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Transformational leadership: Fostering growth through people

Business transformation is far from easy. The merits of digital transformation have been evident long before the outbreak of the COVID-19 pandemic, and yet many companies essentially still had to be forced by the ensuing crisis to start the process.

“A substantive and irreversible shift in an organization’s identity, value system, and capabilities requires three difficult acts: Developing a deeper sense of purpose that guides strategic decisions and shapes the workplace culture, repositioning the core business, and creating new sources of growth,” Harvard Business Review (HBR) wrote in an article.

Furthermore, HBR pointed to the requirement of upgrading infrastructure, workflows, and tools to allow for digital changes such as online commerce and remote work. “The growth and diversification of digital platforms like Amazon, Alibaba, and Stripe raises important strategic questions about where and how to compete. Difficult economic conditions (low consumer demand in particular) challenge the viability of some business models,” the Harvard publication added.

Successfully guiding a company through such fundamental changes demands more from its leaders than simply fulfilling a company’s immediate interests. Transformational leadership, a concept that gained popularity in the 1970s and 1980s, is more about creating a vision to guide the change through influence, inspiration, and executing that vision alongside a team in shared purpose.

Michigan State University (MSU) cited James MacGregor Burns, a political science and leadership researcher, who in the 1970s defined the actions of transformational leadership as “when one or more persons engage with others in such a way that leaders and followers raise one another to higher levels of motivation and morality”.

“Equal parts visionary, mentor and source of inspiration, these leaders create a culture of innovation and positive change that leads to successful business outcomes. Transformational leaders do this by creating a distinctive culture within the organizations and teams that they lead,” MSU wrote in an article.

While the term can bring to mind conventional image of a strong, energetic, charismatic and passionate leaders, MSU clarified that transformational leadership goes beyond personality to drive a cultural and visionary change within an organization.

“While these may be the types of leaders who automatically come to mind, the characteristics of a transformational leader go much deeper and shouldn’t be thought of as innate personality traits or types. Becoming a transformational leader is about developing behaviors, strategies and actions, all grounded in leadership theory,” MSU wrote.

What defines a transformational leader?

The list of demands facing businesses today from all stakeholders grows longer each year. As current events unfold and consumers, employees, and investors alike begin to grow more conscientious of social, economic, and environmental issues, they are starting to expect more organizations to do their part to address those concerns.

Leaders whose organizations are undergoing transformation today, HBR noted, need to be in tune with such demands in order to give them a more complex context in which to execute major structural change (such as acquisitions, disposals, partnerships, and organizational redesign), widespread deployment of new technologies, considerable effort, and cultural change.

“Employees, customers, and investors also expect organizations to play a more prominent role in tackling other systemic issues, such as climate change and social inequality — while also making a profit. Employees, many of whom will have experienced trauma, loneliness, and burnout, expect to use smarter, more flexible working practices and to work for leaders who are effective, authentic, and compassionate,” HBR wrote.

“Transformations are often, but not always, initiated and led by the ‘center’: the board and the CEO and their direct reports and supporting functions. At first, they reach out to customers, partners, and employees on the front line to understand their needs, frustrations, and problems in order to work out what needs to be addressed,” HBR pointed out.

Once they complete their diagnosis, these leaders often retreat to the center, staying there until they are called to action once more. This should not be the case under a transformational leader, as they should keep their fingers on the pulse of their organization at all times.

The transformational leader thinks beyond the status quo and challenges conventional approaches to the issues most relevant to the organization, and inspires others to do the same. MSU stated that one of the key transformational leadership traits is the ability to transmit a sense of the larger culture to the individual, giving employees a feeling of ownership in company goals and independence in the workplace.

“Transformational leaders do not dictate ideas from a bubble and then leave it to employees to carry them out. They are concerned with the professional development of employees and foster positive relationships with them. This involves keeping lines of communication open, attending to the individual needs of employees, mentoring them and recognizing each person’s unique contributions,” MSU wrote.

“You can often identify a transformational leader by the trust, respect and admiration others feel for them. Transformational leaders do not micromanage. They lead by communicating a clear vision and creating a workplace where seasoned employees are trusted to make decisions in their assigned areas. All employees are encouraged to think creatively to find new solutions to longstanding challenges.”

Transformational leaders in this sense should serve as the organization’s role models as a kind of ‘idealized influence’ that inspires ethical and socially desirable behavior, maintaining a dedication to work goals and exhibiting enthusiasm about company strategy. Most importantly, the followers of a transformational leader do this not merely because it is good for the company, but because they trust that it is good for their team and for them as individuals.

This is also the main difference between transformational leadership and visionary leadership. Many would conflate the two as both kinds of leaders look for new possibilities for the future of an organization, team or product and help others to conceptualize and inspire others to find their own solutions. However, MSU noted that the difference between these leadership styles “lies in a true transformational leader’s ability to inspire the development of new ideas”.

“Even if the vision is not their own, transformational leaders can nurture it toward reality,” MSU added. — Bjorn Biel M. Beltran

The rise of sustainable buildings

Buildings provide spaces to live in, work, and shop, among other activities. But while we recognize them as an important part of our day-to-day lives and the economy, we should also realize the significant environmental impact of buildings.

In 2015, building operations and construction generated 13.1 gigatons or 38% of the global energy-related carbon dioxide emissions, according to the United Nations Environment Programme’s 2021 Global Status Report for Buildings and Construction. This dropped 10% to 11.7 gigatons in 2020, mainly due to the lesser energy demand during the COVID-19 pandemic, along with the decarbonization efforts for the power sector. Though the share of buildings and construction in the global energy-related CO2 emissions that year was at 37%.

Constructing green buildings, therefore, has the potential to reduce their impact on the environment. In the Philippines, green buildings have been garnering an increasing interest among developers.

Developers use green building certification rating systems to substantiate that their project met green building standards. Among the commonly held certifications in the country are LEED (Leadership in Energy and Environmental Design), WELL, EDGE (Excellence in Design for Greater Efficiencies), and BERDE (Building for Ecologically Responsive Design Excellence). And in the past years, the number of green-certified buildings has risen.

Real estate services firm Jones Lang LaSalle (JLL) Philippines’ data showed that, starting from 2016, the growth of green-certified buildings has a compound annual growth rate of 4.6% as of the third quarter of 2021. Of this figure, office buildings accounted for around 67.1%, while 11% were retail and 9.8% were residential.

EDGE, for its part, has seen this increase in green-certified buildings in the country, particularly during the pandemic.

Angelo Tan, country lead for the Philippines at the Climate Business Department of the International Finance Corp. (IFC), said that over 50 projects, spanning roughly 86,000 sq.m., have received EDGE certifications in the country so far. “What is interesting is that more than half of those projects were certified in 2022 alone. You’re seeing a lot of interest in recent years. In addition to that, we have 3.7 million sq.m. in the pipeline that are pursuing EDGE,” he shared at the BusinessWorld Virtual Economic Forum last May.

EDGE is a green building certification system by IFC, seeking to help developers and builders swiftly determine the most cost-effective strategies to construct resource-efficient buildings.

Mr. Tan said the Philippines has “a little over 200 plus” green buildings, noting also that most are office towers in Metro Manila.

But despite the rising interest in green buildings, he said that the development of green buildings in the country is still slow compared to its Southeast Asian neighbors.

“It’s been very slow. It’s largely focused on a very elite segment of the property sector. And I think that’s something that we need to change,” Mr. Tan said. “We need to make green and resilient infrastructure much more accessible to a greater proportion of the population.

Colliers also observed that office developments located in established central business districts are at the forefront of the green building sector. Yet, the real estate services and investment management firm noted that the rise of green buildings has extended not only within established CBDs in recent years, having also seen the growth in emerging provincial markets, especially in the residential, industrial, and institutional sectors.

According to an April 2020 article published by Colliers on its website, of those certified green buildings in the provincial market, 38% are industrial and 43% are office. Green strategies were also being planned and employed in residential development, particularly for the economic and upscale segments.

“There is an untapped green market in the provincial area, especially in the municipalities of Southern and Central Luzon, where demand for residential housing is stable,” the firm said. “Project owners and planners must work collaboratively to find ways of adopting green building strategies into residential developments and create an offering to the applicable market segment.”

Meanwhile, there is also a greater demand among occupiers for green buildings, according to JLL Philippines, which has urged developers to build more green buildings.

The firm said that this aligned with the broader real estate sustainability developments across the Asia Pacific, in which its survey recorded that 40% of corporate occupiers have already adopted net zero carbon emission targets, and another 40% are planning to adopt targets by 2025.

“While the Philippines has a long way to go in terms of our sustainability journey, there is greater consciousness and more conversations about it now,” Joey Radovan, JLL Philippines’ country head, said in a webinar last year. “The pandemic helped to increase the demand for green buildings, and this awareness must be augmented by government support through policies and incentives, as well as real estate firms adapting and promoting sustainability efforts among their clients.”

The green building sector offers an estimated $24.7 trillion investment opportunity in emerging market cities by 2030, according to IFC’s report in 2019. In the East Asia Pacific, there is an estimated $16 trillion investment potential in green buildings. — Chelsey Keith P. Ignacio

SACHI-Group and Cassava Bags: Eco-packaging solutions to address plastic pollution

SACHI-Group (Sustainable And Compostable Horizons Industries Group, Inc.) is a pioneer manufacturer of biodegradable and compostable cassava bags in the Philippines.

By Chelsey Keith P. Ignacio, Special Features Writer

The problem with plastic has become more evident for many consumers and businesses. Most plastics are made from fossil fuels and could take hundreds of years to decompose. But each year, according to Our World in Data, the world currently produces over 380 million tonnes of plastics. Mismanagement, overuse, and the few recycling of plastics then cause waste and pollution, which are harmful to the environment.

This plastic pollution problem is therefore multifaceted, as realized by the founders of SACHI-Group, Inc. Because more than the issue with the material itself, the plastic pollution problem is also about solid waste and climate change.

“To tackle those issues, the material, the systems, and the people’s behavior need to be addressed,” SACHI-Group CEO and Co-founder Prince Ang told BusinessWorld. “With cassava bags, we can take steps towards addressing the problem.”

SACHI-Group (Sustainable And Compostable Horizons Industries Group, Inc.) is a pioneer manufacturer of biodegradable and compostable cassava bags in the country. For the startup, cassava bags could complement the current solid waste infrastructure and enable users to practice proper disposal, hence could help address the plastic pollution problem.

Cassava bags may look like traditional plastics. But unlike the plastics commonly used today, cassava bags are not petroleum-based and do not leave toxic residues.

“The material is home compostable and water-soluble, giving those without experience in composting the ability to properly dispose of the bags,” Mr. Ang explained. “By manufacturing it locally, we can build the whole company with circularity at its core.”

SACHI-Group occupies an a 1100 sq. ft. area for its first production line of compostable cassava bags. With its advanced bioplastic extruding, cutting, sealing, and printing machines, the startup can supply over 70,000 tonnes every year. It utilizes plant-based and renewable resources like cassava starch for its main films, while the outer packaging and design are made from recycled, upcycled, or non-toxic materials.

The products of SACHI-Group include t-shirt shopping bags, e-commerce mailer pouches, grip hole bags, and cassava rolls for various uses. By manufacturing these locally, the startup is able to cut the production and delivery lead time from 90 days to as short as 20 days.

By far, one of SACHI-Group’s major partners, marketing and distribution company EcoNest Philippines, has distributed over 2,000 kgs of converted cassava resins, and over fifty small and medium enterprises and corporations across the country are using these cassava bags.

“We are looking forward to encouraging and tapping thousands of MSMEs and local/ international corporations in the coming years, especially those who are committed to supporting the Paris Agreement to achieve net zero by 2050,” Mr. Ang said.

SACHI-Group also plans to work with different stakeholders who seek to take actionable steps to develop a circular model in their organizations through the startup’s products and services, according to SACHI-Group Director and Co-founder Nikki Luy Sevilla, who also co-founded EcoNest Philippines.

For Ms. Sevilla, making the switch to cassava bags or employing circular approach to packaging “speaks volumes about the real principles and values” of those who run the companies.

“We, at SACHI-Group, Inc. envision a livable and greener future. Deciding to work towards circularity entails a different level of commitment and we are always thrilled to support those who are conscious in their business’ actions and impact on the community,” she said.

“As more and more brands increase the use of cassava bags, we can definitely see further developments in the performance and proper disposal of truly plant-based materials here in the Philippines. Any support to raise awareness and encouragement for other businesses to join our movement simply by using cassava bags will go a long way,” she added.

How beneficial is a green structure to workers?

Built by more sustainable materials and powered by renewables, green buildings are seen to be a healthy component of cities and communities as they reduce greenhouse gas emissions and maximize the use of resources. But how do these capabilities — or at least the practices of making buildings green — translate into benefits for occupants?

Sazan Rahman, a PhD candidate and teaching assistant at McGill University whose research is mostly about green walls, green roofs, and green buildings with other green technologies, noted that research has proven that green buildings greatly benefit workers in their productivity and well-being.

“Some planners might worry about the added design and construction costs of a green building. But detailed analyses show that the small increase in building costs has noticeable benefits on the health and wellness of those working or living inside the building — or nearby,” Mr. Rahman wrote in an article in The Conversation last February.

“Green workplaces meet all the criteria of the ‘triple bottom line,’ summarized as ‘people, planet and profit.’ These improve the health and well-being of people, improve energy efficiency and boost productivity,” he further stressed.

The engineering academic wrote that interior spaces with green walls, vertical gardens, or potted plants can reduce noise levels, which helps occupants concentrate on their work.

On the other hand, outdoor permeable surfaces like soil, rock wool, and vermiculite, and plants on buildings’ roofs and courtyards reduce echos.

With green roofing, green buildings are also seen to reduce the “urban heat island” effect, which occurs when a city replaces natural land cover with dense concentrations of pavement, buildings, and other surfaces that absorb and retain heat, resulting in a city experiencing much warmer temperatures than nearby rural areas.

Covering the roof of an uninsulated building with plants, Mr. Rahman explained, reduces cooling energy by as much as 33%, particularly in the summer season; and such roofing also reduces daytime indoor temperature fluctuations in the absence of air conditioning.

“Studies show people working or living in areas with high proportions of green roofs have better mental health, heal more quickly after an illness and are more productive at work,” he added.

Green buildings, or at least putting more greens in one, also pave way for occupants to breathe cleaner air. Mr. Rahman cited a study way back in the 1990’s which showed that there were fewer mold spores and microbes in a room where houseplants covered one-third of the floor space compared to a room with no house plants.

“Plants also increase indoor humidity levels in dry climates, reducing the likelihood of dry eyes, itchy or scratchy throat or chapped lips,” he added.

More recently, the engineering academic added, latest research has also shown that plants can help hospitalized patients heal faster.

“A report by the Green Building Council of Australia found that hospitals with green infrastructure, such as an ornamental green wall, plants on every balcony and large trees around the building, reduced average hospital stays by 8.5%, sped up recovery time by 15%, reduced the rate of secondary infections by 11% and lowered the need of pain medication by 22%,” Mr. Rahman shared.

“Not only do buildings with plants help patients heal faster, but they also energize the doctors, nurses and other staff who work there, and provide esthetic, acoustic and air quality benefits.” — Adrian Paul B. Conoza

The makings of healthy buildings

Cities generate more than 80% of all economic growth globally. As cities make up an integral part of society, how they are built has a significant effect on the natural environment.

Estimates of the United Nations suggest that cities are responsible for 75% of global CO2 emissions, with transport and buildings in the city being among the largest contributors.

It is no secret that climate change is one of the many implications of the constant development of urban areas. Hence, today, numerous people, both in large-scale companies and individual consumers, are making conscious lifestyle choices and are co-creating a future built on sustainability.

In designing a sustainable community within a city, a number of factors contribute to the eco-friendliness of the infrastructure — enough for it to earn the title of a ‘green building’.

From planning, construction and operation, green buildings can also adapt to the environment as it changes and are developed using strategies that preserve precious natural resources, reduce negative impacts to the environment, and improve the overall quality of life of the inhabitants.

While many think that the job is done once a building is constructed, developers point out that buildings may stand for years but, at some point, buildings will be updated or replaced, and it is their job too to know what materials can be reused or recycled in the process.

In creating green buildings, some of the best practices of premier green-infra developers are their utilization of environmentally preferable construction materials, crafting of products that are or can be made with recovered materials, and selecting brownfield sites that have the potential for redevelopment.

Aside from the vigorous attempt to repurpose construction materials, green buildings also display top-of-the-line technology to curb energy consumption. Some of these are through installation of cool roofs (also known as energy-saving roofs with proper insulation), maximizing the use of natural lighting, and establishing energy-efficient rules and regulations for tenants to follow.

In a recent UN report, more than half of the world already lives in urban areas today, and by 2050, more than two-thirds of the global population of around nine billion is expected to live in cities, particularly in developing countries like the Philippines.

As water is at the core of sustainable development and is critical for socio-economic development, healthy ecosystems and for human survival itself, built environment must be capacitated with an efficient use and maintenance of water resources.

Developers of green building projects consider how much water they will use during and after construction, utilize techniques that detoxify wastewater for re-consumption, and create a masterplan that can minimize the risk of flooding. Some green infrastructures also restore the natural waterflow by reconnecting their drainage systems to rivers and coasts.

As COVID-19 emphasized the importance of health now more than ever, the public looks for safer spaces within dense cities. While green buildings are good for the environment, developers also characterize them as healthy buildings that can positively impact the well-being and overall lifestyle of the occupants.

According to a Harvard study, healthy buildings must strive to meet the foundational criteria which cover everything from ventilation and air quality to lighting, views and physical security.

At present, with the use of integrated technologies, green buildings display some of the specified foundations — starting from minimizing the risk of harmful ground gases such as radon that may enter through building cracks, considering fire safe materials with flame retardants, establishing and maintaining good Indoor Air Quality (IAQ), following biophilic and active designs, up to providing vegetated roofs.

However, it is worth noting that not all green buildings are or need to be the same as different countries and regions have distinctive climatic conditions, unique cultures and traditions, diverse building types and ages, and wide-ranging environmental, economic and social priorities.

The World Green Building Council, a non-profit organization made up of businesses working in the building and construction industry that aims to transform the built environment to make it healthier and more sustainable, underscored that any building can be a green building, whether it’s a home, an office, a school, a hospital, a community center, or any other type of structure, provided it includes the necessary features.

While green buildings may incur additional expenses to design and construct, as per experts, the energy savings alone will bring a return on the investment in about six years.

Architects, engineers and project managers know that sustainability is vital in any commercial or residential projects. They are aware that to deliver environmentally- and people-friendly designs is a task leaning towards a shared responsibility, yet, having buildings certified is also about gaining a competitive advantage in the current widening market.

According to the World Economic Forum, by 2025, there will be at least 40 megacities. And in 2030, the second-largest city in the world behind Tokyo is expected not to be in China, but in the Philippines’ capital — Manila.

With the country’s young population, demand for these green buildings is on the rise. More sustainable urban developments and structures are expected to be seen in the next few years that will vastly improve the living environment and restore the overall atmosphere of the city. — Allyana A. Almonte

MSMEs should create ‘product dependency,’ start small — PTTC

Knowing the right product to sell to the right market will help ensure the success of one’s business and products, according to a lecture presented at a July 13 training event organized by the Department of Trade and Industry’s Philippine Trade Training Center-Global MSME Academy (PTTC-GMEA).

Talking to a group of microentrepreneurs, Gary B. Sta. Cruz, a PTTC-GMEA research and training design specialist, noted how food fads such as Heinz’s green ketchup failed to endure a few years after being introduced to the market, despite making an initial splash.

It demonstrates that you need to know the right product to sell, he said, referring to the marketing mix of product, promotion, place, and price.

“We want our customers to be loyal to our products — although for me, there’s one level higher than product loyalty, and that’s product dependency,” he added in the vernacular. “That’s our goal.”

Online commerce has turned the old business model of creating a product then bringing it to market on its head. Today’s entrepreneurs should make products that satisfy the needs of the market.

“If they want soap, what type are they looking for? Do they want something for sensitive skin? Do they want something with bleaching properties? Create a product based on their need,” he said.

While segmenting consumers into subgroups based on shared factors — age, geographic location, opinions — is an efficient way of marketing, a brand should take care to remain consistent in its messaging.

“When you stay true to your positioning, customers… have a clear picture of who you are versus your competitors,” said Jem Perez-Chua, Century Pacific Foods, Inc. marketing manager.    

Aside from positioning, businesses have to consider pricing and location (both in the physical and digital sense).

Even if proximity remains an advantage, hybrid setups allow, say, an electronics shop in Divisoria, Manila, to serve customers through its Facebook page. “You don’t even need a huge storefront for this type of setup anymore,” said Mr. Sta. Cruz. “Bodega lang siya [Their place is just a storeroom].”

He added that microbusinesses writing a marketing plan need to consider the following: (1) one’s business situation; (2) one’s target audience; (3) one’s objectives, budget, and timeline; (4) the implementation of the best suited marketing strategy; and (5) evaluation and adjustment of the same. 

If you’re offering a discount but realize your bottom line can’t cover this promo, recalibrate, Mr. Sta. Cruz said. If you’re offering free delivery but realize your customers have cars and prefer to pick up their orders, recalibrate.

If you have a canteen and plan to scale it up into a restaurant in five years, be cognizant of the initiatives you need to take — investing in modern equipment, sampling new recipes, joining online platforms — to drive that growth, he added. 

Mr. Sta. Cruz shared the Indonesian proverb: “Sedikit-sedikit lama lama menjadi bukit,” which means small acts add up to big results. (Its rough literal translation is “little by little, with time, it becomes a hill.”)

“Don’t be embarrassed to start small. All the training seminars you attend, all the orders you [negotiate with] your suppliers: these are all small steps that can yield big results,” he said. — Patricia B. Mirasol

Hold my cuppa! It’s Coffee Fest at SM Supermalls!

Having a sip of coffee is a personal experience. To some, it can be a reward for getting out of bed in the morning. For others, it’s a perfect time to ruminate about life and everything in between. But whatever the reason that coffee drinkers have, one thing is for sure: A cup of joe shared with other people is joy tasted and time well-spent.

This July, enjoy a cuppa or two with loved ones and friends at the SM mall near you! 

SM Supermalls is bringing Reconnect Over Coffee– a celebration where our favorite caffeine source is taken to a whole new level! From July 15 to 31, visit your favorite SM mall for new coffee experiences, meet-ups, hangouts, and activities that all coffee enthusiasts would enjoy. 

SM North Edsa

Take your time and savor your coffee at the Coffee Pop-Up Street

On the hunt for a cozy coffee shop to hang out? SM is your place to go. Event areas and alfresco dining spaces will be transformed into coffee-themed multi-functional outdoor spaces for shoppers to hang out. Complete with larger-than-life centerpieces and lighted installations for Instagram-worthy snaps, you’ll surely love every bit of your time sipping a cup of coffee while catching up with friends at the Coffee Pop-Up Street!

Get your coffee fix from your fave coffee brands at a discounted price

What’s a fest without discounts? At the Coffee Fest, SM is making every day an exciting cuppa with amazing promos and exclusive deals on coffee drinks and blends. Indulge in your favorite cappuccino at a discount or share your Buy 1 Take 1 grande mocha frappe with a friend when you buy from the partner stores. And yes you can get these deals online when you shop digitally through the SM Malls Online app and have it delivered to your home or office. 

Listen to your fave local bands and artists while sipping on your coffee

Acoustic music and coffee are a match made in heaven! This is why SM is putting the spotlight on local artists in the pop-up spaces from July 22 to 24. Sit back and relax as you listen to a perfect blend of coffee house original and cover songs from your favorite local acoustic bands and artists. 

SM Pampanga

Tune in to a specially curated coffee playlist

Or if you prefer a chill and cozy afternoons at the pop-up spaces while working, don’t worry because we got you! SM will be curating a special coffee playlist to get you through the day. Listen to inviting, soothing, and laidback rhythms like jazz or bossa nova to get you into the mood.

SM Davao

Find your fave brews all in one place!

Since it’s Coffee Fest, SM will also be tapping brands, especially local gourmet coffee businesses, to put up stalls and booths at Coffee Pop-Up Street. Here, you can find and enjoy your favorite brews especially made by our local coffee artisans! And while you get your caffeine fix, you’ll be able to help local coffee MSMEs find their footing amid the crisis.

Maybe it’s the caffeine talking but we’re so excited for all things coffee at SM Supermalls’ Reconnect Over Coffee! It’s time to add a dash of fun to your coffee days with family and friends when you drop by at any SM malls nationwide from July 15 to 31. 

Coffee reigns supreme at SM! For more news and the latest updates, you can follow SM Supermalls on Facebook, Instagram, and Twitter.

 

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BSP seen to deliver more rate hikes

BW FILE PHOTO

By Keisha B. Ta-asan

THE PHILIPPINE central bank could deliver more aggressive rate hikes in order to support the peso and tame inflation without derailing economic growth, analysts said.

The Bangko Sentral ng Pilipinas (BSP) unexpectedly tightened its monetary policy by 75 basis points (bps) on July 14, bringing the benchmark rate to 3.25%.

Interest rates on the overnight deposit and lending facilities were also hiked by 75 bps to 2.75% and 3.75%, respectively.

Deutsche Bank Chief Executive Officer for Asia Pacific Alexander von zur Muehlen said the BSP would likely raise interest rates by another 50 bps in August to support the peso, which recently touched the all-time low.

“We think the central bank needs to stabilize the currency and it will take more than (the July 14) move to do that. We still expect a 50-bp rate hike in August and for now will keep the September rate hike at 50 bps too,” Mr. Muehlen said in an exclusive interview with BusinessWorld.

Despite policy tightening, the peso remains under pressure. It closed at P56.36 against the US dollar on Friday, weakening by 21 centavos from its Thursday finish.

Year to date, the peso depreciated by 10.5% or by P5.36 from its close of P51 versus the dollar on Dec. 31, 2021

“What we’re experiencing right now, is that obviously, a lot of currencies here in our region are looking weaker against the dollar. This is less to do with any individual currency’s weakness, and more to do with a number of macroeconomic drivers pushing up the dollar’s strength,” Mr. Muehlen said. 

Investors are flocking to the dollar, which is seen as a safe-haven asset, as the US Federal Reserve considers larger rate hikes amid red-hot inflation.

BSP Governor Felipe M. Medalla said he would not rule out another interest rate increase in its next policy meeting on Aug. 18.

“We still have room to raise depending on the inflation picture,” Mr. Medalla said in an interview with Bloomberg TV on Friday, also citing spillover effects from other countries for last Thursday’s off-cycle decision.

Inflation rose by 6.1% year on year in June, the fastest in nearly four years and exceeded the central bank’s 2-4% target band for a third straight month. The inflation rate averaged 4.4% in the first six months, still below the BSP’s full-year forecast of 5%.

The Philippine Statistics Authority (PSA) is scheduled to release July inflation data on Aug. 5, and second-quarter gross domestic product  (GDP) data on Aug. 9. 

GROWTH OUTLOOK
Sanjay Mathur, chief economist for Southeast Asia and India of ANZ research, said the BSP has room to hike rates without hurting economic recovery amid global uncertainties.

“The 75-bp rate hike, though unexpected and unexpectedly large, is unlikely to impact growth. Nonetheless, further tightening is also on the cards to reduce inflation,” Mr. Mathur said in an e-mail. 

“Now the critical point to bear in mind is that the way a monetary tightening cycle works is that it reduces aggregate demand and that in turn, stabilizes or reduces inflation. The same transmission will evolve in the Philippines — aggregate demand ease and that is a prerequisite for lower inflation.”

The economy expanded by a faster-than-expected 8.3% in the first quarter. The Development Budget Coordination Committee (DBCC) is targeting 6.5-7.5% GDP growth this year.

“On the external developments, we should bear in mind that the Philippines is not a major exporting economy. Nonetheless, even a marginal impact on exports when domestic demand is easing (as discussed above), the overall impact on growth would be apparent,” Mr. Mathur said.

The global economic outlook for this year and 2023 is expected to be further downgraded when the International Monetary Fund (IMF) releases its World Economic Outlook Update later this month.

“The war in Ukraine has intensified, exerting added pressures on commodity and food prices. Global financial conditions are tightening more than previously anticipated. And continuing pandemic-related disruptions and renewed bottlenecks in global supply chains are weighing on economic activity,” IMF Managing Director Kristalina Georgieva said in a statement. 

“Moreover, downside risks will remain and could deepen — especially if inflation is more persistent — requiring even stronger policy interventions which could potentially impact growth and exacerbate spillovers particularly to emerging and developing countries,” she added. 

Meanwhile, Mr. Muehlen expects that countries in the Southeast Asian region would continue their recovery in contrast with the global outlook.

“This part of the world is set for growth, we anticipate that ASEAN (Association of Southeast Asian Nations) and large parts of Asia will see its GDP grow by two times versus the rest of the world, in the foreseeable future, and for quite a number of years,” Mr. Muehlen said. 

“The growth opportunities here are over proportional. And as a consequence, we continue to look very constructively at the future here for us,” he added.

Marcos gov’t mulls next move on rail projects

Motorists use the 680-meter Binondo-Intramuros Bridge on April 6. The Binondo-Intramuros Bridge Project is a joint undertaking of the Philippine government and the People’s Republic of China. — PHILIPPINE STAR/KRIZ JOHN ROSALES

By Arjay L. Balinbin, Senior Reporter

THE MARCOS administration now faces the challenge of securing funding for the three major railway projects after the government canceled its applications for loans from China.

Analysts said China’s failure to act on the Philippines’ loan applications for the Calamba-Bicol, Clark-Subic, and Mindanao railway projects showed its lack of commitment despite former President Rodrigo R. Duterte’s Beijing-friendly posture.

President Ferdinand R. Marcos, Jr. is now eyeing both foreign and private sector support for railway projects, according to Transportation Undersecretary for Rails Cesar B. Chavez.

Mr. Marcos also directed the Department of Transportation (DoTr) to go back to the negotiating table to secure loan agreements for the three railway projects, the Presidential Palace said in a statement at the weekend.

The Chinese embassy in Manila on Sunday said the coronavirus disease 2019 (COVID-19) pandemic has affected the implementation of some projects but vowed to continue “cooperation in agriculture, infrastructure, energy, people-to-people exchange, and other fields.”

“China will tap its own advantage and support the Philippines to improve its infrastructure. Our two sides have been negotiating technical issues and made positive progress to move the projects forward. China is open for technical discussions over our government-to-government projects, and is ready to carry our cooperation forward, in close communication with the Philippine new administration,” the embassy said.

It is not ideal to secure fresh loans for infrastructure projects given the current limited fiscal space and rising interest rates, Terry L. Ridon, convenor of think tank InfraWatch PH, told BusinessWorld in a phone message on Friday.

If the government pursues foreign loans, especially from China, Mr. Ridon said it should be able to choose the most competitive rate “while ensuring social and environment commitments.”

Former Finance Secretary Carlos G. Dominguez III told reporters via Viber chat on Friday that China Eximbank (CEXIM) wanted around 3% interest rate for the loans.

“At present, as US dollar benchmark interest rates have increased to around 3%, CEXIM will push to recover this funding rate at the very least,” he said.

The Philippines recently secured a loan of around P17.39 billion from China for the Samal Island-Davao City Connector with an annual interest rate of 2% and a repayment period of 20 years.

PPP MODE
Meanwhile, the new administration is looking at the public-private partnership (PPP) mode to fund the three projects, Mr. Chavez said.

Mr. Ridon said PPPs may be viable only for projects “with a clear business case for the private sector to participate, such as tollways, railways and transport hubs in metropolitan areas.”

“It will be harder to undertake PPPs for projects that have been designed precisely to initiate economic growth in less developed areas, as these types of projects typically require government to foot the bill for development,” he added.

Both the Calamba-Bicol and Clark-Subic railways may be viable PPP projects, as economic development is already spreading to the south and north of Metro Manila.

“Reliable rail systems will also positively disrupt the current transportation setup in these areas, as it can compete with buses and trucks in transporting passengers and cargo,” Mr. Ridon said.

Rene S. Santiago, a transport expert, said in a phone message on Saturday, that based on data and assumptions in the feasibility studies for Davao and Subic railways, “they are not economically viable.”

“The benefit-cost ratio is less than 1. Meaning, a bad investment for the country… If not viable economically, the more it is not financially viable (for PPP). The private sector may touch these rail projects only with huge subsidies from government, or guaranteed returns,” he said.

Before the Marcos administration can attract PPPs, Mr. Santiago said the president must first “regain the trust of investors.”

According to Mr. Chavez, the contract for the P142-billion PNR Bicol was awarded to the joint venture of China Railway Group Ltd., China Railway No. 3 Engineering Group Co. Ltd., and China Railway Engineering Consulting Group Co. Ltd. in January this year. The contract for the construction of the P51-billion Subic-Clark railway was awarded in December 2020 to China Harbour Engineering Co.

The DoTr failed to proceed with the P83-billion Tagum-Davao-Digos segment of the Mindanao Railway project, because Beijing did not submit a shortlist of contractors for the design-build contract.

The government may need to shelve the three projects for now and focus on social agenda, analysts said.

“For projects that are unfeasible to be undertaken as PPPs, government has no choice but to wait until our fiscal situation becomes better, either through improving tax collection or raising taxes only in very specific areas,” Mr. Ridon said.

For his part, Mr. Santiago said: “Cancel or defer the three rail projects, because they are not economically viable.”

LESSONS
The Marcos administration should learn from this “harsh lesson,” particularly in dealing with the Chinese government, Michael Henry Ll. Yusingco, a research fellow at the Ateneo de Manila University, said in an e-mailed reply to questions on Saturday.

“The personal relationship of world leaders will ultimately bow down to national interests. So, no one should have been impressed with the purported friendship between President Duterte and President Xi… Government programs must be anchored on contractual commitments and not mere promises,” Mr. Yusingco said.

For his part, InfraWatch’s Mr. Ridon said: “Without equivocation, this only shows that the former president compromised sovereign rights in the territorial dispute for nothing.”

“All we got from the Chinese infrastructure deals were token bridges employing Chinese nationals and projects that had been subjected to adverse findings by the Commission on Audit, such as the Kaliwa Dam project.”

The Philippines, under Mr. Duterte, received about P12.18-billion loan from China for the Kaliwa Dam project as well as P5.9-billion grant for the Binondo-Intramuros and Estrella-Pantaleon bridges.

The Philippines also secured P4.37-billion loan for the Chico River Pump Irrigation project and P998-million grant for the rehabilitation of the war-torn city of Marawi.

Mr. Duterte brought home about P1.2 trillion worth of pledges in loans and grants from China as part of his “Build, Build, Build” program after his state visit to Beijing in October 2016, according to Malacañang.

“For all the bombast of more than a hundred Chinese-funded projects in the last six years, there was little to show for it,” Mr. Ridon said.

“It is time for the new president to push harder on Philippines-China relations and reassert our victory in the Hague tribunal, as Beijing might have forgotten about its standing commitments to Manila,” he added.

Mr. Yusingco said Mr. Marcos’ directive to renegotiate with the Chinese government seems to go against the promise to vigorously pursue PPP.

“The viability of the renegotiations will depend on the commitment of the Marcos, Jr. administration to this promise. In a way, this is a litmus test for his economic team, as to whether they can sway the president to take the more prudent and beneficial course of action,” he added.

Unstoppable dollar risks worsening $71-B Asia stock exodus

COLIN WATTS-UNSPLASH

THE DOLLAR’S relentless rise is threatening to trigger more outflows from Asia’s emerging-market shares, spoiling hopes of the region making a comeback in the second half.

A gauge of Asian currencies has slumped to its lowest in more than two years, an ominous sign for equities given their strong relationship with moves in foreign exchange. The MSCI Asia ex-Japan Index has fallen by 20% as foreign investors took $71 billion out of stock markets in emerging Asia outside China so far this year, already double the outflows in 2021.

The dollar has steamrolled through global currency markets lately, benefiting from bets on aggressive US Federal Reserve rate hikes. A stronger greenback bodes ill for Asian stocks when it signals lower risk appetite and is also seen as negative for growth in emerging economies, many of which rely on imports priced in the currency.

“The dollar is strengthening because there’s risk aversion rather than growth” and that’s “not a good mix” for Asian assets, said Zhikai Chen, head of Asian equities at BNP Paribas Asset Management.

Asia’s tech-heavy markets like South Korea and Taiwan look particularly vulnerable as higher global bond yields and recessionary headwinds are hurting valuations and the demand outlook.

Stock benchmarks in the two nations are among the worst performers in the region this year and foreigners have net sold a combined $50 billion of their shares.

For less export-reliant markets, weaker local currencies worsen national balance sheets and company profit margins, as both corporate and sovereign borrowers suffer from higher repayments on dollar-denominated debt.

In India, one of the world’s biggest oil importers, the rupee has tumbled to a record low as the nation faces widening current-account and fiscal deficits. Meanwhile, the hands-off approach by Thailand’s monetary authority has resulted in a slump in the baht, one of the big decliners in emerging market currencies this year. Further currency weakness could threaten the resilience their stock markets have shown in 2022.

Chinese stocks, which saw a slew of bullish calls in June, have taken a sharp turn lower this month, adding to Asia’s woes. A key gauge of shares listed in Hong Kong is down more than 9% amid renewed COVID concerns, an intensifying property crisis and fresh regulatory scrutiny of the tech sector.

For Siddharth Singhai, chief investment officer at New York-based hedge fund Ironhold Capital, sometimes it doesn’t take much for a trickle in foreign outflows to turn into a flood.

“Foreign investors are very fickle. They tend to move in and out very quickly,” he said.

Asia’s infrastructure, home building and construction stocks will be more impacted by a stronger dollar given their sensitivity to interest rates, he added.

The Bloomberg JPMorgan Asia Dollar Index has slumped by 6% so far this year, on track for its worst annual loss since the region’s financial crisis in 1997.

All 10 sectors in the Asia ex-Japan index are in the red this year.

For those seeking to pick up some beaten-down shares, Taiwanese telecoms and consumer staples stocks, Indian IT firms, Korean healthcare names and Malaysian energy stocks were consistent outperformers during similar periods of depreciating Asian currencies in the past decade, according to a study by BNP Paribas Securities analysts last year.

“From a flows and sentiment perspective, yes Asian stocks tend to underperform in the short term against a rising dollar,” said Christina Woon, investment director for Asia equities at abrdn plc. But “you can also find a number of beneficiaries, such as exporters, or companies that have more domestically focused tailwinds where a stronger dollar is less of an issue.” — Bloomberg

Prime Infra offers 500-MW stored power to Meralco

PRIME Infrastructure Capital Inc. has been declared by Manila Electric Co. (Meralco) as the original proponent to supply 500 megawatts (MW) to the power distributor, the Razon-led company said on Sunday.

In a press release, Prime Infra said its unit Ahunan Power, Inc. offered mid-merit power using pumped storage hydropower as an energy storage system.

“We look forward to the opportunity of further providing renewable energy sources that are reliable and sustainable,” Prime Infra Chairman Enrique K. Razon, Jr. said.

Meralco, through its third-party bids and awards committee, granted the original proponent status on June 29, 2022 to Ahunan Power.

Pumped storage hydropower plants store and generate electricity by moving water between two reservoirs at different elevations.

During off-peak hours, water is pumped from the lower reservoir to the upper reservoir to store unused energy. When power demand is high, electricity is generated by releasing water to the lower reservoir.

Under the rules of the Department of Energy, Ahunan’s offer is subject to a competitive challenge. Ahunan has the right to match comparative proposals.

Prime Infra said Ahunan nominated to Meralco two pumped storage hydropower, either of which can supply the needed 500-MW energy under its offer.

The first power plant is located in Laguna and is undergoing pre-development by Ahunan. The second is in Wawa, Rizal under pre-development by Olympia Violago Water & Power, Inc.

Prime Infra said Ahunan had entered into an agreement to acquire a controlling interest in Olympia.

Prime Infra said that Ahunan and Olympia have total hydro service contracts of 1,200-MW net dependable capacity and 500-MW net dependable capacity, respectively.

It said the capacity represents an additional 8% dependable installed capacity to the Philippine grid or the network of interconnected facilities that transmit electricity from power plants to where it is needed.

The company said the development of pumped storage hydropower plants represents a move away from the traditional oil or gas-based power for mid-merit and peaking. Mid-merit power plants are able to adjust their output when energy demand peaks throughout the day.

It added that a pumped storage facility “allows greater penetration of renewable energy sources as it can both absorb and generate electricity to follow the variability of wind and solar plants.”

“Prime Infra will continue to pioneer energy and other infrastructure projects that are environmentally resilient and socially relevant,” said Prime Infra’s President and Chief Executive Guillaume Lucci.

Ahunan’s plants are said to have the capability of a minimum guaranteed output of 12 hours per day covering the peak hours of Meralco.

Prime Infra is Mr. Razon’s infrastructure arm that focuses on building assets that support urgent sustainability priorities. Its projects include clean and renewable energy, access to clean water, waste management, and viable critical infrastructure. — Justine Irish DP. Tabile

T-bills, bonds may fetch higher rates after central bank’s move

BW FILE PHOTO

RATES of government securities on offer this week are expected to rise following the Bangko Sentral ng Pilipinas’ (BSP) surprise hike on Thursday.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday, made up of P5 billion each in 91-, 182-, and 364-day debt papers.

On Tuesday, the BTr will auction off P35 billion in 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 11 months.

“[This] week’s reissue of the FXTN 10-68 will be well received by the market bouncing off a good participation in last Tuesday’s auction,” the first trader said, noting the 10-year bonds could fetch yields ranging from 6.75% to 7%.

“We also saw that even with [Thursday’s] 75-basis-point (bp) hike, yields did not move higher proportionately, indicating that current yields present enough buffer from the tightening and some future rate hikes. Investors are also anticipating a possible peaking in CPI (consumer price index) for the Philippines given that we have seen oil prices relax the last few weeks,” the first trader added.

The second trader said the T-bills on offer on Monday could see their rates rise by 10-20 bps from those quoted at last week’s auction, while the 10-year papers may fetch yields within the 6.7-6.875% band to track secondary market levels.

“The seven-year auction last week was so strong that it improved sentiment for bonds. Moreover, prices of key commodities already bounced off their highs, so it also enhanced some demand for local bonds. And with all these monetary tightening measures, price pressures will be cushioned and should be a bond friendly catalyst on the foresight,” the second trader added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said yields on the debt papers to be auctioned off this week could rise after the Philippine central bank’s decision to raise rates in an off-cycle review.

The BSP unexpectedly raised its benchmark interest rates by an all-time high 75 bps on Thursday and left the door open for further tightening amid growing risks to inflation, which already reached a near four-year high in June.

BSP Governor Felipe M. Medalla said the Monetary Board raised its key rate to 3.25%, effective immediately. Rates on the overnight deposit and lending facilities were also hiked by 75 bps to 2.75% and 3.75%, respectively.

Mr. Medalla said the “significant” hike was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns. 

The move was made ahead of the Monetary Board’s Aug. 18 review and follows the back-to-back 25-bp hikes done in May and June, bringing total increases for the year to 125 bps.

On Friday, Mr. Medalla said in an interview with Bloomberg Television that he would not rule out another interest rate increase in the August review, although the need for a 50-bp hike at that meeting is “much less now” following the 75-bp increase it fired off on Thursday.

Headline inflation rose by 6.1% year on year in June, the fastest in nearly four years and exceeding the central bank’s 2-4% target band for a third straight month. The average inflation rate in the first six months is 4.4%, still below the BSP’s full-year forecast of 5%.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.9413%, 2.6167%, and 2.8709%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond fetched a yield of 6.7941%.

Last week, the BTr raised just P13.16 billion from its auction of T-bills, lower than the P15-billion program, even with bids reaching P36.72 billion or more than twice the planned amount.

Broken down, the Treasury made a full P5-billion award of 91-day securities as the tenor attracted P24.56 billion in bids. The average rate of the tenor went down by 3.2 bps to 1.876%. Accepted rates ranged from 1.825% to 1.894%.

Meanwhile, the BTr raised just P4.1 billion from the 182-day debt papers out of the P5-billion program, even with total tenders reaching P7.05 billion. The tenor’s average rate went up by 29.9 bps to 2.907%, with the government accepting offers ranging from 2.825% to 2.95%.

Lastly, the government awarded only P4.06 billion in 364-day debt papers out of the P5-billion plan, with bids reaching P5.11 billion. The average rate of the one-year tenor climbed by 17 bps to 2.981%, with the yields on the awarded bids within the 2.8% to 3.143​​% band.

Meanwhile, the reissued 10-year papers to be offered on Tuesday were last auctioned off on June 21, where the BTr made a partial award of the fresh papers worth P34.892 billion versus the P35-billion program.

The bonds were awarded at a coupon rate of 7.25%, 30.59 bps higher than the 6.9441% quoted for the 10-year tenor at the secondary market before the auction. Rates bid by participants ranged from 6.95% to 7.37% for an average of 7.145%.

The Treasury wants to raise P200 billion from the domestic market this month, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles

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