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Senate scraps special session, to tackle COVID crisis measure when Congress reopens

THE SENATE will no longer hold special sessions to tackle the measure extending emergency powers granted to President Rodrigo R. Duterte to address the coronavirus crisis, and will just address the bill when Congress reopens on July 27. Senate President Vicente C. Sotto III said conducting a special session would have “no big effect” at this point since Congress will start its second regular session on the 27th. The President’s spokesperson has previously said the executive branch will call for a special session. “Ang mangyayare (What will happen on July 27), we will approve it on third reading and then we will call for a bicam dahil iba ang version ng House (because it is different from the House version),” Mr. Sotto said in an online briefing Wednesday. The amendments proposed by the Department of Finance will be taken up during the bicameral conference, he added. The proposed Bayanihan 2 law sets a P140-billion standby fund for sectors affected by the coronavirus disease 2019. The programs include emergency subsidies to low income households, cash-for-work programs, and capital infusion to government financial institutions, among others. — Charmaine A. Tadalan

Senators say franchise renewal should not be tied to ‘personal issues’ Senators on Wednesday said personal issues of government officials should not be a factor in deciding on the renewal of franchises for private companies. Senate President Vicente C. Sotto III on Wednesday said the government should not meddle in the way a company runs its business, or in content in the case of broadcast media companies. “Ang gobyerno hindi dapat nakikialam sa laman ng editorial (The government should not meddle in the editorial content),” he said in an online briefing. “Hindi lang sa news hindi dapat nakikialam ang gobyerno, (Not only in news but) Government should be out of business. Government should not meddle with business,” he added. The Senate leader’s remarks were made ahead of the House of Representatives’ committee vote on whether or not to renew the ABS-CBN Corp. franchise. Mr. Sotto also said it is unlikely that the “bias” of the media network will be an issue when the Senate tackles the ABS-CBN franchise. Senator Ma. Lourdes Nancy S. Binay, for her part, said the deliberation should focus on matters that would benefit the public more, especially now that the country is battling a pandemic. “I guess kasama ‘yun sa pwedeng talakayin pero para nga sa akin ang masmahalaga sa atin, ‘yung access to information lalo na may pinagdadaanan tayong crisis (I guess that can be considered but for me there are more important things, such as giving access especially now that we’re dealing with a crisis),” she said in a separate briefing. — Charmaine A. Tadalan

DepEd to launch own TV channel for alternative classes

AN EDUCATION channel will be launched by the government as part of the alternative modes of learning for primary and secondary level students as face-to-face sessions in school will be restricted to avoid potential coronavirus transmissions. “We will be able to let DepEd (Department of Education) have its own official channel,” Philippine Communications Operations Office Undersecretary George A. Apacible said on Wednesday during the launch of Oplan Brigada Eskwela. DepEd will also prepare instructional materials that will be delivered through radio and online. Mr. Apacible said DepEd “will look for teachers that will look good and sound good for TV,” and have the skills to create educational videos based on the school curriculum. A Youtube channel will also be set up where the videos will be uploaded. The school year 2020-2021 will open on August 24.— Gillian M. Cortez

Senator Dela Rosa invited to reapply for US visa

SENATOR RONALD M. dela Rosa on Wednesday said the United States Embassy in Manila has invited him to reapply for a visa when it resumes operations amid the coronavirus pandemic. Mr. Dela Rosa said he received the call after President Rodrigo R. Duterte talked with American President Donald J. Trump on April 19. “After nag-usap si President Duterte at President Trump, tinawagan na ako ng US Embassy na asikasuhin ‘yung visa ko (After President Duterte and President Trump talked, the US Embassy called me to work on my visa),” he said in an interview over ABS-CBN News Channel. Mr. Dela Rosa confirmed in January that his US visa was cancelled, which came after the issuance of a US resolution blocking members of the Philippines government linked to the detention of Senator Leila M. De Lima. The visa cancellation triggered Mr. Duterte’s decision to abrogate the Philippines’ visiting forces agreement with the US. In early June, however, the President ordered the suspension of the termination notice. — Charmaine A. Tadalan

July power rates expected to be little changed

ELECTRICITY RATES for Metro Manila households in July are likely to be flat, according to Manila Electric Co. (Meralco).

Electricity charges for almost 7 million customers of the listed distribution utility fell in the previous two months due to its relaxed power supply agreements with generators.

“For now, the indications are that rates will be flattish after two consecutive months of reductions,” Lawrence S. Fernandez, Meralco’s head of utility economics, told BusinessWorld Wednesday.

Recently, the Energy Regulatory Commission (ERC) approved adjustments to the utility’s December 2019 contract rates with power suppliers, the amount of which may be back billed to its customers.

Mr. Fernandez said Meralco is still discussing with partner generation companies how to implement the adjustments, which may affect the power rates in the succeeding months.

Last month, the ERC approved four separate motions of reconsideration filed by Meralco and its partner power generators to alter their supply contracts. Three of these contracts are with power plant companies under San Miguel Corporation (SMC), while the other is with Ayala-led AC Energy Philippines, Inc.

Two of Meralco’s supply agreements with South Premier Power Corp. (SPPC) and one with San Miguel Energy Corp. were revised to adjust the applicable rate, which now considers the plant capacity factor and escalation provision in the computation. The rate in one of the contracts with SPPC was raised to P4.8525 per kilowatt-hour (kWh) from the previous P4.0459/kwh.

Meanwhile, the contract rate for AC Energy, which now takes into account the plant capacity factor, was also increased to P4.9873/kWh from P4.2366/kWh in the previously-approved PSA.

Consumer group Laban Konsyumer on Tuesday warned that Meralco’s supply contracts with the SMC-owned power plants will increase the generation component of electricity bills.

Victorio A. Dimagiba, the group’s president, urged the ERC to “take a direct hand” in monitoring possible back billing by the power generators and to consider the amount to be amortized to reduce its impact on consumers.

“We hope all these rate increases can be looked into, and we hope that they can be prevented for the time being. We cannot afford another pandemic in higher rate increases,” he added.

Meralco invoked the force majeure provision in its supply contracts for May and June, bringing down generation charges, as power demand was low.

A force majeure event is an uncontrollable event that makes it impossible for companies to fulfill their obligations.

In June, the utility billed customers P8.7252/kWh, against the previous month’s P8.7468/kWh. In May, it charged P8.7468/kWh, against April’s P8.9951/kWh rate.

Customers saved P0.2208/kWh last month from the reduced pass-through generation cost of P4.3413/kWh. Since April, total savings from the decreased generation cost hit P1.6 billion.

The July rate is expected to be announced Friday, Mr. Fernandez said.

Meralco is still facing mounting complaints about its computation of bills since the lockdown started. It promised to “double and triple” its efforts in explaining customers’ bills, which are now computed based on their actual consumption.

The power distributor has promised a refund for customers who fully settled their arrears during the quarantine months but who intend to pay them on an installment basis.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Adam J. Ang

Gov’t considering new NAIA rehabilitation bids

THE government is assessing proposals submitted for the rehabilitation of Manila’s main international gateway by two other proponents willing to “step into the shoes of the consortium” according to the Department of Finance.

The original consortium that was to have undertaken the rehabilitation of Ninoy Aquino International Airport (NAIA) questioned the viability of its original proposal in the wake of the collapse in air travel due to the pandemic.

In a briefing Wednesday ahead of the President’s State of the Nation Address before Congress, Finance Secretary Carlos G. Dominguez III said that the terms proposed by the two unidentified proponents are similar to those put forward by the proponent of the Clark International Airport expansion project.

Mr. Dominguez said Transportation Secretary Arthur P. Tugade and Vivencio B. Dizon, presidential adviser for flagship infrastructure projects, are currently in talks with the two proponents.

“I understand that the Secretary Tugade as well as Vince Dizon who heads the infrastructure projects are in conversation with two more potential proponents for the NAIA project and apparently, these two other proponents are willing to get into an agreement with the government which is very similar to the terms of the agreement (reached with the) project proponent in Clark Airport,” he said.

“We’re not worried about it… We have two other proponents who are very willing to step into the shoes of the consortium,” he added.

Mr. Dominguez was referring to the statement issued Tuesday by the so-called “super consortium” which cited the government’s unwillingness to accept changes to the group’s proposed P102.12-billion rehabilitation project.

The group said it “can only move forward with the NAIA project under the options (for a revised deal) it had proposed.” The consortium is composed of Aboitiz InfraCapital, Inc; AC Infrastructure Holdings Corp.; Alliance Global Group, Inc.; Asia’s Emerging Dragon Corp.; Filinvest Development Corp.; and JG Summit Holdings, Inc.

However, Mr. Dominguez clarified that the government is not setting aside the consortium’s proposal and is only looking at the proposals submitted by the two unnamed proponents. He said it is Mr. Tugade who should disclose their identities.

“We are not setting aside the consortium, they were the ones that set it aside, It’s them who set (the agreement) aside, not us. But I’m telling you that there are two more who are interested in the project at the terms that we have indicated,” he said.

The consortium said it submitted a letter to the National Economic and Development Authority (NEDA) to consider the revised options. Mr. Dominguez said he also received a copy.

NAIA’s rehabilitation is expected to boost its capacity to 47 million passengers a year in the first two years, further expanding to 65 million after four years. The NEDA Board in November 2019 approved the consortium’s unsolicited proposal to rehabilitate NAIA.

The project is still subject to a Swiss challenge, in which other companies can submit counter proposals, which the original proponent has the right to match.

Early this year, the consortium and the government renegotiated parts of the draft concession agreement.

On other public-private partnership (PPP) funded projects, Mr. Dominguez said: “I understand that some proponents of the PPP projects have problems raising financing under the current situation” because the private sector has also been hit hard by the pandemic.

He said the government will assess all proposals for revised project terms. — Beatrice M. Laforga

Clark airport, New Clark City roads nearing completion

PUBLIC WORKS and Highways Secretary Mark A. Villar said the first phase of the 19.8-kilometer access road to Clark International Airport in Pampanga from New Clark City in Tarlac is now 88% complete.

In a pre-State of the Nation Address virtual briefing Wednesday, Mr. Villar said the first 5.33-kilometer segment of the access road is targeted for completion next month.

“Upon full development of all three phases by 2021, the road will create a direct link from the Clark Main Zone, Clark International Airport to New Clark City and vice versa,” he noted.

He said construction of an access road to New Clark City from the Subic-Clark-Tarlac Expressway (SCTEX) is also ongoing.

“This road has a length of 12 kilometers and has eight lanes, two interchanges, three bridges, bike and pedestrian lanes, roadway lighting, and linear parks,” Mr. Villar said.

He said the road project, which is 80% finished and targeted for completion in October, will cut travel time from SCTEX to Capas, Tarlac to 10 minutes from 40.

The government is working to strengthen the potential of New Clark City as an investment destination and an international training hub for sports, Mr. Villar said.

“New Clark City, which played a key role during the 30th Southeast Asian Games, is now helping the country as a COVID-19 quarantine facility,” he said.

He also mentioned the new passenger terminal building of the Clark International Airport that is expected to be finished by October.

The new Clark airport terminal building will accommodate an additional 8 million passengers, bringing the northern gateway’s overall capacity to 12 million a year.

“Clark International Airport will be able to service the growing catchment area up North, and help ease air traffic congestion at Manila’s international airports,” Mr. Villar said. — Arjay L. Balinbin

Banana exports projected to decline 20% in 2020

BANANA exports in 2020 are expected to decline 20% due to stronger competition, higher tariffs, and declining output and hectarage due to Panama disease, the Pilipino Banana Growers and Exporters Association, Inc. (PBGEA) said.

In a virtual media briefing on Wednesday, PBGEA Chairman Alberto Paterno F. Bacani said banana exports in 2020 will decline to 165 million boxes compared with 195 million boxes in 2019.

“The banana export value in 2020 will be around $1.65 billion, lower than the $1.95 billion in 2019,” Mr. Bacani said.

Mr. Bacani said the market share of Philippine banana exports in various countries has declined, with Japan, China, and South Korea admitting more product from Vietnam, Cambodia, Ecuador, Peru, and Guatemala.

Mr. Bacani said that in 2019, Philippine banana exports held 65.8% of the South Korean market, down from 76.9% 2018, after inroads made by Ecuador and Guatemala.

Mr. Bacani added that bananas from the Philippines are charged higher tariffs.

“If you look at our neighboring countries like Vietnam, their tariff rates for the South Korean market by 2021 will be at 9% while Colombia will be at 0%. Meanwhile, the Philippines is at 30%,” Mr. Bacani said.

“Definitely, it is going to discourage importers from sourcing from the Philippines due to the high tariff rates,” Mr. Bacani said.

Further, Mr. Bacani said that China has overtaken Japan as the number one market for Philippine bananas.

“China became the top banana export market due to friendly and warm relations of the current administration with the Chinese government,” Mr. Bacani said.

However, Mr. Bacani said Vietnam, Cambodia, Laos, and Ecuador will be competing for share in China.

“There is potential for Cambodia and Vietnam to be big banana exporters because they have lots of land that is also well-irrigated,” Mr. Bacani said.

“In particular, our Asian neighbors enjoy a logistical advantage against the Philippines because they are close to China. You just need to transport the fruit to the border. They really save money on freight,” Mr. Bacani said.

In addition, Mr. Bacani said the national government needs to help the banana export industry with research on fighting Panama disease.

“We have been doing our own research on how to combat Panama disease. But we really need the government’s help in solving the problem,” Mr. Bacani said.

Mr. Bacani urged the national government to help the banana export industry to survive, amid better global competition and political hurdles.

“This is no longer an issue of one Philippine banana company competing against another company. It is the Philippines against the world. Our government should take notice,” Mr. Bacani said.

According to the Philippine Statistics Authority, fresh banana exports were the Philippines’ top agricultural export commodity in 2019, valued at $1.93 billion. — Revin Mikhael D. Ochave

DA proposes P284.4-billion budget for 2021

THE Department of Agriculture (DA) proposed a P284.4-billion budget for 2021 to “sustain, reboot and grow” the agriculture and fisheries sector and make it more resilient as the economy recovers.

The proposed budget is 255.95% higher than the department’s actual budget in 2020.

The Department of Budget and Management had provided a tier-1 budget of P61.7 billion to the DA. The DA appealed for an additional P222.6 billion in tier-2 funding to “dramatically raise agricultural productivity and incomes.”

“We hope that the additional budget that we are requesting for rice better bring us to almost 95% sufficiency level,” Agriculture Secretary William D. Dar said Wednesday during the budget hearing with the House Committee on Agriculture and Food.

Mr. Dar said the agri-fishery sector has been the economy’s “sleeping giant” because of neglect and low funding levels, resulting in its “anemic performance.”

The proposed budget envisions “a food-secure and resilient Philippines with prosperous farmers and fisherfolk.”

The budget proposal allocates 37.25% for Luzon, 9.85% for Visayas, and 21.53% for Mindanao. Some 5.99% will fund the bureaus while 25.38% will be allocated to the Office of the Secretary.

The proposal breaks down into 53.89% for capital outlays, 2.61% for personnel services, and 43.50% for Maintenance and Other Operating Expenses. — Patricia S. Gajitos

DBM caps allowances for testing center volunteers at P500/day

THE Department of Budget and Management (DBM) said the allowance for public workers assigned to coronavirus testing facilities will be retroactive but capped at P500 per day.

Budget Secretary Wendel E. Avisado issued Budget Circular No. 2020-3 dated July 7 saying volunteer government workers deployed to swabbing centers and test-processing facilities are entitled to coronavirus disease 2019 (COVID-19) duty allowance of up to P500 per day, plus a one-time incentive equivalent to as much as 25% of monthly basic pay.

According to the circular, the duty allowance will be based on an eight-hour day, to be adjusted for those working beyond eight hours. The one-time duty incentive will be prorated based on total number of days volunteered.

The DBM said funds will be sourced from the budgets of government agencies and government owned- and controlled corporations (GOCCs).

The DBM said workers entitled to the COVID-19 allowance, special risk allowance and hazard pay from the government should only receive one of the three, whichever is highest.

The circular applies to personnel of government agencies and GOCCs that are regular, contractual or casual. It also covers workers hired through contract of service and job orders, as well as uniformed personnel.

“Agencies shall be responsible for the proper implementation of the provisions of this Circular. The responsible officers shall be held liable for any payment not in accordance with the provisions hereof without prejudice to the refund by the employees concerned of any excess or unauthorized payments,” it said.

President Rodrigo R. Duterte issued Administrative Order No. 31 on June 15 allowing government agencies and GOCCs to grant a COVID-19 duty allowance to their volunteer employees and workers assigned to testing centers. — Beatrice M. Laforga

Responding to COVID-19 from a transfer pricing perspective

One of the common tax issues affecting multinational entities (MNE) is transfer pricing. Yet, at present, where the COVID-19 pandemic is seriously affecting economies worldwide, many companies may tend to overlook the transfer pricing consequences of every management decision they are taking in order to deal with more pressing and critical matters impacting the business.

To help manage possible tax challenges that may arise from transfer pricing issues, let me share with you some transfer pricing-related concerns which MNEs may take note of in light of the COVID-19 crisis.

LIQUIDITY AND CASH FLOW
In order to meet current obligations, an MNE heavily affected by the present economic slowdown may resolve to acquire additional funding from its affiliates, particularly from the parent company, on top of any external financing schemes. This may be in the form of working capital advances, additional intercompany loans, discounting of receivables, etc. The MNE may also seek to delay intercompany payments to give priority to third-party commitments.

While these intercompany arrangements should be acceptable from a transfer pricing perspective, MNEs should still be wary of how to structure the transactions so as not to defeat the arm’s-length principle. For instance, any intercompany financing policy should be aligned with the MNE group’s external approach to financial and commercial transactions.

With the anticipation of an increase in related-party financing transactions, close scrutiny of loans and other financial support extended to an MNE member could likewise be expected from tax authorities. It is therefore advisable for MNEs to revisit their intercompany financing arrangements and assess compliance with the Organization for Economic Co-operation and Development (OECD) transfer pricing guidelines as well as each local jurisdiction’s tax and transfer pricing regulations.

OPERATIONS AND VALUE CHAIN
When analyzing the reasonableness of a transfer price, it is important to determine the functional characterization of the parties involved. As economic theory implies, the level of return derived by an entity should be directly correlated to the functions it performs, assets it owns and risks it assumes. Thus, with the significant impact of COVID-19 on every business, it is likely that MNEs would encounter operations-related struggles especially in terms of the supply chain.

As businesses strategize to mitigate the effect of the health crisis, changes in the operations of MNEs may be evident, e.g., a manufacturing entity may not be able to continue to produce products and hence, may need to shift to procuring finished goods instead of manufacturing them. Therefore, in evaluating the business activities of each MNE, it is relevant to consider the accurate delineation of the functions, assets and risks before and after any business remodeling, the business reasons for and expected benefits from any change in functional profile, including the role of possible synergies, and the other options realistically available to the parties involved.

Further, the assessment of an MNE’s functional characterization in this time of crisis would likewise be significant in reviewing if the changes in functions, assets and risks would warrant a change in the transfer pricing policy. This would also help determine if an MNE is earning a return commensurate to its operations. As an example, a low-risk company performing routine functions is expected to generate stable profits considering that usually, it is the parent entity which bears the risks. Hence, any significant losses incurred by the low-risk multinational-member company during an economic downturn may be used to reassess if higher returns are warranted due to higher non-routine risks. Conversely, this could be an opportunity to check if a low-risk MNE may shoulder a portion of the losses of an MNE group firm by reducing its expected profit margin.

CONTRACTUAL ARRANGEMENTS AND INTERCOMPANY AGREEMENTS
As for the potential change and/or reallocation of certain business functions within an MNE group, it is also apparent that contractual arrangements need to be revisited. As it can be anticipated that independent parties would be renegotiating agreements such as the pricing, production volumes, payment terms, etc. given the current economic situation, related parties may follow suit by reevaluating their transfer pricing arrangements.

ROBUST TRANSFER PRICING DOCUMENTATION
Transfer pricing documentation is usually prepared to demonstrate that an associated enterprise has made reasonable efforts to comply with the arm’s-length principle. It is usually written under an implicit assumption of normal operating conditions for businesses. Considering the adverse impact of this COVID-19 epidemic on business, financial stability, workforce, and operating activities, among others, MNEs may want to reexamine if all the conditions outlined under the existing transfer pricing documentation remain reasonable, or if there is a need for realignment to encompass the present circumstances. Updated transfer pricing documentation would likewise support whether or not to maintain the existing transfer price. It would also help document that the sustained losses of a company are caused by unfavorable economic conditions and legitimate business reasons and not by transfer pricing arrangements.

In addition to robust transfer pricing documentation, MNEs should further keep all related e-mail correspondence, records and paper trails that would help establish the commercial and financial effects of the global pandemic. After all, having well-maintained transfer pricing documents could serve as the first line of defense of taxpayers against any potential transfer pricing challenges by the tax authorities.

As every sector of society is trying to cope with the pandemic, it is advisable for business owners to devise action plans holistically. Rather than exposing the company to tax risks resulting from seemingly overlooked transfer pricing issues, it is recommended that transfer pricing implications be given similar attention as other business needs and considerations.

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.

 

Iris Kristine Lacebal 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

iris.kristine.d.lacebal@pwc.com

Coronavirus: Signs of normalcy emerge as China reopens

By Andrew Ness

AS CHINA has started lifting lockdown restrictions, its economy is slowly getting back on track. Franklin Templeton Emerging Markets Equity’s Andrew Ness looks at the latest developments in Asia, and considers how some cash-rich companies in North Asia could prove survivors of the crisis.

Many investors think we could be on the cusp of a major global depression as a result of the coronavirus, but we don’t think that will happen. It’s been helpful to have our boots on the ground across mainland China and in Hong Kong so we can hear how our colleagues in the country and region have been dealing with getting back to normalcy, particularly those who had been in a government-enforced lockdown for much of the first quarter.

While we have seen a few clusters where the virus has resurged in recent days after lockdowns were eased, events by and large in China are giving us hope: the re-opening of factories, migratory workers going back to work since January’s Chinese New Year celebrations, and industrial activity returning to at least 90% capacity utilization. As other emerging economies come out of lockdown, we’ll be watching closely whether consumers will behave as they were before the coronavirus.

It’s too soon to describe what a broad economic recovery will look like, but we believe China and other trade-sensitive neighboring economies will have to be more reliant on domestic recoveries, given the short-term challenges they face with disrupted global trade routes.

CASH-RICH COMPANIES IN ASIA COULD PROVE SURVIVORS
Historically, many companies in China, Taiwan, and South Korea that had large cash reserves attracted negative attention due to the potential impact such cash reserves could have on long-term profitability. While some cash reserves can be beneficial, having too much cash stockpiled rather than invested can mean it’s not being put to work to grow the business.

However, the massive piles of cash some companies today are sitting on could provide a vital buffer against the dour economic climate. Companies without such reserves, whether in Asia or the United States and the United Kingdom, could suffer in comparison.

In our view, this helps us identify the survivors from this crisis — and potential winners from an investment standpoint. As you can see in the table, the balance sheets of more companies in Asia are tilted toward cash than in the United States, the United Kingdom, or Germany.

Certain regions in Asia appear to be more resilient than others. Domestic recoveries in countries in North Asia, such as South Korea, Taiwan, and mainland China in particular, appear more robust. The countries also seemed better prepared to deal with the coronavirus than some other developed parts of the world.

Looking ahead, it raises bigger questions over characterizations of a developed economy — whether average wealth levels, or a country’s preparedness to protect its citizens in periods of crisis — should fall under the definition.

INSATIABLE DEMAND FROM CONSUMERS
While the economic impact of the virus will weigh on many emerging market economies in the short term, the consumer trends we’ve been witnessing for some time are likely to remain relevant. Goods and services related to health and wellness were a fast-growing trend prior to the crisis, and we think this theme will remain broadly intact post-crisis — perhaps even more so.

Additionally, there is strong demand for goods and services such as cars, high-speed broadband, life insurance and homeownership (and therefore, banking products like mortgages) in emerging markets, where penetration remains low. We don’t think the virus will ultimately change those wants and needs.

Middle-class and affluent consumers in Taiwan, China, India, Russia, and Brazil, for example, should carry on trading up for higher-quality goods and services, as consumers in developed markets have done. To us as investors, those areas represent potential opportunities as we move past the current crisis period.

 

Andrew Ness is an ASIP Portfolio Manager of Franklin Templeton Emerging Markets Equity.

W-T-F-H

BusinessWorld reported yesterday that two senators are considering a bill giving employees an additional deduction of P1,000 against taxable income for every month they are forced to work from home (WFH) because of COVID-19. This is to help them recover their higher electricity costs at home. An option, he said, is for their employers to just give them the P1,000 monthly as a subsidy.

If there is one thing going for the proposal is its recognition that WFH is probably here to stay. In my humble opinion, however, I would rather work on the assumption of WTFH or Work Temporarily From Home, until the medical emergency is over. Even if it takes one to two years to develop a vaccine against COVID-19. The arrangement should be seen as temporary until such time that infrastructure is in place to make it permanent.

Even US-based global companies Google and Facebook have already announced that they would allow their employees to work from home only until the end of 2020. Twitter, meantime, went to the extreme by announcing that some of their employees could work from home “forever,” if they wished. But these are high-technology companies, and their work infrastructure as well as work products are suited to such an arrangement. The same cannot be said of most Philippine companies.

In Japan, the BBC reported, technology firm Fujitsu would permanently halve its office space throughout the country through a “Work Life Shift” program that would be offered to about 80,000 employees. Staff would work flexible hours, and work from home wherever possible. Fujitsu told the BBC that the shift would allow staff to choose where they worked, whether that was from home, a major corporate hub, or a satellite office. Again, while this may work in Japan, this may not work here.

Since COVID-19 started, some Philippine-based companies went on WFH but without clarity as to how long. Many are simply awaiting the transition to the least restrictive quarantine control before allowing most employees to report back to work. Moreover, with our present telecommunication and internet infrastructure, it is unlikely that our companies can decide on longer-term WFH like Google, Facebook, or Twitter. Even an idea like that of Fujitsu doesn’t seem to be feasible at all. It all depends on the nature of the business, I guess.

In this line, perhaps the Senate should consider a more strategic action that can pave the way for creating a suitable environment to make WFH more permanent and feasible as a long-term work arrangement here. A tax deduction for electricity consumption, or even a monthly P1,000 subsidy from employers, is too short-term, and perhaps too costly for businesses with strained revenues.

The worst thing that can happen is for employees, despite limitations, to push for WFH driven primarily by the possibility of a mandated subsidy for power cost. But in the end, it is productivity that may suffer. Over the long-term, such a scenario will hit company bottom lines. In the end, the work arrangement becomes detrimental both to the employer and the employee.

In a recent commentary in The New York Times, veteran technology writer and editor David Streitfeld noted that since the early 2000s, US companies have been experimenting with WFH arrangements and telecommuting. And many of them have suffered “setbacks” and just opted to pull back on such programs, for one reason or the other. Simply put, while technological advances point to possible success in telecommuting, experience with it indicates otherwise.

He cited the case of technology giant IBM. “In 2009, 40% of its 386,000 employees in 173 countries worked remotely. But in 2017, with revenue slumping, management called thousands of them back to the office,” Mr. Streitfeld wrote, noting that “the history of telecommuting has been strewn with failure.”

“Companies large and small have been trying for decades to make working from home work,” he added. “And yet many of the ventures were eventually downsized or abandoned. Apart from IBM, companies that publicly pulled back on telecommuting over the past decade include Aetna, Best Buy, Bank of America, Yahoo, AT&T, and Reddit. Remote employees often felt marginalized, which made them less loyal. Creativity, innovation and serendipity seemed to suffer.”

There is much to be learned from the experiences of these companies with WFH. We must study these experiences and pick up applicable best practices. The failure of many doesn’t necessarily mean that WFH doesn’t work. For one, the reason for doing WFH now is no longer the same reason as before. And there have been additional advances in technology. However, it is also very likely that employers will ask employees back to the office as soon as vaccination is an option.

The darker side of the situation is that “the lack of universal and affordable access to the Internet may widen income inequality within and between countries,” wrote Mercedes García-Escribano in IMFBlog. She is the deputy division chief in the Fiscal Affairs Department of the multilateral agency International Monetary Fund.

“COVID-19 and the Great Lockdown triggered a mass migration from analog to digital and highlighted that access to the Internet is crucial for socioeconomic inclusion,” she wrote. “High-speed Internet is key for working from home, for children’s education when they can’t attend school in person, for telemedicine, for benefiting from social support programs, and for enabling access to financial services for everyone, especially for those living in remote areas.”

But she also noted the situation created a “digital divide” that “is more like a chasm, both within and between countries.” As a result, “income inequality and inequality of opportunity may worsen — even in advanced economies — because disadvantaged groups and people who live in rural areas have more limited Internet access.”

For policymakers, she added, what would be more crucial is how “governments [could] foster a digital-friendly business and regulatory environment for the private sector. This can be instrumental to accelerate and finance investments in infrastructure.” She also said that “policies should also be geared to closing the Internet gap for firms.”

Subsidies, like what some Philippine senators are contemplating, is just one of the calibrations that may be needed, she said. But it cannot be one-off. It should be part of a package that will ultimately bridge the gaps in access to internet technology. “Government support, for instance by ensuring the Internet investment is complemented with universal electricity access, is essential,” wrote Ms. García-Escribano. “In addition, subsidies may be needed so that all households — including disadvantaged groups and those in rural and remote areas — have access to quality Internet, and to ensure there is no digital gender gap,” she added.

In essence, pushing concepts like WFH and making them part of our lives either as temporary or permanent work arrangements should be not driven just by tactical need arising from pandemics or disasters. There should be a strong vision and strategy behind it that is in the national interest. We should choose to do WFH if we truly believe that it will ultimately improve lives in a sustainable manner. And, if we truly believe this, then we should first invest in a well-prepared plan and work on providing the infrastructure that can make it happen.

 

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

matort@yahoo.com

Vaccine to avert more IPD, pneumonia deaths

From 2016-2018, pneumonia killed on average about 57,000 people per year in the Philippines. It is the fourth most deadly disease in the country next to heart diseases, malignant neoplasms/cancer, and cardiovascular diseases.

A virulent bacteria called Streptococcus pneumoniae is a major cause of disabling and sometimes fatal infections like acute otitis media (AOM), pneumonia, sepsis, meningitis and invasive pneumococcal disease (IPD).

The pneumococcal conjugate vaccine (PCV) is a successful invention to control this bacteria and its various serotypes. PCV10 can control 10 types of the bacteria and was used by the Department of Health (DoH) until 2013. By 2014, the agency shifted to PCV13 to cover three more types of the bacteria at a higher cost.

There has been some controversy on the procurement of PCV13 vs PCV10 so the DoH’s Health

Technology Assessment Council (HTAC) conducted a study and a report was released last week, on July 1, entitled “Reassessment of 10- versus 13-valent Pneumococcal Conjugate Vaccines (PCV) in the Philippines: Evidence Summary.”

The paper’s Figure 3 chart is useful because it shows projected avoided or averted cases/sicknesses and deaths of the two vaccine types compared with no immunization.

Then Table 4 shows the yearly and total costs of both vaccines under multiple dose and single dose methods (MDV) and (SDV). I computed the difference in benefits (averted cases and deaths) and the yearly average cost, the result is interesting (see the table).

This means that for an extra P1.6 billion per year of MDV (the HTAC’s preference) PCV13 can avert or avoid 41,364 cases more of IPD, Pneumonia, and AOM than PCV10. Plus save 4,051 lives from IPD and pneumonia than PCV10.

If we split the P1.6 billion/year into half, P800 million for averting cases and P800 million for averting deaths, this is equivalent to spending P19,340 in extra tax money to avert one case of IPD, pneumonia, or AOM. Plus spending P197,482 of extra tax money to avert one death from IPD or pneumonia.

Is this a good trade-off between public spending and public health? How do we know?

In 2019, the Philippines had a GDP of P18.613 trillion, collectively contributed by 43.15 million employed workers, professionals, and entrepreneurs. This means that on average, each employed person contributed P431,356 to the economy last year.

Assuming a person pays a total of 35% of their income in tax to the government (personal income tax, VAT, excise tax, withholding tax, vehicle registration tax, etc.), the person has paid nearly P151,000 in taxes to the government. Plus P280,000 of spending or savings for himself/herself and the family, friends. In just one year.

So with more than one year of work, the person whose life has been saved by a vaccine like PCV13 can already pay for the extra public spending.

Ergo, spending extra tax money to save extra lives is worth it. Procurement of more expensive but more life-saving PCV13 will be more beneficial to both public health and the macroeconomy.

The HTAC Report observed that: “Modeling suggests that PCV 13 may result in larger savings with a potentially greater number of averted cases and/or deaths due to IPD, clinical pneumonia, and AOM compared to PCV10 as a result of greater serotype coverage (Figure 3). This is also with the assumption that the government would pay for the vaccines. With this, the Council recognizes that PCV13 use will incur lesser household financial impact as compared to PCV 10.” (Page 13 HTAC Report)

But it did not specifically recommend either vaccine, only the 11 serotypes that must be addressed. This is an implicit proposal to downgrade use of PCV10.

When the DoH shifted to use PCV13 in 2014, it was backed up by a study by Dr. Issa Alejandria, an infectious disease specialist and clinical epidemiologist at the UP College of Medicine who made a comparative study of the two vaccines. Among her findings are: 1.) PCV13 has helped avert 379 more cases of IPD, 8,044 more cases of pneumonia, and 54,675 more cases of AOM, for a total of 63,098 cases more than PCV10. And, 2.) the former vaccine helped prevent 495 more deaths.

So, considering the high number of averted cases and deaths, the above observation by HTAC Report, and the previous study by Dr. Alejandria, better protection of public health can be done by using PCV13. Controlling infectious and virulent diseases should be a priority now as shown by the current public scare of this infectious COVID-19 virus.

Erratum: Meanwhile, apologies dear Readers for my mistake in my previous article of June 25 (https://www.bworldonline.com/decline-in-pneumonia-incidence/). The Philippines’ total deaths in 2013 was 532,176, not 433,375 as stated in the table. So the pneumonia death over total death then was not 12.3% but 10.0% (PCV10 in use). Still, there was a decline to 9.9% in 2016 (PCV13 in use) and further to 9.6% by 2018.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

With a little bit of hope

In his book, Psychonomics: How Modern Science Aims to Conquer the Mind and How the Mind Prevails (2014), Eric Robert Morse dissects the various studies that show that the rational economic man (Homo Economicus), with full knowledge of supply and demand and an optimizing rationale in making decisions no longer exists as a construct. Irrationality and emotions can drive economic decisions, the premise of the economic behaviorists. These emotions include status anxiety, panic buying, and the endowment effect (putting more value in what you own).

Morse in his book restores the balance of rationality and re-evaluates the experiments conducted by the behaviorists on which the conclusions of recurring “irrationality” were based. These dealt with artificial choices offered to subjects, mostly students in universities where the professors of behaviorism worked. This bias did not adequately represent the bigger population. Morse as a scientist would have preferred field work and random sampling to include perhaps shopping malls. Still, the emotional content of economic decisions cannot be dismissed as merely irrational. Daniel Kahneman’s work considers the two sides of the brain in Thinking, Fast and Slow (2011). The fast thinking part involves instinct as when driving to work on a familiar route. The slow thinking involves reading a map (or following a GPS) to a new destination requiring analysis and evaluation.

Economists even before behaviorism took root, explained conspicuous consumption, and the increase in consumer spending during a bull market. When paper (and yet unrealized) profits pile up in one’s stock portfolio, the emotional feeling of the wealth effect sets in.

What if the stock market experiences a deep correction in a pandemic situation such as what we now have? Is there a pronounced preference for holding on to cash, or what’s left of it? Whining may arise from the usual prophets of doom who haven’t met any conspiracy and bad news (such a lot of it) they don’t want to shake hands with. Days’ receivables of supplier companies get longer. Even large corporations hang on to cash and stretch their payments to small suppliers like construction companies and consultants. Some of these will even be cut off as a way of right-sizing. This postponement, if not elimination, of the payment of bills results in having more cash on hand. Suppliers who hit back by requiring higher payments up front and requiring post-dated checks lose their competitiveness.

What about the impact of optimism even when recklessly embraced? Can a hoping mechanism be harnessed to restore faith in the economy? Even individuals going back to dine-in restaurants can contribute their hope dividend by foregoing senior or PWD discounts (the latter includes poor eyesight — I can’t read the bill) to help out a recovering enterprise.

Even the stock market, which thrives on hope, can acquire a wait-and-see attitude as investors take a breather, sipping their cafe latte at home. This caution usually follows the departure of hot money, when foreign investors are “net sellers,” as they have been for the last three months, opting for home markets which continue to set high recovery levels, driven by quantitative easing and almost flat interest rates. Should local investors plunge back in?

In the matter of hope, cheering on the sidelines can affect the game, as it surely does in basketball. (This spectator sport has been postponed too.) Hope is more easily understood in ballgames. Will it also work for the economy?

The social climber may be an object of scorn in the teleserye as she attempts to belong to the company of the wealthy, even if she can hardly afford cab fare or talk about art auctions and philately.

Still, the “new age” (remember that old-fashioned category?) motivational speakers will tell her webinar audience that “visioning” (imagine yourself in a condo unit in BGC) aspiring to belong to the rich, can be a self-fulfilling prophecy. Hope can be an engine for economic recovery. It also works for weight loss programs with a “before” and after” type of visioning.

A daily dose of good news (yes, in media) can start us believing that things are eventually going right. It may mean clearing away, for a week or so each month, investigations on improper distribution of wealth, talks of new lockdowns, and a waiting-in-the-wings third wave of the pandemic.

Maybe, it’s time to try optimism and a little bit of hope. These can be as contagious as the virus… and do not require hospital beds.

 

Tony Samson is Chairman and CEO, TOUCH xda.

ar.samson@yahoo.com