How PSEi member stocks performed — May 8, 2020
Here’s a quick glance at how PSEi stocks fared on Friday, May 8, 2020.
More inflation easing seen after supply chains are smoothed out
THE steady flow of goods should be sustained to keep inflation on its downward trend even with the enhanced community quarantine (ECQ) remaining in force for Metro Manila and other high-risk areas, according to an economic bulletin by the Department of Finance (DoF).
In an economic bulletin, DoF said inflation is expected to continue easing “in the next few months” after core inflation slowed to 2.8% in April from three percent in March.
The collapse in oil prices has generally pulled down headline inflation to 2.2% in April from 2.5% in March and 3% in April 2019.
To maintain the easing trend, the DoF said delivery of goods and supplies should remain unhampered after the ECQ was extended to May 15 in Metro Manila and other high-risk areas, with other cities and provinces transitioning to more permissive forms of quarantine.
“Still, it is important that in this time of expanded community quarantine, the supply chain of basic goods and other necessary items, while subject to the requirements of public health, should not be broken,” DoF said.
According to the bulletin, DoF said average price growth in non-food items slowed to 0.7% year-on-year “as the slump in global oil prices drove down domestic pump prices and, consequently, transport costs.”
This “more than offset” the uptick in food prices. Average food prices rose 3.4% year-on-year from 2.6% in March, largely due to higher prices of vergetables, which posted gains of 10.3%, as well as the 1.4% month-on-month increase in rice prices.
“Since November 2018, average rice prices have been falling (such that month-on-month rice price change was negative) until March before registering a positive month-on-month price change in April,” it said.
Overall, the DoF said month-on-month inflation was negative for the third month in a row in April.
In the Yyear to date, headline inflation averaged 2.6%, within the central bank’s 2-4% target range and higher than the revised 2% forecast for 2020. — Beatrice M. Laforga
PSALM extends grace period for bill payments in areas under ECQ
THE Power Sector Assets and Liabilities Management Corporation (PSALM) has extended the deadline for dues and obligations owed by its power customers, as well as Universal Charges collecting entities and independent power producer administrators (IPPAs), operating in areas under the enhanced community quarantine (ECQ).
The extension follows the Energy Regulatory Commission’s (ERC) order to the energy industry to further extend the grace period afforded to power consumers affected by the lockdown, which was imposed to contain coronavirus disease 2019 (COVID-19).
In its latest advisory, PSALM, which is tasked to privatize government power assets, extended the deadlines on power and ancillary services billings.
These include regular power bills; the Deferred Accounting Adjustments (DAA) on the Generation Rate Adjustment Mechanism (GRAM) and the Incremental Currency Exchange Rate Adjustment (ICERA); the Automatic Cost Recovery Mechanism (ACRM) True-up Adjustments; remittances entitled to the prompt payment discount (PPD); Restructured Accounts; and the National Grid Corp. of the Philippines’ (NGCP) Ancillary Services payments.
The deferred payments due during the ECQ period between March 15 and May 15 can be paid in four installments over the next four billing months, and will be reflected as a separate billing item.
PSALM extended further the due date for the Universal Charges for missionary electrification, watershed rehabilitation, and management and stranded debt, which are paid for by electricity consumers, while it also granted collecting entities or agents the same grace period extension to remit such charges.
PSALM will also delay the disbursement of the collected universal charges to beneficiaries.
Meanwhile, IPPAs will only be granted an extension to their payments to PSALM, along with bill deferments, if they can prove that the distribution utilities (DU) it supplies with energy remain operating in areas under ECQ.
“It is only when it can be sufficiently shown to the satisfaction of PSALM that an IPPA supplies electric energy to a DU that serves an area that remains under ECQ beyond 30 April 2020, that a proportionate amount of the payments due PSALM from the said IPPA can be deferred and subjected to the extensions mentioned in this latest PSALM Advisory,” it said.
Members of the power industry in areas under the more-relaxed general community quarantine (GCQ) will follow the earlier deadlines set by PSALM.
Areas still under ECQ include the National Capital Region, Central Luzon (except Aurora), Calabarzon, Pangasinan, Benguet, Iloilo province, Cebu, Bacolod City, Davao City, Albay, and Zamboanga.
The rest of the country transitioned to GCQ between May 1 and 15. — Adam J. Ang
Missing tourists in top destinations Bangkok and Paris point to global collapse in wheat demand
SINGAPORE/BANGKOK/PARIS — In Bangkok’s usually bustling Sukhumvit district the coronavirus pandemic has decimated the tourist trade at the restaurant Permruedee Labnongsaeng owns, cutting daily sales to 5% of normal.
The missing tourists from top destinations like Bangkok — the world’s most-visited city — Paris and Rome, gone because of the travel restrictions to prevent the coronavirus spread, also means no demand for the noodles, pastries and pasta usually scoffed down there by hungry travellers.
“Tourists disappeared in late February and our sales took a plunge, since then it’s been a downhill,” said Permruedee, whose cafe specializes in noodles and Thai curries.
The US Department of Agriculture (USDA) last month cut its wheat consumption forecast for the crop year to June 2020 to 749.78 million tons, still an increase from the prior year’s 737.05 million. But the severe tourism collapse likely means wheat consumption will be between 10 million and 12 million tons lower than the USDA forecast, according to one grains analyst and two traders.
“We are going to be drowning in grains, when you look at the demand which has taken a hit because of the coronavirus, and global wheat production outlook,” said Ole Houe, a director at brokerage IKON Commodities.
“As of now we are looking at 10 to 12 million tons lower consumption than last year, but that is a very conservative estimate. It could be even more, down 30 to 40 million tons, which is about 5% below last year’s world consumption.”
With global wheat production and stocks expected to scale new all-time highs this year, the nosedive in demand means exporters are likely to see a prolonged period of lower prices.
CONSUMPTION DROPS IN ASIA, EUROPE
Asia, which accounts for 40% of global wheat consumption, may face a 15%-20% demand contraction between April and June based on orders from major regional flour millers, according to the two Singapore-based traders that provided forecasts.
“It has been really quiet. The initial panic buying which resulted in a 5%-10% increase in noodle demand is gone now,” said one of the traders, who has been selling US and Black Sea wheat cargoes in Asia for more than a decade.
Some key mills in Southeast Asia have said they will not place any new orders until after June at the earliest, he added.
In Europe, the world’s second-largest wheat market, consultancy Strategie Grains has raised its forecast for EU soft wheat stocks this season, partly because of a sharp drop in milling demand.
France’s lockdown has nearly halted tourism and restaurant outings, wiping out a critical source of pastry and bread demand.
“We have outlets in Saint-Germain-des-Pres, on the Champs-Elysees, and in the Tuileries gardens where there isn’t a single tourist,” said Fabrice Derouet, the international brand director for Paris-based global bakery chain Paul, which has 750 outlets worldwide in 45 countries.
“Since we are selling a lot less, we are making a lot less, so we are using a lot less flour and raw materials.”
While flour sales in grocery stores have surged as housebound French made more cakes and bread, home use typically accounts for only 5% of overall flour demand, with the remainder used up by the country’s bakeries, restaurants and food industry, the French milling industry association ANMF said.
In Southeast Asia — the world’s fastest-growing wheat demand region — tourist arrivals in March to Thailand fell by 76.41% from a year earlier and in Indonesia by 64.11% from a year ago, devastating street vendors and noodle stalls.
“The tourists are not here anymore. I’ve been selling food here over 50 years but this is the worst time yet. We’re all going out of business,” said Salinee Witprasertkul, 75, who runs a food stall in Bangkok’s Chinatown.
The steep slump in everyday wheat demand will create a backlog along the entire global grains logistic system. The USDA is forecasting wheat stockpiles will climb to a record 292.78 million tons by June.
Wheat prices, down roughly 6% this year, may fall further.
“Wheat is still overpriced as the market has yet to price in demand destruction,” said Houe of IKON Commodities.
The USDA trimmed its wheat demand estimates from March to April by roughly 5 million tons and further revisions are expected in its May and June assessments.
Still, the pasta and noodle demand from families in lockdown has boosted some wheat exporters, with Italian food association Federlimentare saying pasta plants are running full on higher overseas demand and ramen exporters in South Korea registered a 31.5% jump in first-quarter shipments.
And many Parisian bakers can still depend on local bread demand despite the lockdowns.
“We’re only at 60% of our revenue…but people still make time to go out for their baguette,” said Sebastien Mauvieux, a baker and owner of Pain Pain bakery in the Montmartre district of Paris. — Reuters
Chile’s top copper miners boost production in March
SANTIAGO — Chile’s top copper mines ramped up production in March even as the coronavirus outbreak took hold, according to data released on Thursday by state copper agency Cochilco, boosted by a sharp spike in output from state miner Codelco.
Production at Codelco — the world’s largest copper mining company — rose 14.8% year over year in March to 147,600 tonnes. Codelco’s output jumped 4.2% to 386,600 tons in the first quarter, Cochilco said.
BHP’s Escondida, the world´s largest copper mine, saw production in March climb 0.9% to 101,800 tons, the agency said.
The massive Collahuasi copper mine in northern Chile, a joint venture between Anglo American Plc and Glencore, also saw its March production jump 6.8% over 2019 to 50,400.
Chile´s copper industry has maintained operations even as the coronavirus has ravaged the country´s economy and shut down many other non-essential businesses.
The plummeting global copper price, however, has slashed the value of that output, pressuring some small and medium-size miners.
Chile mining minister Baldo Prokurica said last week the government estimates a total reduction in output of only 63,300 tonnes, or approximately 1% of the country´s annual production.
Prokurica credited both public and private measures aimed at protecting workers with the industry´s resilience even as the virus has hit other parts of Chile´s economy.
Codelco told Reuters in a statement on Thursday that it was maintaining its production and shipments according to its 2020 plan despite disruption wrought by the coronavirus outbreak.
“It has been possible to meet the budgeted goals for 2020 in terms of production and, in parallel, it has been possible to meet dispatches according to plan,” it said.
The company declined to give an updated figure to the five cases of coronavirus it said it had confirmed among its workers at its Ministro Hales mine at the start of April. It said that the appropriate health authorities had been notified of all confirmed cases and quarantines had been observed. — Reuters
Strengthening today’s supply chains for tomorrow
Ever since the World Health Organization (WHO) declared the global COVID-19 outbreak a pandemic on March 11, nearly every country has been hard-pressed to contain the spread of the coronavirus.
The global economic turmoil caused by the rapid spread of COVID-19 has significantly impacted businesses and industries — in particular, their supply chains. Many companies were shut down while others had to ramp up to deal with panic-buying of essential goods. Many companies struggled to read and plan for demand, with panic-buying and inadequate supply altering consumer buying behaviors and patterns.
Manufacturers in Luzon also struggled to maintain staffing and output under social distancing and the enhanced community quarantine (ECQ) rules. Many enterprises experienced the disruption of their distribution and logistics due to the resulting lockdown. These conditions were experienced by all companies, from small third-tier suppliers to billion-dollar conglomerates, with the likelihood that many will not recover for years to come.
The lockdown struck various industries, but not all to the same extent. Industries such as automotive, tourism, consumer goods, electronics and retail in particular have been profoundly affected by the ECQ. Car manufacturers, for example, had to shut down their factories due to their suppliers’ inability to deliver critical components. While there are efforts to revisit and identify new suppliers, preventive measures such as maintaining multi-tier relationships with vendors and alternative providers could have helped companies minimize the impact and maintain a minimal level of utilization or productivity in their manufacturing lines.
The tourism sector was also severely affected with the government expecting roughly 30,000 to 60,000 jobs lost due to travel restrictions. Consumer goods firms, on the other hand, have had to modify their demand forecasting because prior sales history is no longer an effective predictor of future sales considering the abrupt market shift. Retail companies have also had to revisit their omnichannel strategy, as the demand shifts to online purchases from bricks and mortar stores which were shuttered by the lockdown, or, even if still open, affected by social distancing rules.
Business leaders must take bold action to manage their supply chains, and they must realize that understanding and planning for disruption is more critical than ever. How business leaders combat the current disruption will have a direct follow-on effect on their companies’ performance. This challenges business leaders to provide well-thought-out and agile solutions for their current supply chain while avoiding any adverse impact on their future supply chain.
Based on the developments from this pandemic, coupled with learnings from past disruptive events, this article lists key considerations to help companies build a resilient supply chain.
END-TO-END SUPPLY CHAIN RISK ASSESSMENTS
As companies address the new normal, proactive engagement and strategic partnerships with supply chain ecosystem partners are vital. Regular checks must identify changing demand and inventory levels to locate critical gaps in supply, production capacity, warehousing and transportation. These should then be further synthesized to create an outcome-driven resiliency strategy with the aim of efficiently and effectively leveraging additional networks within the pool of production and distribution networks of various suppliers. A real-time supply chain risk intelligence system should also be in place to provide early warning in case of potential and pervasive disruption to the supply chain.
ROBUST RISK MANAGEMENT AND DIVERSIFIED SUPPLIER NETWORK
Enterprises should map out supply chain networks from end consumers to tier-N suppliers. Firms should establish a methodology to measure risk for each supply chain node/arc-like channel, warehouse, factory, supplier, or transportation mode.
DIGITAL AND AUTOMATED MANUFACTURING CAPABILITY
Several manufacturers are now looking at leveraging automation and Internet of Things (IoT) solutions for smart manufacturing operations to mitigate reliance on labor-intensive processes. While companies in the Philippines tend to take advantage of low labor costs, manufacturers should balance labor and manufacturing productivity needs in case of disruption. A strong manufacturing excellence program enabled by digital technology can allow the standardization of daily work and job aids, relieving the pressure of relying on specific individuals to maintain operational performance. IoT capabilities can help foster a digital ecosystem of connected systems providing users with relevant and updated data to make the most informed decision at any given time. Automated manufacturing capabilities will also enable a company to run a manufacturing operation using interchangeable personnel while reducing labor requirements.
EVALUATE AND ADJUST PROCUREMENT CATEGORY STRATEGIC PRIORITIES
Procurement should be transformed into a value-generation function through timely reviews and adjustments to category strategic priorities, defining new business relationships with suppliers to meet the company’s overall supply chain objectives. An agile procurement operations system enabled by various technologies and factoring in category strategic priorities across variables such as cost, quality, delivery, innovation, etc. will also help drive resiliency. Companies can introduce digital procurement technologies to benefit from supplier social networks. Implementing such networks in sourcing and in supplier lifecycle management can strengthen sourcing capability and collaboration under challenging circumstances.
MORE COLLABORATIVE AND AGILE PLANNING AND FULFILLMENT CAPABILITY
The art-of-possible concept today in technologies that can bring more agility and collaboration within the enterprise as well as across business partners is endless. IoT devices for demand sensing and goods movement tracking to advanced forecasting solutions and social media demand behavior monitoring are heavily impacting how companies understand demand signals and how quickly they can react to them. These capabilities are extremely important for business performance even in normal business conditions and they increase the supply chain resilience during challenging events like the pandemic.
BUILDING A RESILIENT SUPPLY CHAIN
The pandemic has inevitably caused disruption in all sectors, with various degrees of impact. Through the chaos of recovery, it will be very easy to overlook the root causes and gaps within a supply chain that may have paralyzed businesses during this unprecedented global event. However, it is time for companies to rapidly assess, recover, and respond quickly through numerous obstacles and challenges that remain, as building towards a resilient supply chain will be at the epicenter of future discussions for years to come.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Maria Kathrina S. Macaisa is a Partner from the Performance Improvement Service Line of SGV & Co.
Roberto (Obet) Verzola: The known and the unknown
Many of Obet’s friends and colleagues have written fine, glowing tributes about his life. But there’s more to know about him, considering that he shied away from publicity and preferred to work in the background. For Obet, what mattered was the spread of a powerful idea, not the projection of his persona.
His many different circles are familiar with Obet’s story arc. He belonged to the first batch of the Philippine Science High School (PSHS), wherein he graduated salutatorian. He and his illustrious batch from PSHS (including Rey Vea, the class valedictorian, the late Mario Taguiwalo, and Antonio Tujan) became the epitome of scholarship and deep intellectualism in the movement. They joined Samahang Demokratiko ng Kabataan (SDK) and reinforced the image of SDK as sophisticated and elitist. Nothing wrong about that. My departed friend Tolits Añonuevo, likewise a graduate of PSHS and founding president of Action for Economic Reforms (AER), would remind us then that students of the University of the Philippines (UP) objectively belong to la crème de la crème.
Upon the declaration of martial law and the attendant banning of activist organizations and the curtailment of civil liberties, Obet and many activists joined the underground movement. He was part of the Manila-Rizal region of the Communist Party of the Philippines and the editor of the revolutionary publication Taliba ng Bayan. In October 1974, the military swooped down on Obet and his comrades from the Manila-Rizal regional committee. They were heavily tortured. Obet absorbed different forms of torture, including the dreaded electric shock treatment. He described his shriek of terror as akin to the shrieking of a pig being slaughtered.
Obet spent three years in prison. Upon his release, he returned to the university to complete his Bachelor of Science degree in electrical engineering. Still, he continued to fight the Marcos dictatorship, this time in the legal struggle that was inextricably linked to the underground movement. He returned to scholarly pursuits, and his after-prison life took the course of promoting science and technology for the people. Henceforth, he became engaged in the making of radio frequency power amplifiers, information or digital technology, introduction of the personal computer and e-mail, etc. He did all this without seeking commercial gain but to serve the interest of humanity.
My friend Tolits remarked that Obet would have become a milyunaryo if he had pursued the profit motive. Surely, there’s nothing wrong about getting rich. To paraphrase Adam Smith, it is but ok that our well-being is served not from the benevolence of the butcher and the baker (or the scientist and the wonk) but from their regard to their self-interest. I shared Tolits’s comment to Obet. Known for having a serious, contemplative, and humble mien, Obet nevertheless had a surprising sense of humor. And his response was: Ano tingin mo sa akin, hindi milyunaryo? (“Don’t you think I’m not a millionaire?”)
Obet was engaged in many other things. He used his scientific and technical knowledge and skills to promote reforms on a wide range of issues: intellectual property rights, access to the internet and competition in the telecom industry; electoral reforms and election automation; renewable energy, green technology and industrial policy; food security and agricultural productivity.
In his advocacies, he welded theory and practice. For instance, he himself became a farmer and set up a demonstration farm for sustainable agriculture in the province of Quezon. He joined farmers belonging to the social-democratic association called Pakisama to adopt sustainable, environmentally friendly farming. (Although Obet was affiliated with the national-democratic movement, never did this become a barrier for him to be identified with other competing political forces like the social democrats or the popular democrats. He had become indifferent to political or ideological labels.)
Not known to many was Obet’s foray into economics. He was critical of mainstream economics — or neoclassical economics and its discredited variant called neoliberalism. He presciently argued that mainstream economics — essentially the study of efficiently allocating scarce resources — is no longer sufficient to explain what he called the “economics of abundance” that characterizes the digital age.
However, he held the view that to convincingly criticize neoclassical economics, he must first have a solid grasp of what it is. Thus the humble, inquisitive Obet enrolled at the UP School of Economics for postgraduate studies. Obtaining the degree did not matter to him. What was essential to him was to quench his thirst for knowledge in economics and engage the professors in a serious conversation. Rarely could you find a student personified by Obet being given the opportunity to address a lecture not only to his classmates but also to the senior professors.
In spite of being critical of mainstream economics, Obet upheld its core tenets that serve values like equity and sustainability. For example, even as he was for progressive taxation of income and wealth, he likewise argued for higher taxes on consumption. He contended that over-consumption, especially of valuable scarce goods like oil and water, is harmful to sustainable development. This position defies the thinking of the Left and popular opinion.
Obet also had a libertarian streak, usually associated with economic conservatism. He, for example, favored the residents living near Taal Volcano to have the freedom to return to their homes, based on their calculation and management of risk. Again, Obet’s view went against conventional wisdom.
Obet was a pillar of Action for Economic Reform (AER). He was a vital cog of AER’s industrial policy team. He supported AER’s core programs and issues, including the controversial ones like tax reforms.
While we had debates — say, on letting residents make the decision to return to their homes despite the risk of another volcanic eruption — we mutually valued respect and pluralism. (Obet’s position on this issue came out as a Yellow Pad column, titled “Taal: probing the judgment of scientists and the power of bureaucrats,” Feb. 2, 2020, BusinessWorld. This was Obet’s last published piece.)
Obet was engaged in different AER activities. He joined out-of-town trips like visiting remote towns in Samar and Leyte. He opted to travel despite the physical discomfort and pain. At that time, his chronic illnesses were slowing him down, but Obet brushed them off to continue being productive.
He likewise attended AER dinners and other gatherings like videoke sessions. He enjoyed being a listener. That was why he and my late wife Mae enjoyed each other’s company: Mae was chatty, and Obet was attentive, regardless of the topic.
What Obet enjoyed most was being with the millennials. One of his last acts was to give a lecture to undergraduate students at the School of Economics; his topic was about pricing and fairness.
One of the many articles he wrote was about martial law, which he principally addressed to the millennials. (“Millennials: rendering judgment on martial law, choosing advocacies,” Sept. 25, 2017, BusinessWorld.) This is a must-read essay not only for the young but also for everyone, especially for Obet’s comrades in the Left.
Here he wrote: “I want to forgive. I need to forgive not for the sake of the Marcoses, but for my own sake.” Obet had forgiven Ferdinand Marcos and his torturers, but he likewise said that we should not forget the horrors of martial law, and we should continue fighting the return of dictatorship and the Marcos family.
That Obet was able to forgive even as he remained committed to the struggle for change attests to a profound and candid person no longer afraid to face his destiny, a man of courage ready to face his mortality. Obet will rest in peace.
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.
Business (un)usual in the new (ab)Normal
Businesses will never be the same after the COVID-19 quarantines and lockdowns are relaxed or lifted. Or better said, perhaps — they will not be the same businesses after the isolations and mobility restrictions of COVID-19 are relaxed or lifted.
The coronavirus disease 2019 (COVID-19) that started in early December 2019 in Wuhan, China has since spread to more than 29 other countries and regions, blown in by the Chinese New Year and pushed by international travel, according to an analysis by the World Economic Forum (WEF) in February 2020. “The outbreak of the pandemic highlights cracks in global trust, the pitfalls of global interdependency and the challenge for global governance.”
The top economies of the world succumbed most terribly to the “Pandemic Recession,” as vulnerabilities and economic frailties were amplified in the eerie sudden shutdown of economic activities — but health first, no question about that. And with more than a third of the world’s population being locked down, and hundreds of millions of jobs lost, plus governments fighting and controlling the virus — the GDPs of the world collapsed to negative growth to as much as -7% for the biggest economies in Europe, also the hardest-hit by the coronavirus. Note that the largest economy in the world, the United States of America, is also number one in world COVID-19 contamination and deaths.
With shops and factories closed nationwide due to the coronavirus pandemic, nearly all of the jobs created in the consumer-driven US economy in the last decade were wiped out in a single month, with an unprecedented 20.5 million jobs lost, AFP News reported on May 8. “I’ll bring it back,” President Donald Trump said. “I think it’s going to come back blazing,” he told reporters. But the COVID-19 vaccine is expected to be found, tried, and tested in not less than a year, maybe in one and a half years, according to epidemiologists.
It was pitiful to watch on CNN News, Las Vegas Mayor Carolyn Goodman calling for her city and the entire state of Nevada to reopen in mid-April, saying that shutting down the economy over the coronavirus pandemic made “no sense.” In an interview by Anderson Cooper on April 16, she offered her city as a “control center” to test the demand for returning casino players — until Cooper very cleverly made her fumble with the apparent senselessness of her proposal (but not to admit it still). Will the gamblers come rushing back to the Las Vegas casinos? How will it be possible to sanitize all the machines and tables, the cards and chips before each gambler?
The question must be asked: are we the same persons after the COVID-19 experience? Will our wants and needs be the same as what they were before? Forced by the circumstances of the lockdowns, isolation, and social distancing, of being contaminated or not, our tastes and habits have changed in varying degrees according to economic and social status and personal traits, values and principles. Psychologists generally estimate that it takes 66 days to form a habit or a change in predilection. Habits formed in trauma or extreme emotional cost (like fear of contamination and death) hold fast. Much of the world has been under a quarantine and lockdown for some two months since March, and these may be to be extended to June or July.
But owners of businesses big and small and their employees, entrepreneurs, and the self-employed professionals want to reopen economic activities — of course — to resume earning money. This quarantine has been a forced shut down and lay-off, an unplanned early retirement or extended leave for millions of people who have to support their families and themselves. Even governments cannot give out taxpayers’ money to the affected and underprivileged in subsidies, dole-outs, and amelioration ad infinitum. First of all, where’s the tax money coming from if there is hardly any employment and economic activity is insignificant?
As an example, Tessie-Sy Coson of one of the top conglomerates in the Philippines, SM Holdings, asked government in April to gradually restart the economy and allow half of all businesses to reopen after the lockdown, which at that time was nearing the end of the first 15-day extension from the initial quarantine imposed on March 17. “If all the industries can start operating [at] 50% [of capacity] including the transport, with all the medical precaution like making test kits more available and disinfecting measures and sanitation safeguards, then we can gradually increase the employment including the returning OFWs who are adding to our number of unemployment,” Ms. Sy-Coson said as quoted in Esquire Philippines on April 13.
SM Supermalls has 70 malls around the country. Other major mall chains are Robinsons Malls with 50 shopping malls; Ayala Malls, which has 14 shopping malls nationwide; and others such as Megaworld Lifestyle Malls, Vista Malls, Walter Mart, Gaisano Malls, Ever Gotesco Malls, Isetann, and many more. The retail industry in the Philippines accounts for approximately 15% of the Philippines’ total Gross National Product (GNP) and 33% of the entire services sector, employing some 5.25 million people, representing 18% of the Philippines’ workforce, according to the Philippine Retailers Association. And all the malls, except for their grocery sections, have been closed for some two months now, to comply with restrictions on mass gatherings.
Malls have replaced the town plaza as the number one place for community gathering, especially on weekends. Developers have converted most of the parks and open spaces into malls anyway, so there’s no place to go but malls. These are one-stop places to shop, transact business in off-site government and private offices, banks, clinics, gyms, entertainment venues like theaters and game rooms, and even to attend Holy Masses and novenas. Shoppers and non-shoppers alike go to malls also for the priceless pleasure of free air conditioning in this hot, humid country.
But will shopping malls with their thousands of retail locators in each site enjoy the same demand after the COVID-19 pandemic has been sated and burped out its last few victims? Will hordes of people congregate and mass in such enclosed spaces with shared ventilation, after the mind-conditioning of isolation and social distancing in the deathly fear of virus contagion? Will not the habit of budgeting and prioritizing expenditures, forced by the unpredictability of cash flows in the past two months and still proceeding confinement, be the modus vivendi in the New Normal after COVID-19? And perhaps the fear for health will overrule the joys of mass socialization.
Of course, businesses want to return to normalcy, for their own sakes and for the altruistic sense of responsibility for the people they employ, for their clients/customers, for the common good and for the country’s GDP. But it seems clear that the same businesses that thrived before COVID-19 will not quite have their original business models, and competition will have changed by the new standards in price, product, distribution, and public awareness, as taught by marketing textbooks. There are drastic changes in the New (Ab)Normal.
Businesses that will have to change — re-tool, reorient, downsize, centralize, and consolidate — or totally give up (perhaps to cut their losses) will be those in services and the retail industry. Hotels, tourism, travel and entertainment might not see the demands of the mostly pleasure seekers who could buy wants on credit. Malls will probably find it difficult to herd in locators and concessionaires. Even direct-contact personal services like massage, “hospitality” services, saunas, etc., and club memberships might not be as in demand as before. Some restaurants, maybe many, will not be able to live with diners’ new habits formed in quarantine: it is better, cleaner, safer to dine and be with family in Home Sweet Home.
Businesses that will thrive are those that can offer online transactions and payments. No-contact transactions have been established and entrenched in quarantine. Even traditional schools and colleges now have online teaching and learning — the problem of physical space (and attendant issues of transportation and traffic) has somehow been addressed, but as in online transactions, online managing and controlling, there are the problems of security and the difficult authority and leadership decimation in the organization.
In any case, the businesses that will thrive, and the new businesses seeking emerging opportunities must keep in mind and action that resiliency and the humility to accept changes are absolutely needed in the New (Ab)Normal.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
A time to reboot the economy
Despite our fervent hopes for gross domestic product (GDP) growth in the four to five percent range, the National Economic Development Authority (NEDA) announced last Thursday that it actually contracted by 0.02% in the first quarter. This was due to the combined effects of Taal Volcano’s eruption in January, the tourist travel ban in February, and the enforcement of the Enhanced Community Quarantine (ECQ) in March. This is the first time the economy contracted in 22 years.
Exacerbating matters is the specter of a deep economic contraction in the second quarter due to the Luzon-wide ECQ. Initially, the Department of Finance (DoF) announced that the contraction could range from 0.08% to 0.0% but later said that it could be more severe given the extension of the ECQ. The worst case scenario, assuming the enhanced community quarantine (ECQ) is lifted on May 15, is a contraction by two to three percent.
One thing is for sure — everything will be different when we emerge from this ECQ. Social behaviors would have changed as would consumer patterns. Trends in international trade would have shifted, as would investment priorities. After two months in lockdown, all countries, including the Philippines, will restart their economies in an environment that has changed so drastically, new economic policies must be written from scratch to adapt.
Call me an optimist but I look at this as serendipity. Truth be told, the economy has been overdue for reinvention. It had already been growing above its potential growth (or capacity to grow) in 2013 to 2016 such that growth has been on a path of steady deceleration since 2016. The 0.02% contraction in the first quarter only underlines how we have already maxed-out our capacity to grow. Let’s be honest, an economy led by consumption and government spending on the demand side coupled with a weak manufacturing base and subsistence agriculture on the supply side, can only take you so far. The only way to reverse the trend is to add capacity to the economy. The COVID-19 crisis is serendipitous in that it gives us no excuse to delay the re-invention.
In 2015, the National Economic and Development Authority (NEDA) outlined our national vision in a program called AmBisyon Natin 2040. In a nutshell, the vision is to become an industrial economy with a middle class society and zero incidences of poverty by the year 2040. Per capita income must triple from some $4,000 today to $13,000.
The economy must expand by no less than 7% a year for 20 years if we are to achieve the national vision. If we fall short and grow by only 6%, we will only attain per capita income of $10,000 20 years from now. This is why maintaining 7% growth is crucial.
So how can we sustain growth of 7% when our growth potential has already been maxed-out? The answer is simple — we need to restructure. From an economy that relies on consumption and government spending to fuel growth, we must transform it to one that is production-lead.
This would entail making the transition from subsistence farming to technology-based agriculture; diversification of the economy from one that specializes in two industries (electronics and IT-BPO), to one that is competent in an entire basket of trades; widening our manufacturing base from one comprised mostly of food processing to one that encompasses complex industries such as pharmaceutical products, machineries and equipment, chemical-based products and automobiles. We must climb the value chain through innovation and quality. This means, products manufactured in the Philippines must have intellectual property inputs (not just mere assembly) and must be renowned for their craftsmanship and durability.
In short, to triple our per capita income, the Philippines must become a diversified manufacturing economy with a strong innovation and design component. We are not re-inventing the wheel here — this has been the development path of countries like South Korea, Singapore, and Taiwan — all of whom made the great leap from lower-middle income society to a high income society in 20 years.
Again, to reiterate, the Philippine economy will not be able to sustain high growth without adding capacity through rapid industrialization. To keep the economy structured the way it is will result in lackluster growth and a further widening of our current account deficit. The Philippines will be stuck as a lower-middle income society.
Industrialization must become a national policy that is upheld by three presidential administrations after the incumbent. As we move forward, our policies, laws, and strategies must all conspire to enhance the process of industrialization. In other words, any law, constitutional statute, or policy that impedes the adoption of new technologies, the attraction of foreign direct investments (FDI), the enhancement of productivity, and the elevation of competitiveness must be amended or repealed. This includes the Comprehensive Agrarian Reform Law (CARL), the Electric Power Industry Reform Act (EPIRA), and the prohibitive economic laws of the constitution, among others.
Export processing zones must be expanded (existing PEZA zones are close to 100% occupancy) and the program to modernize our infrastructure must continue, particularly those that have a direct effect on our logistics chain.
Consequently, our education system must evolve to one that produces more engineers, scientists, and professionals with technical aptitudes. Having the right skills is essential to the transformation. With a policy of industrialization, we Filipinos must begin to obsess over the number of products we can competitively sell to the world, their quality, and the amount of export revenues we generate. These are the new benchmarks of success. If we succeed in these realms, it follows that the economy will become more competitive, our fiscal position will be stronger, unemployment will decrease, and the quality of life of our people will improve. Staying on track towards industrialization will give us the best chance of achieving AmBisyon Natin 2040.
The timing could not be better. Manufacturing companies from Japan, the US, and the European Union are leaving China in droves to decrease their dependence on China in their supply chains, as retribution for not being forthright about the lethality and infectiousness of COVID-19 in the early days of the outbreak, and due to rising costs in cities like Guangzhou, Shenzhen, and Tianjin.
The Philippines must do everything it can to get its fair share of the manufacturing companies moving to Southeast Asia. Bagging these investments will give our program of industrialization the shot in the arm it needs. Let’s hope this administration does not miss out on this investment bonanza like it did in the early 2000s and in 2015.
To compliment FDI’s, local conglomerates must take the lead in our industrial offensive since they have the capital and management expertise to do so. The inclination to invest in rent-seeking ventures like property and mall development must give way to investments in plants and factories that produce increasingly complex products. The government must support all industrial initiatives with generous fiscal perks.
The idea is to migrate the 25% of the workforce who work in subsistence agriculture and the 23% who work in low paying services (domestic helpers, promo girls, bellhops) to jobs in factories, laboratories, high-tech farming, and the logistics sector where they are paid world-class wages.
The COVID-19 crisis is an opportune time to re-invent the economy. It is a pivotal time for us — a time to set us on a course towards generating national wealth, eradicating poverty and providing a dignified life for our people. Let us not let this opportunity pass.
Andrew J. Masigan is an economist.
The price of COVID-19 freedom may be eternal spying
By Andy Mukherjee
MUCH of our pre-coronavirus lives may be reclaimable with some modifications around how we work, socialize, and travel. In one crucial way, though, the post-pandemic landscape will be very different: The individual’s autonomy over her data may be lost forever. Our mobiles will keep us safe — by spying on us.
This will have important consequences for the relationship not just between citizens and governments, but also between consumers and businesses.
Blame the coming end of privacy on success. South Korea and Taiwan have won acclaim for flattening the COVID-19 curve by digitally tracking infected persons. As my colleague Anjani Trivedi described in March, no government was using dispersed databases as extensively to fight the spread of the disease as Seoul. Before an explosive outbreak in its worker dormitories, Singapore earned praise for TraceTogether, which claims to be the first Bluetooth contact-tracing app covering an entire nation. The 1.4 million users represent roughly a fourth of the island’s population.
It hasn’t gone unnoticed that enthusiastic adapters of such software are in East Asia where, as MIT Sloan School of Management professor Yasheng Huang and others note, “a collectivist spirit may encourage civic-minded embrace of and a more willing compliance with governments’ infection control.”
But while cultural differences can help explain the beginning, the end game may be more universal: power and profit. Safely restarting economies will require governments to restore trust in people mingling in factories, offices, cafes, and trains. It can supposedly be done with data more granular than what can be obtained from cellphone networks. Hence states want access to phones, with or without informed consent. Turning the clock back will be hard, if not impossible.
Take India’s Aarogya Setu, or Bridge of Health, COVID-19 contact-tracing app. It’s got privacy warriors worried because the country lacks a data protection framework. Among other things, activists want the government to ensure that “any data collected in an external server is designed to be deleted and that it won’t be integrated with other databases,” according to a working paper by the New Delhi-based Internet Freedom Foundation. For now, there are only assurances that the app will wither away once the outbreak is contained, but no legal guarantees.
The Singaporean app records physical proximity in an anonymized form on smartphones. Minimal data is stored on servers. Only if a user falls sick are his contacts tracked and alerted. Given that it’s been less than two years since the revelation that Prime Minister Lee Hsien Loong’s health records were hacked, I’d hesitate to brand the experiment as foolproof. But it’s at least a voluntary exchange. India’s app is anything but. As the country tentatively reopens after a 43-day lockdown, it’s been made mandatory — first for public-sector employees and now for private-sector workers. Company bosses are liable to ensure their workers download the app, though nobody is accountable for misuse of data.
TraceTogether’s building blocks are in the public domain. The source code of Aarogya Setu is yet to be opened. The Indian government recently denied a French security researcher’s claim that the privacy of 90 million Indians is at stake. Hours later, the so-called ethical hacker who goes by the name of Elliott Anderson tweeted that five people were feeling unwell in Prime Minister Narendra Modi’s office.
Where boundaries between private and public are thin to begin with, a pandemic can make them disappear. A New York Times analysis of China’s Alipay Health Code software, which mixes a cocktail of data to color-code a person’s health status, found that some information is shared with the police. The digital prowess of Alibaba Group Ltd. or its rival, Tencent Holdings Ltd., has no match in India. But firms are eager to harness the online footprints of the country’s 1.3 billion people. COVID-19 might give those plans a fillip.
Just as the Sept. 11 attacks irrevocably shrank personal freedoms as security-at-all-costs became a policy driver, COVID-19 will erode privacy in the name of public health. The potential market is immense for instruments far more intrusive than Big Brother’s telescreens. Richard Brooks, a computer engineering professor at Clemson University in South Carolina, told Bloomberg News: “If the ability to track social contacts exists to stop a contagion, I can guarantee you it will be used to track the spread of dissent.”
An Israeli court verdict that banned Shin Bet, the internal security agency, from using its COVID-19 tracking app shows the discomfort societies have with handing over a shiny, new lever of control to governments. Europe’s data protection laws will try to ensure that the emergency collection and processing of personal information is conducted with accountability, and for a limited purpose. The British parliament’s human rights committee says it isn’t convinced that the National Health Service’s proposed tracing app protects privacy.
Tracing in Korea went overboard in the early days, when the authorities released so much data that anonymous patients became identifiable — and got harassed. A strong data protection law forced Korea to limit disclosure. The bottom line: Where they exist, robust institutions could still offer resistance. In most other places, the individual’s autonomy has already become a virus casualty. Poorer countries where consumers have only recently started going online will see states insist on devices that come with pre-loaded tracking apps. More information will reside on central servers than epidemiologists have asked for or need. But who will stop the juggernaut?
BLOOMBERG OPINION
China gives more kits as infections near 11,000
CHINA has donated another set of COVID-19 (coronavirus disease 2019) test kits and protective equipment to the Philippines, as local infections neared 11,000, the Chinese Embassy in Manila said on Sunday.
These included 150,000 testing kits, 100 ventilators, 70,000 medical protective suits, 70,000 N95 medical masks, 1.3 million surgical masks and 70,000 medical protective goggles, it said in a statement.
“We hope these urgently needed medical supplies could be allotted to the frontliners as soon as possible,” Chinese Ambassador to the Philippines Huang Xilian said.
The government took delivery of the first batch of the 150,000 test kits and 18,000 disposable clothing on Saturday, the Department of Foreign Affairs said in a statement yesterday. The rest of the donations were expected to arrive last night via a chartered flight, it added.
The Department of Health (DoH) reported 184 new coronavirus infections yesterday, bringing the total to 10,794.
The death toll rose to 719 after 15 more patients died, it said in a bulletin. Eighty-two more patients have gotten well, bringing the total recoveries to1,924, it added.
Of the 184 new cases, 77 came from Metro Manila, 75 from Central Visayas and 32 from the other regions, the agency said.
DoH said 26 laboratories have been certified to examine COVID-19 samples. It targets to conduct 30,000 tests daily by the end of May.
Also yesterday, the Office of the Court Administrator said 4,683 inmates had been released from April 30 to May 8. These were on top of the 9,731 inmates released from March 17 to April 30.
The Supreme Court earlier issued guidelines on the release of indigent inmates through reduced bail or own recognizance to address congestion issues in jails during the pandemic.
The Justice department had also approved a Board of Pardons and Parole order easing the requirements for pardon and executive clemency.
Meanwhile, DFA said Foreign Affairs Secretary Teodoro L. Locsin, Jr. received the donations from Chinese Ambassador to the Philippines Huang Xilian in a ceremony.
“I hope these supplies are immediately and efficiently released to those who need it,” Mr. Locsin said in a social media post.
China earlier donated medical supplies including 252,000 test kits, 310,000 surgical masks, 40,000 N95 masks, 33,000 protective suits, 5,000 face shields and 30 noninvasive ventilators to the Philippines.
It also sent a team of medical experts to help the government of President Rodrigo R. Duterte deal with the coronavirus disease 2019 pandemic.
The embassy also noted that private enterprises had donated about three million masks and personal protective equipment, in response to the call of the Chinese government for help.
The COVID-19 virus was first detected in China’s Wuhan City late last year.
The virus has sickened 4.1 million and killed more than 280,000 people worldwide, according to the Worldometers website, citing various sources including data from the World Health Organization.
About 1.4 million people have recovered from the virus, it said.
DFA earlier said the Chinese donations had nothing to do with its claims in the South China Sea.
Mr. Duterte has sought closer investment and trade ties with China, including over resources in the disputed sea, since he became president in June 2016.
The Philippines last month protested China’s creation of two new districts in the South China Sea because these are supposedly part of Philippine territory and sea zones.
The Chinese government declared two new districts in Sansha City, which prompted Mr. Locsin to file a diplomatic protest at the Chinese Embassy in Manila.
Rival Southeast Asian claimant nations and the United States have criticized China’s recent assertive moves in the disputed waterway as the world battles the coronavirus pandemic. — Charmaine A. Tadalan and Vann Marlo M. Villegas
Senate to probe COVID-19 impact on petro industry
THE Senate energy committee will look into the impact of a Luzon-wide lockdown meant to contain a coronavirus disease 2019 (COVID-19) pandemic on the oil and gas sector, its chairman said on Sunday.
Senator Sherwin T. Gatchalian, who heads the committee, has filed a resolution seeking an inquiry after the Department of Energy (DoE) said at least a tenth of the country’s 9,003 service stations had suspended operations.
“Since the country is mainly dependent on imported fuel, Congress has to know about the short, medium and long-term effects and implications of COVID-19 on the oil and gas industry,” Mr. Gatchalian said in a statement.
He added that the Senate would want to know about the status of oil and gas exploration projects meant to ensure energy security.
President Rodrigo R. Duterte locked down the entire Luzon island on March 17, suspending work, classes and public transportation to contain the outbreak. He later extended the so-called enhanced community quarantine by two more weeks until April 30 and again until May 15.
The Energy department earlier said it would outline plans for a strategic oil reserve by June, seeing the drop in global oil prices as a chance to stock up on petroleum products.
Mr. Gatchalian said the Senate inquiry would focus on these plans after the lockdown delayed opening of proposals for the development of new oil and gas sources.
He said the health crisis could postpone the proposed liquefied natural gas import terminal projects, originally expected to reach a final investment decision this year.
“The low demand for oil has also weighed heavily on the decision to hold plans to drill and explore potential oil and gas sources,” he said.
Oil prices settled 5% higher on Friday in their second consecutive week of gains as US producers cut production, with the number of drilling rigs falling to a record low and as more states relax lockdowns meant to halt the coronavirus pandemic, according to Reuters.
Brent crude settled up 5.1% or $1.51 at $30.97 a barrel. US West Texas Intermediate crude futures gained 5% or $1.19 to $24.74 a barrel.
Energy Secretary Alfonso G. Cusi earlier said discussions on joint exploration in the South China Sea would resume once the lockdown is lifted. — C.A.T.