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Digitizing microfinance: Innovations for a still tech-reluctant small consumer market

By Carmelito Q. Francisco and Maya M. Padillo
Correspondents

WHEN Lafayette A. Lim joined the family business armed with a computer science degree, he was eager to put his education into action.

In the late 1990s, he initiated the launch of their New City Commercial Center (NCCC) supermarkets website, which included a platform for ordering online.

The online shopping idea proved to be ahead of its time and was soon abandoned.

But NCCC went on to grow into one of the biggest homegrown companies in Davao City, currently with a network of shopping malls and supermarkets in the Davao Region and Palawan, various retail distribution brands, agricultural production, and most recently, commercial property development.

Now almost two decades after his failed online shop project, Mr. Lim, as chief executive officer, is steering the NCCC Group of Companies into digital platforms.

And he is taking along small enterprises, just like how his family started, and cooperatives on the digital journey.

NCCC, in partnership with blockchain firm TraXion Tech Inc., launched in May the Ka Partner program, an online-based credit line to cooperatives and affiliate companies, which members and employees can use to shop at NCCC supermarkets.

“We start with the supermarket because that provides the basic needs,” said Mr. Lim.

“In emergency cases like when you need to buy diapers, milk and you don’t have that cash right away, NCCC provides that facility where they can shop (using the credit line), and settlement will just be through the cooperative,” said Ann J. Cuisia, founder and chief executive officer of TraXion.

Ms. Cuisia said the project aligns with the firm’s strategy as a financial technology firm to link “with banks, institutions like NCCC that provide an avenue for transaction management for the unbanked. So our focus is the underserved and unbanked communities.”

Dominador D. Catacutan, Jr., NCCC chief financial officer, said under the Ka Partner program, the cooperatives or companies like the security service provider determine the credit limit themselves based on their financial capacity as an organization and their membership.

The program uses both cards with QR codes and a mobile phone application for cashless shopping.

In effect, Mr. Catacutan said, the program provides their partners “with a hi-tech system for managing the grocery loans of their members.”

Mr. Lim said it is important to help develop cooperatives, even if these are considered competition in the retail business for the group, because they provide “a great balance.”

“Corporations are owned by capitalists, so those that cannot own corporations can be part of a cooperative wherein the members own the business,” he said.

Ms. Cuisia said what the company has launched is a “minimum viable product” and the system is ready for extension to other applications.

“This is technology, this is open to more functions, based on the wishes of the market as we grow and engage them more,” Ms. Cuisia said.

In an earlier interview, the Traxion chief said the firm also wants to directly work with cooperatives, particularly those related to the agriculture industry.

“In Mindanao, there are several cooperatives that we are engaging and talking to right now, explaining how this works,” she said during the TechUp Pilipinas Agri Summit held in Davao City in August 2018.

RELUCTANT
The Federation of Cooperatives in Mindanao (FEDCO), composed of cooperatives that produce Cavendish bananas for export, said it is open to using financial technology, but has yet to find a service that works for the group’s needs.

FEDCO Assistant General Manager Flordelyn A. Saavedra, in an interview with BusinessWorld, said the federation previously partnered with BPI Globe BanKO, but it lasted for only a couple of years because not many members participated.

“We used to partner with BPI Globe BanKO wherein cash deposits and withdrawals can be done via Globe lines, but it was more of personal savings (for members)” and not related to the cooperatives’ operations, Ms. Saavedra said.

She said the low participation rate was due to limited branches and partner agencies where members can open an account as well as connectivity issues, especially in the more remote farm areas.

For the operations of the cooperatives, she said simple bank-to-bank transactions work fine within the group and with their foreign buyers.

“As of now we are okay with the bank-to-bank transaction. Effective naman (it’s effective enough). The growers are not technologically adept and need to be educated… majority of them are not updated with the latest technology,” the FEDCO official said.

Various social development organizations involved in microfinancing — which have been adopting automation to ease internal operations as well as access for their clients composed of small consumers and micro and small entrepreneurs — also face reluctance in the market over new technology.

CARD Bank, a part of the Center for Agriculture and Rural Development-Mutually Reinforcing Institutions (CARD-MRI), is expected to complete the rollout of its digital product, konek2CARD, before the end of the year.

Marivic M. Austria, president and chief executive officer of the bank, said the konek2CARD, which uses a mobile phone application, has been set up in 17 out of its 94 branches across the country.

The big challenge, however, is that “the profiles of our clients are (mostly) not used to using cellphones (for financial transactions),” said Ms. Austria in a phone interview, noting that the bank’s core clientele has an average age of 55 and live in rural areas.

The solution, she said, is providing actual demonstrations for the clients to give them hands-on experience for the platform.

“If you are going to lecture, it is quite difficult (to convince the clients), but if you allow them to experience it, it would be easier for them to use it… They can even narrate their experience to other members,” said Ms. Austria.

With konek2CARD, clients can use their smartphones instead of going to a CARD Bank branch to monitor their account and for loan payments.

Ms. Austria said the company is working on expanding the applications for bill payments.

The target of the bank, established in 1997, is to grow its client base from 2.8 million at present to 3.5 million by next year with new clients being made to adopt the technology.

About 108,000 clients have so far adopted the platform.

“Gradually, they (all clients) will not be using passbooks,” she said.

Aligned with the adoption of digital technology, the bank has also provided its account executives with tablets to keep track of the clients they serve as well as expand their base.

ASA Philippines Foundation — a nonstock, nonprofit organization offering microfinancing using a fixed-rate system that makes it compliant with Shari’ah law, or the Islamic way of banking that prohibits the imposition of interest — shifting to a computerized and interlinked system in 2016 allowed its people on the ground to reach more potential clients by easing accounting and day-to-day functions.

“When we started, we never thought we would become this big,” said Ma. Mylene Beato, the foundation’s regional monitor assigned to Davao, who started working with the foundation in 2006, just two years after it was established.

When the Davao operations started in 2010, Ms. Beato said the foundation had less than 100 individual clients who were clustered as groups within common communities, and ASA Philippines’ workers went around on bicycles acquired on loan.

“Everything was manual, it was tedious,” she said, speaking in mixed English and Filipino.

Ms. Beato said technology improved efficiency and allowed the foundation to be more competitive in the microfinancing industry, where the alternatives are legitimate institutions such as rural banks and informal lending groups.

“Now, clients are the ones who come to us,” she said, then consults her smartphone to report that the foundation currently has 31,343 clients in the Davao area and a target of at least 34,000 by the end of the year.

Nationwide, ASA Philippines as of end-May 2019 had a branch network of 1,613 serving over 1.8 million borrowers with a loan portfolio of over P19 billion.

The foundation was established by Kamrul H. Tarafder, who started in the microfinance industry with ASA Bangladesh and later worked with the United Nations Development Program to teach the ASA methodology to microfinance institutions in the Philippines.

ASA Philippines kickstarted operations with donations from the Assisi Development Foundation, the Ninoy & Cory Aquino Foundation, and later PLDT Smart Foundation, but has since been running without grants.

Borrowers Samra Mangcong ang Sherley Boisan, among the first clients in Davao, said the growth of ASA Philippines parallels that of their small businesses and improved living conditions.

“We borrowed from other lenders (in the past), including usurers, but it is only ASA where we have developed a lasting relationship,” Ms. Mangcong, who buys and sells malongs (a traditional tubular cloth) on installment, said in the vernacular.

Ms. Boisan, on the other hand, has expanded her eatery with coin-drop internet service machines that her son manages.

Both women have borrowed as much as P50,000 each per loan cycle for their businesses and to improve their homes.

ASA Philippines clients can also maintain a “savings fund” at a maximum amount of P20,000, which can be withdrawn any time, said Davao Branch Manager Charlyn Dacalos.

Ms. Beato said there are no immediate plans yet to adopt technological innovations on the client side, but added it could not be far off considering how the foundation has grown and wants to continue expanding.

Ms. Mangcong, on the other hand, said she is not too eager for now to use any internet-based or mobile phone system in her dealings with ASA Philippines.

“Mas ok man (it’s better),” she said, to maintain human interaction.

Regulators tackle challenge of reaching the unbanked, raising inclusiveness

By Reicelene Joy N. Ignacio
Reporter

LOWERING the hurdles for opening a bank account and collaborating with other agencies to increase online connectivity are the key first steps identified by the Bangko Sentral ng Pilipinas (BSP) on the road to what it hopes will be a cash-lite economy.

“We recognize that one pressing barrier to promoting digitalization in the country is the absence of effective infrastructure, particularly internet connectivity, to allow seamless electronic transactions. It is therefore crucial to take a whole-of-government approach to ensure that the reform initiatives among relevant government agencies/stakeholders are harmonized,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail interview.

“Hence, the Bangko Sentral assumes an active role in communicating to other government institutions the digital transformation that it envisions for the country. The efforts of the Bangko Sentral are expected to yield positive outcomes in terms of aligning the moves of these institutions in pursuit of the optimal benefits of digitalization at a national scale,” Ms. Fonacier added.

For the unbanked population, the BSP through a regulation has made it easy to open an account which BSP Supervised Financial Institutions (BSFIs) are required to make available even for those who cannot provide standard identification documents, Ms. Fonacier said.

The minimum features of these accounts are: simplified know-your-customer (KYC) requirements; an opening amount of less than P100; no maintaining balance; and no dormancy charges.

“The availability of the basic deposit account certainly contributes to advancing financial inclusion which translates to more account ownership and possibly higher utilization of digital financial services,” Ms. Fonacier said.

According to BSP data, there are 51 BSFIs with electronic payment and financial services which include mobile and internet banking and other mobile and online financial services as of December 2018.

FinTech Alliance Philippines Chairman Angelito M. Villanueva, meanwhile, said digitalization is a pathway to financial inclusivity.

“Technology must be utilized to level the playing field. With over 70% of the population exposed to digital and the growing number of digital natives, financial transactions can be carried out mobile devices,” Mr. Villanueva said in an e-mail.

“(Before) going cashless is a transition period from cash to cash-lite. For a developing country like the Philippines, going cash-lite is becoming more attainable in the next five years. With BSP’s initiatives such as PESONet and Instapay, and its openness to supporting digital currencies, we can see an accelerated pace to a cashless economy. In this digital age in the context of the Fourth Industrial Revolution, digitalization is exponential, not linear,” according to Mr. Villanueva.

Mr. Villanueva said the government’s role is crucial in making the Philippines a cash-lite society, and added that the push for the entry of a third telco would be beneficial.

“One of the key imperatives of digitalization is connectivity, especially in the remotest areas of the country. Government’s push for the entry of the third telco was primarily meant to address this concern. The enabling infrastructure has to be present,” he said.

One financial technology given a license by the BSP as electronic money issuer (EMI) is GrabPay. GrabPay is the e-wallet arm of transport network company Grab, and is mainly used to pay for rides but has also now expanded as a payment mode for merchants in other industries.

Grab is the largest transport network company in Southeast Asia, headquartered in Singapore.

In an e-mail interview, Grab Philippines Country Head Brian P. Cu said, “GrabPay’s vision for financial inclusion is to serve the underserved middle class in the Philippines and in Southeast Asia. We want to not just help drivers but to support millions of micro-entrepreneurs but also empower them to be in more control of their ability to earn.”

“With this vision in mind, we have created ‘Grow with Grab,’ the most comprehensive suite of financial services for small businesses all across Southeast Asia. We want to level the playing field for our simple microentrepreneurs by giving them access to the best financial services products — helping them to earn more and making sure their businesses are well-protected. These financial services will soon be coming to the Philippines,” Mr. Cu said.

Customers using GrabPay for Grab services earn twice the GrabReward points compared with paying in cash. These points can later on be used to claim food, services, and discounts on Grab rides.

For Grab, “this is the best time to push the cashless society” given the number of smartphone and internet users in the region.

“Smartphone penetration and internet adoption are rapidly growing. There are more smartphones than bank accounts in Southeast Asia. Cashless is one of the key agenda of the government. We also have a strong support from the BSP which targets to migrate 20% of all transactions to non-cash by 2020,” Mr. Cu said.

Orlando B. Vea, founder and CEO of Voyager Innovations and PayMaya Philippine and Chairman of Philippine eMoney Association, also said the fintech industry’s facing huge opportunities, and is bullish on expanding the SmartPadala network.

“To be truly financially inclusive we must also address the needs of those who have little to no access to these technologies. We understand these data access challenges still exist particularly in far-flung provinces of the Philippines. That is why we have been bullish in expanding and transforming our network of more than 27,000 Smart Padala agents all around the country into digital payment and financial services centers. This complements our fully digital consumer push for customers in urban areas around the country,” Mr. Vea said.

Mr. Vea said technology is necessary to bring about financial inclusivity especially in areas where banks do not have much of a presence.

He added that it is also a must for fintech companies to invest heavily in making their services secure from cyber threats while also educating consumers on cybersecurity.

“We see technology as an effective and efficient ‘last-mile’ solution that can reach the millions of Filipinos who still lack access to financial services. We believe technology also makes it fast and convenient to access such financial services, especially in far-flung areas without a bank presence,” Mr. Vea said.

“Security is at the top of agenda of the financial services industry — be it the banking or fintech sectors. At the core, we are all in the business of moving money so security and building trust are paramount. That’s why institutions have to invest in next-generation digital architecture and build the necessary capabilities to strengthen information security. On end-user side, continuing customer education on cybersecurity practices is also very important.”

“In the intermediate future, we will be more cash-lite, rather than cashless altogether. It requires also a certain confluence of factors such as internet and mobile penetration, digital literacy, and economic growth. Right now, the opportunities are so huge, and this can be further accelerated with the cooperation of industry players like PayMaya, the government, as well as business all around the country,” he added.

Meanwhile, cryptocurrencies have also become available in various forms traded across many platforms. It has also become a mode of payment for some services via e-wallet and can be converted to cash at the current market value.

According to Eric van Miltenburg, senior vice-president of global operations, at money transfer solutions company Ripple, the use of cryptocurrency may help facilitate faster remittances to the Philippines.

Currently, Ripple uses XRP, a type of cryptocurrency which the company claims as cost-efficient for cross border transactions.

According to Mr. Miltenburg, there would only be minimal risk in using XRP for remittances as it would only take a few seconds to complete the transaction.

“Volatility exists across all the coins. The volatility is relatively modest. XRP to peso, the amount of exposure is seconds, very minimal. There’s much more volatility in PHP to USD in three days than XRP,” Mr. Miltenburg said.

“We’re quite bullish on how cryptocurrency can play a great role here,” he said.

BSP’s Ms. Fonacier said the central bank’s role is assuring protection against cyber threats amid the digitalization of the financial industry.

“BSFIs are expected to adopt the Bangko Sentral-prescribed measures aimed at strengthening risk management which covers continued compliance with the Bangko Sentral rules and regulations on anti-money laundering/combating the financing of terrorism (AML/CFT), consumer protection, information technology, among other relevant areas of concerns,” Ms. Fonacier said.

She also said that turning the Philippines into a cash-lite economy would allow the central bank to produce fewer paper bills and coins in the future.

“In the event that the Philippines indeed becomes a cash-lite economy, it is possible that the Bangko Sentral will produce less physical money. It is because the Bangko Sentral, when determining the volume/value of currency to be issued, considers not only the currency demand that is estimated from a set of economic indicators but also the potential unfit notes and coins for replacement, among other factors,” Ms. Fonacier said.

“Notes and coins become more vulnerable to wear and tear if these physically change hands as opposed to when the movement of physical money is minimized with the use of electronic currencies,” Ms. Fonacier added.

Bank clients grapple with branch separation anxiety

By Karl Angelo N. Vidal
Reporter

FOR much of history, banking was done in branch offices, but beginning in the late 20th Century, digitization began to creep in, allowing account holders ever more banking convenience without needing to leave their homes or offices. With tech revolutionizing banking, how will financial institutions keep their networks relevant?

The Fourth Industrial Revolution is associated with and popularized by World Economic Forum founder Klaus Schwab. He characterized this era as an array of new technologies “fusing the physical, digital and biological worlds” and impacting all industries and economies.

One of the sectors that was first engulfed by the revolution was the banking industry. New concepts like artificial intelligence, cloud computing, data science and Internet of Things helped lenders streamline operations and improve services.

Union Bank of the Philippines President and CEO Edwin R. Bautista said the bank’s digital transformation journey has made an impact across its businesses.

“In our mortgage business, most of the customers were referred to us by the developers,” Mr. Bautista told reporters following the bank’s annual stockholders’ meeting. “When the customer is referred to us, it would take 10-15 days before we approve the loan… Now, all it takes is 10 minutes for our sales people to enter the data. There’s an algorithm and credit scoring.”

After the Aboitiz-led bank introduced this system that trims significantly the approval time, Mr. Bautista added this immediately translated to profitability.

“We have to compete with other banks. When you talk to bank A and us at the same time, before you’re through, approved na kayo (your loan is already approved),” he said. “That one, we can achieve only because of the investments we made on the digital front.”

Angelito M. Villanueva, Rizal Commercial Banking Corp. (RCBC) chief digital innovations officer, said one of the lender’s imperatives is to revamp the way clients interact with them through data science.

“Everything we do starts with the customer. Personalization of services makes them feel special and unique,” Mr. Villanueva said. “This is where data science comes in. RCBC’s smart optimization and utilization of these data algorithms and insights will be key.”

Digital technology also allowed foreign banks to penetrate the Philipine market without a branch network.

Dutch financial firm ING Bank N.V. and Malaysian lender CIMB Bank both entered the retail banking industry as all-digital banks earlier this year, offering savings accounts with high interest rates and without maintaining balances.

These banks provide higher rates than most retail lenders as they are able to keep operating costs low because they do not need to maintain a branch network.

The emergence of online banking drove banks to see their branches as burden. In other parts of the world, banks started to trim the number of branches as more people are now inclined to bank using computers and smartphones.

“Bank branches are being closed in major Asia-Pacific markets — Thailand (and) Australia have seen the greatest number of closures so far into the year,” said Michael Araneta, head of advisory and research of IDC Financial Insights.

In a study conducted by data analytics firm Fair, Isaac and Co. (FICO) among 20 bank chief risk officers from across Asia Pacific, about 28% of the respondents said their organizations need to trim down their headcount by at least 5%, and another 28% believe they need significantly less staff, projecting reductions of at least half by 2030.

Despite the impulse to reduce branches amid the rise of technology and evolving business models, the Philippines remains an outlier.

“It is too early for banks to be closing branches in the Philippines because customer behavior has not really shifted to digital,” Mr. Araneta said.

“Many customers still prefer to transact via branches,” he added, noting that transaction levels in the branches are still high, as evidenced by long queues.

Dan McConaghy, FICO president in the Asia Pacific, said the bulk of the branch banking needs in the Philippines are in the rural areas, where internet connectivity that enables digital banking remains poor.

Based on The State of Mobile Network Experience report by mobile analytics firm OpenSignal, the Philippines had the 16th-slowest download speed among 87 economies surveyed and 11th-slowest in upload speed.

Poor internet infrastructure is extending the useful life of bricks-and-mortar branches, especially in far-flung areas.

“Even in (rural areas), there have been efforts to improve access to banking, through merger and consolidation of rural banks, micro-banking offices and agency banking,” Mr. McConaghy said.

In December 2017, the Bangko Sentral ng Pilipinas (BSP) allowed banks to set up branch-lite units. This kind of bank office is compact and less formal compared with the typical branch, allowing lenders to penetrate unbanked and underserved areas at reduced cost.

The central bank reported in February that 155 banks have established 1,751 branch-lite units as of end-June 2018. These branches are now operating in 738 local government units, of which 151 areas are being served by branch-lite units alone.

Apart from unreliable internet connection that hampers the rollout of digital banking, Mr. McConaghy said the barrier to Filipinos fully adopting digital banking is the “lack of a compelling digital user experience” encouraging them to stop going to the branches.

“Consumers expect their banks to be as easy to use as Uber, Netflix and Airbnb,” he said.

Mr. Araneta added many customers still prefer doing physical banking, as an online banking strategy has yet to establish standards of reliability and usability.

“The way that customers have to build and maintain relationships with their banks online makes it really difficult for customers, not easier,” he said.

“The future of branch banking… will really depend on the bank’s business model and the target market it intends to serve,” BSP Deputy Governor Chuchi G. Fonacier told BusinessWorld.

“[T]hose banks serving market segments where they feel that face-to-face contact is still very much valued by their clients would continue to make use of the bricks-and-mortar type or the physical branch.”

In UnionBank’s case, Mr. Bautista said the bank is not opening new branches, but instead focusing on refurbishing old branches to introduce digital banking to its customers.

“We’re using The ARK as a place where they get exposed to digital without going fully digital. One step ahead,” he said.

Called The ARK, UnionBank’s concept branches eliminate the so-called pain points in a branch such queues and paper forms. Instead, customers are entertained by “bank ambassadors” for sit-down transactions done via mobile tablets.

Mr. Bautista said UnionBank hopes to launch 40-50 refurbished branches this year, coming from the 16 The ARK branches as of this writing.

Meanwhile, Bank of the Philippine Islands (BPI) will continue to expand its branch network as poor internet service hampers the growth of digital banking.

“Knowing that the country has 7,100 islands wherein the coverage of communication is still lacking… is not conducive for digitalization,” BPI Chief Digital Officer Noel A. Santiago said in an interview.

“We’re putting up more branches even at the BPI side and even at our fully owned subsidiary, BanKo.”

The Ayala-led BPI Direct BanKo targets to open an additional 100 branches this year to a network of about 300. The thrift lender offers microfinance to small and medium enterprises.

Eventually, Mr. Santiago said the branches of BPI will evolve as offices where clients can consult officers on their concerns, while digital banking develops moving forward.

“What we’re seeing in the future is the branches will evolve into something like consultation or advisory (whenever clients) need a certain assurance,” he said.

Mr. Araneta concurred, saying the industry will see growth of new branch engagement models.

“Banks might go the route of having different categories of branches, varying branches in terms of size, intent (some might be more transactional than others that might be more advisory-led, some might be for origination), nature, staffing levels, and even look and feel,” he said.

As banks in the Philippines need to employ new technology to stay relevant, branches might take some time to become obsolete given the poor internet infrastructure and the weak value proposition digital banking currently presents.

“Digital is addition,” Mr. Villanueva said. “Having several touchpoints will always be there. Digital, in the Philippine context, may be hi-tech yet still hi-touch.”

Future-proofing retail stores against the threat of online shopping

By Arra B. Francia
Reporter

YOUNG ENTREPRENEUR Walt Steven Young was on one of his trips when he had a peculiar observation. It was Black Friday, when shops in the United States offer huge sales right after the Thanksgiving celebration. The streets, however, were not as packed with shoppers as they usually were.

“There’s not too many people anymore in bricks and mortar stores… but when I looked at the front desk of hotels or condo units they’re filled with boxes,” Mr. Young told BusinessWorld in an interview.

“Right then I noticed that okay, that’s why bricks and mortar are dying because everybody’s into online shopping, and (their items) are being delivered to them.”

This shift to online stores from the traditional bricks and mortar shops has become a major problem in the United States, to the point where analysts have started to predict a “retail apocalypse.

UBS said in an April report that about 75,000 stores will be forced to close by 2026, or about 7% of the 1.04 million retail establishments in the US. The closures will span from clothing stores, sellers of home furnishings, electronics stores, and even groceries.

UBS expects online retail to account for 25% of total retail sales by that time, from its current market share of 16%.

The so-called retail apocalypse is one of the reasons why Mr. Young came to establish AdoboMall, an online marketplace that sells only authentic brands from official distributors.

“It was seeing the online space affecting all the bricks and mortar stores in other countries… and one I knew that this would be more convenient for us because we’re in a country with bad traffic,” Mr. Young said.

Mr. Young’s AdoboMall is only one of several online shops in the country that have been riding on the emerging interest in online shopping. The Singapore government’s investment firm Temasek projects the Internet economy in Southeast Asia to be worth $240 billion by 2025, with the Philippine e-commerce market valued at $10 billion.

Other online marketplaces that have been thriving for the past years include Lazada, Zalora, and Shopee. Lazada alone has about 80 million products on its platform from 50,000 sellers.

From its launch in 2017, AdoboMall now has 1,700 brands on its platform, with about 3.2% of website visitors translating to sales.

“I’ve been wanting to have a very strong local player to really be a shopping destination for our people. Not just to shop, but go into a more experienced kind of shopping. I wanted them to find another alternative and be comfortable with the products they buy so that’s why AdoboMalls was born,” Mr. Young said.

At the same time, the country’s largest retail groups are also catching up with the e-commerce play. SM Investments Corp. (SMIC), which operates 2,385 stores based on latest data presented in June, said it is developing products with partners to take advantage of the emerging Philippine e-commerce opportunity.

“We are building our base of comprehensive assets and capabilities with best-in-class partners to accelerate our omnichannel retail presence and build end-to-end solutions for our customers,” the company said in its 2018 annual report.

The country’s largest conglomerate in terms of market capitalization, said its shops SM Markets, ACE Hardware, SM Appliance, Watsons, and WalterMart now have their own online sites. Its products can also be found in Lazada, Shopee, and MetroMart.

SMIC is also combining the physical and online aspects of shopping to create what it calls a “Click & Collect” strategy.

“(We) introduced other services such as the “Click & Collect” where customers can purchase items not only from the SM online store but also from other online players such as Lazada and Shopee and subsequently pick up their purchases from the most convenient SM Store location,” the company said.

The Click & Collect strategy is also being used in SMIC’s supermarket business, allowing customers to purchase their groceries online and then pick them up at SM Supermarkets. The service is currently available in SM Hypermarket at the Mall of Asia and SM Supermarket in SM Makati.

Aside from Click & Collect, SMIC has also engaged with delivery service providers such as Mober and Transportify to provide same-day delivery to its customers.

SMIC also partnered with digital payment solutions such as GrabPay, GCash, Paymaya, WeChatPay, AliPay, Mastercard, and Visa, which customers can use when making payments in physical stores.

Meanwhile, Robinsons Retail Holdings, Inc. (RRHI) has also found several partners that would help it develop its e-commerce strategy along the way.

“We made investments in BeautyMNL, the only pure Filipino top five online retailer, and Growsari, a local start-up company which provides mobile grocery delivery service to sari-sari store owners,” RRHI Investor Relations Officer Gina Roa-Dipaling said in an email.

Ms. Roa-Dipaling added that almost all of RRHI’s formats are also offering their products to Lazada, Shopee, Zalora, Metromart, and other online shops.

As online shopping gains ground, RRHI expects online retail sales to account for about 2% of total sales. Online purchases are also expected to grow in the high teens since they are coming off a low base.

“Online shopping in the metro cities is gaining traction due to convenience and accessibility as well as frequent promotions offered by the online providers. Online shopping is very popular for the millennials and Gen Z market,” Ms. Roa-Dipaling explained.

While the rise of online shopping may have hit retailers in the US hard, AdoboMall’s Mr. Young believes the retail apocalypse isn’t bound to happen in the Philippines any time soon.

“The Philippines is a unique market where bricks and mortar and online would tend to collaborate more. I do think that online will significantly affect the market share for bricks and mortar,” Mr. Young said.

RRHI’s Ms. Roa-Dipaling concurred, saying that sales from physical stores will remain the core of the group’s business.

“We see increasing share of e-commerce sales to total retail sales but we expect offline to still account for a significant portion of total retail sales,” Ms. Roa-Dipaling said.

“(Online shopping) has not affected our company’s expansion plans just yet for bricks and mortal stores given that we are still not present in 40% of the cities in the country today.”

E-commerce is driving change in logistics, making warehouses smarter

By Denise A. Valdez
Reporter

ONE OF THE MOST celebrated advantages of the growing e-commerce industry is how it allows shoppers to feed their itch for browsing and purchasing products at any time of the day. The rising penetration of smart phones and the growing number of Filipinos with access to the Internet make it easier to morph a mall into the tiny screens of digital devices.

Based on Hootsuite and We Are Social’s “Digital 2019” report, which measured global Internet use from January 2018 to January this year, 71% of the Philippines’ total population is on the Internet, and every Filipino user of e-commerce sites spent an average of $18 or almost P1,000 on online shopping last year.

A Google-Temasek report in November, “e-Conomy SEA 2018: Southeast Asia’s internet economy hits an inflection point,” also projected e-commerce to continue growing in Southeast Asia through 2025. It noted that the Philippines is expected to record a compound annual growth rate (CAGR) of 25% to $21 billion in the 10-year period from 2015.

“[T]he Internet economy in the Philippines is still a relatively untapped opportunity… With increased focus and investments from regional unicorns and local start-ups, we estimate that the Philippines could ignite growth beyond 30% CAGR and fully achieve its long-term potential,” it said.

But what comes with the growth of e-commerce is an adjustment on the part of online retailers to cope with the changing behavior of consumers.

“UPS Pulse of the Online Shopper,” which was released March 2018 by logistics firm United Parcel Service (UPS), said shoppers in Asia have high expectations from e-commerce platforms for next-day delivery of orders. In its survey of more than 18,000 online shoppers around the world, it found 73% of shoppers in Asia expect an order placed between 6 p.m. to midnight to be delivered the next day.

“Customers are definitely getting more demanding from the experience… They want it to be fast, they want it to be easy. They don’t want to wait a long time,” UPS Philippines Managing Director Chris J. Buono told BusinessWorld in an interview last year.

However, the most recent data from the Philippines’ trade department showed the cost of logistics is a big challenge for retailers. A policy brief conducted in partnership with the World Bank showed logistics costs in the Philippines took up 27.16% of the total sales of companies, making the country the most expensive compared to regional peers Indonesia (21.4%), Vietnam (16.3%) and Thailand (11.11%).

To balance customers’ stricter demands for fast and efficient delivery of goods and the high cost of logistics in the country, Southeast Asian e-commerce giant Lazada said it is pushed to invest heavily in improving its processes.

In an email interview with BusinessWorld, Lazada Philippines Chief Executive Officer for Logistics and Operations Juan Pavez Spencer said the biggest challenge for the e-commerce firm is indeed the logistics side of the operation.

“The Philippines is very complex in terms of geography with more than 7,000 islands and there are a lot of hard-to-reach islands making delivery expensive in the Philippines. Lazada resolved the logistics challenge by launching our in-house fleet making logistics one of our core strengths,” he said.

Since the company started operations in the Philippines seven years ago, Lazada has established three warehouses — in Laguna, Cebu and Davao — set up 50 logistics hubs and opened one sorting center in Tanyag (Taguig) — a strategy to help it cover as much base as it can across the country.

“We are trying to look for more areas to strategically place the fulfillment centers as close as we can to where the customers are,” Mr. Pavez said.

Jose Mari Victorio R. Danga, a logistics and warehousing professional who used to head the automation division of SSI Schaefer Systems Philippines, Inc., said it is the trend now for companies to decentralize operations to improve the speed of delivery.

“Before, the trend was to have big distribution centers. But now, because of the traffic, most companies would like to have a satellite warehouse near their customers for easier delivery of goods,” he said in an interview.

Lazada integrates smart technology into its logistics operations to achieve maximum efficiency. Mr. Pavez said the company’s 54,000-square meter warehouse in Laguna was built from the ground up with automation in mind, and it is investing in a bigger warehouse north of Manila which will be “technology-driven with smarter algorithms employing more automation.”

He said the integration of Alibaba Group’s logistics arm Cainiao Network with Lazada is an integral part of growing the company’s warehousing and logistics capabilities.

“We are benefiting from Alibaba’s successful experience in China, also an emerging market, and the power of Alibaba’s ecosystem, from logistics, payments, and technology,” Mr. Pavez said.

The company also started a joint project with the Alibaba Supply Chain Team in the third quarter of 2018, which Mr. Pavez said “improves the cost and operational efficiency of the LEL (Lazada eLogistics) supply chain service level, and at the same time, provides better service to consumers and suppliers.”

The integration has so far resulted in better forecasting of demand for inventory, reduced shipping costs, and a more transparent sharing of real time information and analytics with partner brands and sellers.

Lazada’s heavy investment in automating its logistics facilities is “already advanced” in the context of the Philippines, Mr. Danga said, who worked at a material handling equipment supplier.

“Most of the companies here in the Philippines, especially for the manufacturing companies, tend to do third- party logistics. But for Lazada, as much as possible they want to control their costs so they can lower the prices of their goods and to have better margins,” he said.

He noted investing in logistics automation ultimately helps a company’s bottom line as it improves efficiency, thereby allowing stocks in a warehouse to continuously be replenished at exactly the right time.

“It’s not cheap to invest, definitely. This is millions, almost billions in terms of total investment. But what’s the reason for the investment? …They’re more concerned about efficiency. If they can do more efficient operations, they can lower the cost, and at the same time they can have faster product turnaround,” Mr. Danga said.

He said the cost of logistics automation is still prohibitive for most companies.

Installing a warehouse management system costs around P2 million to P4 million, and this technology is considered entry-level. Full automation of a warehouse costs about 350 euros (around P20,000) per pallet position, equivalent to a ground area of 1 x 1.2 meters.

Mr. Dangan said aside from the barrier to entry posed by the high cost of smart technology, companies are also more motivated to invest in acquiring land to build more warehouses instead.

“Land tends to appreciate. If you invest in equipment, that tends to depreciate. So they’re going to weigh the investment,” he said.

Another major obstacle to logistics automation is the moral dilemma of risking jobs that may be taken over if a company invests in smart technology.

Stephanie Duque-Nepomuceno, Sherilyn M. Zantua and Jovale C. Vitao, researchers from the Technological Institute of the Philippines who have studied optimization of warehouse operations in the Philippines, said the push for automation is boosted by the fact that human labor is indeed prone to error.

“Automation improves your output. With human intervention, you have a higher chance of error… You have to factor in fatigue and the learning curve,” Ms. Nepomuceno said in an interview.

As industrial engineers, they noted how there is always an internal conflict within companies whenever there is a push for systems optimization as this usually translates to job loss.

“‘Yun ‘yung fear nila sa mga IE na kapag mag-i-improve ng process, ibig sabihin noon magtatanggal ng tao [Employees usually fear industrial engineers when there’s an effort to improve process, because it usually means people will be removed from their jobs],” Ms. Zantua said.

“Hindrance din ‘yun pero syempre, hindi mo rin sila masisisi… Isa ‘yun sa kino-consider ng company, ng management [That’s a hindrance but of course you can’t blame them. So that’s something a company considers],” she added.

They also noted that companies must start seeing the process of optimizing logistics work beyond the acquisition of technology to include the need to train staff for it.

“In a perfect world, automation or optimization would lead to growth, and growth would lead to more jobs. But that’s the perfect world. With what we have now, it doesn’t necessarily translate to that. Kasi sa atin [What happens] when you optimize processes is usually to create more jobs pero [but] jobs for professionals. What we’d reduce would be the jobs of the rank and file,” Ms. Nepomuceno said.

“If you have an operator operating this machine for 10 years, not necessarily a college graduate — minsan [sometime they are] subject matter expert just because they’ve been working for a really long time — they can use that guy, train him professionally…,” she added.

Ms. Vitao noted that usually the employees inside the warehouse have the most impact on a company because they are the ones directly participating in the system.

Mr. Danga concurred on the job retention concerns, noting the opportunity available for companies in the integration of a new technology in a system.

“Most people, especially here, think automation is a job killer. In reality, it’s supposed to…upskill the manpower,” he said.

While companies in the Philippines may still have a long way to go to keep up with the most recent logistics technology in the market, Mr. Danga said he believes the country is moving in the right direction.

“It’s only a matter of time. The Philippines is in a good position. More investors are willing to invest now because of our growing GDP… Sooner or later, these technologies will come. It’s quite competitive now in terms of this kind of market,” he said.

“From what I know, there are a lot of companies, at least the business owners, thinking of this already. But they’re not willing to shell out money on full automation or some sort of automation immediately.”

Mr. Danga noted if the Philippine market continues to mature, companies must soon invest in smart technology to stay alive, as no amount of manpower would be able to keep pace with the expected growth of logistics demand from e-commerce.

AI-generated poetry, paintings, and drawings: Is it still art?

By Zsarlene B. Chua, Joseph L. Garcia, and Michelle Anne P. Soliman
Reporters

FAIR-SKINNED, brown-eyed, and dark-haired, Ai-Da speaks with an English accent. She wears a white long-sleeved blouse and black trousers. Since April, she has been studying her subjects and sketching them using her bionic arm in a company in Cornwall, England.

Estela Vadal stands against the wall of a bookshop in Maginhawa St., Quezon City. Her bright eyes recognize the face of the person who stands in front of her and she takes a photo. After a few seconds, she asks the person to wait. Like a Polaroid photo, a printed receipt is then produced with the person’s photo and a short Filipino poem below. “Naghihintay lamang ako sa pag-ibig, upang ibalik ang lahat ng iyong nalimutan,” read the first stanza.

Ai-Da and Estela are both robots.

Art is driven by emotion, and since man started to think and feel, they have long considered art to be the sole purview of man. While animals can think, and feel emotions, humans have far more ability to execute and express desires and fears resulting in work that cements who they are in time.

However, recent developments in human-driven technology have created art done through artificial intelligence.

Machines capable of artificial intelligence, those that retain and improve upon information they received, have shown that they can perform tasks above the mundane: practicing law and journalism, for example, at near-human speed and efficiency.

While automation has long been feared by several labor sectors because of the mathematical efficiency of robots that do jobs usually performed by humans, those in the creative fields have sat back, assured that their contributions to society can never be replaced by a computer.

Until now.

Edmond de Belamy, a portrait, was auctioned off in October 2018 at Christie’s for $432,000, a leap from its estimate of $7,000 to $10,000. Edmond de Belamy was created by Obvious, an art collective based in Paris, using Generative Adversarial Networks (GAN). “It’s an artificial intelligence algorithm used to synthesize images,” said the members of Obvious in an e-mail to BusinessWorld.

Obvious is composed of “three childhood friends [who] wanted to do something creative together”: Hugo Caselles-Dupré, Pierre Fautrel, and Gauthier Vernier. “We [were] all fascinated by technology and Hugo had the chance to study artificial intelligence in college. He came across GANs and that sparkled the idea of using AI to do art. The collective is called Obvious because we want to democratize AI and explain it so that it becomes obvious what AI is at the moment,” they wrote in an e-mail.

In an article on Christie’s official website, Obvious member Mr. Caselles-Dupré outlined the process of creating Edmond: “The algorithm is composed of two parts. On one side is the Generator, on the other the Discriminator. We fed the system with a data set of 15,000 portraits painted between the 14th century and the 20th. The Generator makes a new image based on the set, then the Discriminator tries to spot the difference between a human-made image and one created by the Generator. The aim is to fool the Discriminator into thinking that the new images are real-life portraits. Then we have a result.”

GAN was invented by scientist Ian Goodfellow in 2014. “GANs have been used for creative purposes since their creation in 2014,” said the members of Obvious. For example, they have been used to synthesize the faces of models and humans for advertisements, and improving upon images used in astronomical research.

Ai-Da, who was named after a British mathematician and computer pioneer Ada Lovelace, is considered to be the “first humanoid robot artist.” Created by British inventor and gallery owner Aidan Meller, she is built with cameras in her eyes and AI algorithms which help coordinate her arm to create art.

Rather than replicate the art she sees, she interprets it and produces a different output despite studying the same subject.

“We do not quite know how the output is going to be when she does a drawing. We just felt that she needed to have a[n] expressive style,” Mr. Meller told CBC radio.

Inspired by technologist Ross Goodwin’s AI machine which prints English poetry, Filipino programmer and poet Marlon Hacla created Estela Vadal (whom he named after his mother), the “first robot that prints poetry in Filipino.”

The engine that Mr. Goodwin used, explained Mr. Hacla, was based on the character-level language model called char-RNN by Andrej Karpahty, director of the artificial intelligence department and autopilot vision of American automotive and energy company Tesla. “[The engine is where] you can basically prepare a text that the software can study and after the software has learned the text, it can learn the text on its own,” Mr. Hacla told BusinessWorld in an interview on June 8 in Katipunan, Quezon City.

Mr. Hacla used Ross Goodwin’s engine as a basis in the creation of Estela.

“Ang gusto ko lang was to see a robot na kayang tumula (I only wanted to see a robot capable of writing poems). Ganoon lang ka-simple yung motive (That’s how simple my motive was),” Mr. Hacla said about his motivation to create Estela. The robot evolved from a Twitter-bot that generated poetry that he made in 2017. “We’re in the age now [where] we have the technology to teach a machine to create poetry,” he said.

“I was interested [in getting] people to read the poetry,” he said. To encourage people to try the robot, Mr. Hacla added the camera feature.

The robot was completed in 2018 and was first exhibited at Roel’s Bookshop in Quezon City.

IS IT ART?
Andrew Conru, founder of the annual robotic competition Robot Art Competition Exhibition, said that artistic creations are diverse. “Every generation tries to come up with a new genre, a new style, a new category of art. I don’t see robot art as any different than yet another way for people to express themselves,” Mr. Conru said in an interview with Creators, a sub-domain of Canadian digital media company Vice Media.

Mr. Conru is an internet entrepreneur behind the first online dating site WebPersonals and Adult FriendFinder.

“The camera didn’t invalidate the portrait artist, as the portrait artist was often trying to capture a deeper emotion [rather than] a perfect copy of the sitter,” Mr. Conru writes on the competition’s webpage. “However, the camera opened up a whole new form of art — photography. Likewise, human-generated art will always be highly respected not only for its creativity, but… our shared human experience.”

“It’s a new type of art, which is really exciting. Think of it as the new camera: it gives the artist so much more ways to express himself,” the members of Obvious said of the new medium of artificial intelligence.

The new technology as incorporated in art has been a recent success. However, limitations remain and improvements are yet to be done.

“It’s very hard to make them work, it’s unstable, we don’t fully understand why it works… There a ton of room for improvement here and that’s what researchers are tackling,” wrote the members of Obvious.

According to Dave King, founder of creative AI company Move 37, creativity is not a God-given thing. It’s a process, and it takes practice. “Art is one of the last domains in AI where there is an optimistic view on how humans and machines can work together,” said Mr. King.

But then one comes up against the question: Should AI-generated artworks be considered art since these were not created by humans?

For art collective Obvious, it is considered art. “It is still art since the intention comes from a human.”

Richie Lerma, Salcedo Auctions director and former curator of the Ateneo Art Gallery, agrees. “The technologies behind AI are still created by human minds, and so it would stand to reason that they can still be considered to be human creations,” he told BusinessWorld in an e-mail.

On the other hand, Mr. Hacla said it remains a complicated situation. “I designed how she (Estela) learned and generates text. I would like to take credit since I designed the text she studied and how she generates it. I could claim na ’yung poems na gine-generate niya (that the poems she generates) are actually my poems. But that is not the case,” he said, adding that intellectual property in this case remains a debatable subject.

“That’s what is interesting. Who now owns Estela Vadal poems?,” he asked. “Akin ba siya? Kasi parang hindi. Akin yung robot. Pero hindi ko alam kung pwede ko bang i-claim na akin rin yung poems niya (Are they mine? I don’t think so. The robot is mine. But I do not know if I can claim ownership of its poems),” he said.

THE HUMAN RESPONSE
In the international scene, artist collective Obvious and Aidan Meller are not alone is exploring the world of AI-generated art.

The third Robot Art Competition and Exhibition received 100 submissions last year. The 2018 winner was Pindar Van Arman with three paintings: two AI-generated portraits “made with varying degrees of abstraction” (according to Van Arman’s website, www.cloudpainter.com) and a rendition of Paul Cezanne’sHouses at the L’Estaque.

Mr. Van Arman said in his blog, “For each of the past three years, internet entrepreneur Andrew Conru has sponsored a $100,000 international competition to build artistic robots called RobotArt.org. His challenge was to create beautiful paintings with machines and the only steadfast rule was that the robot had to use a brush… no inkjet printers allowed.”

Even before the opening of Ai-Da’s first solo exhibition at St. John’s College in Oxford, England on June 12, her works on view — 20 paintings (actually canvases which are printed with her work then painted over by a human), two videos, and four sculptures — had already been sold for over $1.2 million.

According to her creator, Mr. Meller, the emergence of AI is an opportunity to experiment on its positive and negative effects.

“We’re doing it because we’re actually very, very concerned about the use and abuse of AI, Mr. Meller told CBC radio.

He added that there are future plans to make Ai-Da to paint and create pottery.

Meanwhile, Obvious noted that the scenario of AI superceding humans is yet unforeseen.

“It’s impossible to forecast such a thing. The best we can say is that for now AI Art is much more human than people tend to believe,” the members of Obvious wrote.

“What we can notice is that humans are very afraid of machines ever replacing them one day. Maybe this fear is what will prevent such a thing from happening,” they added.

As for the local art scene, more creations of AI-generated art are yet to be seen by the public.

“I would like these artworks to first be shown at galleries, whose task it is to develop and expand audiences,” Mr. Lerma wrote in an e-mail. “As an auction house, we deal primarily with the secondary market, and would thus gauge marketability on the local market’s response to AI-generated art.”

Estela Vadal has been exhibited in various art and literature festivals such as the 2019 Performatura at the Cultural Center of the Philippines, the Philippine International Literature Festival (PILF) hosted by the National Book Development Board (NBDB), and the Manila Mini Maker Faire at the Mind Museum. According to Mr. Hacla, negotiations are ongoing with the Quezon City Department of Education (DepEd) for the robot poet to tour public schools in the future.

“[The presence of artificial intelligence] is now happening in the international scene. However, the way people are responding to it, they are not prepared. They do not know how they will respond to these kinds of artworks since it is something new. We are still trying to figure out how people are going to respond to it,” Mr. Hacla said.

As an example, Mr. Hacla said that he once invited students to try the robot while it was on exhibit at the bookshop. “I observed that the kids were only interested in getting their photo taken. But somehow, the kids went home with poetry even if they usually do not read poems. I did not realize na napabasa ko ng tula yung mga bata (I got the kids to read poetry),” he said.

“There are dynamics that you will only know when you show the artwork to the people. We can only try to present it to them and see how they will respond,” Mr. Hacla said.

As for how AI will affect the future of local art scene, Mr. Lerma remarked, “That remains to be seen.”

PHL to push full integration of e-government systems by 2022

By Charmaine A. Tadalan
Reporter

THE PHILIPPINES is on track towards the full integration of e-government systems by 2022 as key agencies push to become more digital.

In its 2018 E-Government Survey, the United Nations (UN) assessed the Philippines as having a “high” E-Government Development Index (EGDI), a measure of a country’s e-government capacity.

The EGDI takes into account three sub-indices, such as the online service index (OSI), in which the Philippines scored “very high,” the telecommunications infrastructure index and the human capital index.

The UN reported that in most of the countries with a high EGDI and very high OSI, like the Philippines, the “human capital development indices are quite high, but telecommunications infrastructure is unevenly developed, resulting in lower EGDI scores despite having relatively advanced levels of online services delivery.”

In the same report, the United Nations also highlighted the need for a comprehensive e-government masterplan to ensure system continuity across all agencies and to protect the public’s data and privacy.

The Department of Information and Communications Technology (DICT), the lead agency in promoting e-governance, is developing an integrated government portal, which will allow the public to avail of various government services by accessing a single website.

“Meron tayong ginagawang government portal na platform. Sa platform na ito, narito na lahat ’yung mga websites ng gobyerno na pwedeng i-access ngayon ng mga citizens natin,” DICT Undersecretary Eliseo M. Rio, Jr. said in a telephone interview. (We are developing a government portal. In this platform, citizens can access all government websites).

“Para sa isang integrated na government portal na pag isang access lang ng mga citizen natin, nandun na lahat ’yung mga different government agencies na nagbibigay ng mga serbisyo online.” (This is an integrated government portal that citizens can access, where they can see the different government agencies that offer online services).

The DICT Secretary said the government portal is still undergoing pilot testing, which was further delayed by the late passage of the 2019 General Appropriations Act, but may still be implemented by the end of the year, at least for online services provided by major government agencies.

“Hindi pa gaanong nabubuo ito dahil tine-testing pa, pina-pilot test pa ’yung mga connectivity ng mga different government agencies na nagbibigay ng serbisyo online,” he said. (It’s still in the process of testing; the connectivity of online services of government agencies is still undergoing pilot testing.)

“Itong ginagawa namin ngayon, nakuha na namin ’yung pondo because di ba nagkaron ng konting delay; by the end of this year.” (This is what we’re currently doing, now that we received funding, because remember there was a little delay, so by the end of this year.)

President Rodrigo R. Duterte signed on April 15 the 2019 national budget, Republic Act No. 11260, which was four months late, after a months-long impasse between the House of Representatives and the Department of Budget and Management (DBM) and later between House leaders and Senate leaders. The President vetoed some P95.3 billion in appropriations that he deemed unconstitutional, reducing the total amount to P3.662 trillion from the initial P3.757 trillion.

Despite this, Mr. Rio sees the integration of major government websites by the end of 2019 and local governments, down to the community level, by 2022.

“Hindi lang ’yon, pati ’yung mga government agencies na wala pang online services, pwedeng tulungan namin gumawa ng kanilang website with online services capability dito sa platform na ito. Dito sa portal na ito, pwedeng lahat ng government agencies down to the, kahit na barangay, pwede maka-access ng online services,” he said. (Not only that, the DICT can also assist even government agencies that don’t have online services to create their own website with online services capabilities, through this platform. This portal will include all agencies down to the barangay)

“But of course, by the end of this year ’yung mga major department ng gobyerno na nagbibigay ng online services.” (But of course, by the end of this year, only major department with online services will be completed)

The Department of Finance (DoF), whose agencies are largely concerned with the management of revenue collection, included a digital transformation strategy in RA 11063, or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Finance Assistant Secretary Antonio Joselito G. Lambino II — PHILIPPINE STAR/MICHAEL VARCAS

“’Yung sa TRAIN Law, it was signed in December 2017. There is a program that is part of the digital transformation strategy for tax administration,” Finance Assistant Secretary Antonio Joselito G. Lambino II said in a telephone interview.

Mr. Lambino said, for one, the Bureau of Internal Revenue (BIR) has partnered with South Korea to develop an e-invoicing program. The program is still in its early stages, and is targeted for completion by December 2022.

“Meron po tayong kasama d’yan na tinatawag na e-invoicing program, ito ’yung sa BIR, in partnership with the Government of Korea, (Along with that, we have what we call the e-invoicing program, which is a project of the BIR, in partnership with the Government of Korea) they will complete the system development by the end of 2022,” he said.

“I believe the e-invoicing system will roll out, at least in terms of the pilot, by next year,” he said.

He added the DoF looked at the e-governance capabilities of South Korea, which is among the top developed countries in UN’s 2018 E-Government Survey.

South Korea ranked third in UN’s list of leading countries in e-government development, following Denmark and Australia in first and second place, respectively.

The UN said South Korea “performed well in online service and technology infrastructure, but its human capital development was relatively low compared to other top-ranked countries.” The 2018 report also noted there is an increasing number of developing countries that have sought out South Korea for help in digitalization, which has resulted in e-government capacity building and training of close to 5,000 public officials from other countries over the past 10 years.

Additionally, Mr. Lambino said the DoF has also prepared a long-term strategy to improve online service to the public.

“There is also a larger effort, a longer-term effort for delivering better services to taxpayers. Ito ay makakatulong sa (this can help with) savings, pagdating sa (when it comes to) tax administration, and it will make the tax bureau more resilient at saka mas makaka-adapt sila sa pagpalit ng polisiya at (and make it adaptable to policy change and) technology,” he said.

“What does that mean? It means a pretty comprehensive digital transformation program from 2019 to 2022.”

He said the digital transformation agenda covers optimizing business processes, implementing an enabling infrastructure, maximizing the use of information for effective business operations, and improving the digital literacy of the government work force.

“For an easier transaction experience on the part of the taxpayers and also for easier tax administration on the part of the BIR. I-de-develop mo pa ’yan further pero ’yung goal talaga (We’ll still develop that but the goal is) a fully automated tax filing. If necessary, paying of tax due online. You can also… over time, it won’t happen right away — we (might) join other countries that offer tax refunds (to visitors) at the airport.”

As for the Bureau of Customs, Mr. Lambino said its digitalization program, known as the Inter-Agency Business Process Inter-operability (IABPI) system, is in a more advanced stage.

“It’s relatively in an advanced stage, that’s the Inter-Agency Business Process Inter-operability System. It will allow us to really be part of the ASEAN Single Window (ASW) kasi meron tayong (because we had) automation and digitalization efforts in the past but those have not really connected us yet to the ASEAN Single Window,” he said.

“For instance, ’yung mga Certificate of Origin, ibang papeles na kinakailangan para sa import and export process ay magiging online na ’yung access n’yan.” (For instance, documents such as the Certificate of Origin, necessary for the import and export process will be accessible online)

The IABPI program aims to cut red tape, by streamlining complicated import and export processing and simplifying documentation. This will allow the Philippines to link up with other states through the ASW, which aims to enable the electronic exchange of border and customs documents among the ASEAN’s member states.

Duterte to give glimpse of road ahead

PRESIDENT Rodrigo R. Duterte delivers today his fourth State of the Nation Address (SONA), which Malacañang said on Sunday should give the country an idea of what lies ahead in the second half of his six-year term.

Mr. Duterte marks the midpoint of his term with an 85% public satisfaction rating in Pulse Asia Research, Inc.’s latest poll despite a bloody anti-drug war and an inflation rate that has been easing back this year into the central bank’s 2-4% target band after successive multi-year monthly peaks that averaged a nine-year-high 5.2% in 2018.

At the same time, overall economic growth has still hovered around 6.5% in the past two years, against 2010-2016’s 6.3% average and the current administration’s original 7-8% target until it ends in 2022. The Social Weather Stations’ June self-rated poverty survey also showed 45% of respondents considering themselves poor, up seven points from the record-low 38% in March and steady from the year-ago 48%.

“Tomorrow, in his fourth State of the Nation Address (SONA), President Rodrigo Roa Duterte will report to the Filipino people the achievements of the administration in the past three years, the present situation of the country, and his plans to further move the nation forward for the next three years,” Presidential Spokesperson Salvador S. Panelo said in a statement on Sunday.

“We can expect that he will tackle the promises he made on fighting corruption, illegal drugs, criminality and rebellion,” he added.

“We can also expect that he will speak about other major issues, such as that of the West Philippine Sea, ways to sustain the growth in our economy, as well as his legislative agenda.”

Communications Secretary Martin M. Andanar said the public will hear today “one of the most important SONAs” since it will outline the administration’s next steps in realizing “legacies” before Mr. Duterte steps down in mid-2022.

“… [I]tong ika-apat na SONA, ito basically ang isa sa pinakaimportanteng SONA ni Presidente kasi (… This fourth SONA is basically one of the most important of such speeches of the President because) this is basically the first SONA of the second half of this administration at ilalatag dito ang plano niya (wherein he will unveil his plan) for the next three years,” according to a transcript of Mr. Andanar’s July 19 interview on the Cabinet Report Sa Teleradyo that was e-mailed to reporters on Saturday.

“At the same time, ay kailangan din ma-report kahit papaano kung ano ’yung mga nagawa (Mr. Duterte will have to report what has been achieved) for the last year and the last three years.”

Mr. Andanar said the current administration remains focused on the bottom line of lifting more people out of poverty, building more physical infrastructure as well as improving law and order.

“This is about legacy building… The Duterte legacy for the next three years will center around, number one, poverty alleviation, bringing down the poverty from 21% to 14% and bringing up the economy to upper middle class status,” he said.

“Secondly, infrastructure – the ‘Build, Build, Build’ with the 75 big-ticket infrastructure projects para sa bansa natin (for our country) including the railways, the (Metro Manila) subway, including the flyovers, including the Skyways… the bridges, kasama ’yung railway sa Mindanao,” he added. “Kailangan masimulan itong lahat ng (construction of all these) ‘Build, Build, Build’ projects (has to begin) within this term; whether matapos man siya o hindi (or not they are completed), kailangan masimulan (construction must begin). And I understand that about 28-35 projects will be done within the term (of Mr. Duterte) out of the 75.”

“Thirdly, nandiyan din ‘yung peace and order because we have long been haunted by communism, the communist rebels sa kanayunan (in rural villages).”

Delivery of the fourth SONA, which will be directed again by film and television director Joyce E. Bernal, may take up to one hour and 20 minutes. “I would surmise that it would be about 45 minutes to one hour and 20 minutes give or take; ‘pag nag-ad lib, mas mahaba (but if Mr. Duterte speaks off the cuff, he could take longer),” Mr. Andanar said.

The National Capital Region Police Office (NCRPO) will deploy around 14,100 policemen on Metro Manila’s streets today, with 9,000 of them in Quezon City alone where Mr. Duterte will deliver his SONA, NCRPO chief Major General Guillermo T. Eleazar told reporters in Camp Crame on Monday last week.

He had said that the NCRPO expects around 15,000 protesters to gather along the stretch of Commonwealth Avenue near the House of Representatives where Mr. Duterte will deliver his speech. Mr. Eleazar added that the police also expects protest rallies near the US Embassy, on Chino Roces Bridge and Liwasang Bonifacio in Manila, as well as at EDSA Shrine in Quezon City.

In a press conference last Wednesday, the Metropolitan Manila Development Authority (MMDA) said it will deploy around 1,500 traffic management personnel and street sweepers for today’s SONA. MMDA General Manager Jose Arturo S. Garcia, Jr. had also said then that his group will keep Commonwealth Avenue open to traffic until 2 p.m. today. Should protest rallies threaten to close the road, MMDA will still try to keep one lane open. — Arjay L. Balinbin with VACF

Scorecard: Philippine Development Plan 2017-2022

Sectors bare expectations for administration’s 2nd half

By Charmaine A. Tadalan and Arjay L. Balinbin
Reporters

PRESIDENT Rodrigo R. Duterte had done relatively well in the first half of his term in pushing fiscal and other economic reforms as well as in stepping up infrastructure spending, but much still needs to be done in liberalizing the economy and overhauling an outdated tax structure, industry groups said in separate interviews last week.

As Mr. Duterte enters the second half of his term with his fourth State of the Nation Address (SONA) today, the Malacañan Palace sought to assure that the remaining three years would be better for business. “The business environment will be very good for investors because there’s no corruption, the ease of doing business is okay…” Presidential Spokesperson Salvador S. Panelo said in a July 15 interview in Malacañang.

Key measures enacted in the first half of Mr. Duterte’s term include Republic Act No. 10963 that reduced personal income tax rates and increased or added levies on several goods and services; RA 11203 that replaced quantitative restrictions on rice with tariffs in order to bring down retail prices, and RA 11032, or the “Ease of Doing Business and Efficient Government Service Delivery Act of 2018”, that is designed to make it easier to do business in the country.

A continuing reform thrust, despite political noise, convinced S&P Global Ratings to lift the Philippines’ debt score to “BBB+” — a historic high for the country — with a “stable” outlook from “BBB” previously, two notches above minimum investment grade and a step away from “A” rating.

With this backdrop, local and foreign business groups cited the need to persevere with reforms well into the next administration.

“We expect to listen to the President set direction in terms of major economic and social reforms for the remainder of his term,” Rakesh Daryanani, president of the Federation of Indian Chambers of Commerce (Philippines), Inc., said in an e-mail when asked on his group’s expectations today.

“We hope that the blueprints for these reforms will be crafted in such a way that these will be sustainable even into the term of his successor,” he added, citing a reduced crime rate and corruption as well as increased infrastructure build as achievements so far.

At the same time, Mr. Daryanani cited the need for the Duterte administration to “take a hard look” at the bill now just awaiting his signature that will further restrict labor contracting, saying this practice “is not the problem” but rather “ending a contract to escape payment of benefits.”

For European Chamber of Commerce of the Philippines (ECCP) President Nabil Francis, “The government’s priority to improve the country’s state of infrastructure through its flagship ‘Build, Build, Build’ (BBB) program is… noteworthy.”

“Nonetheless, we look forward to the government continuing to prioritize economic reforms as part of its socioeconomic agenda to spur growth and development, generate employment, and improve the country’s competitiveness,” Mr. Francis said in a said in a July 16 e-mail, citing the need to further ease restrictions to foreign ownership and participation in utilities and retail trade, as well as for more locally funded public works.

Desired measures include the proposed amendment of RA 7042, or the Foreign Investments Act of 1991, that will remove restrictions on foreigners from practicing their profession in the Philippines; of the 82-year-old Commonwealth Act No. 146, or the Public Service Act, that will lift foreign ownership caps in utilities; and of RA 8762, or the Retail Trade Liberalization Act, that will reduce the required minimum paid-up capital for foreign entrants to the country’s retail sector.

The said measures were also among the proposals of the Philippine Chamber of Commerce and Industry (PCCI); Management Association of the Philippines (MAP); British Chamber of Commerce Philippines (BCCP); Japanese Chamber of Commerce and Industry of the Philippines, Inc. (JCCIPI), and the Korean Chamber of Commerce Philippines.

The MAP, ECCP, BCCP and JCCIPI also pushed for remaining tax reforms, starting with the proposed gradual cut in corporate income tax rate to 20% by 2029 from 30% currently, the highest in Southeast Asia.

BCCP Chairman Chris Nelson said in a July 17 e-mail that Mr. Duterte will have to talk more about “tax reform update to address the uncertainty among businessmen and investors in the country and economic zones” especially amid government moves to overhaul fiscal incentives to make them performance-based and time-bound.

For PCCI President Ma. Alegria S. Limjoco, “a big question now is in proceeding with BBB” and “what are the alternatives” should tax reforms again “have difficulty passing Congress.”

Samahang Industriya ng Agrikultura Chairman Rosendo O. So said in a July 16 mobile phone message that his group would want to hear steps “to lower cost of production… [and an] agriculture product plan for the next three years.” — with K. T. Mina, V. M. P. Galang, G. M. Cortez and D. A. Valdez

Infrastructure, manpower still key to clearing caseload — but IT is helping

By Vann Marlo M. Villegas
Reporter

THE judiciary is still facing age-old problems that are creating some of the most insurmountable bottlenecks in government — the court caseload — and while brute-force methods like more judges and more courtrooms are playing a key role in solving the problem, the Supreme Court believes information technology will play an increasingly larger role.

The meticulous process required to decide cases presents unique challenges to automation, but various projects have been implemented to assist the courts in resolving cases more quickly.

Supreme Court (SC) Public Information Chief Brian Keith F. Hosaka said one of the biggest issues is funding for infrastructure and hiring of court employees.

While some efforts have been made by legislators to create more courts to address the issue of increasing caseloads, the judiciary needs adequate personnel and physical infrastructure for the courts to function “fully and efficiently.”

“Necessarily, you would need more judges together with a full complement of court personnel such as clerks of court, prosecutors, court attorneys, interpreters, stenographers, sheriffs, and additional courtrooms to house them,” he told BusinessWorld in an e-mail.

“It is only when you complete all these elements that a court can function fully and efficiently,” he added.

Mr. Hosaka also said that some local government units have recognized the need for infrastructure for the Judiciary to be able to meet their mandates and have taken the initiative to fund these facilities despite the Congress being slow to address the problems.

Under the 2019 National Budget, the Judiciary was allotted P39.51 billion.

In a report by the National Statistical Coordination Board in 2013, the lower courts had caseloads between 2005 and 2010, equivalent to an annual caseload average of 1,059,484 or 4,221 cases per working day.

Mr. Hosaka said as of May 2019, there are 2,360 trial courts of which 2,338 are Organized Courts those that have authorized positions and a presiding judge. There are 292 Unorganized Courts or newly created courts without presiding judges and physical courtrooms.

He added that 537 organized courts do not have a regular presiding judge but are still functioning thanks to acting judges. “So, basically the problem is on the Unorganized Courts. Until a presiding judge is appointed and a courtroom is constructed to house the new courts, then we cannot have a fully functioning and efficient trial courts to hear cases. “

The trial courts are composed of the Regional Trial Courts (RTC), Family Courts, Metropolitan Trial Courts (MeTC), Municipal Trial Courts in Cities, Municipal Circuit Trial Courts, Sharia District Courts, and Sharia Circuit Courts.

ELECTRONIC SYSTEMS
For the judiciary, technology has long been recognized as a possible means for addressing caseload and overcoming challenges such as insufficient infrastructure and manpower.

“(T)he Supreme Court has undertaken numerous reform initiatives to hasten the administration of justice without sacrificing due process and fairness,” Mr. Hosaka said.

Among these reforms is the Judicial Strengthening to Improve Court Effectiveness (JUSTICE) program, funded by the High Court’s development partner American Bar Association-Rule of Law Initiative.

“(T)he JUSTICE program is a reform initiative aimed at enhancing court efficiency, transparency, and accountability through an automated system which replaces manual court processes,” he said.

The JUSTICE program includes the Electronic Courts (e-Courts) System, an electronic management system which allows judges and court personnel to “easily monitor, manage, and process cases.”

According to the 2015-2016 annual judiciary report, the e-Courts system also aims to speed up the decision and resolution of cases and cut the court backlogs. Public access to information is also available in public kiosks at the entrance of the halls of justice.

The e-Courts System was first launched in Quezon City in 2012. The SC said the automated management system is being deployed or implemented in 249 second-level courts and 95 first-level courts. Among the operational locations are Quezon City, Angeles City, Lapu-Lapu City, Tacloban City, Davao City, Cebu City, Makati, Manila, Pasig, and Mandaluyong.

One of the key components is the e-Raffle or electronic raffling of cases to courts. The Mr. Hosaka also said the e-Court system includes an automated hearing system.

The High Court said in its 2015-2016 report that the automated hearing system allows every activity in the court to be “captured electronically… in real time.”

These activities include the orders issued by a judge, minutes of a hearing, the notes of the judge on testimony, marking of evidence, issuance of writs and other processes by linking the computers of the judge, stenographers and interpreters “to allow all individuals to view and edit real-time the documents being prepared.”

“An automated hearing also does away with the delay in the preparation of open court orders and the inevitable postponements due to our present reliance on snail mail systems. The orders and subpoenas are immediately released to the parties present in court, thereby saving at least one month in waiting time if service is done via snail mail,” the report read.

There are also Justice Zones which aim to address delays in the justice system aided by the Justice Sector Coordinating Council which members include the SC, Department of Justice and Department of the Interior Local Government.

The Supreme Court — CRECENCIO I. CRUZ

“It involves developing an area into a zone where there is a minimum number of inter-agency coordinative reforms in the criminal justice system, such as the adoption of e-Courts, automated hearing systems for trial courts, e-Subpoenas for the police, e-Dalaw to facilitate jail visitations, and jail decongestion efforts,” Mr. Hosaka noted, citing a speech by Chief Justice Lucas P. Bersamin in May.

The Justice Zones are located in Quezon City, Cebu City, Davao City and Angeles City.

According to recent data on case disposals obtained from the SC, the courts are able to reach the target number of cases for resolution.

The SC achieved a 108% accomplishment rate in 2018, disposing of 6,487 cases, against the 6,000 target. In 2017, the High Court was able to dispose of 5,685 cases against the 5,840 target. There were 8,726 pending cases as of Dec. 31, 2017, based on the 2017 Judiciary report.

Second-level courts, which include RTCs and Shari’a District Courts, had a 111% accomplishment rate in 2017 after of disposing 229,759 cases out of its 207,850 target and achieved a higher accomplishment rate of 171% in 2018 after disposing 354,816 of the 207,806 target. A total of 642,598 cases were pending at the end of 2017.

A 100% accomplishment rate was attained in 2017 by first-level courts, composed of MeTCs, and Shari’a Circuit courts, among others, disposing 218,023 cases, a little over the 217,840 target. In 2018, the rate was 117%, disposing of 253,707 cases against the 217,616 target. Pending cases as of Dec. 31, 2017 totaled 64,681.

PROSECUTION
Before cases are lodged in courts, prosecutors need to determine if probable cause exists to warrant going befoe a judge. Justice Undersecretary Markk L. Perete said there are reforms and projects by the Department of Justice (DoJ) that make use of technology which help in resolution of complaints.

Mr. Perete said complaints and records in the DoJ and prosecutors’ office require the submission of digitized copies to prevent problems of lost documents when natural calamities strike.

“If it’s paperless it’s also easier to send copies of the documents to the other parties which should somehow address delays not only in notification but also in the filing of comment and other responsibilities from the other party,” he said.

He said, however, that the problem becomes data storage, and the DoJ is investing in IT infrastructure with the assistance of the Department of Information and Communications Technology (DICT).

Mr. Perete also said the department has projects for prosecutors called the National Justice Information System, the basis for compiling the crime index, which could possibly be launched by the end of the year or early next year.

With the system, crimes and their features will be mapped to aid prosecutors resolve their cases.

He added the DoJ is working on a program allowing prosecutors to log in and report on the progress of cases. “If nakita namin na yung kaso na ‘to (If we see the case) has not been moving for 60 days based on the app, then we would be able to send troubleshooters to assist our prosecutors.”

Mr. Perete said the DoJ is planning on a project which would benefit the prisoners called the Single Carpeta System to unify the documentation used by the Bureau of Jail Management and Penology and in the Bureau of Corrections.

“Para automatically alam mo na agad kung ilang araw na syang nakakulong (It will be possible to automatically know how many days the person has been detained) and based on that computation alam mo na ‘Uy dapat pala papalayain na natin ’to’ (You would know that this person is approaching release),” he said, adding that the system will help reduce the number of days convicts spend in prison by deducting time spent in detention during trial.

“It also benefits the state kasi (because) you have to imagine how much resources ’yung kailangan mong gamitin (are needed) in keeping a person in a jail facility,” he said.

OTHER JUDICIAL REFORMS
Mr. Hosaka also noted that other judicial reforms are intended to “hasten the resolution of cases.”

The SC issued a resolution in February increasing the threshold jurisdiction of Metropolitan Trial Courts for money claims under the Revised Rules of Procedure for Small Claims Cases, taking the maximum amount for small claims to P400,000 from P300,000. Small money claims must be resolved within 30 days.

The SC also highlighted the importance of the “Hierarchy of Courts doctrine” which it said is a “constitutional imperative” and a “filtering mechanism.”

Mr. Hosaka also said the chief justice has ordered the revision of the Rules of Court — the body of procedures guiding the SC and all courts since 1940.

The JUSTICE program also implemented the Revised Guidelines on Continuous Trial of Criminal Cases on Sept. 1, 2017 in 54 trial courts in Metro Manila. The revised guidelines prohibit litigants from postponing proceedings except for “exceptional grounds.”

“Since its implementation, it has yielded improved compliance rates of cases for arraignment and pre-trial as well as trial and promulgation,” he said, adding the Guidelines included the two to two-and-a-half months resolution of drug cases in the Comprehensive Dangerous Drugs Act, and six months for other criminal cases under the Speedy Trial Act.

While the SC addresses concerns about the faster resolution of cases, Mr. Hosaka noted that coming up with a fair decision requires a judge to consider many things, requiring time.

“Rendering true justice means dispensing fair decisions rooted in due process; and most often, ensuring due process to each litigant, such as the basic rights of being fully notified and heard, necessarily involves time,” he said.

‘Tatay Digong’ thrives on pathos to keep rock-star status

By Norman P. Aquino
Associate Editor

JUN ABORDO’s eyes beam as he talks about how his “Tatay Digong” managed to end the Philippines’ century-old subservience to the United States, its former colonial master.

Mr. Abordo, who’s been working as a messenger for an electricity distributor in Manila, the capital, admits though that he doesn’t agree with all of President Rodrigo R. Duterte’s actions in the past.

“I praise him for killing all the drug pushers of this country, but I strongly disagree with how he has handled our territorial dispute with China,” Mr. Abordo says while resting under a giant acacia tree on a hot Saturday afternoon, perspiration running off his face.

“But as a whole, Duterte has done Filipinos more good than any other presidents before him despite his brash comments against women, the Catholic Church and God himself,” he says as a matter of fact.

VISCERAL SUPPORT
The 74-year-old Philippine firebrand leader has kept his sky-high ratings halfway through his six-year term even after describing God as “stupid,” rebuking church leaders for criticizing his deadly war on drugs and displaying his machismo by kissing women in public.

Mr. Duterte’s penchant for making lewd remarks is often met by laughter from the crowd who admire him for speaking his mind, and has resulted in copycat behavior by his officials.

His steady approval ratings — 85% in the latest Pulse Asia Research, Inc. poll — come despite what his critics consider as a head-in-the-sand response to Chinese aggression in the disputed South China Sea.

“Many supporters’ connection with Duterte is emotional and visceral, not based upon a cost-benefit judgment of his policy performance,” said Malcolm Cook, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.

“They see him as one of them and as their leader. Hence why he is widely referred to as tatay or daddy.”

Since taking power in 2016, Tatay Digong — a term of endearment conceived by his rabid supporters — has deviated from the foreign policy of his predecessor, Benigno S.C. Aquino III, by seeking closer investment and trade ties with Beijing, including over resources in the South China Sea.

The Philippines under Mr. Aquino had sued China before an international arbitration tribunal over its territorial claims, and won. He also strengthened the Philippines’ alliance with the US to try to check China’s expansion in the major waterway.

Majority of Filipinos seem to agree with Mr. Aquino’s stance, thinking that the country should try to regain islets occupied by China and assert its rights in the sea. The proportion of Filipinos who think that way has risen to 93% in June from 89% in December, according to a Social Weather Stations poll.

China has been building artificial islands in the disputed Spratlys and setting up installations including several runways. It claims sovereignty over more than 80% of the South China Sea based on its so-called nine-dash line drawn on a 1940s map.

POLITICAL WILL
According to Mr. Cook, the tough-talking president’s high popularity despite the Filipino majority’s sentiment against China suggests that people don’t put too much weight in the issue of territorial defense when they appraise Mr. Duterte’s performance.

From a list of Filipinos’ top 15 concerns for government action, territorial integrity came in at No. 13, according to a Pulse Asia poll in March 2017.

But despite all his faults, no one can dispute Mr. Duterte’s commitment to action.

“Duterte has had accomplishments on the ground and his political will has been a major factor,“ said Ramon C. Casiple, executive director at the Institute for Political and Electoral Reform in Manila.

The economy has grown more than six percent under Mr. Duterte, who has also managed to ease Muslim rebellion in the south by creating a new autonomous region with greater powers.

Major crimes including murder and rape have declined by 58% in Metro Manila during the first 35 months of his term, according to the police.

“Mr. Duterte has yet to create a legacy for himself and he has another three years to do that, “ Mr. Casiple said. “He is likely to get a number difficult bills in Congress passed including charter change, and tax reform.”

But ISEAS-Yusof Ishak Institute’s Mr. Cook thinks that Mr. Duterte should do less and focus more on fewer key goals.

“Dropping charter change and federalism, neither of which has popular support, would be good.” he said.

“Putting more presidential effort into economic reforms like the Trabaho and land use bills, and changes to foreign investment rules would leave him with a better legacy.”

IT-BPM industry reaps the rewards; Now to gear up for new technology

By Gillian M. Cortez
Reporter

ONE of the fastest-rising sectors in the Philippines, the information technology and business process management (IT-BPM) industry has reaped the rewards of growing demand for IT and other services. With business process outsourcing (BPO) thriving, the industry has also provided jobs to many Filipinos as the population transitions to become more technologically-savvy.

According to a 2018 study by the Department of Labor and Employment’s Bureau of Local Employment (BLE), the current workforce in the IT-BPM industry is 1.23 million strong and generates about $25 billion to the economy. The industry hopes to increase employment to 1.8 million in the next three years.

The Information Technology and Business Process Association of the Philippines (IBPAP), in its Philippine IT-BPM Roadmap 2022, estimates that in the next three years, the industry will grow by up to 7.8 million direct and indirect jobs. It also projects that 73% of jobs generated in the IT-BPM sector will be mid to high-value jobs.

Despite showing signs of not dying down any time soon, the BPO industry and its employees are facing pressure from automation. The Philippines is viewed as having a long way to go in improving worker skills and being ready for technological disruption.

The International Labor Organization’s (ILO) 2016 report, “The Future of Jobs at Risk of Automation” from its “ASEAN in Transformation” series, views the BPO sector in the Philippines as having the highest proportion of workers at high risk of automation in the services industry at 89%.

In the 2017 A.T. Kearney Global Services Location Index, the management consulting firm reported that around 1 million BPO jobs in the Philippines could be at risk in the next five years if automation spreads in the industries that employ BPO services. While automation will cancel out jobs, it will create new positions that call for more highly-skilled workers. The challenge is that these new jobs don’t always end up being taken by those who have lost work.

For workers in these industries, while the boom in automation is ideal when it complements workers and eases their day-to-day tasks, that isn’t always the case. Technological advances during past Industrial Revolutions suggest that workers are often on the losing end.

“Ideally, automation is great if it will help workers lessen tasks but historically, it was never pro-worker. There will be job losses somewhere,” BPO Industry Employees Network (BIEN) President Mylene Cabalona said in an interview with BusinessWorld.

“Once automation pushes through, a big percentage of workers will lose jobs and I don’t know how the government will address it… this is going to have a huge impact in the economy of the Philippines,” Ms. Cabalona added.

For now, she said that there are few worrying signs of automation-driven disruption but she believes there should be an initiative by the government to safeguard workers who are at risk to lose jobs from advances in automation. The government should consider this because the IT-BPM industry is one of the industries that generates the largest tax.

The Philippines is rated a little below the middle tier of The Economist Intelligence Unit’s (EIU) Technological Readiness Ranking published last year. In EIU’s forecast period of 2018 to 2022, the Philippines scored 5.5 and ranked #55 out of 82 countries featured in the list. The country rose from its previous ranking of #60 in the period of 2013 to 2017. In the same Technological Readiness Ranking, Australia, Singapore, and Sweden were at joint number one with scores of 9.71875. Placing last was Angola, which had a score of 1.5625.

ILO’s Charles Bodwell, the Enterprises Development Specialist under ILO’s Decent Work Technical Support Team, said the key is evolving faster than other countries vulnerable to automation.

“Will the Philippines evolve as fast as its competitors? I think it remains to be seen. There could be (job) replacement or complementation by technology (but) the more repetitive, and the more easily (work is) able to be put in an expert system of some sort, the more probable it’s going to be replaced,” he said in an interview with BusinessWorld.

IBPAP Board Trustee Jonathan D. de Luzuriaga said in an interview with BusinessWorld that the IT-BPM industry’s transition to automation will not be as sudden and swift as most expect. The adjustment will happen slowly, providing leeway for employers and employees to prepare.

“I think the transition is going to be slow. it’s not going to have a very huge adverse effect that we can’t plan for,” said Mr. De Luzuriaga, who is also president of the Philippine Software Industry Association (PSIA) . He noted that many services offered in the BPO industry are candidates for automation or digitization by artificial intelligence, especially in the customer service segment.

“We’re saying more than 60% of that will be a candidate for disruption… We have a workforce of about 1.3 million Filipinos that are already accustomed to servicing other geographical units. (We’re) very fluent when it comes to speaking the language of digital (and) communication is obviously not a huge impediment…The important thing right now is to really look farther into the future ad think what type of jobs will be required in order to participate in this digital journey,” he said.

LinkedIn Talent and Learning Solutions Vice President Feon Ang said in an e-mail correspondence with BusinessWorld: “While there have been worries that automation will affect as many as 43,000 low-skill workers from 2016-2022, it is seen as also growing demand for middle to high-skilled talent, with as much as 697,000 openings seen in that same six-year period.”

On the other hand, BLE Director Dominique R. Tutay noted that while technological skills will be in demand in the industry, other higher-order traits such as communication skill and critical thinking will also be in focus. She said in a text message to BusinessWorld: “The industry hopes to increase employment to 1.8 million by 2022, mostly high-value jobs requiring higher-level skills related to technology, Artificial intelligence, critical and analytical thinking, interpersonal communication, and leadership.”

Acumen Strategic Consulting, Inc. Managing Director Pauline G. Fermin told BusinessWorld in an interview that the outlook for artificial intelligence and the BPO sector is not all that threatening if both the academe and the companies prepare adequately.

“I really don’t think that we will ever lose opportunities for jobs in our population… I don’t see the need to panic that jobs for future generations will go away. What is critical is for them to prepare themselves and acquire the skills necessary for future jobs…either in school or in the workforce,” she said.

IT-BPM Consultant Jomari P. Mercado also underlined the necessity of readiness in the BPO to face the sudden spike of disruptive trends.

“I think the challenge now is how we ensure that we have an industry that helps the talent pool upskill themselves so they are ready when these opportunities come to them… It’s not digitizing per se but it’s being able to adjust to the offerings we have to our existing client base so we address the ones that will be take over by robotics or AI,” he told BusinessWorld in an interview.

According to LinkedIn’s “Emerging Jobs Report: Philippines,” while automation will be responsible for some loss of jobs in the BPO industry, it will also enable new opportunities to flourish considering there will be time for workers to adapt to digital. The report said, “Automation is the opportunity to upskill workers and will give Filipinos working in the BPO industry a competitive advantage.”

While artificial intelligence will take over routine and repetitive tasks, employees of IT-BPM companies will still need “human skills” such as interaction and communication skills in dealing with customers and clients. These skills are also known as 21st century skills or soft skills, which are traits still not easily automated. In its “Global Talent Trends” report, LinkedIn said soft skills that will be much more in demand despite the age of digitization are creativity, persuasion, collaboration, adaptability, and time management.

IT jobs portal ICTjob.ph CEO Fred Tshidimba said that there should be emphasis on upskilling or reskilling since learning how to work around newer types of demands will keep workers from being at high risk for losing their jobs.

“It’s going to open a lot of new kinds of services that we can develop around automated services. Services that can create something new… people want to develop higher skills. Today, if you’re not learning, you’re going to be at risk but if you’re always constantly learning and making your skills better, there’s no way you’ll be out of a job,” he said in an interview with BusinessWorld.

For the IT portion of the IT-BPM industry, those who deal with coding have an advantage since code is the backbone of developing new technology. As lower-skilled job options in the BPO sector become more endangered, occupations that entail IT skills will not only be easily upskilled but also have more choice in the job market amid technological disruption.

“Automation, this is actually developed by people in the IT industry so you would have to develop some tools that would automate or robots that would process information for you, the more you would need humans to code for you. It’s one of the sectors that would have the highest demand and the highest growth,” Mr. Tshidimba said.

On the side of the BPO labor force, Ms. Cabalona said the government needs to play a role in safeguarding workers who will potentially lose jobs in the event artificial intelligence takes over large swathes of the industry. She added, “The government should have an interest so they can cushion the mass job losses since most who are affected are in the low-skilled frontline and customer service (part of BPO).”

Meanwhile, the government has exerted efforts to anticipate the effects of automation on employment. The Technical Education and Skills Development Authority (TESDA) already mentioned its plans in surveying companies in industries that are more likely to be pressured by automation threats, in which IT-BPM is one of their priority sectors to study. The workplace skills survey, which is to be conducted within this year, will enable the government and private sector to determine which skills will be needed in the boom of the Fourth Industrial Revolution.

“There are changes in technology for industries like artificial intelligence or, as people say, augmented intelligence since there should still be a people factor… Because of the Fourth Industrial Revolution we’re trying to come up with the skills survey,” said TESDA Director General for Policy and Planning Rosanna A. Urdaneta to BusinessWorld through an interview.

Mr. Bodwell said that even with people trying to anticipate the future of the BPO industry, the outlook is too cloudy to be certain how technology will affecting the sector. He noted that 20 years ago no one predicted how much technology changed the economic landscape, and the rate of change could be even more rapid in the next few years.

“Without a doubt, the BPO sector is technology-based. What’s going to happen to that? It’s absolutely unpredictable,” he said.

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