve pointed out, Chile isn’t top of mind in the region when it comes to livestock. Mr. Domínguez said, “We will never compete with Argentina, Brazil, and Spain. They are in the volume business. We are in the quality business. We are not a big producer, we are middle-sized producers, but we are so focused on quality.”

He adds, “Chile is a well-known country of quality food exports. We are well-known for fresh fruit, salmon (it’s the world’s second largest producer after Norway) — and now we want Filipinos to know that we’re also pork producers, poultry producers. Very high quality.”

On that note, Mr. Dominguez shared that perhaps, it’s in shared culture that may be what makes their pork a hit in the country. “I am really surprised that we are very similar,” he said. He says that he has been to some Southeast Asian countries, but, “The first time I was in the Philippines, I think I feel like home.”

“The way that you cook, the way that you eat is very similar to Chile. I think it could be really a win-win situation for both countries.” — Joseph L. Garcia

The few over the many

XIANGKUN ZHU-UNSPLASH

Almost every morning, on weekdays, I pass Valero Street in Salcedo Village in Makati City. At around 7 a.m., there will be two big buses parked near the corner of Valero and Villar streets, unloading their passengers. There are about a hundred people in total from both buses, I reckon, seemingly employees working in the establishment across the street.

Nothing wrong with hiring buses to shuttle employees to work. Many businesses do that. But what I do not get is how these buses are allowed to unload their passengers in a manner that disrupts traffic flow. Worse, the buses and their passengers do not seem to care that they are disruptive to others. Moreover, they unnecessarily put pedestrians and motorists at risk.

Valero is a one-way street, with one-side parking only. Parking slots are on the left side of the road, the driver side. Thus, the buses park on the left. But this also means their passenger doors are on the right — facing the road. As such, their passengers step out into oncoming traffic from their right. The buses are parked no more than 10 meters away from the lighted intersection and pedestrian lane.

The problem every morning is that as the stream of passengers gets off the bus, they just continue to cross the street to their place of work with little regard for oncoming traffic. Often, the bus drivers and conductors bodily block vehicular traffic to let their passengers cross. Valero comes to a standstill just about 10 meters from the intersection, as vehicles are forced to give way to the “crossing” passengers.

Shouldn’t their employer instruct their employees and the shuttle bus operators to make sure that passengers carefully alight from the bus, watch out for oncoming traffic, carefully walk to the curb and the nearby intersection, and then cross the road when the pedestrian light turns green? Why do they have to cross where they alight and disregard their own safety? Laziness?

Rules are in place for the safety of both motorists and pedestrians. Why are the buses allowed to drop off their passengers in a manner that disregards safety? And what gives the bus drivers and passengers the “right” to stop oncoming vehicular traffic just so the bus passengers can “jaywalk” to their place of work?

And vehicular traffic will just have to wait until all the passengers alight from the buses. It might have been okay if the passengers at least waited until the road was clear before crossing, never mind that they are crossing where they should not in the first place. But no, they simply cross at will as they get off the bus. It is simply a case of crossing where they want, when they want.

Many will probably view this as simply a rant, and a petty one at that. Perhaps other motorists, unlike me, do not mind letting the bus passengers cross where and when they want. Why begrudge the bus passengers for crossing to work? Anyway, a lot of other pedestrians cross Valero anytime, anywhere. Many do not use the pedestrian lane, and some even walk on the road instead of the sidewalk.

The thing is, this situation arises not only on Valero every weekday morning but in many other places around the business district. Many motorists and pedestrians choose to ignore traffic safety rules because they are either inconvenient, or observed more in breach, or because they can simply get away with it. On Rufino St., for instance, the stretch between Ayala Avenue and Valero St., many still cross the street despite the “no crossing” sign.

And despite the numerous parking slots on Valero, from Dela Costa all the way to Villar St., many still opt to double park and block traffic flow just to buy from the numerous street vendors found along the stretch of Valero. In short, when they know they can get away with it, people will choose to ignore safety rules for their convenience. And with impunity, at that.

And to me, it all boils down to people’s very poor sense of community. It is every man for himself in the central business district, obviously. There will never be enough regulations, traffic lights, traffic enforcers, pedestrian lanes, and safety signs to beat the ever-growing malaise of “me-first.” Many will continue to act in a manner that benefits them first, with little regard for others.

The Filipino term pasaway comes to mind, which can be translated to disobedient or uncontrollable. But frankly, I do not think the lack of discipline is the issue with many Filipinos. That is, discipline in terms of obediently following rules. Such discipline is usually exacted at the cost of penalty or censure. And people follow mainly because their fear of punishment.

Some people do not observe rules not because they are unafraid of punishment. Or that their need is so urgent that they are willing to risk punishment just to satisfy that need. This requires some actual understanding that one is committing a wrong but willingly does so. This does not seem to be the case.

For some people, they choose to breach rules because (1) they do not see anything wrong with the breach, or that they believe they are not doing anything wrong; (2) they think the rules should not apply to them; (3) others breach the rules and get away with it; and (4) they do not care about the consequences to them or others. For instance, a jaywalker disregards his own safety as he does not care, or realize, how his action affects others.

And this, to me, is the greater challenge. How do we change the way people think about rules and safety? How do we build a greater sense of community and a stronger sense of others? How do we make more people realize how they think and how they act impact not only themselves but others as well?

 

Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council

matort@yahoo.com

Colliers sees continued rise in office sector transactions in 2024

MARIO GOGH-UNSPLASH

TRANSACTION activity in the local office sector is expected to continue improving next year, driven by potentially sustained demand, real estate consulting firm Colliers said.

“Transactions have been increasing by about 10-15% quarter on quarter. We think this will continue until next year,” Colliers Associate Director for Office Services Kevin Jara said in an interview on the sidelines of a briefing last week.

“We don’t see any regulatory headwinds, political headwinds,” he added.

Mr. Jara said, however, that there might be a slight slowdown in demand during the US elections towards the end of next year, attributed to the significant demand for outsourcing.

“During those months, there’s a slight slowdown but usually recovers after the season,” he noted.

Office space transactions for the third quarter stood at 197,000 square meters (sq.m.), which is 17% higher than the 169,000 sq.m. in the same period last year, data from Colliers showed.

About 167,000 sq.m. of vacant spaces were recorded during the period, higher than the 137,000 sq.m. seen in the previous year, mainly driven by the completion of new office buildings. Occupied office spaces, on the other hand, reached approximately 11.3 million sq.m.

Mr. Jara said that office demand next year is likely to be driven by the business process outsourcing (BPO) sector, especially as companies seek to grow their headcount.

“The BPO industry has a roadmap to double their headcount until 2028. So, it’s just a matter of if those additional head count will translate into office space,” he said. “But regardless, it’s still going up.”

In the third quarter, traditional offices comprised the majority of office space deals at 98,000 sq.m., including government agencies, telcos, insurance firms, and flexible workspace operators, the property consultancy firm said. The figure has risen from 69,000 sq.m. previously.

The information technology and business process management sector recorded 70,000 sq.m. of transacted spaces, lower than the 93,000 sq.m. a year earlier.

Philippine offshore gaming operators reportedly transacted about 29,000 sq.m., an increase from the 7,000 sq.m. last year, but still lower than the 55,000 sq.m. transacted in the second quarter.

During the third quarter, the demand rose by 10.78% to 185,000 sq.m. of office spaces from 167,000 sq.m. in the third quarter last year and 170,000 sq.m. in the second quarter of 2023.

“We’re also expecting more and more companies, not just BPOs, to do a flight-to-quality relocation. Take advantage of the market because you have potentially cost-effective rental costs in a new building versus your current lease which may have pre-pandemic rents pa which are higher,” Mr. Jara said.

In the first nine months, Colliers reported that about 155,000 sq.m. of office space relocations were recorded, of which 69% were flights to quality, while 31% were flights to cost.

Flight-to-quality relocations refer to moves to newer, higher-grade buildings, which are mostly in primary submarkets, while flight-to-cost relocations involve moves to older, lower-grade buildings with lower rents, typically in secondary submarkets. — Sheldeen Joy Talavera

Phenomenal finds at California wine tour

THE CALIFORNIA Wine Institute Vintner’s Tour for 2023 went around Asia last month, rolling from Shanghai, Taipei, and Hongkong, before making a final stop in Manila on Oct. 23. About 30 winemakers were gathered at the Shangri-La The Fort, and we’re listing three that piqued our interest.

CHANEL WINE BY ST. SUPÉRY
In 2015, Chanel joined the American wine game with the purchase of the St. Supéry Vineyards and Winery in the Napa Valley. We had a taste of their Sauvignon Blanc, the only varietal from the winery to survive the California wildfires of 2020 (their Merlots and their Cabernets Sauvignons were either burned, or covered in soot and ash). This particular Sauvignon Blanc had a scent of peaches and pears, and was very crisp and fruit-forward. St. Supéry is distributed in the Philippines by PYC Foods Corp., and is available at One World Deli.

A WINE THAT CHANGED THE WORLD
In 1976, a wine competition was held in Paris that sought to settle a question between the quality of Old World and New World wines, where 11 judges blind-tasted wines from California and France. The competition was called the Judgment of Paris — as in the Greek myth, when the Prince Paris of Troy had to choose who the fairest was between the goddesses Hera, Athena and Aphrodite, and its result sparking the Trojan War. The US won both categories, with their Chardonnays facing against France’s own, and their Cabernet Sauvignons staring down France’s Bordeaux. This modern-day Judgment of Paris, at least, brought only nice memories, and solidified the Napa Valley’s reputation as a contender on the world stage.  The winner for the Chardonnay category was a 1973 Chateau Montelena Chardonnay, and its winemaker was Miljenko “Mike” Grgich. Mr. Grgich, who turned 100 this year, opened his own winery the year after his creation won the Judgment of Paris.

Grgich Hills Estate offered us a taste of its history-changing Chardonnay, from the similarly historical year of 2020: it had a delicate powdery and fruity scent, a nuanced juicy and sharp flavor, and a slow, lingering smoky ending note, like the smoke from a match that had just been put out. In the Philippines, Grgich wines are distributed in the Philippines by The Wine Club.

FROM ENTHUSIAST TO MASTER
Many fans of anything have long dreamed of being the master of the things they love. Our last winemaker on this list, Keith Nichols of Nichols Winery & Cellars, proves to be a great example of someone who made that transition.

The winery was founded in 1991. Before that, Mr. Nichols had been in the navy as an Aviation Electronic Technician. After leaving the navy, Mr. Nichols pursued higher education and earned a Business Management degree from Pepperdine University, an MBA from California Lutheran University, and an MS degree in Telecommunication from Golden Gate University. He first fell in love with wine after joining a small gourmet club, and his friends and he explored food and wine together, traveling across the globe for meals. He had the idea to make his own wine, and learned about it using books about viticulture and oenology from UC Davis, and taking viticulture courses from another institution. He went on to talk to winemakers from France, South Africa, and the Napa Valley, with the whole process of studying taking five years. “After five years, I thought I knew what it took to make a great wine,” he told BusinessWorld. He let us taste a 1997 Reserve Merlot, the color of a pigeon’s blood ruby, with a sharply spicy and aromatic scent (like a whole barrel of spices), and had an elegantly piquant flavor. He said that his wines have appeared in some movies, like in 1996’s The Birdcage. Discussing how he was able to make the transition from enthusiast to master and the role California played in it, the 76-year-old told BusinessWorld, “I’m not sure I could have done it anywhere else. I was living there, but understanding the California weather and the sunshine that we get constantly — it’s the weather that makes great wine, not the winemaker.” — Joseph L. Garcia

FATF ‘gray list’ inclusion seen to hurt PHL

THE LOGO of the Financial Action Task Force (FATF) is seen at the OECD headquarters in Paris, France, Oct. 18, 2019. — REUTERS

THE PHILIPPINES’ continued inclusion in the Financial Action Task Force’s (FATF) “gray list” of jurisdictions under increased monitoring for “dirty money” risks may affect remittance fees, borrowing costs and investments, an official from the Philippine Amusement and Gaming Corp. (PAGCOR) said.

Overseas Filipino workers (OFWs) will be the first to be affected by the country’s continued inclusion in the gray list, Dave Fermin J. Sevilla, assistant vice-president of PAGCOR’s Anti-Money Laundering Supervision and Enforcement Department, said in an interview with One News PH on Wednesday.

“As long as we are in the gray list, banks and other institutions will tighten their (anti-money laundering controls) for Filipinos. Sanctions and transaction fees for OFWs may increase,” he said in mixed English and Filipino. 

“Even in the casino industry, our customers coming from abroad may be reduced because we are still in the gray list,” he added.

The FATF is also an intergovernmental organization that crafts and promotes policies and standards to help combat financial crime.

It said in a report released on Saturday that the Philippines remains part of its gray list of jurisdictions under increased monitoring for dirty money risks after failing to address strategic deficiencies against money laundering, terrorist financing and proliferation financing.

After a three-day plenary session in Singapore, the dirty money watchdog said the Philippines still needs to address five out of the 18 deficiencies in anti-money laundering/combating the financing of terrorism (AML/CFT) controls.

The Philippines should continue to demonstrate effective risk-based supervision of designated nonfinancial business and professions (DNFBPs) and ensure that supervisors are using the proper AML/CFT controls to mitigate risks associated with casino junkets, the FATF said.

It should also enhance and streamline law enforcement agencies’ access to beneficial ownership information and ensure accurate and up-to-date information and increase investigation and prosecution of cases related to money laundering and proliferation financing.

The Philippines has been on the FATF’s gray list since June 2021.

Government officials earlier said they hope the Philippines can exit the gray list by January 2024.

According to Mr. Sevilla, banks are required to do strict customer due diligence on clients from high-risk jurisdictions as identified by the FATF, or those included in its gray and black lists.

“Unfortunately, Filipinos are subjected to that. Banks need to check and monitor our transactions, which leads to higher fees because more resources are being used,” he said. “And as long as we continue in the gray list, the charges for remittances may continue to increase and our OFWs would have a harder time.”

Companies in the Philippines that want to secure foreign loans could also face higher interest rates and charges, Mr. Sevilla said.

The country’s attractiveness as an investment destination will likewise take a hit if it remains on the FATF’s gray list, he added.

“Why would you invest in a country that is gray-listed? The FATF and the APG (Asia-Pacific Group) encourages investors to put their money in safe countries, or countries that has good AML/CTF systems,” he said.

The APG on Money Laundering is an intergovernmental organization with 42 member jurisdictions. It aims to ensure that individual members effectively implement the international standards against money laundering, terrorist financing and proliferation financing. 

For PAGCOR, the FATF and the APG want the Philippines to demonstrate effective and intensive monitoring of covered entities for money laundering risks, he said.

“We are now intensifying the monitoring of all our gaming licenses… We always check our big casinos and we have always had people stationed there. Then we also check the smaller stations. For POGOs (Philippine Offshore Gaming Operators) or internet gaming licenses, we have new rules that require more intensive monitoring of the weaknesses identified by the AMLC,” Mr. Sevilla said.

“We have also identified areas in the sector that can be used for money laundering, and we try to mitigate these weaknesses with new rules and regulations,” he added.

President Ferdinand R. Marcos, Jr. has given government agencies until Nov. 30 to address deficiencies in their anti-money laundering strategies in hopes that the Philippines could exit the FATF’s gray list by January. — K.B. Ta-asan

Expelling Palestinians to the Sinai can’t be Israel’s answer

PEA-UNSPLASH

THE PROBLEM with ignoring dead-end signs is that you eventually end up at the bottom of an alley with nowhere to turn. This is where Israel’s government now finds itself, and a leaked document shows how some in the ruling elite are thinking this lack of options through. It’s not pretty.

The Oct. 13 draft document called “Policy Paper: Options for a Policy Regarding Gaza’s Civilian Population’’ comes from Israel’s Intelligence Ministry. It recommends expelling the strip’s population to Egypt’s Sinai desert and locking the door behind them as the best way to secure Israel’s long-term interests.

Other territorial disputes have been ended by expulsions or exchanges of populations, most recently in Azerbaijan’s Nagorno Karabakh enclave. The practice, sadly, isn’t that uncommon, but it’s called ethnic cleansing and is what the international community fought hard to prevent during the Yugoslav wars of the 1990s. Even to entertain the idea in a policy paper suggests that Israel’s government has not recognized where its zero-sum approach to the Palestinian question went wrong. And that’s worrying because the geopolitical ramifications of this dispute run wide and deep. At some point, either this government or a replacement will have to throw its pre-war policies into reverse.

First, some disclaimers. The Intelligence Ministry in Israel is much, much less important than analogues elsewhere. It is in essence a research center under the prime minister’s office, and very much the runt of the litter among the nation’s fabled, if currently bruised, security organs. So, although the government has confirmed the document’s authenticity to a range of media, it also downplayed its importance, describing it as a concept paper that hadn’t been discussed outside the ministry.

In other words, the Biblical expulsion of more than 2 million people isn’t government policy and is unlikely to happen. But in a world where Russia invades Ukraine against its obvious self-interest, and the US is considering re-electing Donald Trump as president, it’s foolish to count on common sense prevailing. The paper is worth reading mainly because it shows the intellectual bankruptcy of parts of the government and adds to the growing debate within Israel over whether Prime Minister Benjamin Netanyahu and his ultra-right coalition are the best people to deal with the crisis caused by Hamas’ Oct. 7 killing spree, in which more than 1,400 Israelis were butchered.

The paper (a translation is here, on the website that broke the story) outlines three possible scenarios for the day after the war. Option A is to withdraw after dealing with Hamas and install the more moderate Palestinian Authority in its place. Option B would be to withdraw and then ask a coalition of Arab nations to organize a post-Hamas administration in Gaza. Option C would move the civilian population across the border into Egypt for their safety, and then not let them back.

There are obvious reasons why option C is unlikely to happen, beginning with the fact that if there’s one thing Egyptians agree on, it’s that they don’t want to take on millions of Palestinian refugees. A second is that this would in effect repeat Israel’s 1948 expulsion of up to 700,000 Palestinians from their homes, a source of instability ever since. It would serve as a call to arms for Palestinians in the West Bank and Arabs across the region, not to mention Iran and its allies. For that reason, if no other, it is unlikely the US or still less Europe would endorse such a solution, leaving Israel in a very lonely position indeed.

It is the paper’s reasoning that’s of interest. It goes through the obstacles to each scenario and concludes that the first suggestion — putting the Palestinian Authority in charge of Gaza — would be the most dangerous. It would, according to the authors, pose an “existential’’ threat to the state of Israel, because it would be seen as a victory for Hamas and, unlike in Germany after World War II, there would be no moderate opposition to Hamas in Gaza to facilitate the area’s “de-Nazification.’’ A new Hamas generation would take charge and restart attacks on Israel, which would then find it difficult to recruit soldiers from a demoralized population. Option B is ruled out for similar reasons.

The potential downsides to C aren’t discussed, other than to acknowledge that Israel would have to work hard to persuade the US and other allies of the policy’s legitimacy, which is, of course, an understatement. The hope, according to the paper, is that unlike the other options, what amounts to ethnic cleansing would help Israel solve the Gaza problem once and for all and deter Hezbollah from attempting an attack on Israel from the North, given the dire consequences that befell Gaza when Hamas did the same.

I don’t envy Israel’s decision makers. A policy that fed Hamas and encouraged the expansion of Jewish settlements on the West Bank to weaken the more moderate Palestinian Authority has left the government with no good choices. It needs to punish and defeat Hamas, all while preventing the war’s expansion and sparing the civilians Hamas has used as a key part of its defenses, not to mention the 238 hostages still in captivity.

It’s an impossible task — according to Gaza’s health authority the death toll from Israel’s retaliation is already over 8,000 — and it needs a far-sighted strategy to have any chance of success. But a second “Nakba,’’ or catastrophe, as the Palestinians call their 1948 expulsions, is neither an effective nor an acceptable way to ensure Israel’s security.

BLOOMBERG OPINION

NGA 911 seeks to improve LGUs’ emergency response capabilities

NGA911.COM

NEW GENERATION Advanced 911 (NGA 911), a cloud-based technology from the United States, is set to expand its partnerships with local government units (LGUs) in the Philippines to help modernize their emergency response capabilities.

NGA 911 Chief Financial Officer Ishka Villacisneros said the company is inking partnerships with different localities in the Philippines as they aim to help make the country’s emergency response most advanced in the region.

“The goal here is to propagate this technology across all LGUs,” Ms. Villacisneros said in an interview last week.

NGA 911 is expected to deploy its system in Morong, Rizal, its first partner LGU in Asia, before the end of the year.

Aside from Morong, the technology is also expected to be deployed in Alaminos, Pangasinan.

NGA 911 uses Internet Protocol technology to facilitate communication between callers and emergency responders, enabling the transmission of voice, text, and video messages through mobile devices and even via social media applications.

Its services include the training of staff, hardware, and software tools, and maintenance of the system.

The technology will connect fire, police, and medical authorities to enable quicker response time, Ms. Villacisneros said.

“When residents of Morong call 911, they won’t go through the national line anymore —they will be directly connected to Morong emergency response team,” she said.

Extended call wait times on the national 911 hotline are due to the influx of spam calls that are hard to filter, Ms. Villacisneros said, adding this can be done by NGA 911.

Instead of having different emergency hotlines for each locality, there is a need to have a unified emergency number for all LGUs, she said.

“The problem in the Philippines is that when you’re in Quezon City and then move to Makati, the emergency numbers often change… So our main goal is to unify the emergency number with the international standard 911,” she added.

The cost of implementing an advanced 911 system in cities and municipalities is not as expensive as it may sound, Ms. Villacisneros said.

Morong is currently classified as second-class, and we also have a fourth-class municipality in our pipeline. If these LGUs can, highly urbanized cities also can,” she said.

“You don’t really need to construct a large building because all the equipment is in the cloud. If you were to see our setup, it’s just about the size of two DVD players,” Ms. Villacisneros added.

Cloud-based technology allows the system to operate even during a calamity, she said.

“With the Philippines having numerous islands and facing calamities, relying on a single system can be risky. But here, we have a backup system. For instance, if one center gets flooded, all systems remain connected,” she added.

“If the provincial center sees municipal centers go down, they can step in, and if needed, even the national center can step in. The province can monitor all their LGU centers seamlessly,” Ms. Villacisneros said. — Jomel R. Paguian