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Regulation by the blind is costly

The Philippines is among the developing countries with a large pig industry that got hit by the African Swine Fever or ASF. In terms of inventory, its pig herd fell by about 3.08 million heads in the first quarter last year from a level of 13.8 million in 2020. The sharp drop reflected higher pig mortality due to ASF or possibly other causes, culling to contain the spread of the virus, or their owners accelerated harvest to cut down their respective financial losses to ASF.

The World Organization for Animal Health (OIE) describes the ASF to be a highly contagious hemorrhagic disease of domestic and wild pigs. Infected animals will have “high fever, loss of appetite, hemorrhages in the skin and internal organs, and death in two to 10 days on average.”

Available data indicates that the Philippines is not out of the ASF woods yet. Local pork supply is estimated to be 1.247 million metric tons this year, down from 1.608 million tons at the start of the ASF outbreak. Because of the expansion of pork demand following the recovery of per capita income growth at the end of the COVID-19 pandemic, one analysis which made use of data from Philippine Statistics Authority, Trade Map, GIRA (2020), and World Bank placed the pork deficit this year at nearly half a million metric tons this year (see Figure 1).

I take up this problem not just to estimate the amount of pork which the country must import to lower pork prices and thus help curtail inflation from its current level of 6.9%, but more to explore how we may expand local pork production by addressing the ASF problem.

The ASF virus is still in this country, and we don’t know where and when the virus would claim the good health or lives of pigs. There is no medicine for it and ASF vaccines are still being developed.

GIRA (2020) claimed that nearly half of pork would be lost because of ASF, with backyard farms losing 30% and commercial farms 36%. Before ASF, 60% of our pig industry was backyard, indicating that smallholder farms got hit by the disease relatively more than commercial farms. This leaves the industry with more commercial farms surviving (56%).

The disease hit hardest in the island of Luzon, particularly Central Luzon and Calabarzon, which happen to be the country’s top two regional pork producers, servicing the country’s largest pork market, which is the National Capital Region.

What has the government done to address the ASF problem?

The Department of Agriculture (DA) has been implementing its INSPIRE program. The program aims to restore the livelihoods of ASF-affected small-hold swine raisers, produce quality and genetically superior breeder stocks and finishers, intensify and modernize the production environment in the ASF-free zones, and implement strict biosecurity protocol.

The program identifies ASF virus-related zones: red zones for areas with farms found to have ASF, and pink zones separating the red from ASF-free areas, dubbed as green zones. In red zones, the DA destroys animals that are sick with ASF and restricts the movement of animals and related products in the pork value chain in it to control the spread of the virus (see Figure 2).

Red zones become pink by going through a cleaning, disinfecting, and bioassay process lasting about 60 days to clear the area of the virus. Once completed the program introduces sentinel pigs into the area and if they survive, the red zone is declared to be pink zone. After a given period without the virus, the area graduates to become a green zone.

Let me make a few observations. Surveillance of the virus is largely reactive. Biosecurity officers of LGUs surveille the area weekly to observe clinical signs of the disease, such as sudden death or animals with fever. They report these signs to the Province Veterinary Officer, who would organize a task force to undertake a disease investigation to confirm the presence of the virus. Once confirmed, the area of about 500 kilometers from ground zero is declared a red zone and animals may be culled and products derived from the swine are restricted to only within the area.

To confirm the presence of the virus, biological samples are moved from the affected areas to animal disease diagnostic laboratories, which have RT-Polymerase chain reaction (RT PCR). OIE prescribes that confirmation be done using RT PCRs. This can spread the disease to other areas.

There are 12 regional animal disease diagnostic laboratories (RADDL), one ADDL for the NCR, and seven private laboratories. With ASF, this forms a bottleneck and raises the cost of trading pork or live pigs. Private commercial farms are complaining about the fees charged by these laboratories, which are reportedly at P35,000. Small hold farmers would not have the incentive to comply with the regulation with only the few heads that they produce. Furthermore, the owners must wait five to seven days for the results. The lag time can cause the spread of the virus in affected areas.

ONSITE SCREENING USING MINI-PCRS
To address this weakness of the surveillance system, authorities must allow onsite screening using a mini-PCR and testing kits. Biosecurity officers conduct onsite screening, say twice a month. This device can tell the officers the presence or absence of the ASF virus in less than a day (see Figure 3).

The device costs about $3,000, doesn’t require air conditioning nor refrigeration. It is ideal to be used in the field. The good part of it is that once the sample is found to be without the ASF virus, authorities should allow the owners to market their products, reducing transactions costs.

Only the samples with positive findings are then brought to animal disease diagnostic laboratories for confirmation, as ordered by the OIE.

There is more. The device can collect DNA from the infected sample, and biosecurity officers would only transport the extracts without risk of spreading the disease.

The current surveillance system is seemingly regulating the industry blindly for the following reasons. One, using clinical signs of the disease is ineffective in animals that are asymptomatic. Two, the high cost of confirming the presence of the virus and the lag time for the results are disincentives to getting the presence of the virus in the products confirmed. Three, authorities would not be able to find out if samples from healthy animals are substituted for samples from animals with the disease.

I doubt if the industry could ever escape from ASF without strengthening its surveillance system. INSPIRE’s green zones after successful sentinel procedures remain vulnerable to the disease. The program, by the way, is focused on helping small-hold farmers. Commercial farmers are assumed to take care of themselves. The INSPIRE program is more likely to succeed in repopulating the pig industry faster if it helps commercial farm owners.

These businesses can take care of themselves. But they are not incentivized to invest in new stock because of ASF. They, too, are blind without the capability to do onsite screening themselves using mini-PCRs. Of course, they can buy and do onsite screening but if the authorities do not allow onsite screening using accredited PCRs, the devices have less commercial value to them.

If authorities accept the negative finding using onsite screening with mini-PCRs and permit owners to market their products, this innovation in the surveillance system could encourage more investments by commercial farmers. One big commercial farmer in Batangas said that it is very risky to make an investment with his farm surrounded by small-hold farms. He said he is willing to donate mini-PCRs to clusters of small-hold farms to protect his farm from being infected with the disease.

 

Ramon L. Clarete is a professor at the University of the Philippines School of Economics.

Learning assessment to play crucial role in post-COVID education

PHILIPPINE STAR/ WALTER BOLLOZOS

I had the privilege of giving a keynote speech at the 2022 National Conference on Educational Measurement and Evaluation organized by the Philippine Educational Measurement and Evaluation Association (PEMEA). PEMEA is a professional organization of assessment academics and practitioners who are pushing for high-quality theory, research, and practice in educational measurement and evaluation. The conference’s theme was “Unlocking the Potentials of Assessment in Reimagining Curriculum and Instruction.” The theme is very timely given the present challenging times for Philippine basic education.

Broadly, assessment at the classroom level refers to the process of keeping track of learners’ progress in relation to learning standards. System assessments measure the effectiveness of an educational system in achieving learning goals. Three major tasks confront basic education as we transition towards the post-COVID period, to which assessment as a vital component of the learning process must respond. The first is addressing the long-standing challenge of quality in basic education. The second is recovering the learning loss arising from the disruption of face-to-face classes. The third is anticipating the future of education and making careful but bold changes now.

On the first task, the administration of former Education Secretary Leonor Briones shone a light on the challenge of quality in basic education. As early as November 2016, she singled out quality as the foremost challenge of basic education in the country, based on historical performance in national assessments. This was the reason why, despite the political risk, she approved the country’s participation in the 2018 round of the OECD Program for International Student Assessment, or PISA, for the first time since this international assessment was started in 2000. She wanted to see how we measure against international quality norms, and to generate important data and understanding of this challenge.

Given the historical poor performance in our national achievement tests, we did not fare well in PISA, and in other international assessments that we joined. Thus, the Department of Education (DepEd) launched in November 2019 the program Sulong Edukalidad, comprising the four pillars of curriculum review, continuous improvement of the learning environment, upskilling and reskilling of teachers, and engagement of stakeholders for partnerships and collaboration. Concrete programs backed up these pillars of Sulong Edukalidad.

Specific to assessment, we implemented a Professional Development Program on Assessment and Emerging Literacies with focus on PISA. We partnered with a consortium that included assessment experts from the Philippine Normal University, De La Salle University, University of the Philippines, and organizations like the Assessment, Curriculum, and Technology Research Center (ACTRC), Center for Educational Measurement (CEM), and FrontLearners, Inc., to develop and implement the program. The program aimed to improve teachers’ assessment literacy and content knowledge, which should help them align their classroom practice with the emerging literacies measured by international large-scale assessments.

We hope that similar programs, as well as participation in international large-scale assessments, will be continued. Sustained participation builds an important database that provides information across students’ performance in specific learning areas.

On the second task of responding to the urgent need to recover the learning loss during the pandemic, undoubtedly pure distance learning was fraught with challenges faced by teachers and learners. These included the availability of quality distance learning resources, instructional assistance in the home, limitations on formative assessment and feedback, home learning environment, time management and motivation, and monitoring of the time and effort for learning. The learning loss can be expected to be highly unequal and to be more acute among children in early years of learning.

The first critical step to learning recovery will be to have a proper assessment of learning loss at both system and classroom levels. A system assessment administered to a statistically representative sample of students may serve as rapid assessment to inform regional, division, or school-level interventions, such as the preparation of standardized learning remediation tools. Classroom assessment, on the other hand, will enable teachers to identify individual learning levels and provide differentiated instruction.

On the third task of anticipating the future of education, I do not subscribe to taking a singular focus on learning loss post-pandemic. When we consider learning loss because of the physical closure of schools, we need to look at the same time at learning gains. During the pandemic, children learned to be more independent in their studies; parents renewed their role in their children’s learning process; local governments became more creative; and school officials started rethinking their traditional notions of learning space and classrooms.

Thus, while basic education returns to face-to-face classes, it should not totally snap back to pre-COVID learning delivery. We should make room for some amount of distance learning blended with the predominant face-to-face classes. The distance learning component should be designed to maximize competencies that are highly compatible with distance learning. Many of these competencies are also important to prepare learners for the present and future social and economic environments. Assessment will then need to adapt to the new forms of learning delivery as well as to new learning competencies post-COVID.

 

Nepomuceno Malaluan, a former education undersecretary, has rejoined Action for Economic Reforms as a trustee and senior fellow.

Lessons from Japan’s economic miracle: Flying high

REDD-UNSPLASH

(Part 2)

In this corner on Sept. 26, I wrote about the phenomenal rise of Japan as an industrial powerhouse and the lessons the Philippines can learn from the Japanese experience.

For those who missed it, Japan’s remarkable transformation from a country broken by war to the second largest economy in the world happened over just 23 years. Its rise to economic power was principally achieved on the back of four pillars: A well-defined national goal (rapid industrialization) and the participation of the citizenry towards realizing it; investment in foundational industries such as steel, chemicals, and precision equipment; a focus on STEM learning; and, the formation of Keiretsus, or a group companies with interlocking ownerships and common business goals.

This is the second installment to Japan’s three-part economic saga. This piece describes how Japan multiplied its wealth from 1967 to 1989.

By 1967, Japan’s industrial backbone was firmly in place. It had steel mills, petrochemical plants, chemical laboratories, machine workshops, power plants, and glass and lens factories — basically all the essentials needed to manufacture industrial goods. With its industrial capabilities, Japan quickly became the manufacturing hub of the world for light industries. This included household appliances, light industrial equipment used for manufacturing, precision equipment (e.g., musical instruments, science laboratory equipment, etc.) and even toys. Japan was already manufacturing automobiles and motorbikes at this time but would only begin to export them in the early 1970s.

Between 1967 to 1985, Japan continued to export its manufactures all over the world. Buoyed by research and development spending of some 11% of annual turnover, Japanese goods grew in technological sophistication and reliability. Brands like Sony, Sanyo, Kenwood, and Nakamichi became household names. So did Toyota, Suzuki, Mitsubishi, and Yamaha in the industrial sector.

With a booming economy, Japanese conglomerates began to establish their corporate footprints in foreign markets. They invested heavily in establishing distribution and/or manufacturing facilities in every major market in the world. Multinationals repatriated their profits to the motherland and this contributed to Japan’s growing fortunes.

Throughout the late ’70s and early ’80s, the Japanese government invested heavily in promoting Japanese culture abroad. In time, Japanese gastronomy, culture, and way of life came to vogue and this bode well towards increasing patronage of Japanese goods. Japan was winning market share in almost every category it competed in, be it in automobiles, home appliances, and electronics.

By 1985, the United States’ industrial sector became increasingly worried that they were losing their own domestic market to Japan. Since they could not compete with the Japanese’ cost advantage, they appealed to the US Congress to slap stiff tariffs on Japanese made goods.

But the American Congress did not consider this proposal. See, if they slapped tariffs on Japanese products, Japan would readily to the same. Both countries would be worse off as their citizens would be deprived of quality products at the lowest price.

So, a compromise was reached. The US would depreciate its currency in relation to the Japanese yen (along with the French franc, German mark, and British pound). With this, Americans would have less purchasing power for goods made in Japan. Conversely, American goods would be made cheaper for the Japanese. This devaluation plan was enshrined in what is called The Plaza Accord.

Why did Japan agree to this scheme? First, they did not have much of a choice. Second, Japan relies on the US for its wheat, corn, and raw materials. A devalued dollar would make importing these goods more affordable.

The Plaza Accord made the Japanese rich as the value of the yen doubled in three years. With a strong currency, the Japanese were able to buy US assets with less yen. So, they went on a buying spree. They bought numerous American companies and historical landmarks including the Rockefeller Center, CBS Records, Columbia Pictures, and many others.

With their newfound wealth, the Japanese people began to level up their lifestyles. Japanese tourist began traveling the world and spending on luxury goods. The Japanese Central Bank reported that in 1989, corporate Japan booked $50 billion ($113 billion in today’s money) on travel and corporate representation expenses.

The Japanese people invested in real estate to such as extent that prices of Japanese properties skyrocketed to unpresented levels, not even matched today. In 1989, a mere inch by five-inch piece of land in downtown Tokyo was valued upwards of $100.

The Japanese Central Bank slashed interest rates to encourage corporate Japan to expand their businesses. But with the intoxicating mood of the era, the Japanese used low interest loans to snap-up more real estate and speculate on the stock market.

Fueled by speculative investments, it was not long before the property market and stock market crashed. This marked the start of the economic stagnation of the ’90s, commonly referred to as Japan’s lost decade.

Next week, I will explain the reason for Japan’s economic stagnation, the economic reform employed by the Japanese government to battle it, and whether or not it worked. Watch out for it.

 

Andrew J. Masigan is an economist

andrew_rs6@yahoo.com

Facebook@AndrewJ. Masigan

Twitter @aj_masigan

Get real with inflation

PHILIPPINE STAR/ RUSSEL PALMA

Philippine annual inflation quickened to 6.9% in September, hitting its fastest pace in four years, driven mainly by high food and utility prices, according to the Philippine Statistics Authority (PSA). The 6.9% inflation growth rate is well outside the 2% to 4% target of the Bangko Sentral ng Pilipinas (BSP), which has so far raised rates by a total of 225 basis points this year to try and stem inflation.

“The Bangko Sentral is prepared to take further policy actions to bring inflation toward a target-consistent path over the medium term, consistent with its primary objective to promote price stability,” the BSP said in a statement. More rate hikes are expected at its November and December meetings (Reuters, Oct. 5, 2022).

“I don’t know what you say about this ‘inflation’ thing,” the ordinary Pinay housewife might say. All she knows is that grocery prices have gone up in the two and a half years of the COVID pandemic, and prices are still going up. (Disclaimer: “housewife” is not a derogatory term for women, or wives, or stay at home persons, but used only to un-maliciously represent the ordinary consumer who is simply concerned about personal purchasing power.)

The price changes in the sample grocery food items in the table, plus the escalating prices of fuel and gas, electricity, water, and housing in the last 2-½ years may basically represent the layman’s most common perception of today’s inflation. The PSA, as with world economic measurements and statistics agencies surveys, meticulously derives inflation from what is called the Consumer Price Index (the CPI market basket), the weighted arithmetic mean of expenditures on 11 classes of consumer items purchased by households as a proportion to total expenditure.

The retail prices of food and non-alcoholic beverages are 38.96% and housing, water, electricity, and gas are 22.47% of the CPI market basket, while alcoholic beverages and tobacco, clothing and footwear, health, transport, communication, recreation, education, and restaurant and services contribute percentages of from 2% to 7% (only transport) to the representative market basket. The 2006 CPI series was the first in the CPI series that used the 1999 United Nations Classification of Individual Consumption According to Purpose (COICOP) in determining the commodity of the items and services included in the market basket (psa.gov.ph).

The inflation rate is the annual rate of change, or the year-on-year change of the CPI expressed in percent. Inflation is interpreted in terms of declining purchasing power of money. But note the “housewife’s” uncanny intuition and accurate grasp of the on-the-ground situation wherein inflation is experienced — in real time, and not in the lagged effects hampering meticulous econometrics from perhaps arbitrary statistics.

Compare what the PSA said, “for food index, it increased to 8.3% in September 2022, from 7.7% in the previous month.” So, the ordinary layman knows and feels inflation even before PSA has measured the 6.9% official inflation rate while pre-announcing the key rate upward-adjustments. Increased interest rates will push up borrowing (and therefore production costs) for businesses, specially the small-to-medium enterprises — which costs will be passed on to the consumers, which will then push more inflation coming from the debilitated purchasing power of money.

Cost-push inflation, the economists call it, but the jargon is itself confused, as frustrated demand from weakened purchasing power increases demand even more, and inflation raises evil laughter at its triumph in entrenching itself in adaptive expectations of consumers who resign themselves to the irreversibility of prices that have gone up and which will never again go down. “Sticky prices” is the cutesy name for this.

Likewise “sticky” are wages, which in times of inflation are insistently pushing for upward adjustment, for workers to keep up with rising living costs while the companies they work with are struggling to keep production costs down or lower — the price-wages spiral raises inflation some more.

Like the price of goods and services, and of wages which will never go back to what they were in the good old days, the foreign currency exchange rate is likewise affected by the cumulative effects of historical periodic inflations. External inflation comes with the movements (depreciation, for the less-developed economies) from proportional inter-country difference in nominal interest rates as countries wrestle with their own inflation problems. The “housewife” probably does not fully understand that the US Fed has been increasing its interest rates to tame internal inflation, but she intuitively knows that the Philippine Peso is nearing the exchange rate of P60 to $1, and her groceries and other shopping will cost more pesos because most of consumer goods and services are fully imported or of imported content. Government financial managers and planners are the ones to worry about the “balance of payments,” where the country is a net importer, using US dollars to pay suppliers and creditors for foreign loans and obligations.

But the exporters and the Overseas Filipino Workers (OFWs) are happy at the depreciation of the Philippine peso, as they now have almost 20% more pesos in exchange for their dollars. As of last year, OFW remittances hit a record-breaking $34 billion, which, according to the BSP, accounted for 8.9% of the country’s GDP. In July 2022 alone, money sent home by OFWs increased by 2.3% to $3.24 billion from $3 billion, the BSP said. Sad to say, but the bonanza from the peso depreciation for exporters and OFWs/dollar earners will not really help the payment of government’s foreign loans obligations, because payments will still be in dollars, at the same principal, terms, and interest rate as contracted — only costlier, in terms of more pesos needed for servicing.

And here is where we have to “get real” with this complicated experience called “inflation.” Although the terms CPI and inflation are often used interchangeably, the CPI only measures inflation as experienced by consumers — like the “housewife.”  This economic label is “nominal/headline inflation,” based on the CPI, or a CPI without volatile food prices and fuel, etc., called “core inflation.” But inflation is not just about the erosion of purchasing power.

Inflation affects macroeconomics (the country’s and world economics); microeconomics (economics of the firm or business); and personal finance and economics. “Inflation,” as economists try to measure it, or as the consumer really feels it, hits all who spend and use money. Take, for example, interest rates: the real interest rate is the nominal (or stated) interest rate less the rate of inflation. For investments, the inflation rate will erode the value of an investment’s return by decreasing the rate of return. Case: if the rate of return for government securities bonds is 4% gross and about 2.8% net of taxes and brokers’ fees, and the inflation rate is 6.9%, then the real rate of return for the buyer (the common investor) will be 2.8% less inflation of 6.9%, or a (negative) -4.1%! That’s because the interest rate of 4% is adjusted downward by 6.9% to account for the unfortunate power of inflation to erode value!

Why naman?, poor Filipinos ask the government.

The government should concentrate on providing a more confident economic environment for the country, not by reactive monetary and fiscal solutions to what has already threatened the survival and sustenance of the people, but by judicious and non-political medium- and long-term economic plans and programs.

 

Amelia H. C. Ylagan is a doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

Manufacturing output up 5 months in a row

REUTERS

Factory output rose for the fifth consecutive month as economic activity gradually picks up, data from the Philippine Statistics Authority (PSA) showed.

Preliminary results of the latest Monthly Integrated Survey of Selected Industries (MISSI) reported the factory output as measured by the volume of production index (VoPI) grew by 3.5% annually in August, faster than the 2.4% in July but slower than the 533.7% in August 2021.

August registered the highest VoPI growth in five months or since March’s 345.9%.

“The August figure increased slowly but surely. Although there was a comparison between August last year versus this year, and there was a big difference. But only because last year’s base was compared with August of 2020 when lockdowns were abundant and the coronavirus disease 2019 (COVID-19) was starting,” Philippine Chamber of Commerce and Industry Honorary Chairman Sergio R. Ortiz-Luiz, Jr., said in a phone interview.

Last year, Metro Manila and other provinces were placed under the Enhanced Community Quarantine (ECQ) lockdown — the strictest form of lockdown — from Aug. 6 to 20. This later eased to a Modified ECQ where granular lockdowns were implemented.

Year to date, factory output averaged 21.0% in the January to August period.

In the report, the PSA said that the August figure was mainly driven by annual growth seen in 17 out of 22 industry divisions.

VoPI recorded positive annual growth in manufacture of machinery and equipment except electrical (78.0% from 32.3% in July), fabricated metal products, except machinery and equipment (30.4% from 25.8%), transport equipment (24.6% from 16.7%), leather and related products, including footwear (22.2% from 18.4%), other manufacturing and repair and installation of machinery and equipment (22.7% from 8.2%), paper and paper products (17.9% from 17.6%), and chemical and chemical products (12.5% from 4.6%).

However, five industry divisions reported declines, led by manufacture of electrical equipment (-49.3% from -51.7%), basic metals (-24.7% from -20.4%), and tobacco products (-15.2% from -18.9%).

“For some manufacturers, the peso depreciation, inflation, and global supply chain constraints have some effect on manufacturing. Because if you’re a manufacturer of goods that’s substituting for imported goods, it’s going to be very expensive. It probably had an effect on electronics, garments and other goods that need imported materials. But this should be countered by the export of their goods,” Mr. Ortiz-Luiz said.

To compare, S&P Philippines Manufacturing Purchasing Managers’ Index (PMI) expanded to 51.2 in August, bouncing back from the six-month low of 50.8 in July. A PMI reading of above 50 means improvement in operating conditions compared with the previous month, while a reading below 50 shows deterioration.

In a separate phone interview, Federation of Philippine Industries (FPI) Chairman Jesus L. Arranza said a slow growth could have also been affected by the depreciation of the peso.

“These companies are also exporting. And if it’s mostly local production, it has advantage for export. And with the US Dollar-Peso rate, others will buy more goods from the Philippines,” he said.

Capacity utilization in manufacturing averaged 71.4% in August, slightly higher than July’s 71.3% but higher than the 65.8% recorded in August 2021. Of the 22 product categories, 20 reported utilization rates of at least 60%.

“I think there will be more manufacturing activity in the coming months. People shouldn’t see the peso depreciation as a ‘prophet of doom.’ But I think people will learn how to be frugal in terms of movement and costs — everyone will be cost conscious” Mr. Arranza said.

Mr. Ortiz-Luiz warned that the manufacturing industry should be cautious of their supply chain in the coming months.

“For example, microchips are exported but we also import them. Car producers, also, cannot deliver because there was a lack of microchips due to supply-chain constraint caused by the Russia-Ukraine war. This caused sanctions. Some of the countries supplying to us are sanctioned, therefore they couldn’t export to us — like fuel,” he added.  — Ana Olivia A. Tirona

Water use efficiency picks up in 2021

BW FILE PHOTO

The Philippine Statistics Authority (PSA) reported that the country’s water use efficiency (WUE), or the value added per volume of water used, increased to P200.06 per cubic meter (m³) in 2021, a 4.07% increase compared with P192.25m³ a year ago.

However, this is still lower compared with the WUE logged in 2019 at P217.10m³.

According to the statistics authority’s Water Accounts, the services sector had the largest WUE at P1,231.65m³, up by 3.1% from P1,194.55 in 2020.

Following are the industry sector at P455.29m³ (down 3.5% from P471.65m³), and agriculture sector at P15.37m³ (down 1.6% from P15.62m³).

In terms of gross value added, the services sector led with P11.315 billion in 2021, up from P10.742 billion a year ago.

Following are the industry sector (P5.448 billion in 2021 from P5.015 billion in 2020), and agriculture sector (P1.043 billion from P1.060 billion).

Total water abstraction, or the amount of water removed from source, went up by 1.3% to 221.340 billion cubic meters (bcm) from 218.583 bcm in 2020. Most of the supply came from surface water (216.222 bcm), and the rest from groundwater (5.118 bcm).

Water for own use also picked up in 2021 to 217.825 bcm, up from 1.2% from 215.198 bcm a year ago. This is equivalent to 98.7% of total abstracted water.

The remaining 1.3% is used for distribution, which increased by 1.2% to 2.523 bcm in 2021 from 2.493 bcm in 2020.

Total freshwater water withdrawals in 2021 likewise increased to 89 bcm from 87.477 bcm.

Meanwhile, the level of water stress, or freshwater withdrawal as a proportion of available freshwater resources, increased to 27.2% in 2021 from 26.7% in 2020.

The largest water expense came from households with P56.234 billion in 2021, up from P55.044 billion in 2020.

This is followed by the mining, quarrying, manufacturing, and construction sectors with P44.722 billion in 2021, up from P43.672 billion a year ago; and services with P35.917 billion, up from P35.169 billion for the same period. — Bernadette Therese M. Gadon  

‘Shoppertainment’ beats advertising when it comes to wooing online consumers, says TikTok

By Brontë H. Lacsamana, Reporter

FILIPINO consumers prefer authentic and entertaining marketing strategies over polished advertisements, giving rise to an approach that puts entertainment first and commerce second, a study showed. 

A 2022 study on the new opportunities in e-commerce conducted by TikTok and the Boston Consulting Group (BCG) found that exaggerated, picture-perfect advertisements usually fail to connect, with 90% of digital ads being skipped regularly by consumers.  

The “shoppertainment” strategy, which is fun, authentic, and focused on trends, can best be executed on TikTok, a social platform that hosts short-form user videos, the study added. 

Around 73% of the app’s users said they feel deeper connections to brands on TikTok than on other sites, with 87% of them saying video content influenced their recent purchases. 

“TikTok is changing how selling is happening. Our community has made shopping an interactive and entertaining place, so consumers now want an element of fun and entertainment whether they’re actively seeking out a product or casually browsing,” said Paolo David, head of brand partnership at TikTok Philippines, in an Oct. 6 media briefing. 

“Shoppertainment” in the Asia Pacific is projected to grow to a market value of $1 trillion by 2025 from a current value of $500 billion in 2022, with 55% being accounted for by fashion, beauty, food & beverage, and electronics.

The entertainment attributes that consumers now prefer are: storytelling (87%), not forcing decision-making (86%), a focus on trends and recommendations (85%), a video-first strategy (84%), and authenticity (81%). 

Only then should marketers consider the commerce attributes: clear information and the ability to purchase straightaway. 

Mr. David said that following the entertainment-first, commerce-second approach that the study outlines will help marketers benefit from TikTok’s influence on modern retail. 

“Our mission is to empower businesses of all sizes, to reach more customers on TikTok, and to help brands build presence and sell directly on the app,” he added. 

Aside from putting up the TikTok Shop portal and starting trends like #TikTokMadeMeBuyIt or more specifically #Budolfinds in the Philippines, the platform is also looking into educating and training businesses and brands on “shoppertainment.”

TikTok pointed out that, with consumers being bombarded with more choices online, 71% end up making purchases on a different day, with 85% switching apps while going through the consumer journey. This makes an ad’s impact key to their decisions. 

“Commerce has shifted from a functional transaction to a social interaction to an emotional connection,” said Mr. David. “There’s a growing appeal for things that hit you on an emotional level.” 

The study titled Future of Commerce surveyed over 2,000 respondents across APAC.

 

Chip industry rethinks Taiwan risk after Pelosi visit but options limited

TAIPEI — Chinese missiles flying over Taiwan and naval drills in the Strait in August that simulated a blockade by China have jolted the semiconductor industry into contemplating what once seemed a remote possibility: war over the major chip-producing island.

From drafting contingency plans to inquiring about manufacturing capacity outside Taiwan, some companies are now weighing how to respond if China attacks or restricts access to the democratic island, according to 15 semiconductor executives interviewed by Reuters.

While Taiwan has lived under the Chinese threat for decades, with occasional spikes in tensions, the war games in early August following the visit of US House Speaker Nancy Pelosi to Taipei rattled nerves, said the executives, who asked for themselves and their companies not to be identified due to concerns over relations with China.

China claims Taiwan as its own territory. Taiwan’s government rejects China’s sovereignty claims.

Taiwan produces the vast majority of the world’s most advanced chips and is home to Taiwan Semiconductor Manufacturing Company Ltd (TSMC), the world’s largest contract chipmaker and supplier to major companies like Apple Inc., US chipmaker Nvidia Corp, and chip designer Qualcomm Inc.

Chips are crucial for building everything from iPhones and washing machines to cars and fighter jets.

The executives said it would be hard to wean the world off its reliance on Taiwan’s hi-tech chips quickly but geopolitical challenges confronting the industry are increasing.

“Everyone is currently talking about business continuity plans,” said Terry Tsao, president of the SEMI Taiwan industry group. “A small portion of companies have only started to make these plans recently. From what I’ve heard, most are foreign companies.”

Forty percent of respondents polled by the American Chamber of Commerce in Taiwan the week after Ms. Pelosi’s visit said their companies were revising or about to revise their crisis contingency or continuity of operations plans in Taiwan.

One chip executive at a large foreign firm with operations in Taiwan said his company was asked about its business continuity plans by its customers and had in turn asked their suppliers in Taiwan the same questions.

“No-one really ever highlighted any kind of military action in their business continuity plans and now they are,” he said. Unsettled by the Chinese drills, which showed how easily Taiwan could be blockaded, management had launched efforts to plan for disruption in supplies and other scenarios, he said: “I don’t think anybody believes the political environment is going to get any better.”

Some say the presence of chipmakers provides Taiwan with a “silicon shield” — making China less likely to attempt to take the island by force and the United States reluctant to allow it to fall into Chinese hands. While the government in Taipei has downplayed this theory, it is keen to avoid any weakening of its economically vital semiconductor sector.

Later in August, officials from Taiwan’s foreign ministry, economy ministry, and top military think tank made their case for the island remaining a safe place for chip investment at a closed-door AmCham event.

Sebastian Hou, senior investment analyst at Neuberger Berman in Taipei, said that after the US–China trade war began many Taiwanese non-chip tech companies had reshored manufacturing or relocated to Southeast Asia because they were asked by their clients in the United States or Europe to diversify away from China.

However, following Ms. Pelosi’s visit, “customers in the Western world expressed their concerns about being too concentrated in Taiwan,” Mr. Hou said: “There’s no immediate action requested by their Western clients, but some discussion is already underway.”

INDISPENSABLE ISLAND

One foreign chip executive with factories outside of Taiwan said more companies contacted him after Ms. Pelosi’s visit to discuss options, but those meetings have not yet translated into new orders. He declined to name the companies involved.

“People are looking at: ‘If I have choices, where else can I go to ensure that my device — my supply chain — does have alternatives if missiles do start flying?” the executive said.

These are customers seeking chips made with older technology because, when it comes to the bleeding-edge, there are no alternatives to TSMC with the production capacity to serve leading firms, the executive said.

Executives told Reuters it will be difficult to replicate the efficiency of Taiwan’s semiconductor industry, with chip giants and hundreds of their suppliers arranged in clusters along the western coast of the island — especially given higher costs in countries such as the United States.

An executive at another major foreign chip company with operations in Taiwan said that — while the drills were forcing a closer consideration of the risks of future investment there — withdrawing was not on the table.

“It is still the business or financial terms that have a much bigger say,” he said.

Kung Ming-hsin, minister of Taiwan’s National Development Council, told reporters last month that major chip companies, including foreign ones, will invest around $210 billion in Taiwan over the next five years on advanced manufacturing.

German chip materials giant Merck is redoubling its investment.

Last year, Merck announced a 500-million-euro investment in Taiwan over the next five to seven years. John Lee, managing director of Merck Group in Taiwan, told Reuters after Ms. Pelosi’s visit that it has no plans to change course because the demand for chips is growing exponentially and Taiwan remains the world’s largest semiconductor materials market.

‘BEYOND OUR CONTROL’

One executive at a major Taiwanese tech firm said it started to produce daily geopolitical reports following the drills to assuage foreign clients that it was taking the issue seriously — rather than because it was concerned about the risk of war.

“Taiwan is used to this but if you are sitting in the C-suite overseas, it’s much more alarming,” the executive said.

A senior executive at another Taiwanese chip company said, however, that his firm has yet to receive significant pressure from foreign clients because of the military tensions.

“They understand no matter how hard they twist our arm, there’s very little we can do,” said the executive.

In recent years, Taiwanese chip companies have ramped up investments abroad, but the planned capacity is still only a fraction of their overall output, executives and analysts say.

When asked whether cross-strait tensions would affect his business, Miin Wu, the chairman and CEO of Taiwanese chipmaker Macronix International Co Ltd, told reporters last month: “Of course we worry about it”. But he added that worrying did no good.

“Rather, we just continue to invest and come up with better and better products,” he said. — Reuters

In Apple’s shadow, Google takes new route to face recognition on Pixel phones

BLOG.GOOGLE

Facial recognition returned to the latest Google Pixel phones on Thursday after a short hiatus due to challenges on cost and performance, according to three former employees at the Alphabet Inc unit knowledgeable about the efforts.

The feature on the new Pixel 7 is not as good as Apple Inc.’s Face ID unlocking mechanism, as it can struggle in low light and is more vulnerable to being spoofed. In addition, Google has said it is not secure enough to enable signing into apps or making payments.

The return comes after Google became stricter about launching products with facial recognition, in part due to questions about its performance on darker skin.

The company took time to review its approach to training and testing facial recognition since the previous Pixel with the capability launched in 2019, one of the sources said.

Google declined to comment on several specific questions about its history with face unlock. It said generally, “Thanks to advanced machine learning models for face recognition, Pixel 7 and Pixel 7 Pro feature Face Unlock, but we’re doing it a little differently.” It added, “We achieve good facial accuracy performance with the front-facing camera.”

Google’s pursuit of face unlock for Android smartphones spans at least a decade, but it came under greater pressure when Apple released Face ID in September 2017, the sources said.

To that point, Google struggled to devise a system that both performed quickly and was impervious to spoofing, or the use of photos or hyper-realistic costumes to fool someone else’s phone into unlocking, one of the sources said. Engineers toyed with requiring a smile or a blink — proving a person’s “liveness” — to combat spoofing but it was awkward and slow, the source said.

Another source noted that after the arrival of Apple’s Face ID, which uses a depth-sensing and infrared camera called TrueDepth to map a face, Google executives signed off on a comparable technology. Google’s Pixel 4, released in 2019, called its infrared depth-sensing setup uDepth.

It performed well, including in dark conditions, with no more than a 1-in-50,000 chance that it would unlock a phone for an unauthorized face, according to Google.

But the gear was expensive. And while Apple sells 240 million iPhones annually, Google has topped out at a few million, preventing it from buying parts at the volume discounts Apple does.

Google dropped uDepth in the Pixel 5 in 2020 due to costs, the sources said.

Face masking because of the pandemic gave Google reason to exclude the feature from last year’s Pixel 6 and additional research time, two sources said.

Face unlock on the new phones relies on a typical front camera. But unlike the previous system, it cannot securely unlock apps and payments because Google says spoofing chances — such as by holding up a user’s photo — are greater than 20%, above the 7% threshold it requires to be considered most “secure.”

Low light and sunglasses also can cause trouble, Google says, noting fingerprint unlock remains an alternative. — Reuters

As China party congress looms, signals sought on easing COVID policy

REUTERS

BEIJING — The mounting economic toll of China’s zero-COVID policy is raising investor hopes that Beijing may finally begin laying the groundwork for the tricky epidemiological and political task of shifting course following this month’s Communist Party congress.

It is not clear whether the ruling party congress from Oct. 16 will shed any light on easing strict measures to extinguish all domestic coronavirus disease 2019 (COVID-19) outbreaks, rather than seek to live with the pandemic. Any change, economists and investors predict, would entail gradual steps for a reopening from the first half of 2023 at the earliest.

Tackling the challenges of reversing one of the world’s toughest COVID regimes would require a clear timeline and strategy for booster shots in a nation of 1.4 billion people that has gone its own way on inoculations, say infectious-disease and vaccine experts.

The approach has all but shut its borders for travel and led to unpredictable lockdowns of huge cities, stifling the world’s second-largest economy and stoking anger and frustration among many citizens.

Xi Jinping, expected to secure a precedent-breaking third leadership term at the congress held every five years, reiterated that the zero-COVID policy is “correct and effective” during a June visit to Wuhan, the central Chinese city where COVID emerged in 2019.

“In every conversation that we have had on Asia’s macro outlook, the number one question that investors have is on when China will reopen and what the roadmap would look like,” Morgan Stanley economists wrote in a research note last week.

“We think a reopening will happen, because the strict COVID management approach has led to challenges of significantly weaker income growth and a sharp rise in youth unemployment — outcomes which are at odds with the policy goal of common prosperity.”

Goldman Sachs analysts predict China will start relaxing the policy in the April–June quarter.

China has repeatedly tweaked implementation of zero-COVID but not described an exit from a policy that seeks to contain every outbreak, which state media touts as showing the superiority of Chinese governance to that in the West.

LOCAL SHOTS

Zero-COVID, while disruptive, has kept death and infection rates minimal, which could reassure the public that preparation for a gradual reopening would allow China to balance economic concerns and COVID risks.

But China’s population, the world’s largest, has little natural immunity given the rigorous containment policy.

Before exposing China’s people to new COVID risk, authorities must prepare a healthcare system with wide inequality in the geographical distribution of resources for a surge in infections and adjust its messaging to people accustomed to the extremes of zero-COVID.

China boasts nine domestically developed COVID vaccines approved for use, more than any other country. But none has been updated to target the highly infections Omicron variant, as Pfizer-BioNTech and Moderna have for boosters in many developed countries.

The authorities have not approved any foreign-made COVID shots. A recent study showed the most widely used shots in China were effective in preventing severe cases and deaths but showed lower effectiveness against the Omicron variant.

Homegrown mRNA vaccines in development have not been green-lighted domestically, but Indonesia said last week it had approved emergency use of an mRNA vaccine developed by China’s Walvax Biotechnology Co Ltd.

Executives at three Chinese vaccine makers told Reuters a key uncertainty is whether regulators will allow fast-track opportunities for new vaccines as China did in 2020 by authorizing emergency use before efficacy data from large clinical trials was generated.

Without fast-tracking, candidates that started clinical trials this year would lack the data to seek approval by year’s end, said one executive, who, like others, asked not to be named given the sensitivity of the issue.

TIMING MATTERS

For latecomers whose vaccines face the unpredictability of future virus mutation while navigating a lengthy regulatory pathway, “chances are high that you will never keep up with variants or regulatory process,” said another executive.

Two executives expressed skepticism whether regulators would let new candidates skip early-stage trials in unvaccinated people, a group increasingly difficult to gather, even though such shots are more likely to be used as a booster.

The National Health Commission and the National Medical Products Administration did not respond to Reuters requests for comment.

The timing of any booster rollout is also crucial.

“If you boost everyone now but you don’t have to exit for many months, that’s possibly too early. You want to have the booster at the right time,” said Benjamin Cowling, an epidemiologist at the University of Hong Kong.

“What I haven’t seen in the mainland is that overall plan and the overall timeline.”

Many countries offer second booster shots. China’s CDC said in September a well-timed second booster is needed to safely exit the pandemic. The government allows only one booster.

Some experts recommend importing Western-made shots and accelerating development of home-grown alternatives including Omicron-targeting shots.

“China should … import or develop a highly effective vaccine as soon as possible,” said Zuofeng Zhang, an epidemiology professor at the University of California, Los Angeles.

Mr. Cowling said Western-made shots and China-developed candidates showing promising data would also provide more options and help alleviate vaccine hesitancy, a major reason vaccination rates for the elderly remain below China’s national average. — Reuters

Europe’s new 44-nation club underlines Russia’s isolation

President.az/CC BY 4.0/Wikimedia Commons

PRAGUE — Leaders of the European Union (EU) and neighbors from Britain to Turkey met on Thursday to discuss security and energy emergencies plaguing them all since Russia’s invasion of Ukraine, a symbolic summit that underlined Moscow’s isolation.

The gathering in Prague was the inaugural meeting of the European Political Community (EPC), a brainchild of French President Emmanuel Macron, bringing together on an equal footing the EU’s 27 member states and 17 other European countries.

Some of the countries are waiting to join the EU while another, Britain, is the only one ever to leave it.

Danish Prime Minister Mette Frederiksen was tied up with a crucial parliamentary debate at home, bringing the number of leaders down to 43 from the originally envisaged 44.

The meeting at the ancient compound of Prague Castle was a grand show of solidarity for a continent mired in multiple crises — from the security fallout of the war in Ukraine to an energy crunch and a looming recession that has dashed hopes of robust recovery from the coronavirus disease 2019 (COVID-19) pandemic downturn.

“We have very clearly displayed the unity of 44 European leaders in condemning Russian aggression and expressing support for Ukraine,” Mr. Macron told a news conference after the summit.

Polish Prime Minister Mateusz Morawiecki said: “This summit confirms that Russia is in complete isolation.”

Ukrainian President Volodymyr Zelenskyy, addressing the meeting via video link, urged leaders to turn the new political community into a “European community of peace.”

“Let today be the starting point. The point from which Europe and the entire free world will move to guaranteed peace for all of us. It is possible,” he said, calling on the leaders to “direct all possible powers of Europe to end the war.”

A special spotlight in Prague was on British Prime Minister Liz Truss, who — under pressure at home after only a few weeks in office — joined the stage with leaders of the EU.

Her decision to attend left some hoping for a reset in relations between Brussels and London, building on a warmer tone in recent weeks in a standoff between the two sides over post-Brexit trading arrangements for Northern Ireland.

Ms. Truss, who declared earlier this year while campaigning to become prime minister that the jury was out on whether Mr. Macron was a friend or foe, told reporters in Prague that the French president was indeed a friend of Britain.

The two leaders met for talks in Prague, and Mr. Macron added to the reconciliatory mood later, declaring: “I really hope this is the beginning of the day after.”

A TALK SHOP?

Russia’s war in Ukraine is certain to remain a focus of the new club as leaders of the embryonic EPC will meet next time in Moldova, Ukraine’s small and troubled neighbour.

Still, it is far from clear that a forum some have already dismissed as just another talk shop has a robust future.

Its sheer size will be a major obstacle to delivering concrete policy, as will its political and cultural diversity and traditional rivalries between many of its members, from Armenia and Azerbaijan to Greece and Turkey.

In a blog before the summit, EU foreign policy chief Josep Borrell said clarity was still needed on the EPC’s core rationale, its relationship with the EU, how it should take decisions and even whether it should have a budget of its own.

Turkish President Tayyip Erdogan said the summit was “a very timely initiative” to discuss problems of the European continent and find common solutions, but he cautioned that the EPC should not become an alternative for countries hoping to join the EU.

Ankara opened membership negotiations with the EU in 2005.

On Friday, leaders of the EU’s 27 countries will meet on their own in Prague. Tensions will play out over Germany’s 200 billion euro ($197.50 billion) energy support package that many of its peers see as damaging competition in the bloc’s single market.

EU countries will also try to work through differences over how to cap gas prices to contain soaring energy costs that are turbocharging inflation across the bloc.

Separately, the EU’s member states gave final approval to an eighth batch of sanctions against Moscow over the invasion of Ukraine, but said implementing a price cap on Russian seaborne oil included in the package required more work. ($1 = 1.0127 euros) — Reuters

Thailand mourns after over 34 die in daycare centre attack targeting children

NA KLANG, Thailand — Thai government buildings flew flags at half-mast on Friday to mourn the death of more than 30 people, including 23 children, after an ex-policeman burst into a daycare center in a knife and gun rampage that left the nation shocked and seeking answers.

Most of the children who died at the daycare center in Uthai Sawan, a town 500 kilometers northeast of Bangkok, on Thursday were stabbed to death, police said, marking one of the worst child death tolls in a massacre by a single killer in recent history.

Police identified the attacker as a former member of the force who was discharged over drug allegations and who was facing trial on a drugs charge. After the attack, he went home and shot dead his wife and child before turning his weapon on himself.

The age range of children at the daycare center ranged from two to five years, a local official said.

“It’s a scene that nobody wants to see. From the first step when I went in, it felt harrowing,” Piyalak Kingkaew, an emergency worker heading the first responder team, told Reuters.

“We’ve been through it before, but this incident is most harrowing because they are little kids.”

The former policeman had been in court earlier in the day and had then gone to the daycare center to collect his child, police spokesperson Paisal Luesomboon told broadcaster ThaiPBS.

When he did not find his child there, he began the killing spree, Paisal said. “He started shooting, slashing, killing children.”

‘I BEGGED HIM FOR MERCY’

Late on Thursday, a Reuters photographer saw the body of the shooter, Panya Khamrapm, being moved in a bodybag from a van to a police station in the province.

“I don’t know (why he did this), but he was under a lot of pressure,” Panya’s mother told Nation TV, citing debt the former policeman had clocked up and his drug taking.

Photographs taken at the daycare center by the rescue team and shared with Reuters showed the tiny bodies of those killed laid out on blankets. Abandoned juice boxes were scattered across the floor.

“He was heading towards me and I begged him for mercy, I didn’t know what to do,” one distraught woman told ThaiPBS, fighting back tears. “He didn’t say anything, he shot at the door while the kids were sleeping,” another woman said, becoming distraught.

About 30 children were at the facility — a pink, one-storey building surrounded by a lawn and small palm trees — when the attacker arrived. That was fewer than usual, as heavy rain had kept many people away, said district official Jidapa Boonsom.

The attacker forced his way into a locked room where the children were sleeping, Jidapa said. Three boys and a girl who survived the attack were being treated in hospital, police said.

The massacre is among the worst involving children killed by one person. Anders Breivik killed 69 people, mostly teenagers, at a summer camp in Norway in 2011, while the death toll in other cases include 20 children at Sandy Hook Elementary School in Newtown Connecticut in 2012, 16 at Dunblane in Scotland in 1996 and 19 at a school in Uvalde, Texas, this year.

Gun laws are strict in Thailand, but ownership is high compared with some other countries in Southeast Asia. Illegal weapons, many brought in from strife-torn neighboring countries, are common. — Reuters

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