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PHL healthcare costs expected to rise 10.1% this year

THE GROWTH in healthcare costs in the Philippines is expected to accelerate to 10.1% this year from 9.3% in 2019, Mercer Marsh Benefits (MMB) said in a report.

According to the MMB Health Trends: 2020 Insurer Survey, healthcare cost inflation in the Philippines is expected to come in below the Asia average of 10.7%.

“In 2020, medical costs in the Philippines are expected to outpace general inflation by six times with an average rise in medical costs of 10.1%, slightly below the Asia average of 10.7%,” according to a statement accompanying the release of the report.

The Philippine medical cost trend in 2020 is fifth-highest among the 11 Asian markets surveyed.

Indonesia has an expected cost growth of 13.8%, followed by Malaysia at 13.5%, Vietnam 12%, and India 11.5%.

Globally, the 2020 projected medical trend rate increase is 9.5%, down from 9.7% last year.

“Medical costs in the Philippines continue to outstrip inflation which is unsustainable in the longer term,” according to Maria Theresa E. Alday, Mercer’s CEO for the Philippines, said in the statement.

“While the pandemic has put cost management into sharp focus, employers need to balance economics and empathy to provide health programs that are meaningful, but also maximize return on investment,” he added.

According to the report, Asia was hit earlier than other regions by the coronavirus pandemic and was able to “bounce back” faster.

The majority of the impact from COVID-19 (coronavirus disease 2019) claims deferral was felt in the first part of 2020 and “a significant portion of medical spend” which included inpatient and outpatient services has resumed.

“The rise in medical costs also reflects the increased unit cost of care due to providers passing on the cost of personal protective equipment (PPE) needed to safely perform services in their bills as well as the higher cost of supply imports due to exchange rate fluctuations,” Mercer Asia Leader Joan Collar said about the double-digit increase for Asia.

The survey also found an increase in insurers that offer virtual health consultations in Asia to 47% from 32% last year.

It said 47% of insurers in the region cover preventive health initiatives and an additional 22% indicated that they are experimenting with such plans within the next 24 months or have completed the development of such plans.

Ms. Alday said companies are focusing more on employee health and well-being, with on-site clinics viewed as a viable long-term cost-containment strategy.

“The pandemic means that now, more than ever, the onsite clinic will be the centerpiece of health management in the Philippines. They present both an opportunity for employers to actively manage employee health and an effective lever to address escalating medical costs,” she said.

The survey, however, found “remaining gaps in mental health support” despite the demand seen during the public health crisis. It said that one-third of the insurers are offering it globally and 38% of insurers in Asia do not provide plans for it.

The report also found that 68% of insurers expect claims to rise due to the cost of COVID-19 related diagnostics, care and treatment.

It also said that prices for various services are increasing, with 68% of insurers expecting costs to increase in 2021 due to health providers charging more to offset revenue lost due to COVID-19.

The survey polled in close to 240 insurers across 59 countries, excluding the United States, between early June and mid-July. — Vann Marlo M. Villegas

Away and taxed

When the Philippines was placed under Enhanced Community Quarantine (ECQ) on March 17, outbound passengers intending to depart the Philippines from any of the international airports in Luzon were only allowed to do so within 72 hours from the effectiveness of the ECQ. A few foreign nationals living and working in the Philippines decided to leave the country within this window period. Some were only able to leave the country as soon as rescue flights organized by foreign embassies were made available, while others had to wait for the resumption of international commercial flights before returning to their home countries.

Between March 17 and Oct. 30, the entry of foreign nationals into the Philippines was limited, and the return of some foreign nationals was only made possible through a special travel exemption and an entry visa issued by Philippine embassies overseas.

On Oct. 22, the Inter-Agency Task Force (IATF) issued Resolution No. 80, stating that effective Nov. 1, the government allowed the return of the following foreign nationals under the following visa categories:

1. Those with visas issued by the Bureau of Immigration (BI) under Executive Order (EO) No. 226 or the Omnibus Investments Code, as amended, and Republic Act No. 8756;

2. Those with Special Non-Immigrant [47(a)(2)] visas issued by the Department of Justice; and

3. Those with visas issued by the Aurora Pacific Economic Zone and Freeport Authority, and Subic Bay Metropolitan Authority.

On Nov. 19, IATF Resolution No. 84 was issued, allowing foreign nationals who were issued Treaty Trader’s visas under Section 9(d) of the Philippine Immigration Act (PIA) entry. Foreign nationals from treaty trade agreement countries such as the US, Japan, and Germany are issued 9(d) visas.

To date, only Pre-arranged Employment visa holders under Section 9(g) of the PIA have not been allowed to return to the Philippines.

As taxpayers begin annualizing their income taxes for this calendar year, they should consider how this will impact the taxation of these foreign nationals who remain under Philippine employment but are unable to return to the Philippines.

Revenue Memorandum Circular 83-2020 issued by the Bureau of Internal Revenue (BIR) specifically addresses the tax implications of stranded individuals during the pandemic, who may be triggering taxation (or vice versa) in the country where they are inadvertently extending their stay due to travel restrictions. As illustrated in the RMC, the stranded days brought by the lockdown restrictions are to be disregarded, granting reprieve for the unintended stay. Nonetheless, one of the conditions provided in the RMC where the Philippines may tax the income of foreign nationals, is when their employer is a resident of the Philippines.

Applying this in the case of remote 9g visa workers, their physical absence in the country will not necessarily spare them from Philippine tax obligations. Their continuing assignment in the Philippines pre-COVID travel restrictions is proof that they remain employed in the country and therefore, subject to Philippine tax even if they are physically outside the Philippines performing their duties remotely.

A twist in this scenario can be seen if, due to the long term stay of the foreign national in his home country, his employer decided to temporarily assign him to his home office’s operations while holding a working visa in the Philippines. In this case, if his employment with the Philippine entity is actually terminated, the salary received by the foreign national from his home office will no longer be taxed in the Philippines, but by his home country. Given the impact on the foreign national’s tax obligation in his home country and the Philippines, the change in work assignment this calendar year should be properly documented. Note that the reassignment or temporary severance from the Philippine company also severs the tax obligation in the Philippines even if the foreign national’s 9(g) visa remains valid.

But how about those foreign nationals who were hired or should have been assigned to a Philippine company but remained in their home country while working for a Philippine company? Following the RMC, such an employee remains taxable in the Philippines commencing from his employment with a Philippine company, regardless of whether the employee is working remotely. The basis for this is that the service rendered by the foreign national is for the benefit of a Philippine entity’s operations and the salary cost is borne by the domestic company. This scenario consequently makes the employee’s income Philippine-sourced and therefore, subject to Philippine tax.

While tax and immigration rules may seem to go hand in hand, the two are independent of each other. A non-resident’s travel and working rights through the issuance of an appropriate visa or permit are not triggering points tax-wise. This situation is now supported by tax rules issued by various countries to clear out the impact of travel bans brought about by this pandemic. As more travel restrictions are lifted, the possible entry of 9(g) visa holders may be considered anytime soon. Thankfully with the issuance of clear guidelines, 9(g) visa workers who need to file their annual income taxes may be relieved from unnecessary liability arising from ambiguous policies.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

 

Larissa C. Dalistan-Levosada is a Senior Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

+63 (2) 8845-2728

larissa.c.dalistan@pwc.com

COVID-positive Trade secretary optimistic of easing rules by Jan.

TRADE Secretary Ramon M. Lopez said it is likely that restrictions in the capital region Metro Manila will be further eased by January if the coronavirus disease 2019 (COVID-19) case numbers continue to decline.

“With the continuing good numbers of Metro Manila and other nearby areas, we’re hoping that the numbers continue (to fall) even during the December Christmas season so that January, there’s a likelihood that we can be a modified GCQ (general community quarantine),” he said in an online briefing on Wednesday, referring to most relaxed lockdown level. 

Mr. Lopez said the decision will be based on the daily number of active COVID-19 cases and recoveries as well as case growth trends over two-week periods.

“If we are able to manage this improvement in our health statistics, certainly there will be more openness as to the community quarantine,” said the Trade chief, who also announced on Wednesday that he tested positive for COVID-19 on Monday.

If Metro Manila remains under the general quarantine by January, he said restrictions based on age could be relaxed to improve retail consumption.

Areas under GCQ until end-December are Metro Manila, Batangas, Iloilo City, Tacloban City, Lanao del Sur, Iligan, Davao City, and Davao del Norte. The rest of the country are under modified GCQ.

Under current guidelines, those between 15 and 65 years old are allowed to go out of their homes, although local governments can set higher age limits for minors and impose other localized rules.

Mr. Lopez, in a Viber message to reporters, said he has been in isolation since his exposure to a COVID-19 positive person on Tuesday last week.

“I had myself swabbed Sunday after exposure last Tuesday from a person who tested positive,” he said, adding that he is experiencing no symptoms.

The Department of Health (DoH) reported 1,387 new coronavirus infections on Wednesday, bringing the country’s total to 444,164.

The death toll rose by seven to 8,677 while recoveries climbed to 408,942 with 156 more patients who have gotten well, according to its daily bulletin.

There were 26,545 active cases, 85.2% of which were mild, 6.6% did not show symptoms, 5.2% were critical, 2.7% were severe, and 0.31% were moderate.

Batangas reported the highest number of new cases at 71, followed by Quezon City at 70, Davao del Norte at 64, Benguet at 59, and Quezon province at 57.

The DoH, meanwhile, called on private hospitals to comply with the prescribed COVID-19 bed allocation under Administrative Order No. 2020-016 in preparation for a potential surge in cases during the holidays.

Under the order, public hospitals are directed to allocate at least 30% of their bed capacity for coronavirus patients while 20% for private hospitals .

The DoH said it has recorded a nationwide average of 30% bed allocation in public hospitals and 13% in private hospitals.— Jenina P. Ibañez and Vann Marlo M. Villegas

Social gatherings up to 10 people in GCQ areas — DILG

THE DEPARTMENT of the Interior and Local Government (DILG) reminded the public on Wednesday that gatherings are limited to a maximum of 10 people in areas under the general community quarantine (GCQ) level.

Interior Undersecretary Epimaco V. Densing III said in an online briefing that “mass gatherings” are not allowed under GCQ, which means more than 10 people should not converge.

He added that the national government discourages family reunions and other parties during the holiday celebrations and have asked local government chiefs and the police to be on full alert status for mass gatherings.

Mr. Densing warned that violators may be fined or sanctioned based on local ordinances.

The Interior department is also preparing to issue a directive to local governments and the police to set up a hotline number for reporting mass gatherings as well as those using karaoke, which is deemed a high transmission risk activity.

In another briefing, Cabinet Secretary Karlo B. Nograles said the easing of restrictions on conventions and conferences comes with risk management measures from the private businesses and local governments.

“We have the commitment of the private sector partners and the LGUs (local government units) to really ensure that safety and health protocols are enforced in these conventions then it is something we can afford to take as a calculated and managed risk,” he said.

Under the national task force’s Resolution No. 85 released last week, conferences, trainings, and similar activities are now allowed at a maximum 30% capacity of the venue.

Social events such as  birthdays, weddings, Christmas and office parties, pageants, award events, gala receptions; product launch events; political gatherings; cultural festivities; and sporting events are still prohibited.

Mr. Nograles said the opening of more activities is part of the government’s plan to balance health risks with bolstering the economy. — Vann Marlo M. Villegas and Gillian M. Cortez

Workers placed on floating status at 2M

WORKERS who have been furloughed since the start of quarantine restrictions in mid-March have reached over two million, according to the Department of Labor and Employment (DoLE).

In a briefing on Wednesday, Labor Undersecretary Benjo Santos M. Benavidez said these employees placed on floating status come from over 96,000 establishments.

“They are employees who were either asked to go on forced leave or their companies were temporarily closed,” he said in mixed English and Filipino.

Under Philippine law, an employee’s floating status could only last a maximum period of six months.

DoLE, however, released guidelines in view of the coronavirus crisis that will allow employers to expand this period provided there is a bargaining agreement with affected workers.

Most parts of the country are now under modified restrictions, but major urban areas including the capital region Metro Manila remain under stricter rules.

Meanwhile, Mr. Benavidez also reported that the department exceeded its 2020 labor inspection target of 64,000 establishments.

Of the companies inspected this year, he said 92% were found compliant with workplace guidelines such as occupational safety and health standards as well as new health protocols in consideration of the coronavirus threat.

“Our data shows that we have inspected more companies and establishments compared to last year,” he said.

In 2019, DoLE inspected 57,514 establishments out of the nearly one million nationwide. — Gillian M. Cortez

Nationwide round-up (12/09/20)

House leader says impeachment trial vs Leonen ‘not possible this year’ 

THERE is not enough time this year to begin the panel deliberations on the impeachment complaint against Supreme Court Associate Justice Marvic Mario Victor F. Leonen, a House of Representatives leader said Wednesday. Deputy Speaker Rufus B. Rodriguez, one of the vice chairpersons of the House committee on justice, said the impeachment proceedings may only start next year as the 40-page complaint filed by Edwin E. Cordevilla has yet to be referred to the committee. “We are waiting for the order of business and referral to the committee,” he said in a press briefing. “I think we will be already having our recess on Dec. 18, so we will really not have material time. So it will probably reach next year for the determination of form and substance.” Under House impeachment rules, the House Speaker has 10 session days to have an impeachment complaint included in the chamber’s order of business. Mr. Rodriguez assured that the committee “will decide based on the law” and the evidence presented in the complaint. “The decision will really be based on the merits of the case,” he said. Mr. Cordevilla, in his complaint, cited Mr. Leonen’s alleged failure to file his Statement of Assets and Liabilities (SALN) and the alleged backlog of cases assigned to him. — Kyle Aristophere T. Atienza

Gov’t officials face third administrative complaint for red-tagging from lawyers’ group

OFFICIALS of the government’s anti-communist task force are facing the third administrative complaint filed against them for red-tagging organizations, individuals and elected members of the House of Representatives. In the latest complaint, the National Union of Peoples’ Lawyers (NUPL) names the following respondents: National Security Adviser Hermogenes Esperon, Jr.; General Antonio Parlade, Jr., head of the National Task Force to End Local Communist Insurgency; and Presidential Communications Undersecretary Lorraine Marie T. Badoy, who also serves as the task force’s spokesperson. The 47-page complaint cites various instances when the respondents allegedly used public funds to “viciously” link the NUPL to the Communist Party of the Philippines (CPP) and its armed wing New People’s Army (NPA).  The complaint said the respondents violated Republic Act No. 6713, or the Code of  Conduct and Ethical Standards for Public Officials and Employees, for displaying prejudice and an utter disregard “of the rights of NUPL and its members to exercise their vocation and engage in advocacies free from labeling, profiling, threats and persecution in loyalty to persons or party.” The complainant said the respondents also violated R.A. 9851, or the Philippine Act on Crimes Against International  Humanitarian Law, Genocide, and Other Crimes Against Humanity, for their persecution of NUPL and its members using public resources. Human rights group Karapatan’s Secretary General Christina Palabay and Kabataan Party-list Rep. Sarah Jane I. Elago earlier filed their separate complaints before the Ombudsman against the task force’s officials and former Presidential Communications Operations Office Undersecretary Mocha J. Uson. — Kyle Aristophere T. Atienza

Regional Updates (12/09/20)

Tourism chief warns: Health protocol violators will face fines, criminal charges

TOURISM Secretary Bernadette Romulo-Puyat has warned establishments and tourists that they will face fines, sanctions, and even criminal charges for nonobservance of government health guidelines after reported incidents of violations in Batangas and Boracay. In a statement from the Department of Tourism (DoT) on Wednesday, Ms. Puyat said “erring establishments may face criminal charges as deemed appropriate by the local government unit (LGU) concerned, and shall likewise be sanctioned by the DoT.” The DoT statement relates to what it called a “reckless social gathering” at the Blue Coral Beach Resorts, Inc. in San Juan, Batangas, which was documented on video “by concerned individuals.” The video showed a “large group of individuals partying without face masks, face shields nor observance of physical distancing protocols at the beach of the said resort.” BusinessWorld sought the resort management’s comment via its social media page and email, but has yet to receive a response as of this writing. The DoT commended the local government of San Juan for revoking the business permit of the resort, which was already suspended for two weeks in September for health protocol violations. In Boracay, the department also lauded the vigilance and swift action taken by the Aklan police and provincial government after a group of tourists from Luzon were confirmed to have presented fake coronavirus disease 2019 (COVID-19) test results. The tourists have been brought to the designated quarantine facility and will be facing charges for falsification of documents and protocol violations. “(S)imilar malicious actions will not be condoned as they undermine the collaborative efforts at protecting and reviving Boracay tourism,” Ms. Puyat said in a separate statement on Wednesday.

Stoppage order on Skyway project lifted

THE Department of Labor and Employment (DoLE) has lifted the stoppage order imposed on the Skyway Extension project following compliance by the contractor and subcontractors on penalties arising from a Nov. 14 accident that killed one motorist and injured several others. Labor Secretary Silvestre H. Bello III, in a briefing on Wednesday, said construction firm EEI Corp. and its subcontractors, Mayon machinery Rentrade and Bauer Foundations Philippines, Inc., have already paid the collective administrative fine of P170,000 per day of non-compliance, plus additional separate fines for each firm. The DoLE probe on the incident found the companies violated occupational safety and health protocols. The Labor department initially issued a work stoppage order for the entire stretch of the project but later adjusted it to just the area affected by the accident. “After consulting with our regional director and our occupational safety and health director, I decided to lift the work stoppage order with regards to that area where the accident took place,” Mr. Bello said. — Gillian M. Cortez

Motorcycle taxi firm Move It declared ‘fully compliant’ with gov’t guidelines

THE technical working group overseeing motorcycle taxi operations declared Move It (We-Load Transcargo Corp.) “fully compliant” with the health and safety guidelines set by the government. “The certificate shall be valid for the duration of the motorcycle taxi pilot study unless revoked or canceled,” the technical working group said in a statement. Angkas (DBDOYC, Inc.) and JoyRide (We Move Things Philippines, Inc.) have been issued the same certification. On Dec. 3, the motorcycle taxi technical working group granted Move It a provisional authority to operate under the extended motorcycle taxi program, “pending approval of the motorcycle taxi company’s enhanced/modified barrier by the national task force.” The provisional authority was valid until Dec. 8. Mass transportation currently operates on a limited capacity due to physical distancing protocols aimed at containing the spread of the coronavirus disease 2019. — Arjay L. Balinbin

Threat to financial stability

 

Sometime last year, during a discussion with a colleague on the rise of Financial Technology (FinTech) companies, I conceded that further development and increasing usage of digital platforms for financial transactions can help boost financial “inclusion” and bring the “unbanked” to the fold.

But I also raised my concern that such attempts at financial inclusion can also result in a corresponding increase in technology-based financial crimes. Not all such crimes need to be a high-technology heists, anyway. It can be as simple as one “losing” small amounts from an e-wallet. After all, even the nefarious are not blind to opportunities in emerging digital trends.

At that time, nobody saw the eventual digital explosion resulting from COVID-19 closing country borders, locking down cities, and restricting the local economy since last March. With physical distancing becoming the norm, digital platforms became urgently necessary for processing orders and payments, among others. Practically overnight, the economy became lighter on cash.

Online shopping became more than a fad and broadly expanded to include grocery items, produce, hardware, and other “essential” goods. Internet and mobile device use began to transcend generations, with more seniors becoming “digital immigrants” as they utilized internet-based platforms to purchase medicine or even fresh fruits and vegetables.

Since the imposition of various levels of quarantine or lockdown as a way to curb the spread of COVID-19 since March, more companies have had to accelerate their “digital” strategies. Even an industry as basic as cement manufacturing went online. Holcim Philippines, for one, developed a portal to process orders and delivery. Most clients have reportedly migrated to the new system.

And from all indications, the digital trend is here to stay. COVID-19 will be temporary, for sure, but e-commerce is for the long haul. And with this, I believe FinTechs, online payments, and digital financial transactions will be the norm — sooner than later. Along this line, however, some analysts now fear that “cyber risk is the new threat to financial stability” worldwide.

In a blog by Jennifer Elliott and Nigel Jenkinson of the International Monetary Fund (IMF), they noted that “as we become increasingly reliant on digital financial services, the number of cyberattacks has tripled over the last decade, and financial services continue to be the most targeted industry. Cybersecurity has clearly become a threat to financial stability.”

Jennifer Elliott is Division Chief of Technical Assistance Strategy in the IMF’s Monetary and Capital Markets Department, while Nigel Jenkinson is Division Chief of Financial Regulation and Supervision in the IMF’s Monetary and Capital Markets Department. Recall the Bangladesh heist not too long ago when large amounts from the Bangladesh central bank, owned by the Bangladeshi government, were pilfered and transferred electronically to various territories? A big part of that robbery ended up here, as bank deposits, and later withdrawn and laundered in one of the country’s popular casinos.

“Given strong financial and technological interconnections, a successful attack on a major financial institution, or on a core system or service used by many, could quickly spread through the entire financial system causing widespread disruption and loss of confidence. Transactions could fail as liquidity is trapped, household and companies could lose access to deposits and payments. Under extreme scenarios, investors and depositors may demand their funds or try to cancel their accounts or other services and products they regularly use,” Ms. Elliott and Mr. Jenkinson wrote in their IMF Blog.

“Hacking tools are now cheaper, simpler and more powerful, allowing lower-skilled hackers to do more damage at a fraction of the previous cost. The expansion of mobile-based services (the only technological platform available for many people), increases the opportunities for hackers. Attackers target large and small institutions, rich and poor countries, and operate without borders. Fighting cybercrime and reducing risk must therefore be a shared undertaking across and inside countries,” they added.

The pair noted that “daily foundational risk management work — maintaining networks, updating software and enforcing strong ‘cyber hygiene’ — remains with financial institutions.” And while individual companies are doing what they can, and what they should, to ensure the integrity of their systems, “individual firm incentives to invest in protection are not enough.”

“Regulation and public policy intervention are needed to guard against underinvestment and protect the broader financial system from the consequences of an attack. In our view, many national financial systems are not yet ready to manage attacks, while international coordination is still weak,” they wrote in the IMFBlog.

Just this week, the New York Times reported that a top cybersecurity company based in Silicon Valley — which was usually called upon by major companies to investigate hacking incidents — was itself hacked. “FireEye revealed… that its own systems were pierced by what it called ‘a nation with top-tier offensive capabilities’,” and that hackers stole a “tool kit, which could be useful in mounting new attacks around the world.”

“It was a stunning theft, akin to bank robbers who, having cleaned out local vaults, then turned around and stole the FBI’s investigative tools. In fact, FireEye said on Tuesday, moments after the stock market closed, that it had called in the FBI,” the New York Times reported in an article by David E. Sanger and Nicole Perlroth.

They also noted that for years, “FireEye has been the first call for government agencies and companies around the world who have been hacked by the most sophisticated attackers, or fear they might be… Now it looks like the hackers — in this case, evidence points to Russia’s intelligence agencies — may be exacting their revenge.”

What was stolen from “a digital vault that FireEye closely guards” was what the $3.5-billion cybersecurity company referred to as “Red Team tools” — described as “essentially digital tools that replicate the most sophisticated hacking tools in the world.”

The New York Times noted that FireEye would use the tools — with the permission of a client company or government agency — to look for vulnerabilities in their systems.

“The hack raises the possibility that Russian intelligence agencies saw an advantage in mounting the attack while American attention — including FireEye’s — was focused on securing the presidential election system. At a moment that the nation’s public and private intelligence systems were seeking out breaches of voter registration systems or voting machines, it may have been a good time for those Russian agencies, which were involved in the 2016 election breaches, to turn their sights on other targets,” the  New York Times reported.

The FireEye incident should be a concern not only for the company itself, or just the United States. The fact that sophisticated hacking tools are now out there poses a threat to any country or company with digital technology platforms for financial transactions. For thieves, it can be the way to untold riches. And for terrorists, such a hacking tool is perhaps better than acquiring a nuclear device.

I am not in a position to comment on the government’s — as well as the financial system’s — capacity to effectively guard against cyber threats. However, a country that encounters great difficulty even in implementing a cashless tollway system is perhaps highly vulnerable to cyber risks as well as digital financial crimes by hackers, with or without “Red Team tools.”

 

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

matort@yahoo.com

Vaccines alone aren’t enough to beat COVID-19

VACCINES are a crucial tool in the fight against COVID-19 (coronavirus disease 2019), so it’s great news that the UK on Tuesday became the first country to begin mass inoculations using a new shot developed by Pfizer, Inc. and BioNTech SE. This vaccine and another developed by Moderna, Inc. are set for early approval in the US soon, and there are a handful of additional vaccines on the way. But even if they are as effective in the real world as they look in clinical trials, they can’t change the course of the pandemic overnight, and may not be able to entirely stop the spread of the virus. We need reinforcements.

It will take months for COVID-19 vaccines to reach a large enough percentage of the population to create “herd immunity” — and that’s assuming they win the public’s trust and the vaccination effort goes smoothly. Manufacturing enough doses may not be as easy as the headline deals with various countries suggest. There are also questions around how long immunity to COVID-19 may last. And vaccines may come up short in the really frail or elderly, especially those with preexisting conditions. Worst of all, the virus may mutate around our vaccines and start re-infecting people. That’s one reason public health officials have called for continued social distancing and masks even after the vaccination effort is in full force.

If vaccines aren’t a silver bullet and won’t be widely available at first even as case loads keep rising, then that makes COVID-19 treatments — drugs that reduce hospitalizations and death, and even help ward off the virus — just as important in battling the pandemic. The easier they are to take, the better. The good news is, there are several promising therapies in use and more in development. But the biggest game-changers are still months away. Here’s where things stand.

To date, companies and clinicians have been somewhat successful in their quest for therapies. For instance, Gilead Sciences, Inc.’s remdesivir, Eli Lilly & Co.’s baricitinib, and the generic steroid dexamethasone have all been shown to reduce hospital stays and improve recovery speeds. Dexamethasone also appears to cut the risk of death. Another new group of therapies called monoclonal antibodies, which mimic the body’s response to infection, have worked relatively well in reducing hospitalizations in high-risk patients. Two such treatments, one from Lilly and another from Regeneron Pharmaceuticals, Inc., have been approved for use so far, though as my colleague Max Nisen has written, there are some questions around Lilly’s therapy and how best to use it. Also, both of the new drugs require medically supervised intravenous infusions and may only be effective for a few months, requiring repeat IV visits that could burden health systems.

Without taking anything away from the above achievements, all of these drugs fall short of what’s really needed to tackle the disease and prevent hospitalizations: either oral antivirals that target the virus’s ability to copy itself, or long-duration antibodies that can be used as viable preventatives in people who are not able to use or respond to vaccines. These treatments are coming, but they’re in earlier stages of development, so we need to wait. There’s progress, though.

AstraZeneca Plc is working on an infusion cocktail of two antibodies that may be effective for six months to a year and has been engineered to reduce the risk of the treatment making the disease worse. Initial data is expected in the first half of 2021. There is also Vir Biotechnology, Inc. which, working with GlaxoSmithKline Plc, is developing two antibodies with potential to have long durability. Vir has also designed one of the antibodies in a way that could leave an immune “memory” behind like a vaccine. The first antibody is in a late-stage trial with data expected in the first quarter, while the second has yet to enter trials.

What would truly step up our efforts to fight the pandemic is a safe oral antiviral drug. Merck & Co. and Pfizer are in hot pursuit of this. These are drugs that are designed to interfere with the virus’s ability to make copies of itself, and they work in much the same way as hugely successful anti-HIV and anti-HCV drugs. But, just like vaccines and antibodies, we have to keep a close eye on the virus and assess any mutations that render the drugs inactive. Both HIV and HCV therapies use cocktails of drugs for exactly this reason. Merck and partner Ridgeback Therapeutics are expected to publish data from a small Phase II trial of their drug, molnupiravir, before year-end, while bigger Phase III trials will report in 2021, starting with Merck’s in the first half of the year.

As we ramp up the immense machinery that is required to get the global population vaccinated against the coronavirus, we will continue to need therapeutics. While the arsenal of treatments has grown, I am much more excited about what’s on the horizon.

BLOOMBERG OPINION

Why water won’t make it as a major commodity

VECTORPOCKET / FREEPIK

THERE’S NO COMMODITY more central to human activity than the one that makes up 60% of our bodies. So why isn’t water a fixture of financial markets the way gold, crude, copper and soybeans are?

Some investors think it should be. It’s the only asset that Michael Burry, the hedge fund manager played by Christian Bale in The Big Short, still focuses on, if you believe the film’s rather dubious closing sequence*. CME Group, Inc. is thinking along the same lines, launching futures contracts this week linked to California’s $1.1-billion water market.

It’s tempting to believe such a move could make H2O a commodity as central to financial markets as oil, metal, and agricultural products — but don’t hold your breath. The world will benefit from putting a price on water rather than treating it as a public good that’s handed out for free, especially as climate change wreaks havoc with supply systems built for the 20th century. That doesn’t mean that you’ll ever see the price of Chicago water futures quoted on the evening news.

The reason ultimately comes down to abundance, price, and weight. The commodities that are most important to financial markets have several common characteristics: They’re used globally but produced at only a few locations; they’re relatively scarce, and thus command a steep price; and their value is high relative to their mass, so that even at long distances the cost of freight is a small proportion of the ultimate price.

Take a look at the Nasdaq Veles Water Index, the base for CME’s new water futures contract. An acre-foot of water currently costs $486.53, equivalent to 39 cents per metric ton. A ton of gold, on the other hand, changes hands for an almighty $60 million. Copper traded on Comex costs $7,706; Brent crude goes for $355; and at the lower end, even coal at Australia’s Newcastle port will set you back $77.35.

Those differentials determine the viability of global trade in commodities. Precious metals are so expensive that they’re typically transported by air, a fact that caused havoc in the gold market earlier this year when the COVID-19 pandemic grounded much of the world’s aviation fleet. Almost everything else moves more cheaply on boats, trains, and trucks, with the cost of transport taking up a rising share of final prices as the value per ton goes down. It typically costs between $5 and $10 a ton to ship coal from Australia’s east coast to consumers in northeast Asia, making long-distance trade just about viable. There’s little point, however, in spending dollars transporting water that changes hands in its end-markets for mere cents.

That’s particularly the case because, for all we talk about water scarcity, it’s hugely abundant compared to any other commodity. In most places it can be collected for free by just attaching a tank to your drainpipe. Even in places with low rainfall, desalination is a far cheaper option than long-distance transport.

As a result, there’s never going to be a global market for water — and that means it’s never going to fly as a major commodity. Taking a derivatives position in LME copper is a reasonable way for a Chinese electronics company to hedge its raw-materials price risk. Any time the physical price of copper in China gets too out of line with financial futures in London, traders will move in to take advantage of the differential by shipping metal from one place to the other. The same can’t be said with water.

We see something comparable in the power market, which is also highly localized. Electricity revenues in Germany come to roughly 80 billion euros ($96.9 billion) a year, but the value of all contracts outstanding for the main baseload power derivative is a mere 698 million euros, because only generators and major consumers in Germany have any interest in the market. In the US, power trading is even more marginal: Off-peak electricity open interest in the PJM West market, the most-held contract, comes to just $383,000.

Turning such quasi-public goods into commodities has a justly bad reputation in the US, after Enron Corp.’s attempts to manipulate the California power market in 2001 caused rolling blackouts and ultimately contributed to the company’s collapse.

Still, even if water never becomes a global benchmark, the motivation for a futures market is a sensible one. The recent success of Europe’s carbon markets after years of glut is evidence that once the institutional settings are put right, a price on low-value public resources is crucial to encouraging less profligate use. Everywhere on the planet that water is being misused, it’s being overused.

BLOOMBERG OPINION

*Though Burry does indeed talk up the virtues of water investment, the filmmakers took a lot of creative license. His Scion Asset Management LLC invests in a wide array of familiar stocks.

The art of forgetting

IT’S NOT just broken personal relationships that require the need to forget, along with the admonition to “just move on,” as if memories, especially the bad ones, are a heavy burden that hinder mobility. The art of forgetting needs to be developed, even if it comes all too naturally to the elderly who don’t remember where they parked the car or their PIN in front of the ATM — I know it’s the numbers of my birthday. The socially distanced line at the back gets restless.

A senior executive pirated from a competitor has to unlearn the mindset and culture of the company he left. (Why do they have so many meetings?) This ability to forget applies to the lower levels too. Say the top media company’s franchise is canceled. What happens to the talents and support groups that are also disenfranchised? Some migrate to another organization (you need to take a salary cut). Do they bring the hubris and arrogance of the market leader to the third-place company they now work for?

The failure to respect a new corporate culture is no different from old colonizers imposing their traditions wholesale on countries they have vanquished. Little regard is shown for the indigenous culture in the process of assimilation.

“Culture shock” is most traumatic in the entry of private sector executives in government jobs. The public sector culture is everything the private sector executive abhors. Government culture rewards seniority rather than merit. Manuals and audit rules are the basis for decision-making. The informal hierarchies are not reflected in the management structure. There are unwritten rules that preserve the status quo of entitlements. Hints of corruption, especially for reformers, are too delicious a temptation to resist — what is he up to? And why does he use so many consultants?

It is no surprise that private sector executives, no matter how accomplished and well meaning, meet their Waterloo in public service. Their impatience with the system and those that promote it is seldom disguised. The bureaucracy fights back the best way it knows how. It delays by slow walking. It ensures low performance indicators for the new boss from missed deadlines. It leaks scandals (usually administrative oversights) to the media to make the boss look unfit.

Successful public executives are usually those who have already had some bureaucratic experience in compromise and red tape. Hence, military types smoothly slide into public positions with very little adjustment. They know how to follow orders and red-tag critics. They can even do fitness exercises sitting down.

The process of forgetting past entitlements and successes in a previous organization (or at least not mentioning them too often) requires humility. The new company one has joined is capable of teaching new and useful skills.

Forgetting most of the lessons learned in a previous career does not mean throwing away accumulated experience. It merely seeks to maintain openness to different ways of getting things done rather than presuming one way to be superior to another. Central to the posture of an unwillingness to integrate with a new organization is a deep-seated arrogance of somebody who has all the answers. So why should he listen to the opinions of the natives?

True, adjustments need to come from both sides. But simply out of numerical asymmetry, the newly poached executive must not expect the mass of subordinates to unlearn their own hard-won skills. It’s more sensible for the former to bend and see what he can learn from his new charges.

The art of forgetting makes one a good listener.

There is a rare psychological state called hyperthymesia, the opposite of forgetfulness. The former involves excessive remembering. Every detail of one’s past is continuously imposed on the mind leading to insomnia and a paralysis of thought from an overloaded closet of memories. Not being able to forget anything brings its own burden. Selective amnesia, or the ability to forget hurts, fake news, betrayals, and feelings of persecution allows an individual to adopt a more optimistic outlook.

Forgetting one’s bias and accepting a new culture is as important as understanding the business one has joined. Moving on and moving forward require unchaining ourselves from certain memories… and acquiring new and more positive ones.

 

Tony Samson is Chairman and CEO, TOUCH xda

ar.samson@yahoo.com

Fitch unlikely to upgrade major economies even with vaccine

FITCH RATINGS told Reuters on Tuesday that upgrades of any major economy are unlikely in 2021 despite recent developments related to COVID-19 vaccination, and that countries in Latin America, the Middle East and Africa show the highest level of vulnerability to further negative action in the coming year.

“We have only two sovereign ratings (Cote d’Ivoire and New Zealand) on Positive Outlook so upgrades of any major economies currently look unlikely in 2021,” Tony Stringer, chief operating officer of the rating agency’s Global Sovereigns and Supranationals, said in an emailed response to questions posed by Reuters.

“The two regions that have already seen the most rating downgrades (Latin America and Middle East & Africa) display the highest level of vulnerability to further negative action, with 9 and 12 Negative Outlooks respectively,” Mr. Stringer said.

Countries hit hard by the coronavirus will see the maximum economic boost from an effective vaccine which is rolled out swiftly in the first half of next year, Brian Coulton, Fitch’s chief economist told Reuters.

“All developed countries will clearly benefit (from a vaccine) but the UK, Spain, France and Italy were among the hardest hit in H1 2020 and the UK and the EU (European Union) have placed very large pre-orders of the Pfizer, Moderna and Oxford-AstraZeneca vaccines,” he said.

Mr. Coulton also said that the start of 2021 will be weak in Europe and the United States as a result of recently tightened restrictions and that the clearest benefits in annual growth numbers will be seen in 2022.

Fitch’s chief economist said that the rating agency expects a slower vaccine roll out in emerging markets as the logistics of rolling out mass immunization programmes could be more challenging, while vaccine pre-orders have been more modest.

The remarks come as coronavirus cases are still surging globally, with COVID-19 infections being at their peak in the United States, where an average of 193,863 new cases were reported each day over the past week, according to a Reuters tally.

“There are also some signs that the US economy is starting to be affected by the recent surge in cases and renewed restrictions, though lockdown responses to date have been much less aggressive there, helping to explain its relatively shallower downturn in 2020,” Mr. Coulton told Reuters.

US regulators stepped closer to approving the Pfizer COVID-19 vaccine on Tuesday as a 90-year-old British woman became the first person outside of trials to receive the shot, offering hope of slowing a pandemic that has pushed hospitals to the brink.

Fitch said earlier on Tuesday that uncertainties over the spread of coronavirus, as well as its immediate and longer-term economic implications will continue to exert pressure on global public finances in 2021.

Global gross domestic product recovery will strengthen from mid-2021 with vaccine rollouts now looking imminent, the agency noted.

Moody’s told Reuters last week that most sovereigns face a “significant negative shock” from the pandemic while S&P Global said in October that some of the world’s top economies could see their credit ratings cut or put on downgrade warnings in the coming months. — Reuters

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