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PHL shares slip ahead of April inflation report

COURTESY OF PHILIPPINE STOCK EXCHANGE, INC.

SHARES declined on Tuesday after a survey showed the country’s manufacturing activity went down last month and as investors stayed on the sidelines ahead of the release of April inflation data on Wednesday.

The Philippine Stock Exchange index (PSEi) lost 10.13 points or 0.15% to close at 6,359.15 on Tuesday, while the broader all shares index went down by 16.18 points or 0.41% to finish at 3,906.82.

“The bourse ended slightly lower as investors digested the recently released factory activity for the month of April,” Timson Securities, Inc. Trader Darren Blaine T. Pangan said in a Viber message.

“Also, some market participants may have chosen to remain on the sidelines ahead of the release of the inflation report scheduled [today],” Mr. Pangan added.

A survey by IHS Markit showed the Philippine Manufacturing Purchasing Managers’ Index went down to 49 in April from 52.2 in March, the first score below the 50-neutral mark after a three-month climb.

Meanwhile, the Philippine Statistics Authority is set to release the consumer price index data for April today, May 5.

COL Financial Group, Inc. Chief Technical Analyst Juanis G. Barredo said in a separate Viber message that the PSEi’s close on Tuesday was “a stone’s throw away from its next support of 6,325, this being its 1.5-month low.”

Most sectoral indices declined on Tuesday except for financials, which improved by 3.72 points or 0.26% to end at 1,401.48.

Meanwhile, mining and oil dropped by 221.69 points or 2.29% to close at 9,453.90; property went down by 24.83 points or 0.8% to 3,049.82; industrials fell by 33.35 points or 0.38% to finish at 8,599.49; services declined by 2.36 points or 0.16% to 1,438.92; and holding firms inched down by 5.23 points or 0.08% to 6,457.19.

Value turnover went up to P4.63 billion on Tuesday with 3.19 billion shares switching hands, from the P4.39 billion with 3.03 billion issues traded the previous trading day.

Decliners overwhelmed advancers, 149 to 57, while 43 names closed unchanged.

Net foreign selling declined to P371.78 million on Tuesday from P429.45 billion on Monday.

“With trading volume remaining lackluster, support may be placed at 6,200, while immediate resistance may be pegged at 6,650,” Timson Securities’ Mr. Pangan said.

Meanwhile, COL Financial’s Mr. Barredo said the index “is on the verge of a support retest,” which may lead the PSEi to finish between 6,100 and 6,200.

“It has been a sluggish period for the market which looks to extend into May, especially after seeing minuscule volumes and having to contend with the ongoing malaise of the pandemic,” he said. “Perhaps, the market may also be worried about upcoming events such as the hazards of another possible MSCI down weight, and the upcoming follow-on offerings and IPOs (initial public offerings), which could possibly be draining the market’s liquidity.” — Keren Concepcion G. Valmonte

Hanjin talks seen progressing as Austal deal looms

HANJIN FACEBOOK PAGE

PROGRESS on the takeover of the Hanjin shipyard in Subic is expected within the next two months, Australian Ambassador to the Philippines Steven J. Robinson said.

Australian shipbuilder Austal Ltd. and a US-based company plan to take over the site previously controlled by Hanjin Heavy Industries and Construction-Philippines, Inc. The South Korean firm declared bankruptcy in 2019.

“I’m hopeful that there will be some progress made in the next month or two that we’ll see a finalization of all those negotiations,” Mr. Robinson said in a briefing on Monday.

“Austal really wants to invest further and become a shipbuilder of choice for the Philippines and for the region and that Hanjin facility, if that comes to the fore, would be a marvelous way to enable that in conjunction with its facility that it has already invested significant funds in down in Cebu.”

Austal currently makes catamaran and trimaran ferries in the Philippines for the international market.

Dave Shiner, regional director of Austal, said that discussions are ongoing.

“Hopefully, we’ll have some further news over the coming weeks.”

Separately, Mr. Robinson said Australian mining companies are showing further interest in the Philippines after the nine-year freeze on new mining agreements was lifted.

President Rodrigo R. Duterte last month lifted the moratorium on new mineral agreements imposed in 2012. In an executive order, the government can enter new mining agreements and review current contracts to renegotiate terms.

“The miners that we already have here, Orica, OceanaGold… they’re already thinking about what the future holds for them as a result of that ban being lifted and they’ve started to reach out to us just in recent times to express interest (in projects) across the Philippines,” Mr. Robinson said.

BusinessWorld sought comment from Hanjin’s court-appointed receiver Rosario S. Bernaldo but was not able to reach her. Subic Bay Metropolitan Authority Chairperson Wilma T. Eisma said the authority is not a party to the discussions. — Jenina P. Ibañez

Maynilad agrees to terms similar to Manila Water deal

PHILIPPINE STAR/ GEREMY PINTOLO

MAYNILAD WATER Services, Inc., the supplier for Metro Manila’s west zone, has agreed to renegotiated concession terms similar to those accepted by Manila Water Co., Inc., Justice Secretary Menardo I. Guevarra said.

“The government review panel and Maynilad had a smooth and easy meeting yesterday (Monday). Except for a few matters pertaining to Maynilad’s business plan, JICA (Japan International Cooperation Agency) loans, and the public listing of shares, the parties are in agreement on the rest of the proposed new concession agreement with Maynilad, which takes off from a similar concession agreement with Manila Water,” Mr. Guevarra said in a mobile message Tuesday.

Maynilad Spokesperson Jennifer C. Rufo said she would not comment on the details of the deal until it is finalized.

“Once our talks have been concluded, details of the final agreement will be revealed. We hope you understand,” she said in a mobile message Tuesday.

Ms. Rufo said earlier that Maynilad is “eager to conclude the talks at the soonest possible time.”

Mr. Guevarra has pointed out that certain parts of the new Manila Water contract were considered non-negotiable in the Maynilad talks.

They include “the removal of the non-interference clause, the non-chargeability of corporate income tax to consumers’ water bills, no government guarantees for future debts, CoA (Commission on Audit) audit, and a more transparent governance mechanism,” Mr. Guevarra told reporters on April 19.

Ms. Rufo has said that Maynilad does not expect its deal to be identical to Manila Water’s “because Maynilad is differently situated compared to Manila Water.”

Maynilad is the water provider for 17 cities and municipalities in the West Zone of the Metropolitan Manila area, while Manila Water services 23 cities and municipalities in the East Zone.

Manila Water’s revised concession agreement with Metropolitan Waterworks and Sewerage System (MWSS), the government agency in charge of water privatization in Metro Manila, was finalized and signed on March 31.

A copy of the revised agreement with Manila Water was sent to Maynilad on April 18 to review.

Some of the notable changes in the revised agreement with Manila Water are the removal of the company’s ability to pass on corporate income tax to customers, the cancellation of foreign currency differential adjustments, the lowering of the inflation factor to two-thirds of the consumer price index adjustment, and caps on increases in standard rates for water and wastewater.

The original rate-rebasing mechanism of Manila Water under the original agreement was also retained, which means that the rates for the concessionaire’s water and sewerage services will be set at a level at which Manila Water can recover its expenditures plus a reasonable return.

Manila Water also agreed to a tariff freeze until Dec. 31, 2022 to assist poor customers and aid the country’s economic recovery after the coronavirus disease 2019 (COVID-19) pandemic.

In November, President Rodrigo R. Duterte tasked the Department of Justice (DoJ) to review the water deals, which he claimed contain “onerous” provisions.

Mr. Duterte’s directive was a response to an international arbitration court’s ruling that the Philippine government must pay Maynilad P3.4 billion and Manila Water P7.4 billion for losses incurred when the MWSS rejected their request for an increase in water rates.

The concession holders opted not to demand payment, and said they were open to review the terms of their contracts. — Bianca Angelica D. Añago

COVID disruptions showing up in property market — Maybank

PHOTO COURTESY OF OHMYHOME

DISRUPTIONS to working arrangements are beginning to flow on to the Philippine property market, where guest workers in particular generate strong office and home sales, according to Maybank Kim Eng.

The report, written by analysts Chua Hak Bin, Lee Ju Ye, and Linda Liu, noted in particular that the exit of Chinese workers employed by Philippine Offshore Gaming Operators has had a huge impact on the residential property market.

“While there is no official data on foreign purchases, data by Ayala Land, Inc. the country’s largest land developer, showed a steep 60% plunge in sales reservations by foreigners, especially from China. The foreign share of total purchases fell to 10.9% in 2020 (vs. 15.2% in 2019) while purchases by local and overseas Filipinos increased,” the report said.

Among Filipinos, the pandemic also triggered a change in residential preference due to work from home arrangements adopted during the pandemic, Maybank said.

“The out-migration reallocated real estate demand — dubbed the ‘doughnut effect’ — towards the suburbs and away from the city center,” it said.

Metro Manila home prices contracted 4.8% year on year in the fourth quarter, according to the Bangko Sentral ng Pilipinas. Meanwhile, residential property prices in the provinces rose 5.9% in the three months to December.

Maybank cited a Lamudi report indicating an increase in viewings and inquiries for property in Laguna, particularly in Calamba and Santa Rosa; Cavite particularly in General Trias, and Lipa, Batangas.

“Provincial cities with close proximity to Metro Manila have been seeing a surge in interest among property seekers, fueled partly by lower population levels, fewer COVID-19 cases and relaxed lockdowns,” it said.

Meanwhile, Maybank also noted that the shock to the migration market is being seen most prominently in the repatriation of overseas Filipino workers (OFWs).

“The return of OFWs may have contributed to the increase in unemployment which spiked to the highest in ASEAN at 17.6% in the second quarter of 2020,” it said.

Labor Secretary Silvestre H. Bello III said in April that 19% or more than 647,000 of the 3.5 million documented OFWs have been repatriated due to the pandemic. There are 8.8 million OFWs, including 3.8 million migrants, according to June 2020 government data.

Despite the repatriations, cash remittances to the Philippines dropped by only 0.8% to $29.903 billion in 2020. This represented the lowest contraction in the ASEAN, though Thailand was the outlier with remittance growth of 0.3%, Maybank said, citing official data from ASEAN governments.

“This could be due to overseas workers sending more remittances home to their families when their countries of origin experience economic hardship, or sending back more of their savings ahead of their decision to move back home,” Maybank said.

The central bank expects cash remittances to grow 4% this year, driven by prospects of an economic recovery. — Luz Wendy T. Noble

Energy regulator freezes collection of interest on delayed FiT revenue

THE ENERGY Regulatory Commission (ERC) has ordered a halt to the collection of interest on delayed feed-in tariff (FiT) revenue from the National Transmission Corp., citing the need to provide relief to power users.

In an advisory posted on its official Facebook page, the commission said Tuesday that it is suspending the “imposition of interest for partial or delayed payment” of actual FiT revenue to eligible renewable energy (RE) developers for six billing periods.

“During the period of the moratorium, eligible RE Plants shall not impose any interest or penalty for any partial or delayed payment of the actual FiT revenue to them by the National Transmission Corporation (TransCo),” the ERC said.

The FiT-Allowance (FiT-All) is a uniform charge billed to on-grid customers, calculated and set annually. It is collected from consumers and remitted to TransCo, which controls the FiT-All fund. TransCo is in charge of distributing FiT-All payments to RE developers.

In its advisory, the ERC said that it is currently relaxing the FiT Rules to provide relief to the public during the pandemic.

The moratorium will take effect during the February to July billing periods, the ERC told BusinessWorld in a Viber message Tuesday.

“No interest will be billed by RE developers and no interest payments will be made by TransCo. As a result, no additional cost from the interest will be shouldered by the consumers,” the ERC said.

Victorio Mario A. Dimagiba, the president of consumer group Laban Konsyumer, Inc., told BusinessWorld via Viber that the moratorium seems to be a “pure debt relief accommodation extended by RE developers to TransCo as sponsored by ERC.”

“There is no statement of any pkWh (per kilowatt-hour) benefit to the consumers if any at all,” Mr. Dimagiba said Tuesday, referring to the ERC’s public advisory.

TransCo does not stand to benefit from the moratorium, it told BusinessWorld Tuesday.

“It is the FiT-All Fund that will benefit from the temporary relief in terms of the interest charges for late payment,” it said.

Had the moratorium not been put in place, there would have been an initial interest of P6 million payable by the end of June, TransCo said.

Asked why payments are delayed, TransCo said the current FiT-All rate of P0.983 per kilowatt-hour is “not enough” to fully settle payables to RE developers.

“The prevailing FiT-All Rate… gives us an estimated monthly average cash inflow of P670 million, whereas our estimated monthly average FiT Differential payables (or) cash outflow is P1.52 billion,” it said.

TransCo said that its projected interest due by the end of this year, assuming that the FiT-All rate does not increase, will range from P262 million to P763 million.

Meanwhile, the ERC told BusinessWorld that the current interest rate per month on partial or delayed FiT payments is based on “a 91-day treasury bill rate plus 300 basis points until fully paid.”

Energy Development Corp. (EDC), which is entitled to the FiT scheme through its affiliate’s 150-megawatt Burgos Wind Power Project in Ilocos Norte, said that it will follow the ERC’s advisory.

“We understand and will abide by the ERC moratorium. These are trying times for almost all industries, including the power industry, particularly customers and end users,” EDC’s Business Development, Trading, and Marketing Head Marvin S. Bailon told BusinessWorld in an e-mail Tuesday after queries made to the EDC Public Relations Department.

Last week, Energy Secretary Alfonso G. Cusi called the FiT scheme unaffordable for the Philippines.

“With regard to the FiT, tinigil na po natin iyan dahil talaga pong mali iyan (we stopped it because it is wrong). That is robbing the consumers. As a developing country, we cannot afford to be giving FiT or subsidies para po dun sa mga bagong (for the new) technologies that are being introduced,” he said at a Joint Congressional Energy Commission hearing held on April 27.

Asked to comment on Mr. Cusi’s statements, DoE Renewable Energy Management Bureau Director Mylene C. Capongcol has said that he may have meant there will be no new round of FiT applications. — Angelica Y. Yang

PHL seeking to adopt international norms on profit shifting

OECD

THE PHILIPPINES is inching towards joining the Inclusive Framework on Base Erosion and Profit Shifting, an international standard that deters transnational companies from exploiting differences in national rules to minimize their tax exposure, the Department of Finance said.

“The Philippines is currently making significant progress in our efforts to assess our readiness to join the Inclusive Framework on Base Erosion and Profit Shifting (BEPS),” Undersecretary Antonette C. Tionko said at an Asian Development Bank forum late Monday.

“We’ve become more aware of the benefits of joining the BEPS inclusive framework,” she said.

The BEPS was put forward by the Organisation for Economic Co-operation and Development (OECD) and the G20 in order to address the mismatches in tax policy across various jurisdictions.

The International Framework on BEPS, established in 2016, has been accepted by 135 countries committed to implementing 15 measures to deter tax avoidance.

Ms. Tionko said the Philippines has identified potential areas of reform from studying the framework, including the policy on countering harmful tax practices and the prevention of tax treaty abuse.

“Likewise, we’re currently studying the benefits of acceding to the multilateral instrument to implement reforms,” she said. “We believe that the self-assessment exercise will build the foundation to meet the minimum standards for the BEPS Inclusive Framework.”

Meanwhile she said the Philippines is also now on track to fully design and develop a framework and a model for agreements on double taxation. The government started updating its double taxation agreements in 2018 to comply with international standards.

“In the same manner, the Philippines is also on target to conclude tax treaties with other ASEAN member states in line with our commitment under the ASEAN Regional Integration Framework. We are working closely with our foreign counterparts to ensure that we complete them and improve our network of bilateral agreements in the soonest possible time,” she said.

Pascal Saint-Amans, director at the Center for Tax Policy and Administration of OECD, said at the forum that he welcomes the developments in the Philippines as reported by Ms. Tionko.

Aside from the ongoing policy action, Mr. Saint-Amans said the OECD is also trying to build a long-term multilateral solution for the international community as issues on the taxation of the digital economy emerge.

“If you want to adopt the international tax rules to a digitized economy and a globalized economy, where value creation has changed, where you rely more on intangible property, where you have a few winners from globalization, you need to have a multilateral solution, because countries on a unilateral basis cannot do much,” he said.

“We would introduce a new nexus to recognize that the company can be taxed in the territory even if it has no physical presence in that country,” he added. — Beatrice M. Laforga

Amendments to PNOC seen removing business restraints

THE DEPARTMENT of Energy (DoE) said proposals to review the charter of the Philippine National Oil Company (PNOC) should expand the PNOC’s role in the country’s petroleum projects.

At a hearing conducted by the House Committee on Energy on Tuesday, DoE-Oil Industry Management Bureau Director Rino E. Abad said the department hopes to see in the proposal “a provision which will enhance the mandate of the PNOC to go into downstream natural gas projects.”

He said that also on the wish list are the establishment of the Philippine Strategic Oil Reserve. Mr. Abad said the DoE is currently drafting a circular in consultation with the PNOC on setting up a reserve, adding that he hopes the terms of the circular will make their way into the law.

Legislators on Tuesday began deliberations on House Bill  8762 which will revise the charter of the PNOC. The bill was written by the House energy committee chairman, Pampanga Rep. Juan Miguel Macapagal Arroyo.

The PNOC was created by Presidential Decree 334 in 1973.

PNOC President Reuben S. Lista said at the hearing that the bill, which will amend the decree, will allow more flexibility for PNOC in dealing with the potential for disruption posed by dwindling global oil reserves.

“Sadly the Philippine National Oil Company, shackled by stringent rules, remains dormant in its present state without an outlook of spirited expansion,” he said.

“The passage of this bill will allow the Philippine National Oil Company to meet the new and emerging energy challenges not merely as a passive government-owned and -controlled corporation but as a business entity making profits for the government and at the same time, an active, vigorous, and strong organization fully committed to nation-building,” he added.

The proposed amendments include exemption from submitting the PNOC budget for Congressional approval. The PNOC will also be exempt from government procurement law for certain items.

PNOC Vice-President Ronald C. Chua said since the PNOC became an operating company in 2018, the amendments will provide leeway for the organization to procure supplies for its operations.

“We are the only government-owned and -controlled corporation that has to submit our budget even if we do not have budget allocation from the government. Our budget is confined and limited to our own funds,” he said at the hearing. — Gillian M. Cortez

BoI makes bid for potential European electronics, outsourcing investment

REUTERS

THE BOARD of Investments (BoI) said it is touting the electronics and outsourcing sectors to potential investors from Europe.

The investment promotion agency held a virtual event with European companies, highlighting possible partnerships.

“We are targeting two sectors, the Electronics and Information Technology-Business Process Management (IT-BPM) for Europe to invest,” BoI Managing Head Ceferino S. Rodolfo said in a statement Tuesday.

He said electronics took up the largest share of Philippine exports last year. The Philippines hosts around 500 semiconductor and electronics firms.

Mr. Rodolfo also promoted outsourcing in both low-cost and high-value applications, including finance and accounting, software development, data analytics, and supply chain management.

The semiconductor industry group, Semiconductor and Electronics Industries in the Philippines, Inc., set a 7% industry growth forecast for 2021.

Electronics exports fell 8.8% to $39.67 billion in 2020 after operations suffered from disruptions during the lockdown, well short of the pre-pandemic forecast of 5% growth.

Outsourcing revenue rose 1.4% to $26.7 billion last year, the Information Technology and Business Process Association of the Philippines said.

Revenue grew 7.1% in 2019, beating industry targets.

Trade Secretary Ramon M. Lopez said that there is room for investment growth between Europe and the Philippines because of consumer demand from either market, along with supply chains that can be developed across industries.

“The nature and quality of investments from European companies and business partnerships formed with our companies have helped move the Philippines up the value chain,” he said.

European companies invested P23.4 billion in the Philippines in 2020, the BoI said. Top European investment sources were the UK, the Netherlands, and France.

The BoI said approved investment proposals from all sources in 2020 hit P1.02 trillion, against the P1.25-trillion target set before the pandemic. — Jenina P. Ibañez

Saving capitalism from profit obsession

FREEPIK

(Part 2)

The two IESE researchers based their analyses on a comprehensive sample of Southeast Asian public firms from 2012 to 2017. With the cooperation of institutions promoting good governance in Indonesia, Malaysia, the Philippines, Singapore, and Thailand (Vietnam was excluded because of lack of data on foreign ownership in its enterprises), they obtained propriety data on the scores assigned to the listed firms in each of the countries. Based on these data, they analyzed foreign investors’ (ex-post) reaction to the publication of the Top 50 List.* They found out that being included in the List is associated with significant increases in foreign institutional ownership: on average, foreign investors increase by 0.3 percentage points their ownership in the firms included in the list. Based on the average market capitalization of the firms in the sample ($3.3 billion), their estimated magnitudes translate into an average capital injection of $9 million for each firm that appears on the Top 50 List relative to firms outside this. Considering that foreign investment in these countries are relatively low (except for Singapore), this effect is meaningful. After performing placebo tests, they also found out that their models capture the effect of the Top 50 List on foreign institutional ownership.

It is also worth noting that when they broke down foreign investments by investor type, they discovered that the documented patterns are driven by mutual funds and pension funds, but not by hedge fund and private equity funds, the latter group being more notorious for their obsession with maximum profitability. The investors with longer investment horizons — mutual funds and pension funds — are the ones that expect corporate governance improvements made by the sample firms will have long-term consequences. When the authors analyzed the firms’ ex-ante reaction to the Top 50 List, they also found out that the possibility to be included in the list generates incentives for firms to change their corporate governance practices for the better in conformity with the guidelines upon which the ASEAN Corporate Governance Scorecard (ACGS) is based.

There is additional evidence that the improvements in corporate governance precipitated by the inclusion in the Top 50 List have to do with corporate policies that are least related to profit maximization goals. The documented changes in ACGS are concentrated along corporate governance dimensions related to the role of stakeholders, disclosure, and transparency and the responsibilities of the board of directors. In contrast, the sample firms do not increase shareholder rights and equitable treatment of shareholders (i.e., mechanisms to share the control of the firm with minority shareholders). This means that the governance changes preserve the majority shareholders’ control over the firm. Furthermore, the authors studied the variation in the potential benefits that firms could obtain from receiving additional funding from foreign investors. They found out that firms with higher growth opportunities and higher financial constraints exhibit greater improvements in ACGS when they are closer to the 50th position in the ranking. This implies that the Top 50 List provides firms with incentives to improve their governance practices, especially when the benefits of doing so outweigh the costs.

Another meaningful finding of the study showed that the increase in foreign investment driven by the inclusion in the Top 50 List is associated with increases in capital expenditures. In contrast, there is no such association with changes in dividend payments. This evidence suggests that the firms included in the list use the increase in funding from foreign investors to invest in profitable projects rather than distributing those additional funds to the shareholders. This can also be interpreted to mean that efforts to improve corporate governance by top management and the board of directors do not give the highest priority to the interest of the shareholders, especially the majority ones.

The authors compare their study to previous papers on the consequences of the inclusion in a stock index such as those who examine the effect of the JPX-Nikkei Index 400, a Japanese stock index based on return on equity. Similar to these papers, the ACGS-related study provides evidence that the incentives for inclusion (or to avoid exclusion) in a publicly observable list can lead to changes in firm behavior. The difference lies, however, in the fact that while the inclusion in an index mechanically affects the investment of the passive investors following the index, there is no such mechanical effect when the firm is included in the ASEAN’s Top 50 List.

On the local front, the Institute of Corporate Directors (ICD) that provided the data from the Philippines for the ASEAN-wide research project of the IESE professors reported above conducted a similar study to find out what are the financial benefits of good corporate governance. The results of the study were meant to inform board directors, compliance officers, and corporate secretaries of Philippine PLCs, as well as regulators, investors, and other stakeholders. The years covered were 2014 to 2016. The results of the study showed that for the group of PLCs included in the study, there is a positive and statistically significant relationship between 1.) corporate governance and market capitalization; 2.) corporate governance and market valuation as measured by Tobin’s Q ratio; and, 3.) corporate governance and profitability as measured by return on equity. This means that as the quality of corporate governance practices improves, it is likely that the firm market capitalization, market valuation, and profitability will increase as well.

The ICD study indicates that increasing the efforts and resources devoted to improving the quality of corporate governance practices of a PLC would create positive and significant effects on its market capitalization, market valuation, and profitability. PLCs are well advised to exert efforts to raise the quality of their corporate governance — covering the five areas of: 1.) rights of shareholders; 2.) equitable treatment of shareholders; 3.) role of stakeholders; 4.) disclosure and transparency; and, 5.) responsibilities of the board — in order to improve the ACGS score. On the whole, regulations that go beyond compliance can help raise the bar on corporate governance in the country. On the buy side of the market, institutional and other investors in the country must be afforded access to the results of the ACGS process so they can reward PLCs garnering high governance scores with appropriate premiums on their share price. From my own experiences as an independent director of some PLCs in the Philippines, a good number of issues faced by the board of directors concern improvements in corporate practices that are not directly related to maximizing company profits. A good number of them have to do with ethical business practices, greater transparency of company operations, respect for the environment and the practice of corporate social responsibility. The results of the ICD study as well as those of the research done by the IESE professors have highlighted the fact that by focusing on improving corporate governance practices in general also in the long run help a PLC attain profitability levels that can guarantee their continuing access to long-term capital, both from domestic and foreign sources.

Maximum profit at any cost is actually the road to financial ruin and bankruptcy as can be gleaned from the experiences of ENRON, Lehman Brothers, and, more recently, Wirecard and WeWork.

It is heartening to confirm that in recent years, there are enough external pressures from outside agencies and institutions that motivate PLCs to include among their top concerns certain goals that are not directly related to the maximization of financial profits. These pressures come from mutual funds and pension funds that are increasingly including in their investment criteria the impact on society of the companies in which they invest. They also come from private institutions like the ICD and the equivalent organizations in the other ASEAN countries that launched the “Corporate Governance Initiative” in 2011 in tandem with the ASEAN Capital Markets Forum and the Asian Development Bank. As reported in this article, there are also more foreign direct investors who are looking for social purpose (such as those included in the acronym ESG — Environmental, Social and Governance factors) in the businesses in which they invest in the ASEAN region. There is also the requirement of public regulators like the Securities and Exchange Commission (SEC) requiring the inclusion in the annual reports of PLCs an account of their contribution to sustainable development in what is called Sustainability Reporting. In a few exceptional cases, the pressure is coming from within the enterprise from members of the Board of Directors, especially the independent ones, who demand more social accountability from their respective organizations. Only when the majority of business organizations are gifted with enlightened boards of directors and senior management can we be sure that capitalism is finally rid of the obsession with profit maximization that characterized it for most of the second half of the last century and the first decades of this third millennium.

To be continued.

*The Top 50 List is a list of the top 50 public firms based on corporate governance practices released by the Corporate Governance Initiative which was launched by the ASEAN Capital Markets Forum and the Asian Development Bank in 2011.

 

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is Professor Emeritus at the University of Asia and the Pacific, and a Visiting Professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas@uap.asia

Filling in the gaps with Responsible Citizenship

Filipinos have been mired in agony for more than a year now as the country grapples to address the COVID-19 pandemic. During these hard times, income, job security, and affordable prices of goods and services are the most urgent concerns.

The Philippines recorded its worst full-year contraction in its post-war history, with a 9.6% fall, the steepest plunge in the Southeast Asian region in 2020. Prolonged and restrictive lockdowns imposed to counter the spread of the virus forced thousands of businesses to either temporarily or permanently shut down, leading to a record-high unemployment rate of 10.3% in 2020 — the highest recorded annual unemployment rate since 2005 — that translated to 4.5 million jobless Filipinos, according to the Philippine Statistics Authority (PSA). By February 2021, the unemployment rate eased at 8.8%, or equivalent to 4.2 million unemployed Filipinos. Moreover, based on data from the PSA, the inflation rates during the first three months of 2021 were above 4%, higher than those in the preceding months. The average inflation rate in 2020 stood at 2.6%.

While quarantine measures and mobility restrictions were gradually eased in the latter part of 2020 and the country’s growth prospects began to improve, the reimposition of stricter quarantine measures in March 2021 to address the renewed spike in COVID-19 cases disrupted the country’s overall growth momentum and staved off some of the economic improvements attained during the past few months. The Asian Development Bank (ADB) recently lowered its economic growth forecast for the Philippines to 4.5% in 2021, from the original 6.5%.

As people worry about their basic needs, so does the government face its own challenges in raising revenues and dealing with its ballooning debt burden. Data from the Department of Finance (DoF) show that as of April 8, a total of $15.49 billion (or around P750 billion) worth of loans and grants have been secured by the Philippine government from multilateral institutions for COVID-19 response.

The general public has borne the brunt of the COVID-19 crisis. On the ground realities show that the vast majority are deeply affected, and more are losing their livelihood. The latest survey of the Social Weather Stations (SWS) in the fourth quarter of 2020 found that 16% of Filipino families, or around 4 million families, experienced involuntary hunger at least once in the past three months. In addition, the survey revealed that 62% of Filipinos said that their quality-of-life got worse compared to a year ago.

To mitigate the economic impact of the lockdowns imposed since March 2020, big businesses quickly mobilized their resources to distribute food, medical supplies, free transportation and internet connection, isolation facilities, and COVID-19 testing centers to help ease the burden of the most vulnerable sectors of society. This collective action by the private sector allowed the government to buy time in addressing the national emergency.

One year later, the overall situation has not improved. The number of COVID-19 cases and fatalities has not eased, and the renewed spike in cases even surpassed the peak levels last August. Since community quarantine classifications are dependent on the COVID-19 situation in a particular area, a surge in cases can lead to recurring cycles of stricter quarantine measures.

Because of the dearth of government assistance, private citizens took it upon themselves to help each other rather than depend entirely on the government. Thus came the idea of the community pantry, which was undertaken as an informal initiative on Maginhawa Street in Diliman, Quezon City, to help people get by during the hard times. The driving force was not big business: this time, it was the small private citizens.

Reinventing the donation-based undertakings where the decision-making centered on the donor who distributed donations to target beneficiaries, the community pantry put the decision-making on both the donor and recipient. What was striking was the element of trust, honesty, and generosity, an innate nature of Filipino that bloomed amidst these dire straits.

Much sought-after and greatly appreciated, the mushrooming community pantries all over the country are an informal initiative that filled in the needs of the hungry victims of this crisis. A responsibility that the government failed to do.

However, these creatively simple and effective interventions are only emergency solutions that are understandably for the short-term. At this point, what is urgently needed is a more aggressive vaccination program to provide the people with protection from the virus. Otherwise, the emergency situation brought upon by the COVID-19 pandemic will persist and economic recovery will continue to be hampered.

The country’s leaders must be able to efficiently and adequately address the mounting economic and social problems through the creation of decent jobs, income security, and affordable prices for goods and services. The whole of society must play their part in addressing this massive crisis that’s overwhelming the nation today. More importantly, the role of the private sector in alleviating economic hardships should be recognized and empowered. After all, through favorable investments, it is the private sector that generates jobs and creates livelihood opportunities. Public-private partnerships must continually be strengthened to harness the resources of both the government and the private sector.

This is a time for responsible citizenship, good governance, and a spirit of positivity that will inspire a collective commitment to defeating the virus and restarting an economic renaissance.

 

Venice Isabelle Rañosa is Research Manager at the Stratbase ADR Institute.

Building a resilient and inclusive global health system together — Taiwan can help

NATANAELGINTING-FREEPIK
NATANAELGINTING-FREEPIK

THE THREAT that emerging infectious diseases pose to global health and the economy, trade, and tourism never ceases. Pandemics can spread rapidly around the world due to international aviation and transport. As of March 2021, a novel form of pneumonia that first emerged in Wuhan, China at the end of 2019 and has since been classified as coronavirus disease 2019 (COVID-19) has caused more than 126 million cases and more than 2.7 million deaths worldwide. The disease has had an enormous medical, economic, and social impact around the world, and significantly threatened global efforts to achieve the United Nations Sustainable Development Goals.

Due to its proximity to China, Taiwan had been expected to be one of the countries most severely affected by the epidemic. But given its experience of fighting the 2003 SARS outbreak, Taiwan did not ignore the alarms, piecing together evolving official and unofficial accounts to form a picture of the emerging disease that implied a scope and severity worse than the global public perception suggested. Authorities used this information to launch enhanced monitoring on Dec. 31, 2019, and have tirelessly implemented public health containment measures since Taiwan’s first case was detected on Jan. 21, 2020. As of April 22, 2021, there had been 1,086 confirmed cases, including 11 deaths, in Taiwan. Life and work have continued much as normal for the majority of the population. Taiwan has contained COVID-19 ever since the beginning of the pandemic, including a record 253 days without any cases of domestic transmission between April and December 2020.

After dealing with SARS, Taiwan established a nationwide infectious disease healthcare network that is led and overseen by infectious disease experts across six regions. More than 100 secondary response hospitals are included in the network and all 22 special municipalities, counties, and cities have designated their primary response hospitals. The network also provides the legal authority for transferring patients with highly contagious diseases to designated facilities based on public health and clinical need. This has proven instrumental in protecting health systems and health professionals from being overwhelmed, and allowed most non-COVID-19 health services to continue to operate without disruption during the pandemic. To date, there have been only two hospital-associated COVID-19 outbreaks in Taiwan. Both were well managed, resulting in a total of 11 cases and zero death of health professionals.

By introducing public health control measures early and effectively, Taiwan has also mitigated the economic impact of COVID-19. To maintain essential international, social, economic, and trade activities, Taiwan implemented flexible adjustments for related quarantine measures for vessels and aircraft so that fisheries, offshore wind farms, and air transport industries could continue operations. In stark contrast with the global economic contraction, Taiwan’s GDP growth for 2020 was approximately 3.11%, with even higher growth of 4.94% in the fourth quarter. Furthermore, public trust and cooperation with the government’s response have been key to successfully containing COVID-19. In formulating disease control regulations, the government has adhered to the principles of reasonable response, minimum damage, and gradual adoption. It has worked hard to maintain the balance between people’s right to know and personal privacy and freedom, actively responding to people’s wishes by upholding the principle of fairness, at the same time as prioritizing the protection of disadvantaged groups, including migrant workers. Throughout this pandemic, Taiwan has demonstrated an emphasis on the right to health and associated protections and strong opposition to human rights abuses. Indeed, at no point has Taiwan restricted people’s right to free expression, assembly, or participation in public life.

Although COVID-19 has hit all countries hard, its impact has been harshest among already vulnerable and high-risk communities, as well as those lacking quality healthcare services and those unable to handle the adverse consequences of anti-pandemic containment measures. As a responsible member of the international community, Taiwan will do its utmost to work with the World Health Organization (WHO) and global health leaders to ensure that all people enjoy living and working conditions that are conducive to good health. We will also monitor health inequities to advocate more effectively for universal access to quality health services.

Thanks to its robust health system, rigorous testing strategies, information transparency, and public-private partnerships, Taiwan’s response to COVID-19 has been one of the world’s success stories. This pandemic has proven yet again that Taiwan cannot remain outside of the global health network. Taiwan plays an indispensable role in the global monitoring and early warning systems that detect the threat of emerging infectious diseases, and the Taiwan Model has proven consistently capable of containing COVID-19. The pandemic has also highlighted Taiwan’s capacity to research, develop, produce, and supply therapies and associated tools quickly (including two COVID-19 vaccines that are presently in Phase 2 trials). Being able to comprehensively participate in and contribute to international COVID-19 supply chain systems, as well as global diagnostics, vaccine, and therapeutics platforms, would allow Taiwan to work with the rest of the world.

We urge WHO and related parties to acknowledge Taiwan’s longstanding contributions to the international community in the areas of public health, disease prevention, and the human right to health, and to include Taiwan in WHO and its meetings, mechanisms, and activities. Taiwan will continue to work with the rest of the world to ensure that all enjoy the fundamental human right to health as stipulated in the WHO Constitution. Echoing the mantra of the United Nations’ 2030 Sustainable Development Goals, no one should be left behind.

 

Dr. Shih-Chung Chen is the Minister of Health and Welfare of the Republic of China (Taiwan).

COVID-19: Occupational and work-related disease

FREEPIK

More than a year into the COVID-19 pandemic, it is already indubitable by now that the adverse impact is not only on the health and safety of the populace but their livelihood as well. The Philippines in particular, has imposed one of the longest, if not the longest, lockdowns and this has taken a heavy and serious toll on the economy. Figures are not needed to show that there is a rising unemployment rate in the country. Companies have closed shop; some have implemented manpower reduction programs. For those that have opted to stay on and brave this unprecedented catastrophe, business operations have been far from normal. Ultimately, the Filipino workers are the ones getting the short end of the stick, so to speak.

The government has adopted and implemented a multi-pronged approach to address the dire consequences of the pandemic. Insofar as labor is concerned, the Department of Labor and Employment (DoLE) has issued several advisories — from the adoption of flexible work arrangements to extension of the probationary period and bona fide suspension of operations, deferment of the payment of 13th month pay, and giving of financial assistance to workers (e.g., COVID-19 Adjustment Measures Program or CAMP, DoLE-AKAP for OFWs, the TUPAD program, among others). The latest in the string of assistance is contained in Board Resolution No. 21-04-14, issued by the Employees’ Compensation Commission (ECC) in its special meeting on April 6, entitled “Conditions for the Compensability of COVID-19 under the ECC List of Occupational and Work-Related Disease or Annex ‘A’ of the Amended Rules on Employees’ Compensation (EC).” The ECC is an attached agency of the DoLE and is mandated by law to provide various services and compensation packages to private and public employees and their dependents for work-related illness, injury, or death, if they are paying members of the Social Security System (SSS) or the Government Service Insurance System (GSIS).

The long and short of it is that COVID-19 is now considered as a compensable occupational and work-related disease. The ECC justified this classification in accordance with the “increased risk theory” which provides that diseases not in the ECC List of Occupational and Work-Related Diseases may be compensable upon showing proof of work-relatedness of the said disease.

The ECC’s Occupational Safety and Health Center (OSHC) conducted a study and recommended the following:

a. COVID-19 cases be compensated under the increased risk theory

b. Automatic grant of compensation to healthcare workers (HCWs) classified as confirmed case

c. Compensation may be provided to workers infected through workplace transmission, workers affected while commuting to and from work, and those who are required to have frequent face-to-face and close proximity interactions with the public such as other frontliners (e.g., contract tracing teams), police and military personnel, and other essential workers (i.e., retail store workers, etc.).

Accordingly, the ECC Resolution provides that COVID-19 is compensable in any of the following conditions:

a. There must be a direct connection between the offending agent or event and the worker based on epidemiologic criteria and occupational risk (e.g., healthcare workers, screening and contact tracing teams, etc.);

b. The tasks assigned to the worker would require frequent face-to-face and close proximity interactions with the public or with confirmed cases for healthcare workers;

c. Transmission occurred in the workplace; or,

d. Transmission occurred while commuting to and from work.

The documentary requirements for the application of employee compensation (EC) benefits include certificate of employment and diagnosis from medical authorities with rt-PCR test results (for HCWs and other essential workers), and for non-HCWs, proof of exposure and medical records, as necessary.

An employee who contracted COVID-19, regardless of severity, will receive P30,000 from the State Insurance Fund managed and administered by the SSS. This is a three-fold increase from the usual compensation on work-related illnesses of P10,000. It is not clear though whether this is just a one-time assistance, or it is given every time an employee is infected with the virus. Also, since COVID-19 is now in the list of occupational diseases, it can be argued that on top of the P30,000, an affected employee is likewise entitled to the other benefits under the EC Program as may be applicable, such as Loss of Income Benefit, Death & Funeral Benefits, and Rehabilitation Services as administered by SSS and GSIS.

Interestingly, DoLE Secretary Silvestre Bello III, in a press briefing, said that this applies only to workers who physically report for work and transmission occurred in the workplace or while commuting to and from work. Thus, while the Resolution itself does not qualify, the ECC clarified that employees who are working from home will not get compensation if they get infected with the virus.

There may be other questions or issues arising from this issuance and hopefully the DoLE and ECC will come up with implementing regulations sooner than later.

While this and the other measures taken by the government are to me palliative at most and, therefore, much is left to be desired, at this point any kind of assistance matters to the Filipino workers who are the ones most adversely affected by the pandemic.

This article is for informational and educational purposes only. It is not offered and does not constitute legal advice or legal opinion.

 

Neptali B. Salvanera is a Partner of the Labor and Employment Department of the Angara Abello Concepcion Regala & Cruz Law Offices or ACCRALAW.

(632) 8830-8000

nbsalvanera@accralaw.com