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Pandemic leaves digital laggard Italy scrambling to catch up

MILAN — Small Italian car filter supplier Ecofiltri took out a state-backed loan last year, just like thousands of other businesses fighting to keep afloat during the pandemic.

But instead of burning through the cash to pay overdue rent and bills, Ecofiltri is investing the money on a technological revamp of its business. Already facing a longer-term switch to electric transport, the company was spurred to act after the virus crisis cut the number of drivers on the road.

“We’ve expanded our facilities, bought high-tech equipment, and even created an R&D department where we are working on three projects we hope we can patent to provide more intelligent products and services,” Ecofiltri co-founder Simone Scafetta told Reuters over a video call.

Italy ranked fourth to last in the EU for digital competitiveness in 2019, according to the Digital Economy and Society Index (DESI). By forcing a huge technological acceleration on the country, the pandemic is offering Italy a one-off chance to boost its feeble productivity and economic growth.

Faster economic expansion is essential for Rome to sustain the world’s third-largest public debt which the pandemic has inflated to 1.6 times gross domestic product (GDP).

Research by Milan’s Politecnico University shows Italy could add 1.9 percentage points a year on average to its GDP growth if its small- and medium-sized enterprises (SMEs) bridged a 40% gap versus Spanish peers measured by indicators ranging from e-commerce capabilities or electronic invoicing to use of big data.

“But the trick only works if businesses switch from a (crisis-driven) reactive approach to technology to a strategic one, and the environment where they operate evolves with them,” said Giorgia Sali who heads Politecnico’s research hub on SMEs and digital innovation.

Italy estimates its businesses in recent years fell behind the rest of Europe in terms of digital investment by an amount roughly equal to 2 percentage points of GDP.

The pandemic has brought a welcome shift, with 86% of Italian respondents in a survey of mid- to large-sized firms commissioned by Dell Technologies saying they sped up digital transformation plans in 2020, above a 75% European average.

“The pandemic has forced Italian companies to confront the country’s huge digital gap,” said Francesca Moriani, CEO of IT services provider VAR Group, adding Europe as a whole lags the United States and China.

The euro zone’s digital economy is only two-thirds the size of that in the United States.

Encouragingly, 92% of SMEs polled by VAR Group expect to invest in digital capacity in the next two years, despite the blow to sales from the pandemic.

RECOVERY FUNDS
Italy’s digital deficit has a number of roots.

In a country where broadband access is below the EU average, large companies which can sustain programs of technological investment make up only a tiny proportion of businesses.

Many firms are family-owned and run, meaning they tend to lack managers with the right skills to lead a digital transformation.

A European Central Bank study also highlighted funding constraints when businesses rely mostly on bank financing like in Italy, saying traditional lenders often struggle to evaluate the risk involved in projects based on complex technologies.

Add to that an aging population, and a very low share of ICT graduates—around 5,000 a year compared with around 18,000 in smaller Spain, according to Eurostat figures—and Italy has fallen behind in the digital race.

To support the adoption of cutting-edge technologies by its companies and ultra-high-speed connectivity, Rome has earmarked 46 billion euros in yet-to-be disbursed EU recovery funds for digital investments.

It also offers tax breaks to firms seeking to boost digital spending and appointed former Vodafone CEO Vittorio Colao as its technology czar to oversee efforts in coming years.

Like in Greece, the modernization push also targets public services which Ecofiltri’s Mr. Scafetta said set a bad example.

“We’ve given our staff palmtops and screens to share information non-stop and interact with customers … people don’t add value by walking next door to carry paper documents, like you see state employees do,” he said.

Located in the central Abruzzo region, Ecofiltri has found success by developing a process which gives a second life to diesel particulate filters.

To fund its projects, which include sensors to more easily detect issues with its filters and a digital warehouse management system to feed information to its website and liaise with e-sellers such as Amazon, Ecofiltri last September borrowed 100,000 euros from Credimi, a fintech lending firm.

Credimi says digital innovation is an important driver of credit demand it faces from SMEs.

“With a few exceptions, the pandemic has caught small- and mid-sized Italian businesses unprepared, sending them scrambling to catch up with digital progress,” Fabio Troiani, CEO Italy and Global digital services at Milan-based BIP Consulting, said.

“For some it’s become a matter of life and death.”

FALLING FURTHER BEHIND
Many smaller Italian businesses are rising to the challenge.

The share of SMEs using e-commerce in 2020 rose 50% to a third of the total, as first-time e-shoppers surged by 2 million during a nationwide lockdown last spring, according to data by Politecnico and e-commerce lobby Netcomm.

Politecnico data also point to a 42% jump in cloud services for SMEs as remote workers increased by 11.5 times to 6.6 million.

So far, Italian government programs aimed at fostering digital investments have been mostly taken up by larger companies.

The challenge is to bring onboard companies like Ecofiltri, which is one of more than 4 million Italian businesses with fewer than 10 staff, or 95% of the total.

Small firms find it hard to attract people with the necessary skills in a country where ICT graduates make up only 1% of the total, the lowest in the EU, contributing to Italy scoring last in the DESI human capital index.

“It wasn’t easy but we’ve brought in an engineer and the next person we hire must also be an engineer or they wouldn’t fit our development plans,” Mr. Scafetta said.

Diego Ciulli, senior public policy manager at Google, warned that a failure to fill Italy’s digital gap when consumers globally have turned to online channels would be more than a missed opportunity.

“The real risk is falling further behind,” he said.

“If Italian wine producers wait for trade exhibitions to resume to find new foreign customers, while French ones get really good at selling their wine online you don’t just lose a chance to grow, you lose market share.” — Valentina Za, Elisa Anzolin, and Elvira Pollina/Reuters

European trust in AstraZeneca COVID-19 vaccine plunges, poll shows

LONDON — Confidence in the safety of AstraZeneca’s coronavirus disease 2019 (COVID-19) vaccine has taken a big hit in Spain, Germany, France, and Italy as reports of rare blood clots have been linked to it and many countries briefly stopped using it, poll data showed on Monday.

The polling firm YouGov said it had already found in late February that Europeans were more hesitant about the AstraZeneca vaccine than about those from Pfizer Inc./BioNTech and Moderna, Inc. and that the clot concerns had further damaged public perceptions of the AstraZeneca shot’s safety.

At least 13 European countries in the past two weeks stopped administering the AstraZeneca shot, co-developed with scientists at Oxford University, after reports of a small number of blood disorders.

Many resumed its use on Friday after the European Medicines Agency (EMA) regulator said in a preliminary safety review on Thursday that the vaccine was safe and effective and not linked with a rise in the overall risk of blood clots.

EMA did not rule out a possible link, however, with rare cases of blood clots in the brain known as cerebral venous sinus thrombosis (CVST).

YouGov’s poll—which covered about 8,000 people in seven European countries between March 12 and 18—found that in France, Germany, Spain, and Italy, people were now more likely to see the AstraZeneca vaccine as unsafe than as safe.

Some 55% of Germans say it is unsafe, while less than a third think it is safe, the poll showed. In France, where AstraZeneca’s COVID vaccine was already unpopular, 61% of people polled say they now see it as unsafe.

In Italy and Spain, most people previously felt the AstraZeneca vaccine was safe—at 54% and 59% respectively—but those rates have fallen to 36% and 38% respectively, in the latest poll.

The survey showed that only in Britain, where the AstraZeneca COVID-19 vaccine has been used in a national rollout since January, have the blood clot concerns had little to no impact on public confidence. The majority of people polled in the UK—77%—still say the shot is safe. Their trust in it is on a par with Pfizer’s 79% perceived safety rating.

YouGov also said there appeared to be no spillover concerns across the seven European countries polled for the Pfizer and Moderna COVID-19 vaccines, both of which were seen as being as safe as in a poll three weeks ago. — Kate Kelland/Reuters

Taiwan premier gets AstraZeneca shot as island starts vaccine campaign

TAIPEI — Taiwan Premier Su Tseng-chang received the AstraZeneca coronavirus disease 2019 (COVID-19) shot on Monday, having volunteered to be first in line to underscore government confidence in the vaccine’s safety as the island began its inoculation campaign.

“I have just finished getting the injection, there is no pain at the injection site, and there is no soreness of the body,” Mr. Su told reporters at National Taiwan University Hospital in central Taipei.

“The doctor told me to drink more boiled water and rest a bit. The first point I’ll follow, and the second point may be more difficult. But I’ll still try to rest as much as possible,” he added.

More than a dozen European countries suspended use of the AstraZeneca vaccine last week amid concerns about its safety after reports of a small number of blood disorders. The World Health Organization’s European director said on Thursday the benefits of the shot far outweigh any risks, and its widespread use resumed on Friday.

Taiwan’s first vaccines—117,000 doses of the AstraZeneca shot—arrived on the island earlier this month from a South Korean factory.

Health Minister Chen Shih-chung was also vaccinated at the same hospital as the premier, and was seen laughing and chatting with medical personnel in government-released footage of him getting the shot.

Around 60,000 people are in line to get the first vaccinations and Taiwan is prioritizing health workers.

In December, Taiwan said it had agreed to buy almost 20 million vaccine doses, including 10 million from AstraZeneca.

Taiwan’s government has played down concerns about the late start to the vaccination program, saying that with such a low case rate there is not the urgency that exists in other countries where the pandemic remains rampant.

Only 33 people remain in hospital being treated for COVID-19 in Taiwan. The island has kept the pandemic well under control thanks to early and effective prevention, including largely closing its borders. — Reuters

Australia to evacuate thousands as Sydney faces worst floods in 60 years

SYDNEY — Australian authorities are planning to evacuate thousands more people on Monday from flood-affected suburbs in Sydney’s west, which is set for its worst flooding in 60 years with drenching rain expected to continue for the next few days.

Unrelenting rains over the past three days swelled rivers in Australia’s most populous state of New South Wales (NSW), causing widespread damage and triggering calls for mass evacuations.

“We need to brace ourselves, it will be a very difficult week,” NSW state Premier Gladys Berejiklian told reporters.

Torrential rain which has submerged large swathes of NSW is in stark contrast to the weather conditions in the same regions a year ago, when authorities were battling drought and catastrophic bushfires.

“I don’t know any time in a state history where we have had these extreme weather conditions in such quick succession in the middle of a pandemic,” Ms. Berejiklian said.

Sydney on Sunday recorded the wettest day of the year with almost 111 mm (4.4 inches) of rain, while some regions in NSW’s north coast received nearly 900 mm of rain in the last six days, more than three times the March average, government data showed.

Authorities said around 18,000 people have been evacuated from low-lying areas of the state.

Large parts of the country’s east coast will get hit by more heavy rains from Monday due to the combination of a tropical low over northern Western Australia and a coastal trough off NSW, the Bureau of Meteorology (BoM) official Jane Golding said.

“We expect this heavy rain to fall on areas that haven’t seen as much rain over the last few days, we expect the flood risk to develop in those areas as well,” Ms. Golding told reporters.

Some places in Sydney’s western regions have seen the worst flooding since 1961, authorities said, as they expect the wild weather to continue until Wednesday.

A severe flood warning has been issued for large parts of NSW as well as neighboring Queensland. — Renju Jose/Reuters

[B-SIDE Podcast] Slow fashion and social enterprise

Follow us on Spotify BusinessWorld B-Side

Not a Daydream, a women-led social enterprise, creates bags made out of native fabric. More important, it gives women in vulnerable communities in Tondo, Manila, a sustainable means of earning a living. In this episode of B-Side, BusinessWorld reporter Joseph L. Garcia speaks with Martine de Leeuw, co-owner of Not a Daydream, about running a social enterprise during the pandemic and the impact of female labor force participation on development. 

TAKEAWAYS

‘Empowered women empower women.’

Mothers who earn a sustainable income through Not a Daydream are setting an example for their daughters. “Our daily business is driven by our mission, which is ‘empowered women empower women.’” said Ms. de Leeuw. “If you learn a skill, you can work on it. And I think that’s the way we can change poverty.”

Slow fashion means ‘consuming consciously.’

In contrast to fast fashion—trendy but disposable items that are symptomatic of “throwaway culture”—slow fashion emphasizes sustainability. “It’s not about consuming more, but it’s about consuming consciously,” said Ms. de Leeuw.  

A social enterprise is mission-based.

“I really believe that you can combine doing business and doing good,” said Ms. de Leeuw, who added there are numerous existing models that demonstrate how a social enterprise should be built and run. “Transparency is key.”

 

This B-Side episode was recorded remotely on March 3. Produced by Paolo L. Lopez and Sam L. Marcelo.

Follow us on Spotify BusinessWorld B-Side

Novartis executive elected chair of Philippine-Swiss Business Council

  • Novartis Healthcare Philippines, Inc. Corporate Affairs Head, Ms. Christine Fajardo, has been elected Chairperson of the Philippine-Swiss Business Council (PSBC).
  • The PSBC serves as a channel for initiating and facilitating business-related and networking activities to further the growth of trade and investment between the Philippines and Switzerland.
  • The Council currently has 65 members of Swiss equity companies operating in the Philippines as well as Philippine companies who have business relations or are keen to pursue business with Switzerland.

March 9, 2021 – Novartis Healthcare Philippines, Inc. Corporate Affairs Head, Ms. Christine Fajardo, has been elected Chairperson of the Philippine-Swiss Business Council (PSBC).

“I am privileged to serve as Chairperson of the PSBC for 2021. I have deep respect for what the officers and members of the Board of Directors have done in the past years. As such, I intend to follow through on their achievements,” said Ms. Fajardo.

Established in 2003 as a result of a cooperation agreement between the Philippine Chamber of Commerce and Industry (PCCI) and the Swiss Southeast Asian Chamber of Commerce (SACC), the PSBC serves as a channel for initiating and facilitating business-related and networking activities to further the growth of trade and investment between the Philippines and Switzerland. It currently has 65 members of Swiss equity companies operating in the Philippines as well as Philippine companies who have business relations or are keen to pursue business with Switzerland.

According to Ms. Fajardo, the PSBC intends to reframe its purpose in order to better serve the needs of its members and community. “The Council will provide a platform on which businesses operating in the country can tap markets in Switzerland. We will foster trade, economic, and technical cooperation as well as tourism between the Philippines and Switzerland. In this new reality, the PSBC is committed to reconnecting with partners, and re-energizing our members to contribute in rebuilding our economy,” she said.

“PSBC has been a reliable partner of the Swiss Embassy in the promotion of trade and investments with the Philippines, and with the election of Christine Fajardo, I am looking forward to a number of joint events and advocacy this year. I am also pleased to see more women executives active in the board, and with a renewed vision to re-energize the Council, I think it will be a great year of meaningful collaborations. I look forward to working with Chris as the newly elected chair of PSBC,” said H.E. Alain Gaschen. Swiss Ambassador to the Philippines.

“We are very pleased with the election of Ms. Fajardo as the Novartis representative to a respected business organization such as the PSBC. Novartis is committed to being a responsible corporate citizen and to engage with a wide range of stakeholders who have a shared goal of contributing to the country’s socioeconomic development,” said Mr. Jugo Tsumura, President and Managing Director, Novartis Healthcare Philippines, Inc.

Ms. Fajardo said that one of the PSBC’s key priorities is supporting the Free Trade Agreement (FTA) between the Philippines and the European Free Trade Association (EFTA) member states composed of Iceland, Liechtenstein, Norway and Switzerland. The Philippines and EFTA signed the FTA in Bern, Switzerland, on 28 April 2016. The EFTA-Philippines FTA entered into force on 1 June 2018 for the Philippines, Norway, Liechtenstein and Switzerland and on 1 January 2020 for Iceland. The EFTA-Philippines FTA has been fully implemented since 24 October 2018.

“Through this FTA, the Philippines and EFTA member states can import and export goods without any tariff barriers or other non-tariff barriers to trade. Essentially, it enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods,” Ms. Fajardo explained.

As a broad-based agreement, the FTA covers trade in goods, trade in services, investment, competition, the protection of intellectual property rights, government procurement, and trade and sustainable development. In the area of trade in goods, EFTA abolishes all customs duties on industrial products as of the entry into force of the Agreement, whereas the Philippines will gradually lower or abolish its duties on the vast majority of such products.

Virus surge poses threat to Philippine economic recovery

Despite the rising number of coronavirus infections, shoppers still flocked to the Marikina Public Market on March 21. — PHILIPPINE STAR/ MICHAEL VARCAS

By Beatrice M. Laforga, Reporter

THE fresh surge in coronavirus disease 2019 (COVID-19) cases is threatening an already fragile Philippine economic recovery, government officials said.

Malacañang on Sunday announced tighter restrictions in the National Capital Region and the provinces of Bulacan, Cavite, Laguna and Rizal until April 4. (Read related story “Duterte tightens COVID-19 plan amid surge”). New COVID-19 cases stood at 7,757 on Sunday, bringing the total number of active cases to 73,072.

“[This] increases the risk to timely recovery, but still early in the year so we can still manage,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said in a Viber message on Saturday.

Finance Secretary Carlos G. Dominguez III said the uptrend “is certainly not helping” the economy’s recovery.

Economic managers in recent weeks have pushed to reopen the economy in order to drive recovery and restore jobs. However, this was rejected by President Rodrigo R. Duterte, as the mass vaccination program has yet to pick up pace.

The government is aiming to grow the economy by 6.5-7.6% this year, after the record 9.5% contraction in 2020.

Mr. Chua said this goal is still achievable despite the alarming rise in COVID-19 cases since last week.

For Asian Institute of Management Economist John Paolo R. Rivera, government officials should study the causes of the recent surge in cases before considering the imposition of a strict lockdown once again.

“This is very important because if people are getting infected from their homes and/or offices rather than in restaurants, malls, transportation, or any public area, then imposing restrictions such as lockdown, reduced capacity, reinstated curfew and liquor ban may not work, which only add damages to economic activities that have been slowly recovering. Economic recovery will definitely be hampered again by a wrong intervention because the numbers are interpreted as is,” Mr. Rivera said over the weekend.

Mr. Chua said the National Economic and Development Authority (NEDA), which he heads, is supporting a localized lockdown to slow down the spread of the deadly virus while allowing the rest of the country to continue living.

“We have been in lockdown/quarantine for a year. As a result, 3.2 million people or 23% of NCR (national capital region) people are hungry. There are also 506,000 jobless in NCR. Every day of GCQ (general community quarantine) costs the NCR and adjacent provinces P700 million in wages,” he said.

Meanwhile, Mr. Dominguez said the Department of Finance (DoF) has always pushed for a prudent fiscal response for the government to conserve its resources and prepare for a prolonged battle against COVID-19.

“We will examine all available facts and weigh the knowledgeable opinions from domestic and international sources, to arrive at a recommendation for action,” Mr. Dominguez said on Sunday.

Mr. Rivera said a third and bigger stimulus should help affected households cope during the crisis.

“Studies have indicated the economic recovery is facilitated by handing out stimulus/economic packages (social amelioration program) to the people particularly the poor,” he said.

While the government helps the private sector by reducing the corporate income tax and supporting struggling companies through equity infusion, Mr. Rivera said the state should also provide more supply-side support to households so they can keep their jobs and spend.

“Another round may be effective this time because people go out anyway for whatever reason it is. People are outside. Giving them financial aid will help boost consumption spending and thereby allow money to circulate from consumers to enterprises to consumers (basic circular flow of income),” he added.

For Mr. Chua, government agencies should focus more on spending the remaining funds from the second stimulus package worth P165 billion, and this year’s P4.5-trillion national budget.

Lawmakers earlier proposed a bigger third stimulus worth P420 billion to drive economic growth through another round of cash handouts, subsidies and financial aid to the private sector.

“We hope that the economic managers heed our call that Bayanihan III — essentially an ayuda bill — be certified as urgent. The COVID situation requires a lockdown; an effective lockdown requires ayuda. Ayuda is the key to an effective lockdown policy,” Marikina City Rep. Stella Luz A. Quimbo said in a text message to BusinessWorld. — with inputs from Gillian M. Cortez

Poll: BSP to keep rates untouched for now

By Luz Wendy T. Noble, Reporter

THE Bangko Sentral ng Pilipinas (BSP) is widely expected to retain its prudent pause, amid a continued supply-side-induced spike in inflation and the decline in lending activity.

Some analysts believe the central bank will remain accommodative and refrain from policy adjustments for the rest of the year, as the outlook for recovery darkens.

All 19 analysts polled by BusinessWorld were unanimous in predicting there will be no change in the record-low policy rate when the Monetary Board meets on March 25.

A decision to pause will afford the economy “more breathing room” in the meantime as the central bank sees “little evidence of second-round effects” for now, said ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa.

“However, should second-round effects emerge or inflation expectations accelerate further, we will not put it past BSP to hike policy rates to defend its price stability objective,” Mr. Mapa said.

Headline inflation reached a 26-month high of 4.7% in February on the surge in food prices.

Officials attributed the uptrend in inflation to supply-side factors such as weather disruptions last year, the African Swine Fever outbreak, and the rising global oil prices. Such things would still have happened whether or not the central bank went for its aggressive 200-basis-point easing last year, BSP officials said.

In February, the central bank maintained the overnight reverse repurchase, lending, and deposit rates at record lows of 2%, 2.5%, and 1.5%, respectively. However, it raised inflation forecast for 2021 to 4% (from 3.2%) and lowered 2022’s projection to 2.7% from (2.9%).

So far, BSP Governor Benjamin E. Diokno has said there is limited evidence of second-round effects such as wage hikes, higher transport fares and rising utility charges.

However, he stressed the BSP is keeping a close eye on inflation developments to determine the appropriate policy course.

Meanwhile, Philippine National Bank Vice-President and Head of Equity Research Division Alvin Joseph A. Arogo said the credit slump will be a major factor that could prevent the BSP from any rate adjustment.

“We believe that raising interest rates amid a fragile economy and low credit expansion environment is counterproductive…the BSP should keep an accommodative monetary environment because higher cost of money will reduce the demand for new private sector loans,” said Mr. Arogo, who expects policy rates to be maintained for the rest of the year.

Outstanding loans disbursed by big banks dropped for the second straight month in January, as lenders remain risk averse amid the crisis. Bank lending has been tepid in the previous months despite the liquidity infusing measures from the central bank.

At this juncture, the central bank is more likely to retain policy settings to allow its November rate cut to be fully felt given monetary policy works with a lag, said Security Bank Corp. Chief Economist Robert Dan J. Roces.

For Maybank Investment Bank Chief Economist Suhaimi Bin Ilias, monetary policy may have to take a backseat as more crucial measures for economic recovery are in the hands of the National Government.

“Policy for recovery should now be focused on — and complemented by — implementing and accelerating COVID 19 vaccinations to achieve herd immunity that will allow for safe reopening of the economy,” he said.

Government officials expect the economy to grow by 6.5% to 7.5% following the record 9.5% contraction in 2020.

However, analysts noted that the Philippines’ recovery prospects are now being clouded by the recent surge in infections and renewed restriction measures.

Meanwhile, a pause from the BSP is likely possible following the US Federal Reserve’s decision to keep policy rates, according to UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion. He noted that signals from the Fed and the BSP are alike in a way that both acknowledge inflationary threats but have vowed to remain accommodative to support recovery.

“I know that central banks are independent, but we are in a pandemic and there is no playbook for central banks in a pandemic that we know and that works. Recall that the US Fed has been very dovish and has maintained that even if inflation does rise, it will continue to be accommodative in its monetary policy stance,” Mr. Asuncion said.

The Federal Open Market Committee last week kept policy rates near zero to maintain support to the virus-stricken US economy, Neighboring central banks including the Bank of Indonesia and Bank Negara Malaysia have also kept policy rates untouched this month.

Unlike most analysts who either expect the central bank to refrain from cutting rates for the rest of 2021 or to go for a calibrated response once second-round effects become more apparent, analyst Alex Holmes of Capital Economics still believes a rate cut is still on the table to support the crisis-battered economy.

“Provided the recent rise in inflation proves temporary, as we and the central bank expect, then the door could be open for further easing later in the year,” Mr. Holmes said, adding they continue to price in a 50-bp cut within the second half of the year once inflation tapers off.

After Thursday’s meeting, the Monetary Board will have six more policy-setting meetings for the rest of the year. The next one is scheduled on May 13.

External debt highest since 2012

OUTSTANDING external debt held by the Philippines last year reached its highest level since at least 2012, as the government incurred massive borrowings for its pandemic response.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) released on Saturday showed external debt stood at $98.488 billion as of end-2020, up 17.8% from the $83.618 billion as of end-2019, and up 7.1% from the $92 billion as of end-September.

This is also the highest since at least 2012, based on available central bank data.

The end-2020 external debt level is equivalent to 27.2% of the country’s gross domestic product (GDP), rising from 25.3% as of end-September and the 22.2% ratio seen in 2019.

“The external debt-to-GDP ratio remains relatively lower compared to similarly rated countries globally,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

Meanwhile, the debt-service ratio (DSR), which relates principal and interest payments to exports of goods and receipts from services and primary income, edged up to 6.3% in 2020 from 6.7% in 2019. The DSR is a gauge of adequacy of the country’s foreign exchange earnings in relation to meeting its maturing debt obligations.

The central bank in a statement said the increase in the external debt stock was attributed to higher borrowings to fund the government’s pandemic response and infrastructure projects.

“Foreign exchange revaluation of $544 million further contributed to the increase in the debt stock as the dollar weakened against other currencies which may be attributed to expectations of continued stimulus in the United States, among others,” the BSP added.

External debt includes all types of borrowings by residents from non-residents.

The October to December period saw both the public and private sector borrowings reach $7.9 billion. In addition, the government raised $2.8 billion from global bonds and $733-million net availments from official sources.

With this, external debt by the public sector reached $58.1 billion as of end-December from $54.4 billion in the previous quarter. The bulk or about $51.9 billion were National Government borrowings, while $6.3 billion were debt secured by government-owned and -controlled corporations, government financial institutions and the BSP.

Meanwhile, private sector debt inched up to $40.4 billion from $37.6 billion as of end-September, fueled by borrowings worth $3 billion and $1.7 billion by banks and quasi-lenders, respectively, in the fourth quarter.

The BSP identified Japan ($15.9 billion), United States ($3.4 billion), United Kingdom ($3.3 billion), and The Netherlands ($3 billion) as major creditor countries.

For Mr. Ricafort, further reopening of the economy once the pandemic is better contained will be helpful for the external debt profile. This could translate to higher tax collections and would limit the rise in the country’s local and external debt stock, he added.

“The National Government signaled recently to increase the ratio of local borrowings vis-a-vis foreign borrowings that could help reduce foreign exchange risks,” Mr. Ricafort said.

Government officials are eyeing an 85:15 financing mix this year, in favor of domestic borrowings, against the pre-pandemic 75:25 ratio. — Luz Wendy T. Noble

Tawi-Tawi eyed as center for Bangsamoro seaweed development agency

By Marifi S. Jara, Mindanao Bureau Chief

THE islands of Tawi-Tawi hold several distinctions: the southernmost province in the country; home of the Turtle Islands protected area; and site of Sheikh Karim Al Makdum Mosque, the first in the Philippines and declared a National Cultural Treasure.

It is also the Bangsamoro region’s biggest and one of the country’s top producers of seaweed, a major aquaculture export commodity.

As such, the province is being eyed to host the headquarters of the proposed Bangsamoro Seaweed Industry Development Authority (SIDA), which will lead in the planning, scientific research, implementation, and sectoral coordination for the sector’s expansion.

Bangsamoro Parliament Member Amir S. Mawallil, author of Bill No. 84 or the Seaweed Industry Development Act filed last week, said it is important to keep focus on long-term economic development despite the more urgent demands of the health crisis.

“We need to craft economic policies that will help spur the region’s economic growth and generate employment. We also know that seaweed is one of the region’s economic strengths that we can leverage. We must invest in this,” he said in a statement.

Ishak V. Mastura, chair of the Regional Board of Investments of the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), said the island provinces, despite being geographically remote, are central to the region’s natural wealth and growth.

The island provinces of Basilan, Sulu and Tawi-Tawi are collectively referred to as BaSulTa.

“The island provinces are farthest from the Bangsamoro government center and the provisional capitol in Cotabato City, but despite being in the periphery, they contribute a lot to the economy of the BARMM since more than 50% of the surface area of the BARMM is water with the Sulu Sea as its biggest aquamarine resource base,” Mr. Mastura said in an interview.

“Seaweed is an important aquamarine produce because of its strong and growing demand in the world market as part of the global food supply chain but also because of its flexibility in a lot of chemical and medical applications,” he said.

The region’s 696,766 metric tons (MT) of seaweed output in 2019 had an estimated market value of P4 billion, based on Philippine Statistics Authority data (PSA). This accounted for about 45% of national production.

In 2020, nationwide seaweed production stood at 1.47 million MT valued at P10.6 billion, contributing 33.3% to total fisheries production, the PSA reported in its fisheries situation report.

Year on year, production and gross value dropped to 1.5 million MT and P11.84 billion, respectively, in 2020.

“The Seaweed Industry Development Act is primarily a recognition of the enormous potential the industry holds — not only in developing the regional community, but in positioning the region as a competitive partner in building the Philippine economy,” Mr. Mawallil said.

The proposed SIDA will be headed by the BARMM minister of Agriculture, Fisheries, and Agrarian Reform while the minister of Science and Technology will be vice-chair. Members will include the minister of Trade, Investment and Tourism; director of the Bangsamoro Planning and Development Authority; and representatives from seaweed farmers’ organizations, processors, and exporters.

Monde Nissin IPO seen to gain traction on strong fundamentals, consumption-driven economy

By Keren Concepcion G. Valmonte

THE upcoming initial public offering (IPO) of Monde Nissin Corp. is expected to do well due to its existing businesses and the country’s consumption-driven economy despite the pandemic’s impact on market conditions.

Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message that the company’s listing “could gain traction given the company’s fundamentals.”

In a separate Viber message, Regina Capital Development Corp. Head of Sales Luis A. Limlingan said: “As the economy is driven on domestic consumption as its main driver, the retail sector trades at premium multiples [versus] other sectors.”

The Lucky Me! instant noodles manufacturer filed for an IPO on March 7 to raise some P63 billion, shaping it to be the country’s biggest first-time share sale.

“Industry-wise, the company is already in an advantageous position. And this is even amplified by the company’s competitiveness,” Mr. Tantiangco added. “It has already established its brands and captured significant market share in different segments of the food and beverage sector, primarily in the instant noodles and biscuits segment.”

Monde Nissin also manufactures M.Y. San SkyFlakes and Graham crackers, Fita biscuits, and Quorn Foods.

“[Investors] would be [attracted] to its [yearly] dividend offering and its stability as a food manufacturer. Specifically, basic food items that have constant demand despite economic conditions,” AAA Southeast Equities, Inc. Research Head Christopher John J. Mangun said via text message.

Shares for Monde Nissin’s upcoming IPO are said to be priced at P17.50 apiece at most.

“Relative valuation wise, the share is quite expensive. But the good fundamentals and prospects are seen to justify the premium,” Philstocks Financial’s Mr. Tantiangco said.

Mr. Mangun noted that it is possible the public may see a lower final offer price, however, it depends on the demand of investors.

“Investors should be looking at what the company plans to do with its IPO proceeds,” Mr. Mangun said. “[Some] 63.3% [or] almost P40 billion of the estimated gross proceeds… will be for existing obligations rather than future growth.”

According to the company’s preliminary prospectus filed with the Securities and Exchange Commission, net proceeds are estimated to reach P60.4 billion. Some P22.22 billion or 36.8% of the proceeds will be used to fund its capital expenditure, which will be disbursed from 2021 to 2023.

Monde Nissin plans to use P17.31 billion or 28.7% to pay for the redemption of its Arran Convertible Note, while at least P20.67 billion or 34.6% will be used to finance the repayment of its loans.

The remaining balance of the proceeds will be used by the company for general corporate purposes.

“If the expected gross proceeds are not realized, the company will use its internally generated funds from operations and existing cash flows, existing credit lines, and/or other potential borrowings to finance the expected uses,” Monde Nissin said.

AAA Southeast Equities’s Mr. Mangun said the biggest concern might be the company’s lack of potential future growth.

“The only growth area that is worth looking at is its pivot to [a] healthier diet with Qourn. Even then, it looks like the company has already maximized its distribution and sales of Qourn products globally,” Mr. Mangun said.

The food manufacturer plans to expand its Quorn Foods brand, which offers alternative products to meat, further in the United States. Monde Nissin previously said it would invest more in its production capacity in the US.

Meanwhile, Philstocks Financial’s Mr. Tantiangco reminded investors that Monde Nissin remains subject to the country’s overall economic condition.

“Investors should still be mindful of the current economic situation as well as the outlook,” Mr. Tantiangco said. “A delay in our economic recovery could weigh on Monde Nissin’s sales since it would keep disposable incomes subdued which in turn is going to weaken consumer spending.”

“If timing is aligned, then the company can command a superior valuation on the back of the Philippines’ recovery post-pandemic,” Regina Capital’s Mr. Limlingan said.

A muted 2nd birthday for ‘Velocity’

The virus knows how to pivot, too. So be careful out there.

HAPPY BIRTHDAY to BusinessWorld’s motoring section — the second since its rechristening as “Velocity.”

To this day, I can’t believe that I spent a good chunk of last year at home sending Word files and photos instead of being physically putting to bed each issue at the paper’s Quezon City office. But most of us had no choice but to evolve our lives in the face of an unseen enemy. The coronavirus, as it turns out, was also evolving as humans passed it around. It was veritably pivoting to maximize, well, the velocity of its replication and transmission.

I recall we had grand plans for the first anniversary of the section — most of which were, in the final analysis, waylaid by something we couldn’t see. It was a sucker punch that landed when we least expected it. Marking that first year was understandably muted as we were on hard lockdown.

There’s an odd sense of déjà vu as we put this issue to bed knowing we’ve just surpassed 7,000 new cases for the day. I don’t know about you, but I sense that a harder lockdown is imminent.

Now don’t get me wrong. I hated the enhanced community quarantine (ECQ) as much as you did, but it doesn’t inspire confidence when so many of us aren’t respecting the virus by flouting protocols (I mean, how hard is it to wear a mask properly?). Then we hear of entire families being infected because they had wanted to party (or even just have a meal) with relatives and friends not from the same household. So, “Velocity” turns a year older in relative silence. We say a prayer for those no longer with us, and another one for those of us here who soldier on despite the difficulties.

And while we ask God for help, let us not forget to do our part as well.

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