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Rising to the cloud

The Philippines as a cloud and data center market

By Bjorn Biel M. Beltran, Special Features Writer

Long has the country held the reputation for its young, skilled, and technology-enabled population. In fact, the annual We Are Social’s digital report regularly ranks the country as among the most active internet and social media users on the planet.

This bespeaks of strong economic fundamentals that could carry the country’s economic narrative to further heights post-pandemic. Given that the current pandemic situation is controlled, the World Bank sees the Philippine economy expanding at 4.7% in 2021, before accelerating to 5.9% in 2022 and 6.0% in 2023, contributing to renewed progress in poverty reduction.

The potential for future progress is also apparent in how the country’s openness to adopt digital innovation such as cloud and data center technology.

“The Philippines is no stranger to global technologies like cloud and data center solutions. Because of Pinoy’s exposure to social media and business process outsourcing (BPOs) servicing global clients, there is a very high awareness to these types of solutions,” Ace Yutuc, vice-president for Product Management and Marketing at Bee Information Technology Philippines, Inc., said in an interview.

Furthermore, the environment created by the pandemic has accelerated digital transformation across the country to a point where it has pushed both private enterprises and the public sector to adopt both cloud and datacenter solutions for their digital infrastructures.

Jovy Hernandez, president & chief executive officer of ePLDT and senior vice-president & head for PLDT and Smart Enterprise Business Groups, told BusinessWorld that the global pandemic has been a catalyst for digital transformation, and that enterprises and public sector were required to take leaps to address their growing customers’ need in terms of online presence. Consumer applications from social media to video streaming, gaming, e-commerce and telehealth grew exponentially as people were forced to stay at home, and this has attracted the attention of global digital companies.

“The digital profile of the Philippines has motivated hyperscalers to build their infrastructure within the archipelago. As these tech providers strive for subscriber eyeballs, the population and digital economy of a country are critical considerations in terms of their data center road map,” Mr. Hernandez said.

“Globalization has erased boundaries, especially IT boundaries, and it is just a matter of time before businesses adopt these latest trends where the benefits outweigh the apprehension,” Mr. Yutuc added.

Allen Guo, country manager for the Philippines at Alibaba Cloud Intelligence pointed out that the Philippines has invested a lot of effort to encourage new industries to participate in the digital economy, especially with the introduction of initiatives like the Cloud First policy.

The Philippine Government’s Cloud First Policy promotes cloud computing as the preferred technology for government administration and the delivery of government services. Shifting to cloud computing is expected to foster flexibility, security, and cost-efficiency among users. Cloud computing also offers key advantages such as access to global systems of solutions, innovations, and services, as well as up-to-date cybersecurity.

“Thanks to its rapid economic growth in recent years, the Philippines has now progressed from having cloud discussions to experiencing cloud adoption. More businesses in the country are realizing how the cloud can provide transformative solutions and help them save money, while ensuring greater efficiency and flexibility to meet the ever-changing demands of customers,” Mr. Guo said.

“The Philippines is a large booming market with a big group of young while digital savvy population. The Philippine digital economy growth potential is enormous and local SMEs and enterprises are well-positioned to take advantage of these growth opportunities. There is a strong demand on digital transformation from local businesses in accordance with the Philippine government’s Cloud First Policy,” he added.

Seizing the opportunity
The Philippines’ prospects of becoming a digital leader in cloud and data center solutions are further improved by quite a number of factors. Mr. Yutuc pointed out that as “Pearl of the Orient”, the country is fortunate to have a strategic, valuable geographic location that places it at the crossroads of data traffic coming from the West and the Asia Pacific.

“Since undersea cables are the veins where all traffic come and go, the Philippines is the perfect landing area for Asia and worldwide traffic routes. Also, because Singapore and the surrounding regions have pretty much blanketed their areas with multiple data centers, the natural growth is towards nearby locations such as the Philippines. Plus, since the country is in a separate landmass, it serves as a natural redundancy site for all existing data center sites,” he said.

Furthermore, recent research show that due to the rapid pace of digitalization and a surge of demand, the country’s data center market is projected to grow faster than Southeast Asia, which is recognized as the fastest-growing region for co-location data centers.

Major data center hubs in Southeast Asia such as Hong Kong and Singapore paved the way for other countries such as the Philippines to market to cloud and data tech providers. Hong Kong is currently facing geopolitical risks out of the imposition of China’s National Security Law, while Singapore has issued a moratorium to freeze data center construction amidst high demand in response to sustainability concerns.

Further research by Global Data showed that from a Cloud Service Revenue perspective, the Philippines is anticipating a steep rise in cloud service revenues up to USD2.4 billion by 2024. This is due to the increase in cloud spending in the Enterprise segment and the government’s Cloud First Policy.

Mr. Guo backed this with more data from Alibaba Cloud’s survey titled “The Role of Cloud in Asia and Confidence in Asian Innovation”. Results showed 88% of Philippine businesses are now more supportive of using cloud-based IT solutions to grow their businesses as compared to before coronavirus disease 2019 (COVID-19). In addition, a majority (94%) of Philippine businesses now also view cloud-based IT solutions as a crucial component in mitigating the impact of the pandemic.

Mr. Hernandez added that the Philippines, as it possesses a burgeoning digital economy, robust domestic and international infrastructure, progressive renewable power mix, and data centers at par with the technologically developed countries, is an ideal destination to support the hyperscale data center requirements of the cloud and content providers.

The country is, thus, well-positioned to take advantage of opportunities in a new, growing cloud and data center market, and its pivot towards digital and cloud infrastructures sets it on the right path to future-proofing the economy.

“The COVID-19 pandemic has served as the impetus for the acceleration of digitalization in the Philippines,” Mr. Guo said. “Digital transformation will buttress recovery and growth in the post-pandemic era and help local businesses to get back on its track toward long-term aspirations. As remote working and online learning becomes the new normal, and most Filipinos turning to online platforms from shopping to entertainment, there is a surge in the need for cloud-based services to provide robust, resilient, secure and flexible support.”

Be grateful for your struggles

Chester Ang Ma Ong 2020 Rookie of the Year MDRT member Producers’ League Qualifier

“If you are struggling, it means you are doing your job. Be grateful for those struggles. You need it more than success.”

This is Chester Ma Ong’s unorthodox advice to other freshly minted financial advisors. Entering the industry during the pandemic, Chester didn’t expect to top the rookies’ list and join the Million Dollar Round Table (MDRT) early in his career.

“The award for me is just a bonus. It is a result of excellent service to my clients. This is a gift from God and I am so grateful,” says the 41-year-old father of two.

He shares that if someone works on his attitude, belief and character (the ABC), achieving success is not impossible. “I am just a simple person. If I can do it, you can also do it.”

Like in all industries, the pandemic became a game changer in the insurance industry. With everything dependent on the virtual platform especially in 2020, financial advisors “tested the waters” by applying new practices never before done in Sun Life, even in other companies.

Chester took advantage of the new strategies and studied the business before jumping into selling—which he suggests other financial advisors to follow, too.

Rookies should use their first six months to study. After that, they should apply the learnings immediately, he points out. “Good habits are crucial during first six months. Dream high but learn to discipline yourself.”

For Chester, looking for new clients is one of the challenges, as financial advisors are “faced with so many rejections daily.” Nevertheless, this career has provided him unlimited income, growth potential, and time freedom. “You are not boxed in,” he exclaims.

Sun Life financial advisors are trained not only to become insurance agents, but also advocates of something bigger than themselves. For Chester, his main purpose in life is to glorify God in everything he does.

“Sun Life has the same values and standards that I uphold,” he caps.

Understanding the cloud

Photo from en.wikipedia.org

As the wave of digitalization continues to surge in the Philippines as a direct result of the coronavirus disease 2019 (COVID-19) pandemic, forcing businesses to move their operations to digital platforms, several conversations are emerging around the data being generated: the amount of it, how it is collected, gathered, and stored, how to use it properly, and the ever-looming aspect of cybersecurity over it all.

With trillions upon trillions of bytes of data being generated daily, these conversations are necessary. But for the once-brick-and-mortar family business that has just recently transitioned over to digital platforms, it is often daunting to understand how it all works together.

Cloud adoption is but one of the numerous aspects of going digital. What exactly is it, and how can it improve one’s business?

To start with the basics, one must understand how data is stored. In decades past, important files and photos were stored in folders and albums, tucked away in cabinets or storage vaults. It only differs slightly today.

Bytes of data, which could contain important documents, photos, audio recordings, or video, can be stored locally through hardware like disk drives, or internationally through the cloud. The cloud is essentially a storage vault where files are sent and received via the internet.

“At its most basic, the cloud refers to any type of software or service that isn’t located on your personal computer or devices but instead runs on the internet. The files, images and videos that you save on cloud services are stored on the servers of third parties, companies such as Amazon, Google, and Microsoft,” technology firm Norton wrote on its website.

“You can then get at these files whenever you are using a device connected to the internet. If you’ve saved photos from your most recent trip to the beach, you don’t have to wait until you’re at your laptop computer to access them. You can find them by logging onto the internet from any computer or device anywhere.”

In fact, cloud services are so popular that you might have been using it without knowing. Google Cloud Platform, Amazon Web Services, Apple iCloud, and Microsoft Azure among others provide the cloud services of websites — from Hulu and Dropbox to Gmail and Office 365.

The benefits of the cloud
So why should businesses use the cloud? Or put in another way, why should you hand over your important, private data over to other companies through the internet?

Historically, many businessmen have asked the same question, citing the security of public cloud infrastructure as one of their top concerns and a barrier to cloud adoption. According to management consulting firm McKinsey & Company, however, in recent years all major cloud service providers (CSP) have made significant strides in assuaging fears over security.

“A CSP’s business model depends on best-in-class security, and they have each invested billions in cloud security and in hiring thousands of the top cyber experts. They have developed an array of new tools and methods to make cloud secure, in many cases requiring developers to take on the security responsibility, rather than relying on a traditional security team to carry the burden,” McKinsey wrote on their website.

McKinsey noted that this is particularly important because public cloud breaches have almost all been driven by enterprise customers’ insecure configurations.

“The key question for companies, therefore, is not whether cloud is more secure to begin with, but what measures they need to take themselves to enhance their cloud security,” the firm added.

Norton further explained that cloud services are backed by massive corporations that can provide robust and powerful security measures to protect their data. Usually, servers where data is stored are located in warehouses that are inaccessible to most workers. To add to that, most files stored on cloud servers are encrypted, or are coded to make it far harder for cybercriminals to access.

Cloud servers are also consistently updated with the latest security measures to keep abreast of cyber risk, and are using advanced technologies like artificial intelligence to protect your data.

“This is important: It’s not easy to find experienced security professionals to oversee data. Cloud providers, though, can instead turn to AI to tackle at least the first level of security analysis. These programs rely on built-in algorithms to seek out and identify possible vulnerabilities in security measures,” Norton wrote.

Finally, there is redundancy in the cloud, meaning that they copy data several times and store them on many different data centers, protecting them from outages and other problems and keeping the data in them accessible to their owners. — Bjorn Biel M. Beltran

Driving digitalization in public sector

The growing adoption of digital tools in public services becomes prevalent since the start of the coronavirus disease 2019 (COVID-19) pandemic. Among the enablers in this digital transformation of the sector is cloud computing technology.

Cloud computing seems helpful for the government operations and services as the Department of Information and Communication Technologies (DICT) has already released a circular regarding the country’s cloud-first policy back in 2017, which then underwent some amendments for the shift towards the new normal in 2020.

“Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g. networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction,” DICT defined in the circular.

The purpose of the policy, as the department stated, is to reduce the cost of government information and communications technology, increase employee productivity, and further develop citizen online services by utilizing cloud computing technology.

The policy also promotes cloud computing as the preferred technology in government administration and online services.

As such, DICT noted on the circular some benefits that cloud computing could bring in the government’s services and budget.

The technology makes the sharing of resources easier, thus enabling more effective collaboration among the agencies. This connection can make the delivery of public online services with “greater efficiency, entrepreneurship, and creativity,” the department noted.

As shared in a working paper on cloud computing published by Asian Development Bank (ADB), DICT may have seen this benefit in 2017 when it used a cloud-based solution to automate its business permits and licensing system. Since the technology enabled the process of business permit applications and renewals online by local government units (LGUs), it reduced the duration of the process from two to three days to just 30 minutes to half a day.

Online services can also be delivered faster, DICT’s circular added. This is because the testing and deployment of public ICT facilities and services would be quicker and maintained more cost-effectively, compared if the government agencies possess and operate unique computing facilities themselves.

“Reducing the amounts of infostructures required to be built and owned by government agencies reduces overall deployment times and shifts the focus from management of infrastructure to delivery of online services,” DICT said.

The department further highlighted how such technology makes greater budget control for the government agencies. This utility-based “pay for what you use” model, according to the department, means that the agencies can acquire as much or as little resources as they need.

“Cloud scalability results in systems usage being dialed up or down throughout the year as it is required. Transparency of the utility-based pricing structure means that spending caps and alerts can be implemented to further assist in budget control,” it explained.

Additionally, cloud infrastructure, as the means to deploy online government services, can result in an immediate decrease of large capital costs for infostructure and maintenance.

As mentioned in ADB’s working paper, the Bureau of Customs in 2016, for instance, estimated that the rehabilitation of its aging internal data center would need about ₱200 million; whereas if it used cloud computing infrastructure, it would be able to get the required computing power for less than one-tenth the cost.

Cloud provisioning can also make more commodity solutions available to the agencies; and since a cloud service provider manages the version upgrades to both hardware and software, the cloud-first model can augment the government ICT resilience and security, the department added.

Having such centralized data storage, management, and backups, the technology hence also allows the data retrieval and business recovery in a faster, easier, and more cost-effective way even at times of crisis.

Apparently, cloud computing, like several technologies, proves itself efficient when the pandemic hit the country and disrupted operations. The DICT, in fact, recently amended the Cloud First Policy to make the instructions on coverage, data classification, and data security clearer upon recognizing the vital role of ICT in the transition to the new normal.

The amendments last year clarified which institutions that the policy shall cover. This includes the departments, bureaus, offices, and agencies of the Executive Branch; government-owned and/or controlled corporations (GOCCs) and their subsidiaries; state universities and colleges (SUCs); and LGUs. It also covers cloud service providers and private entities that render services to the government.

The Congress, the Judiciary, the Independent Constitutional Commissions, and the Office of the Ombudsman, meanwhile, are merely encouraged to adopt the policy, which the amendments also made clear.

Data classifications were updated as well, now comprising highly sensitive government data; above-sensitive government data; sensitive government data; and non-sensitive government data. With this amendment, there is a more consistent structure to guide the application of safety protocols on the access, storage, processing, and transmission of data in the cloud.

Moreover, the amendments stated provisions on ICT capacity building and essential skills development to meet local and international standards.

The department’s policy on sovereignty, residency, and ownership were also amended.

According to Gregorio B. Honasan II, secretary of DICT, these amendments to the Cloud First policy are expected to further enable the government agencies in serving the public more efficiently. Through these clearer instructions, the agencies can thus employ cloud-based services that are at par with global standards.

“We are continuously updating our policies to adapt to the present times. With the amended Cloud First Policy, we are paving the way to an ICT policy environment that is more responsive to current needs, further filling gaps in our country’s digitalization efforts,” Mr. Honasan said in a statement.

“The shift to a truly digital government is much more pressing today,” he added. “As a member of IATF-MEID and lead agency in promoting the National ICT agenda, the DICT is committed to cover all aspects of this, primarily policies that would enable government digital transformation to ensure that we maximize ICT during this transition to the new normal.” — Chelsey Keith P. Ignacio

Building the future of businesses through fintech

In photo during this session of BusinessWorld Insights Fintech series are (clockwise, from top left) moderator Beatrice Laforga of BusinessWorld; and panelists Robertson Chiang, founder, COO and CTO of Dragonpay Corporation; Shailendra Soni, ICT and fintech head at Frost and Sullivan; Mitch Padua, chief product officer of PayMaya; and Frederic Levy, chief commercial officer of GCash.

Industry players see the value of fintech for MSMEs

By Chelsey Keith P. Ignacio, Special Features Writer

The integration of technologies in financial services emerge further in the past years. Such innovations, as expected, eventually become reliable partners for many small and large companies.

During the second session of BusinessWorld Insights Fintech Series with the theme “Fintech’s Role in Empowering Businesses of All Sizes” held last July 21, industry leaders explored the fintech landscape of Filipino businesses and how they can further develop.

The usage of fintech notably increased amid the quarantine that started last year, observed Robertson Chiang, founder, chief operating officer and chief technology officer of Dragonpay Corp.

“2020 was really a remarkable year, and this was primarily due to the pandemic. Our transaction almost tripled during this period, which is a reflection of the people changing their habits from physical retail to going online,” Mr. Chiang said.

The trend seemed to be continuing this year, he added. Assuming that their transactions in the first half of 2021 would be the same in the second, it would almost double their transaction count in 2020.

Payment methods also of course shifted. From the 21.1% e-wallet usage in 2019, it leaped to around 64% in 2020 and then around 71% in the first half of 2021, Mr. Chiang shared.

Similarly, GCash’s chief commercial officer Frederic Levy noticed that many people continue to use such technology, and this suggests that enterprises should incorporate it in their operations as well.

“It’s getting more and more obvious for any form of businesses — including the small ones up to the big, organized ones — that they need to have [a digital] form of payment proposed to the consumer,” Mr. Levy said.

Moreover, fintech would evidently make payment convenient for the consumers. “So the question is more, what reason that would push you not to jump fintech if you are a small business,” he expressed.

Fintech for small businesses

As such, Mr. Levy later shared his advice for small and medium enterprises on adopting fintech solutions.

“From an MSME perspective, simplicity and onboarding clearly are a critical component because it will look for a provider who can propose you an all-in-one solution,” he said.

“Make sure that you are going after the payment solution that makes sense for your business, and also going for the widest audience possible,” he added.

Similarly, PayMaya’s chief product officer Mitch Padua also suggested that MSMEs, or enterprises in general, should look for the widest reach in terms of various payment types since second-guessing what consumers will have is difficult.

“[Look] for a partner that can provide all types of payment, whether it’s online or offline, sometimes your business can have a mix of both. It’s very hard to reconcile if you have different terminals, payment gateways, [and] partners for each type of payment,” Mr. Padua said.

Another thing for MSMEs to look at is competitive rates. “At the end of the day, each partner or payment solution will have different rates. And someone that can help you lend all of those payment types into one simple rate will make your life a bit easier,” he added.

The growing presence of these digital payment solutions will be exponential, Mr. Padua also remarked. And according to him, PayMaya, with its end-to-end digital financial services platforms for merchants and consumers, is positioned to drive such growth through several factors.

Among these factors is that merchant payment is the next trillion-peso segment. “Accelerating business to consumer, business to business, and business to government payments is where PayMaya commits to address. Over the short term, we’re coming up with exciting innovations to make sure we can seamlessly enable businesses to send payments to other businesses and individuals by offering solutions that capture settlement, all the way down to disbursement, and to encashment,” Mr. Padua shared.

Another factor is that everyone can now become a digital entrepreneur with the transformation of MSMEs on the ground, he said. “We’ve begun the digital migration of our Smart Padala agents to become a one-stop-shop for digital financial services. So beyond remittance, they can now serve as agents for digital payments, digital lifestyle, and digital banking services,” he added.

Fintech’s growth

Likewise, Frost and Sullivan’s ICT and fintech head Shailendra Soni believed that fintech will continue to grow and thrive in the Philippines.

Though Mr. Soni deemed that the revolution started slightly late in the Philippines compared to its neighboring countries, he was certain the country will nonetheless catch up.

“There will be more and more [fintech] services launched [that are] particularly putting consumers and enterprises at the center to make them pay better, save money, invest money, and insure themselves,” he said.

When people began to experience these digital payment services and eventually realize the benefits, Mr. Soni considered that the migration to more fintech-related solutions will also start.

“I believe there is going to be infrastructure on the Internet that will become much better. There will be policies, rules, and regulations in place that will further accelerate the overall adoption of fintech. There’s no U-turn; it’s going to grow,” he added.

This session of BusinessWorld Insights was presented by Tata Consultancy Services and GCash with the support of Globe, InLife, and PayMaya.

PHL likely exited recession in Q2

PHILIPPINE STAR / MICHAEL VARCAS
Looser lockdown restrictions likely boosted economic growth in the second quarter. — PHILIPPINE STAR/ MICHAEL VARCAS

LOOSER LOCKDOWN restrictions, coupled with base effects likely lifted the Philippine economy out of the recession in the second quarter, economists said, adding that the outlook for sustained recovery remains cloudy due to the reimposition of tighter restrictions this month.   

A BusinessWorld poll of 20 analysts yielded a gross domestic product (GDP) growth estimate of 10.6% for the second quarter, a turnaround from the annual contractions of 4.2% and 17% posted in the first quarter of 2021 and the second quarter of 2020, respectively.

If realized, this would be the fastest year-on-year GDP growth rate since the 12% expansion in the fourth quarter of 1988. This would also be the first time the Philippine economy posted growth since the fourth quarter of 2019, right before the coronavirus disease 2019 (COVID-19) brought economic activity to a near standstill.

This would also bring the GDP growth to average 3.2% in the first half, still below the government’s GDP growth target of 6-7% for this year.

The Philippine Statistics Authority is scheduled to release second-quarter economic data on Aug. 10.

While less restrictive than the first enhanced community quarantine (ECQ) last year, Metro Manila and its nearby provinces were once again placed under the strictest form of lockdown from late March to May 15 this year to curb a renewed surge in COVID-19 cases. These were gradually relaxed until a Delta-driven spike in infections forced the government to once again put the capital region under ECQ from Aug. 6-20.

Analysts were in agreement that the April-June period marked an economic rebound, although they offer different views on its extent.

Ateneo de Manila University economist Ser Percival K. Peña-Reyes gave a forecast of 15.2% growth for the second quarter based on a reading of other available economic indicators.

“The economy has been much more open in the second quarter this year versus last year, which was the height of the hard lockdown and when the economy bottomed out. Commercial and business establishments have been busier this year. As a result, employment figures have also been much better in the second quarter this year versus last year,” Mr. Peña-Reyes said.

Makoto Tsuchiya, an economist at Oxford Economics Japan, penciled in a 12.9% expansion in the second quarter, citing the “steady growth” in the Philippine manufacturing production.

“Moreover, the manufacturing PMI (purchasing managers’ index) surveys signaled that the business conditions for manufacturers continued to improve toward the end of the quarter and new export orders jumped, pointing to strong foreign demand. The robust recovery in the labor market should also support household spending,” he said.

“However, we expect the recovery in spending to remain relatively subdued given that much of the rise in employment has been part-time work, meaning average monthly earnings are generally lower and the unemployment rate is still elevated,” he added.

The country’s PMI, an indicator of manufacturing activity, sharply fell to 49 in April from 52.2 in March, slipping below the 50 neutral mark that separates deterioration from expansion and ending three straight months of growth. May saw a softer downturn with 49.9 before returning to expansion territory with 50.8 in June.

A separate data by the Philippine Statistics Authority showed manufacturing volume of production posting year-on-year growth rates of 154.3% in April, 263.2% in May, and 453.1% in June. These marked three straight months of growth following a 13-month losing streak.

Besides the gradual lifting of mobility restrictions, economists also pointed to base effects.

“While [GDP growth in the second quarter] is positive, it must be interpreted with caution given that we recorded an all-time high GDP contraction last year at 16.9%. It means that the growth for this quarter is just base effects,” said University of the Philippines Los Baños economist Jefferson A. Arapoc, who gave an estimate of a 9.5% growth in the second quarter.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa gave an annual growth forecast of 10.9% for the second quarter, noting that all sectors are expected to post growth led by capital formation, government spending, and household consumption.

“Despite the headline grabbing year-on-year print, the economy is expected to have slowed relative to [the first quarter] as tighter mobility curbs were implemented for all of April and most of May.  The impact of such measures manifested immediately in jobs and manufacturing numbers and we expect quarter-on-quarter GDP to actually contract by 1.5%,” Mr. Mapa said.

UNCERTAINTIES AHEAD
Despite the expected rebound in the second quarter, economic prospects in the next few quarters remain uncertain given the reimposition of tighter lockdowns due to Delta variant driving fresh COVID-19 cases, economists said.

Security Bank Corp. Chief Economist Robert Dan J. Roces said growth is “still expected to improve gradually” driven by better business and consumer confidence on the back of steady vaccination rate and election-related spending.

“The reimposed ECQ this August may complicate the overall growth picture though, and the Philippines will be hard-pressed to hit the 6.0-7.0% GDP growth target… [W]e expect the BSP (Bangko Sentral ng Pilipinas) to keep monetary policy in place for the balance of the year and likely until the first half of 2022 until stable growth is seen,” Mr. Roces said, penciling in a 7.70% annual growth in the second quarter.

ING’s Mr. Mapa is less upbeat on the economy’s future growth.

“With the Philippines (in) yet another lockdown, and one that may be more stringent and protracted than the Alpha variant version, we are expecting the Philippines to post negative quarter-on-quarter GDP growth in the third quarter as well,” he said.

“In a year that started with so much hope for a ‘strong recovery’ and a ‘bounce back,’ 2021 is indeed turning out to be like 2020 with the Philippines likely headed for a lower growth trajectory once base effects fade. Our full-year GDP forecast is now at 3.8% from 4.7% previously, factoring in a four-week community quarantine style lockdown in August,” he added.

For Moody’s Analytics Senior Asia Pacific Economist Katrina Ell: “The Philippines is far from out of the woods when it comes to COVID-19 hurting the economic recovery as evidenced by daily infections once again rising,” she said, forecasting a 13% growth for the second quarter. — Abigail Marie P. Yraola

Analysts’ Q2 2021 GDP estimates

BSP seen to keep policy rates at record low — poll

PHILIPPINE STAR/ MICHAEL VARCAS
A Delta-driven surge in coronavirus infections is casting a cloud on the Philippines’ economic recovery. — PHILIPPINE STAR/ MICHAEL VARCAS

By Luz Wendy T. Noble, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) is widely expected to keep policy rates unchanged at its Thursday meeting, as the economy’s recovery is clouded by the spread of the Delta variant of the coronavirus disease 2019 (COVID-19).

All 18 analysts polled by BusinessWorld expect the Monetary Board to maintain the key policy rate at an all-time low of 2% on Aug. 12.

Analysts said the Delta variant and the reimposition of strict lockdown measures strengthen the case for the BSP to retain policy support.

The Health department recorded 9,671 new infections on Sunday, bringing the active cases to 77,516. It reported 287 deaths, the biggest single-day increase in deaths since April 9, Reuters reported.

Metro Manila and some provinces are currently under an enhanced community quarantine (ECQ) until Aug. 20, as the government seeks to curb a Delta-driven surge in infections that threatens to overwhelm hospitals.

“The ongoing pandemic and mobility restrictions will remain the key factors to watch out for. The current weak credit growth may also be in focus. Inflation is already easing and should be less of a focus,” Standard Chartered Bank ASEAN and South Asia Chief Economist Edward Lee said. 

Preliminary data from the BSP showed bank lending marked its seventh month of contraction in June.

Meanwhile, the consumer price index rose 4% in July, easing from 4.1% in June and marking the first time that inflation was within the BSP’s target range of 2-4%.

Makoto Tsuchiya, an economist at Oxford Economics, said that BSP is expected to “not proceed with any policy tightening yet” even though inflation could pick up in the coming months due to higher global commodity prices. Instead, he said the BSP will focus on economic growth concerns.

“Any possible threat of a resurgence of inflation will likely be met with the same response by monetary authorities with BSP Governor Benjamin E. Diokno looking past any supply side-oriented shocks to prices,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.

Mr. Diokno in July acknowledged that recovery appears to be “slower-than-anticipated” despite some indications of improvement in business activities.

He reiterated that the BSP will maintain an accommodative policy “for as long as necessary” to support recovery, adding that higher prices caused by low supply “are best dealt with supply-side interventions.”

The central bank kept its prudent pause despite beyond-target inflation in the first half of the year. It stressed the need for non-monetary measures including the easing of import quotas and lower tariffs for meat products.

While the BSP is keeping a close eye on signals from the US Federal Reserve regarding its taper policy, analysts believe the central bank will give more importance to local developments for now.

“The Fed is yet to become a major factor in the policy calculus at this stage,” ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur said, noting there is still “considerable slack in the economy.”

The economy shrank by 4.2% in the first quarter following a record 9.6% contraction last year. A BusinessWorld poll of 20 economists expect second-quarter GDP to grow by 10.6% mainly due to base effects from the 17% decline in the same period of 2020.

The government will release second-quarter GDP data on Tuesday (Aug. 10).

Maybank Investment Bank Chief Economist Suhaimi Bin Ilias said he expects a rate hike only by the fourth quarter of 2022, when the Fed’s reduction of asset purchases nears completion and ahead of the expected Fed rate hike by 2023.

“Focus will be more on vaccination progress to speed up economic reopening and policy reforms to spur private investment and foreign direct investments,” Mr. Ilias said.

On the other hand, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said there may be a preemptive rate hike at the Sept. 23 policy meeting, noting the BSP may do this to “avoid the urgency of delivering bigger rate hikes in the future, preserve its dollar buffers as well as to help temper the peso’s depreciation.”

“Global fund managers are likely to continue rebalancing their portfolios away from emerging market currencies just as the Federal Open Market Committee starts to hint on policy normalization on or before their own September policy meeting,” Mr. Neri said.

The BSP has kept the overnight reverse repurchase, lending, and deposit rates at record lows of 2%, 2.5%, and 1.5% at its June 24 policy meeting. It last adjusted the policy rates on Nov. 20, 2020.

After Thursday, the Monetary Board will have three more policy reviews this year — on Sept. 23, Nov. 11, and Dec. 16.

Private sector support key to Team Philippines’ success at Tokyo Games

REUTERS
Weightlifter Hidilyn F. Diaz made history at the Tokyo Olympic Games, after she ended the Philippines’ near century-long wait for an Olympic gold medal. — REUTERS

By Michael Angelo S. Murillo, Senior Reporter

TEAM PHILIPPINES ended the Tokyo 2020 Olympic Games with a record haul of four medals, including the country’s first-ever gold won by weightlifter Hidilyn F. Diaz.

Boxers Nesthy A. Petecio and Carlo Paalam secured silver medals, while Eumir Felix D. Marcial added a bronze (Related story).

Francis Carlos B. Diaz, national team coach and dean of the University of the Philippines College of Human Kinetics, said the impressive showing of the 19-athlete Philippine contingent in Tokyo was not totally surprising, considering how things came together in the lead-up to the Olympic Games.

“Well, definitely this speaks volumes of our capacity in terms of sports performance at the elite level. The road was not easy for the Philippines but I think because of the positive things that happened in the previous years, this was the result of it,” he said in an interview with BusinessWorld.

Mr. Diaz, also the chef de mission of the country for the Tokyo Paralympic Games later this month, cited the partnership between the government and private institutions, the effort to give elite athletes access to international training and competitions, and provisions for athletes’ needs helped contribute to Team Philippines’ success.

“Private sector support was very critical,” Mr. Diaz said.

While the government did a good job in meeting the requirements of the national teams despite the limitations, Mr. Diaz said the partnerships that national sports associations were able to forge with private companies went a long way in preparing the athletes.

The MVP Sports Foundation led by top businessman Manuel V. Pangilinan was at the forefront of such a push, supporting in one form or another the majority of the athletes who competed in Tokyo, including Ms. Diaz.

“It started with the inherent talent of the athletes and was enhanced by the support given for their training. It really became results-oriented,” Mr. Diaz said.

The Philippine Sports Commission (PSC), as per data it provided, released some P2 billion since 2017 for the national team, which also covered the foreign exposure of the Olympians and those who vied for Olympic spots.

“Foreign exposure was a big help. I think the athletes’ confidence was enhanced because of that as they got to learn new things from training abroad and were able to gauge themselves against some of the best in their respective disciplines. With that, heading into the Olympics there is something that had them believing that they are in a good position to compete,” Mr. Diaz said.

Among those who trained abroad were Ms. Diaz (Taiwan and Malaysia), the Philippine boxing team (Thailand), gymnast Carlos H. Yulo (Japan) and Ernest John Obiena (Italy).

The UP dean said the conscious effort to widen the athletes’ preparation to include improved coaching and the hiring of sports nutritionists and psychologists, also helped immensely. Athletes also continue to prepare in “training bubbles” even during lockdowns.

Ms. Diaz, who bagged the gold medal, attested to this, thanking “Team HD” for helping prepare her for the competition.

“I think I was more prepared. I had a whole team behind me. Apart from my weightlifting coach, I have a strength and conditioning coach, a nutritionist and psychologist, and I even had yoga as part of my training. And that is thanks to the PSC, POC (Philippine Olympic Committee) and the private groups,” Ms. Diaz said in one of her interviews upon returning to the Philippines.

The same was true for Ms. Petecio, who like most in the boxing team trained under Australian coach Don Abnett and other Filipino coaches.

“He (Mr. Abnett) helped in my form as a boxer, pointing out the flaws in my mechanics and just working with me and my other coaches to develop my game,” Ms. Petecio shared in a press conference after she won silver.

The athletes’ determination and the “extrinsic motivation” given to them were contributing factors as well.

“The athletes waited for at least another year to compete in the Olympics and I think it gave added motivation for them to do well and represent the country the best way possible,” Mr. Diaz said.

“But the extrinsic motivation that we gave our athletes if they win and garner medals was something. The reward that the government and private sector is giving I’m sure inspired the athletes as well. It’s going to be life-changing. Look at Hidilyn, she looks like she just won the lotto,” he added.

For this Olympics, a gold is worth P33 million as the government will give P10 million under Republic Act 10699, or the National Athletes and Coaches Benefits and Incentives Act, while MVP Sports Foundation and San Miguel Corp. President Ramon S. Ang pledged P10 million each. Sportsman and 1-PACMAN party-list Rep. Michael L. Romero pledged to give P3 million for the gold medalist.

The same entities and individuals also pledged to give a combined P17 million for silver and P7 million for bronze. Other companies have promised to give free flights, house-and-lot, condominium units and even free milk tea to the Olympic medalists.

“So given all these, to say it again, our successful campaign is not surprising,” said Mr. Diaz.

“And the good thing about it is the prospects of even those who did not win are bright since most of them were young first-timers. Hidilyn took four cycles to win gold but these athletes already had it good in their first Olympics. So who knows, maybe in the next Olympics or after that, they get to win gold, too.”

Philippines’ Olympic medal haul through the years

Gross borrowings reach P1.9 trillion in the first half

PHILIPPINE STAR/ MICHAEL VARCAS
The government’s gross borrowings reached P1.93 trillion as of end-June amid the continued coronavirus pandemic. — PHILIPPINE STAR/ MICHAEL VARCAS

GROSS BORROWINGS rose 12.2% from a year ago to P1.933 trillion in the first half as the government continued to raise more funds for its pandemic response.

Data from the Bureau of the Treasury (BTr) showed borrowings in the January-June period were larger than the P1.723 trillion recorded in the same period last year.

In June, the Treasury raised P167.198 billion, 21.6% down from P213.227 billion a year ago.

The government borrows from local and foreign creditors to finance the budget deficit that has widened since last year when the coronavirus pandemic stalled the economy and pulled down tax collections.

Broken down, new debt incurred from the local market slipped by 13.5% to P135.29 billion from P156.41 billion in June last year.

The month saw P46.71 billion in net issuance of Treasury bills (T-bills) — where more debt repayments were made than new debts incurred. This partially offset the P182 billion of Treasury bonds (T-bonds) sold.

The Treasury made P113 billion in redemptions using the government’s Bond Sinking Fund.

Meanwhile, external gross borrowings slumped by 43.8% to P31.91 billion in June from P56.817 billion a year ago. This consisted of P22.958 billion in new program loans and P8.95 billion in project loans.

It settled P6.846 billion of its outstanding foreign debt that month, reducing its net external borrowings to P25.062 billion. 

Of the P1.9 trillion in the first semester, gross borrowings from local lenders totaled P1.648 trillion, up 25.8% from P1.31 trillion the year before.

This was comprised of P571 billion in T-bonds, P540 billion of loans from the central bank, P463.32 billion in retail T-bonds, and P73.6 billion in T-bills.

Excluding P53.108-billion debt repaid and those that were settled via the Bond Sinking Fund, the government’s net domestic borrowings hit P1.59 trillion.

On the external side, total gross borrowings from foreign creditors slid by 31% to P284.95 billion in the first half from P413 billion seen in the same period last year.

This was comprised of P122 billion in euro-denominated bonds, P95.1 billion in program loans, P43.7 billion in project loans and P24.2 billion in Samurai bonds.

The BTr repaid a total of P160 billion of foreign loans, cutting its net foreign borrowings to P124.92 billion.

Gross borrowings in the first half accounted for 64% of the P3 trillion the government is planning to raise this year from both local and foreign lenders to plug its budget deficit seen to hit 9.3% of gross domestic product (GDP).

In its latest economic bulletin on Sunday, the Department of Finance said the government’s fiscal standing, along with accommodative monetary policy, absorbed the shocks brought about by the coronavirus pandemic and will continue to do so to support the recovery.

“Government-owned and -controlled corporations (GOCCs) continue to contribute to revenue mobilization through hefty dividends. Unlike in previous crises, especially in the 1980s when GOCCs contributed to the widening fiscal deficit due to their poor financial conditions, GOCCs are now in tip-top financial shape as a result of GOCC reforms including closer monitoring and performance evaluation,” it said.

The country’s debt stock reached P11.166 trillion as of end June. — B.M.Laforga

Del Monte Philippines focuses on product expansion after IPO delay

By Keren Concepcion G. Valmonte, Reporter

DEL Monte Philippines, Inc. (DMPI) said it will be focusing on product expansion and creating a stronger digital footprint via e-commerce after its parent firm announced the deferment of its listing at the Philippine Stock Exchange (PSE).

“The company will forge ahead in building momentum in convenience cooking as well as healthy beverages in the Philippines as more Filipinos focus on health and wellness as well as wholesome cooking amid the continuing pandemic,” DMPI Marketing Head Cynthia David Icasas said in an e-mailed response to BusinessWorld on Thursday.

On Wednesday last week, its listed parent company Del Monte Pacific Ltd. (DMPL) announced that it is delaying the company’s initial public offering (IPO). It was targeting to raise as much as P44 billion — the offer was scheduled to begin today, Aug. 9.

DMPL said the decision was brought by the “volatile market conditions” brought by the country’s coronavirus disease 2019 (COVID-19) situation. However, it said it remains “committed to listing DMPI” once market conditions improve.

In the meantime, DMPI will be relaunching a new range of its healthy juice Fit ‘N Right products “in recognition of the evolving fitness goals of consumers.”

“The range also includes an improved core Fit ‘N Right product for those that choose weight loss, named BURN, soon to be available in leading supermarkets,” Ms. Icasas said.

DMPI also aims to sustain its fresh pineapples exports business in China, where it has been the market leader with a 53% share of exported pineapple. The company said it is also among the top exporters for premium fresh fruit in Japan and South Korea.

“The company will build on consumption frequency to support its leading brands via integrated marketing campaigns and promotions, both traditional and digital channels,” Ms. Icasas said.

DMPI plans to work on “cementing its footprint” online via its lifegetsbetter.ph website as well as its official Kitchenomics Facebook Page and the Del Monte Kitchenomics mobile app.

“Beyond recipes and cooking tips, the app enables users to prepare a meal plan, generate a shopping list, and order their favorite Del Monte products through Shopee and Lazada,” Ms. Icasas said.

DMPI is said to be Del Monte Pacific’s “most profitable subsidiary,” posting a net income growth of 33% to P4.6 billion in its financial year ending in April 2021. Results for its first quarter ending in July will be disclosed by Sept. 10.

On Friday, shares of listed parent Del Monte Pacific inched up by 2.05% or 28 centavos to close at P13.94 each.

PNOC studies deuterium as possible fuel, power source

By Angelica Y. Yang, Reporter

STATE-LED Philippine National Oil Co. (PNOC) said it is in the initial stage of exploring the production of fuel from deuterium.

Deuterium, a hydrogen isotope with a neutron, occurs in about one out of 6,400 hydrogen atoms. It is said to be naturally abundant in oceans.

“PNOC’s study regarding deuterium’s feasibility as fuel is currently in the conceptual phase,” the entity told BusinessWorld through the electronic Freedom of Information portal last week.

The firm earlier reported on its website that its business research and development team is studying how deuterium can be used to generate power.

“The study is still ongoing thus it is [too] early to provide findings at this time… If deuterium [will] be used [to produce] fuel, it has to be separated first from the water… which adds another process,” PNOC explained.

“Deuterium as fuel has not been widely researched and has only been used for nuclear fusion reactor prototypes,” it added.

The company said it is also exploring the possibility of generating power from protium, the so-called more dominant hydrogen isotope, which can be found in “regular water.”

This comes as the government looks to augment the country’s power mix.

The Energy department previously said it was looking at adding more renewable energy, nuclear and hydrogen-based power to the country’s supply mix to prepare for any supply crunches in conventional fuels.

Last year, Department of Energy (DoE) Secretary Alfonso G. Cusi endorsed nuclear and hydrogen as possible fuel sources to be incorporated in the power generation mix.

In December, he reported that an interagency body tasked to conduct a study on the adoption of a national position on a nuclear energy program, had submitted its suggestions to President Rodrigo R. Duterte.

In the same month, Mr. Cusi announced that the DoE was looking at generating power from hydrogen, describing it as the “fuel of the future.”

T-bill, bond rates likely to drop

BW FILE PHOTO

RATES OF government securities on offer this week may slip after the central bank said it could cut banks’ reserve requirements further.

The Bureau of the Treasury (BTr) will auction off P15 billion in Treasury bills (T-bills) on Monday, broken down into P5 billion each in 91-, 182- and 364-day debt papers.

On Tuesday, the BTr will offer P35 billion in fresh seven-year Treasury bonds (T-bonds).

A bond trader said the average yields on the T-bills could move sideways or drop by around 5 basis points (bps) from the levels fetched a week ago.

Meanwhile, for the seven-year bonds, the trader expects the tenor to fetch a coupon between 3.625% and 3.75%, while a second trader gave a narrower forecast range of 3.625-3.73%.

The first trader said the market will price in comments from the Bangko Sentral ng Pilipinas (BSP) saying it is open to another cut in banks’ reserve requirement ratios (RRR).

The BSP on Wednesday said further adjustments to the RRR “remain on the table,” Bloomberg News reported.

The reserve requirement for big banks is currently at 12%, still one of the highest in the region. The central bank last cut big banks’ RRR in April 2020 with a 200-bp reduction.

In July 2020, it likewise slashed the reserve requirements of thrift and rural banks by 100 bps to 3% and 2%, respectively.   

Meanwhile, July inflation data released last week would also be a factor in the upcoming auctions, the first trader added, as well as the second-quarter gross domestic product (GDP) report, which is due to come out on Tuesday.

Headline inflation stood at 4% last month, slower than the 4.1% print in June but still faster than the 2.7% recorded in July 2020.

This marked the slowest inflation pace in seven months or since the 3.5% logged in December 2020. It was also the first time since December that inflation settled within the BSP’s 2-4% target for the year.

At the secondary market on Friday, the rates of the 91-, 182- and 364-day T-bills closed at 1.111%, 1.396% and 1.642%, respectively, while the seven-year tenor was quoted at 3.436%, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The BTr made a full award of the T-bills it offered last week after rates fetched ended mixed and total tenders reached P50.76 billion.

Broken down, it borrowed P5 billion as planned via the 91-day papers at an average rate of 1.053%, inching up from 1.05% in the July 26 auction.

The government also raised P5 billion as programmed from the 182-day T-bills. The six-month debt fetched an average yield of 1.401%, lower than the 1.407% seen previously.

Lastly, the BTr made a full P5-billion award of the 364-day securities it offered at an average rate of 1.632%, down from 1.638% the week prior.

Meanwhile, the last time the Treasury offered seven-year bonds was on July 27 when it raised P35 billion as planned via reissued papers with a remaining life of six years and seven months at an average rate of 3.651%, up by 7.5 bps from the 3.576% quoted for the tenor at the July 6 auction. The offer attracted bids worth P69.758 billion.

The Treasury is looking to raise P200 billion from the local market this month: P60 billion via weekly offers of T-bills and P140 billion from weekly auctions of T-bonds.

The government wants to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.3% of GDP. — B.M. Laforga

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