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Stocks may drop on negative market sentiment

By Denise A. Valdez
Reporter

PHILIPPINE STOCKS are seen to trade lower this week amid negative sentiment caused by developments in the global scene.

The Philippine Stock Exchange index ended flat on Friday with a 5.7-point or 0.07% uptick to 7,824.59. The all shares index inched up 8.28 points or 0.17% to 4,679.04 at the close of last week’s trading.

On a weekly basis, the main index declined 1.65% to 7,824.59 mainly due to the hazy progress of the trade talks between United States and China. This is the second straight week the PSEi recorded a loss.

Value turnover last week climbed to P25.87 billion from P25.77 billion a week ago. Net foreign selling for the week increased to P3.22 billion from P2.43 billion previously.

Last week, Reuters reported that trade experts are flagging the unlikelihood of signing the “phase one” US-China trade deal within the year. US President Donald Trump himself said he finds China is not meeting his expectations in the trade talks.

“This market will not rally until we see a pick up in trading volumes and until investors start to look at economic and corporate fundamentals,” AAA Southeast Equities, Inc. Research Head Christopher John Mangun said in a market note sent over the weekend.

“Investors continue to focus on the sentiment which has been very grim due to external factors abroad and the uncertainty on the direction of our own economy since last year. Several companies are at multi-year lows which could encourage bargain hunters to start loading up and position themselves for the longer term,” he added.

Mr. Mangun said the Philippine market has been moving sideways all year long and investor optimism is “slowly fading away due to a lack of conviction that the market can go higher.”

“We may see it continue lower and test stronger support levels at the 7,500 area in the coming weeks,” he said.

Online brokerage 2Tradeasia agreed with Mr. Mangun’s thoughts on bargain hunting in the upcoming week.

“Several large caps have breached fresh lows during the week, and most are already trading oversold zones. With seasonal liquidity this December, it would be worth to consider shopping for bargain stocks,” it said.

“While equities may be in competition with the roster of bond issuances from both government and private sectors, not all will be awarded the fixed income float. As such, free cash should find its way into equities than stay idle,” it added.

However, it said foreign investors may remain bearish on the local market, noting the Thanksgiving holiday in US on Nov. 28 and the MSCI rebalancing. The Southeast Asian Games in the Philippines may also sidetrack investors this week.

“Within such lull, it would be good to gradually position on prime stocks ahead of an expected rebound. Immediate support is 7,700, resistance 7,900-7,950,” 2Tradeasia said.

Style (11/25/19)

San Mig Light partners with PURVEYR

IN CELEBRATION of its 20th anniversary in the Philippine market, San Mig Light partnered with local brand PURVEYR to produce a retail collection that features 20 different designs by Filipino artists and designers as part of a social creative campaign called 20 Light Years. The collection includes five types of merchandise — T-shirts, tote bags, scarves, beer mugs, and coasters — with designs inspired by four social topics that deserve a spotlight right now, namely Gender Equality, Arts and Creativity, Community Development, and Mental Health. Each social topic has a merchandise set of five different designs as each artist was assigned to one social topic and one type of merchandise, completing the 20-piece collection. The collections and the participating artists are: Gender Equality — Kita (T-shirt), TRNZ (tote bag), Gianne Encarnacion (scarf), BLIC (beer mug), Kris Abrigo (coaster); Community Development — Hey, Mady! (T-shirt), Jai Hernandez (tote bag), Anina Rubio (scarf), Sleek Shy (beer mug), Distort Monsters (coaster); Mental Health — Donsuki (T-shirt), Issabarte.art (tote bag), Ev.yu (scarf), Raise Hell (beer mug), Jill Arteche (coaster); and, Arts and Creativity — Chad Manzo (T-shirt), Bastinuod (tote bag), Strap (scarf), Tropical Futures Institute (beer mug), Revere (coaster). Launched on Nov. 14, the collections are available in PURVEYR Post Poblacion, online through PURVEYR.com, and in all the “20 Light Years: Usapan” panel talks that San Mig Light and PURVEYR will be hosting until the end of January. T-shirts cost P600, tote bags are P500, beer mugs are P400, coasters (a four-piece set) are P400, and scarves are P300. Four panel discussions will be mounted in four different locations in the country. For more details, follow @sanmiglightph and @purveyr on Instagram, and the San Mig Light x PURVEYR 20 Light Years campaign at purveyr.com/20lightyears.

Furniture inspired by Filipino music

MUSIKASANGKAPAN: Obra ng Pinoy Milenyal is a special exhibition of over 50 pieces of furniture which are interpretations of Filipino music, from the traditional to pop. The collection from the Interior Design Program of the De La Salle-College of Saint Benilde (DLS-CSB) includes outdoor lounges inspired by the Filipino courting harana; armchairs reminiscent of a classic vinyl record player; accent chairs inspired by wind chimes; furnishing that portrays indigenous instrument from T’boli; and hammocks and coffee tables inspired by the iconic songs of singers such as Rey Valera, Regine Velasquez, the Eraserheads, Moira dela Torre, and Ben & Ben. A special section celebrates the legacy of Philippine National Artist for Music Ryan Cayabyab. MusiKasangkapan: Obra ng Pinoy Milenyal is on view at the S Maison Main Atrium, Conrad Manila, Marina Way Seaside Boulevard, Mall of Asia Complex, Pasay City, until Nov. 28.

PHL Harvest focuses on Antique’s fashion and food

THE Department of Tourism’s (DoT) Philippine Harvest returns for its 7th edition featuring the province of Antique. It will be held from Nov. 29 to Dec. 1, from 11 a.m. to 11 p.m. (Friday-Saturday) and 11 a.m. to 10 p.m. (Sunday) at the Central Square in Bonifacio Global City. More than 10 weaving associations will feature the patadyong or multi-functional wrap-around cloth made of cotton blends in plaid pattern as well as handwoven scarves, shawls, bags, T-shirts, shoes, hand-painted pillows, bariw and banig bags, place mats, carpets, hot pods, runner, embroidered products, and accessories at the joint DOT-SSI Group, Inc. initiative. Antique’s food exhibitors will bring local products ranging from muscovado sugar, candies, virgin coconut oil products, roasted coffee, peanut, taro chips, sweet potato chips, ginger, turmeric, squash, monggo, kadyos, batwan, corn, gabi, canton squash, to moringga powder. Visitors can also enjoy a variety of kakanin, vegan food products, local coffee, organic fruits and vegetables, artisanal tuyo, and gourmet salted egg, among others. The Philippine Harvest is open to the public free-of-charge.

Nationwide Round-Up

DoLE to launch mobile app for worker, OFW concerns

THE DEPARTMENT of Labor and Employment (DoLE) will launch a mobile application in Dec., in time for its 86th anniversary, to provide better access to its services for locally-employed and overseas Filipino workers (OFWs). Labor Secretary Silvestre H. Bello III, in a statement on Sunday, said the app will serve as a platform for relaying concerns to the DoLE headquarters and its offices abroad. “This application is intended to provide a major channel for our workers and OFWs to get in touch with DoLE and the POLO (Philippine Overseas Labor Office). Through the use of modern technology, they can relay their labor related concerns and complaints,” he said. Through the app, DoLE will provide hotline numbers and point workers to the nearest DoLE office based on their location. The mobile app, which will be available for free on both Android and Apple devices, will also feature a “Wage Calculator” for computing overtime and holiday pay or deductions on top of daily wages. — Gillian M. Cortez

Seafarers’ group official recommends fewer maritime schools

THE PHILIPPINES needs less maritime schools as only an average of 20% of graduates get hired on board ships, according to Associated Marine Officers’ and Seamen’s Union of the Philippines (AMOSUP) Vice-President Eduardo Ma. R. Santos. “Only 20% are able to board a ship. Kawawa talaga (It’s really a pity for the graduates). That’s consistent, 19% to 20% per year,” Mr. Santos, also the president of the Maritime Academy of Asia and the Pacific (MAAP), told BusinessWorld in Manila on Nov. 6. He explained that this is likely due to the limited number of ships. He said the government should reduce the number of maritime schools, which have been “increasing” despite the low employment rate. He noted that there are currently at least 90 maritime schools that are accredited by the Commission on Higher Education. Asked if there are still good career opportunities for seafarer graduates, he said: “That’s what everybody says. That’s what schools say. Ginawang negosyo eh (It is being used as a money-making venture).” — Arjay L. Balinbin

Labor group reminds employers on Christmas seasonal hiring rules

WITH THE Christmas season drawing near, the Associated Labor Union-Trade Union Congress of the Philippines (ALU-TUCP) has reminded employers to follow labor guidelines in hiring seasonal workers. In a statement on Sunday, ALU-TUCP Spokesperson Alan A. Tanjusay said interviews they conducted with agency-hired workers indicate “an upsurge trend for cheap skilled and unskilled seasonal, temporary and on-call workers in the labor market in time for the Christmas and new year.” “Hiring of contractual, ‘pakyaw’ and seasonal jobs are allowed under existing law. However, these workers must be regular and directly-hired to middlemen manpower agencies and are paid with the mandated and lawful minimum wages and social protection benefits,” the group said. Pakyaw, as defined by the Government Procurement Policy Board, refers to a “system of hiring a labor group for the performance of a specific work and/or service incidental to the implementation of infrastructure project by administration whereby tools and materials are furnished by the implementing agency.” Mr. Tanjusay also noted that there are manpower service providers and agencies that do illegal contracting and sub-contracting. In Metro Manila, for example, female workers “are bidded and bought” for P300 a day while male workers for P400 daily despite the P537 minimum wage in the National Capital Region. — Gillian M. Cortez

Palm oil producers to set up fund to fight critics

KUALA LUMPUR — Palm oil producers will set up a joint fund to counter critics of the industry, a Malaysian government official said on Tuesday, amid growing scrutiny of a commodity which is accused of causing widespread environmental damage.

The cultivation of palm oil, which is used in everything from ice cream to lipstick, is blamed for mass deforestation in Southeast Asia and endangering wildlife such as orang-utans and pygmy elephants.

Tan Yew Chong, secretary-general of the Malaysian ministry of primary industries which oversees palm oil production, told a conference that the new fund will be run by the Council of Palm Oil Producing Countries (CPOPC), an industry body set up by major producers Indonesia and Malaysia.

“We want to go big on that (the fund) to overcome the anti-palm oil issue,” Tan said at the industry conference in Kuala Lumpur, the Malaysian capital.

The fund will implement a new communication and public relations strategy for the industry, among others measures, he said.

Palm oil has come under particular scrutiny this year as the European Union has launched efforts to introduce a law to limit the use of the vegetable oil in biodiesel.

The bloc enacted a law this year to phase out palm oil from renewable fuel by 2030 because of the commodity’s links to deforestation. It is also discussing increasing regulations on food — the palm oil industry’s main source of revenue.

Malaysia, the second biggest producer of palm oil, this year launched a global public relations and lobbying effort to boost the image of palm oil, especially in Europe, Reuters reported.

The campaign is propagated by platforms which say they represent small-scale farmers but is created and run by public relations firms hired by a government agency responsible for promoting palm oil.

Indonesia and Malaysia have been increasing biodiesel usage domestically to boost consumption of palm oil.

Malaysia increased the proportion of palm oil used in biodiesel to 10% from 7% last December, and aims to implement a ‘B20’ program with 20% palm oil content next year.

Tan, the government official, said that Malaysia would start implementing the B20 program in stages from early next year, and will aim to introduce B30 in a few years. — Reuters

Homegrown restaurant brands open opportunities for The Moment Group

By Denise A. Valdez
Reporter

THE Philippines’ appetite for celebrations is opening endless opportunities for the food and beverage (F&B) industry, as a young player such as The Moment Group is already seeking expansion outside Metro Manila and abroad seven years into the game.

The company behind 8Cuts Burgers, Manam Comfort Filipino and Ooma Bold Japanese is heading into 2020 with plans to set foot in Bacoor and Baguio and beef up its current roster of 12 restaurant brands.

Moment is targeting to open Manam in the two new locations within the first quarter next year and launch at least two new homegrown brands, including a new Filipino concept.

The company said it is motivated by the warm reception for its locally made brands such as Manam, which recently joined a pop-up in Singapore and sold out in 24 hours.

“These past few years, there’s been a lot of interest in Manam and this pop-up, our first outside the country, is our bid to really explore that…,” Abba S. Napa, co-founder for creative development in Moment, said in an email interview with BusinessWorld.

Aside from 8Cuts, Manam and Ooma, Moment also handles Manam Express, Shawa Wama, The Mess Hall, Mecha Uma, Mo’ Cookies, Phat Pho, Bank Bar and the local operations of Din Tai Fung. It also operates a catering and events business.

“We’re fortunate on two levels: that we love building our own brands and that we’ve found success in doing that. I think one of Moment’s strengths and something that makes the organization really special is the collaborative way we create a brand,” Eliza R. Antonino, founding and managing partner of Moment, said in the same email.

The company said it sees a low barrier to entry in the F&B industry in the Philippines, which Ms. Antonino dubbed as the “new fashion” as it started to attract even big retailers. “Our malls now have a bigger F&B footprint and I foresee the industry growing even more in the coming years,” she said.

Moment Co-founder for Strategic Partnerships Jon J. Syjuco said this trend is resulting in more astute consumers, and in return a more challenging scenario for new players in the F&B field.

But Ms. Napa said Moment is welcoming such competition with open arms, noting the company is maintaining its growth with near 3,000 employees at present.

“I find it apt that this point in time in the evolution of the Philippine F&B industry coincides with our seventh birthday… To us that represents striking a balance between maintaining our esprit de corps — our willingness to risk and be bold — with the reality that we are getting larger and we now have more responsibilities,” she said.

Since the three joined together in 2012 to form Moment, the company said it was able to open around 40 stores across town and record a double-digit growth year on year.

As it seeks further growth at the unfolding of a new decade, Ms. Napa said Moment continues to target the premium casual dining category, banking on customers’ pursuit of value for money.

“The majority of our portfolio is focused on the occasion of self-reward, and we’d like to hit all occasions for use with a core portfolio built with the DNA to scale,” she said.

Tradeoffs

There were 15.2 seconds left when the Rockets made a push for the final play of the match. They had just seen their five-point lead turn into a one-point deficit following the Clippers’ third basket in the last three-quarter of a minute, but head coach Mike D’Antoni elected not to call their last timeout all the same. They were down one, but confident nonetheless; among other things, they had the league’s most potent scorer in James Harden on their side. And the ball did get to him with 10 ticks to spare. So far, so good; he was poised to add to an extremely efficient 37-point, 12-assist outing.

Unfortunately for the Rockets, bad spacing had Harden facing double coverage as soon as he touched the ball. Not taking any chances, the Clippers enveloped him with defensive demons Kawhi Leonard and Paul George. He immediately made the right play, passing to a wide-open Russell Westbrook. He figured he would get the ball anew after his fellow All-Star, knowing well enough to trust him with the outcome of the set-to, created the requisite separation. He thought wrong; he never got the ball back. Instead, he saw his backcourtmate launch an ill-advised try from beyond the arc that sealed their fate. Why a 22-percent shooter opted to do so when a made two would have led to a win just the same is anybody’s guess.

Granted, Westbrook was free — make that extremely free — for the three-point attempt. Then again, there’s a reason the defense (and, in particular, former teammate George) practically dared him to shoot. He has a historically poor touch anywhere on the court except in the shaded area. And he was particularly atrocious the other day; prior to his hero heave, he was just one of six from trey territory. He even had an airball of a short open shot earlier in the contest. Yet, for all his failings, he thought best to decide the Rockets’ destiny by doing the one thing he shouldn’t have in the crunch.

And therein lies the rub. Westbrook is an asset; his whirling-dervish style has propped up the Rockets’ pace and improved their offensive metrics. That said, his effectiveness as a bulldozing baller has already been handicapped by his advancing age; his finishes at the rim have become less of a sure thing in recent memory. Meanwhile, and more tellingly, he continues to also be a liability. Harden’s singular skill set often has him stationed as a release valve, but he does not possess an adequate touch to at least make the think twice before leaving him alone in the perimeter.

By most accounts, the Rockets went for addition by subtraction in the offseason by unloading erstwhile starting guard Chris Paul, whose relationship with Harden had fractured beyond the point of repair. Meanwhile, Westbrook was a childhood buddy who promised harmony — and, by extension, productivity — on the floor. As the loss to the Clippers showed, however, the move came with tradeoffs. There will be plenty more instances when his defender will leave him alone, and what he does in these times figure to shape their campaign for the hardware. The good news is that the season is young; they still have time to improve. If they truly harbor title hopes, they would do well to help him do so, but sooner rather than later. Else, certain disappointment is in the offing.

 

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is a consultant on strategic planning, operations and Human Resources management, corporate communications, and business development.

Are sustainability reports a fad?

Wider corporate reporting is being promoted as a means to improve corporate governance, as stated by International Accounting Standards Board (IASB) Chairman Hans Hoogervorst in his speech in Tokyo on Aug. 29, 2018. The IASB chair admitted that financial reporting has its limitations and cannot adequately capture certain elements that might be important to stakeholders, such as the intangibles that are vital to the company’s business model and its strategy for long-term value creation. Financial statements are essentially backward-looking reports that contain limited forward-looking information, which means that in their current state, financial statements do not address emerging sustainability issues that might impact a company’s future cash flow.

However, the IASB Chair made it clear that the Board is not equipped to enter the field of sustainability reporting directly. He recognizes in a speech about sustainability reporting in April at Cambridge University that the Board does not have the expertise required to set sustainability reporting standards. Additionally, he notes that there are already several standard setters in this space.

Mr. Hoogervorst also pointed out that regulators and stakeholders should not have exaggerated expectations that sustainability reporting will act as an agent of change and will be effective in forcing companies to “prioritize planet over profit.” That being said, clear public policies can certainly help effect change, and financial incentives are crucial to swaying companies to address material sustainability issues. The rise of sustainability reporting that focuses on stakeholders and provides information about the impact of sustainability issues on the future returns of the company is the most promising development in this space, according to the IASB Chair.

While the IASB will not directly participate in sustainability reporting, it is addressing the limitations of financial reporting through its “Better Communication in Financial Reporting” project. This initiative aims to improve financial communication not by creating new standards, but by providing guidelines on how to better present information that has already been collected. The project contains several strands of work, one of which is revising and updating the Management Commentary (Practice Statement) to include a report on how material sustainability issues may impact the business. The IASB is expected to publish an Exposure Draft of the Practice Statement in the second half of 2020.

On the local front, the Securities and Exchange Commission (SEC) has released a memorandum requiring publicly-listed companies (PLCs) to submit their Sustainability Report together with the 2019 Annual Report (SEC Form 17-A) in 2020. The memorandum issued early this year stated that the guidelines are to be adopted on a “comply or explain” approach for the first three years upon implementation. This means that “companies will be required to attach the template to their Annual Reports but they can provide explanations for items where they still have no available data. However, by 2023, PLCs will need to comply with the Sustainability Reporting Guidelines specified in the memo, or be subjected to the penalty for Incomplete Annual Report (under SEC Memorandum Circular No. 6, Series of 2005).

Like traditional financial reporting, rigorous climate-related financial disclosures do not happen overnight. The path from start to finish can involve twists and turns, as well as the coordination of many moving parts, thereby requiring the collaboration and expertise of a variety of corporate functions to achieve an organization’s ultimate reporting objectives. The following are key action steps companies can take now to prepare themselves for reporting non-financial information.

1. Secure the support of your board of directors and executive leadership team.

2. Integrate climate change into key governance processes, enhancing board-level oversight through audit and risk committees.

3. Bring together sustainability, governance, finance, and compliance colleagues to agree on roles.

4. Look specifically at the financial impacts of climate risk and how it relates to revenues, expenditures, assets, liabilities, and financial capital.

5. Assess your business against at least two scenarios.

6. Adapt existing enterprise-level and other risk management processes to take account of climate risk.

7. Solicit feedback from engaged investors about what information they need to know about climate-related financial risks and opportunities.

8. Look at existing tools you may already use to help you collect and report climate-related financial information.

9. Plan to use the same quality assurance and compliance approaches for climate-related financial information as for finance, management, and governance disclosures.

10. Prepare the information you report as if it were going to be assured, even if you decide not to do so right now.

11. Look at the existing structure of your annual report and think about how you can incorporate the information into your discussion of risks, management’s discussion and analysis (MD&A), and the governance section.

The recent pronouncements of the IASB and SEC on the need for reliable and accurate sustainability reporting underlines the necessity for companies to assess and manage its non-financial performance towards achieving the universal target of improved sustainability. However, for sustainability reporting to be effective and useful, companies should not only view it as an exercise in compliance, but actually a responsibility of every corporate citizen to measure and document their best practices towards achieving the goals of sustainable development to meet the needs of the present without compromising the ability of future generations to meet their own needs.

It would seem then that need for sustainability reporting is here for good. In which case, companies are encouraged not to wait for sustainability reporting standards, or a regulatory requirement, to be mandatory. The time to act for the greater good is now.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Benjamin N. Villacorte is a Partner of SGV & Co.

Lane says ECB policies ‘in good shape’

THE EUROPEAN Central Bank’s (ECB) chief economist Philip Lane said policies are “in good shape” for the baseline scenario of improving conditions over the next one or two years, but further rate cuts can’t be ruled out.

“Under the most likely scenario, we think the current policies are in good shape,” he said in an interview broadcast on Saturday on Italy’s Sky TG24. The scenarios where “more dramatic policies” are required such as “a severe negative shock, a big recession” are not the baseline case, he added.

Earlier last week, Mr. Lane said the central bank is nearing a decision to launch a review of its policy strategy as officials struggle to boost inflation despite years of massive stimulus. In September, the ECB decided to cut rates deeper below zero and to restart the quantitative-easing program, pledging to keep buying assets until inflation is firmly within its target.

“If it is necessary to put the rate lower, we will be prepared to do so,” Mr. Lane said in the interview. “It’s a very important message and this goes back to the wider discussion,” he said, adding that “of course, everyone agrees at some level the negative rate will not be helpful. But our assessment is we are not at that level now.”

In her first major speech, ECB President Christine Lagarde called for a new policy mix, saying public investment should be stepped up to ease the burden on monetary stimulus and ensure the region can thrive in an uncertain world. — Bloomberg

Kasabay sa LakbayA nostalgic look at Petron’s intergenerational service to Filipino motorists

THROUGH more than 85 years, Petron has been an integral part of the Filipino narrative, through all the ups and downs and in the best and the worst times. Since 1933, it has remained resilient in the face of overwhelming challenges and rejoicing in the soaring successes of the Filipino nation.

What truly distinguishes Petron is its deep understanding of the needs of Filipino motorists, founded on a heritage of service that spans more than eight decades, serving generations of Filipino families. This is the theme of Petron’s new marketing campaign, “Kasabay sa Lakbay,” a sentimental journey through important life experiences where Petron has been the Filipino’s reliable partner.

FUELING THE NATION
With its vast network of service stations, ranging from mega stations on major thoroughfares and highways to small, strategically stations in remote, rural areas, Petron has been serving the fuel needs of Filipinos.

Keenly aware of evolving industry trends and the latest technological advances, Petron has always been at the forefront of fuel innovation. It has taken the lead in introducing fuel products that help protect the environment while ensuring optimum driving performance and delivering improved fuel efficiency. All Petron fuels — Petron Blaze 100 Euro 6, Petron Xtra Unleaded, Petron XCS, Petron Turbo Diesel, and Petron Diesel Max — are formulated and produced locally at Petron’s Bataan refinery, the largest and most advanced refining facility in the country.

Petron was the first to offer a full range of Euro 4 gasoline and diesel fuels well ahead of the government’s deadline. Most recently, Blaze 100 was acknowledged as the best gasoline in the country, as certified by international laboratory tests and proven in actual field tests on local road conditions.

FUELING JOURNEYS
Petron always puts the needs and welfare of consumers at the heart of its endeavors. This year, it launched its Fuel Wise campaign to help empower a more informed and more responsible population of Filipino motorists. Since the campaign’s launch, Petron has been traveling across the country to enjoin more motorists to learn and benefit from the campaign.

The spirit of service is embodied by the country’s longest-running motorist assistance program, Petron Lakbay Alalay. Manned by Petron employee-volunteers and now on its 33rd year, it has evolved into a road safety advocacy to ensure that holiday travelers enjoy safe and worry-free journeys.

Especially on long holiday weekends when families and friends embark on road trips to neighboring provinces, Petron employees offer their time to serve at designated Petron Lakbay Alalay locations. There they offer free service checks to ensure vehicle roadworthiness, free medical assistance, clean rest rooms, and even free goodies from partner establishments.

FUELING HOPE
As a responsible corporate citizen, Petron is deeply committed to making a positive impact on the lives of others, especially on those who have less.

Its flagship CSR program Tulong Aral ng Petron (TAP) provides a brighter future for the Filipino youth by fueling HOPE (Helping the Filipino Children and Youth Overcome Poverty through Education). It has provided scholarships to more than 16,000 students in elementary, high school, and college since 2002.

Petron also helps its communities build the foundations for a better life through its programs on environment, health, entrepreneurship and livelihood.

KASABAY SA LAKBAY
As a Filipino company, Petron has withstood the test of time and proven its steadfast commitment to Filipino motorists. Spanning almost three generations of drivers since 1933, it has been an integral part of our grandparents’ journey as the country recovered from the ravages of war and gained independence. It fueled our parents’ adventures through the rest of the century, and advanced with us into the new millennium powered by new technologies. Just as it has been a reliable and constant presence in our life journeys, Petron — Kasabay sa Lakbay — will continue to be there for the future generation of Filipino drivers.

How PSEi member stocks performed — November 22, 2019

Here’s a quick glance at how PSEi stocks fared on Friday, November 22, 2019.

 

The case for CITIRA’s lowering the Corporate Income Tax

Dedicated to amigisimo and contrarian thinker Ernest Leung.

THERE is no question that the Philippines needs a boost to its dismal investment rate (22-24% of GDP while our neighbors are punching at 25-35%). But the question is how? The government’s Corporate Income Tax and Incentive Rationalization Act (CITIRA) claims that a lower statutory corporate income tax has to be part of the mix! The subsequent strident debate on CITIRA mostly centers on how the replacement of gross income tax (GIT) at 5% with a corporate income tax (CIT) will impact locators and foreign investment in PEZA, the source of most of our manufactured exports. But truth to tell, this replacement issue, as important as it is, is a derivative one. While overstaying incentives are a legitimate issue, the major prior reason for the restructuring of PEZA incentives — including the replacement of gross with corporate income tax for locators — is to plug the potential fiscal hole punched by the proposed lowering of the statutory corporate income tax (CIT) rate from 30% to 20%. The crucial claim is that lower statutory CIT will boost investment and growth — a claim, mind you, that is by contrast largely glossed over. Surely, the Department of Finance (DoF) team must have this issue well-covered. But merely pointing to the lower average CIT in our Asian neighborhood (average 20% today), where the investment rate today is higher, is no proof that higher investment rate will result in the Philippines. In 1980s when they were making their move, Malaysia’s and Singapore’s CIT was at 40% while Indonesia’s was at 35%. Nor does it suffice to point to Sweden’s and Denmark’s corporate income tax at 22% in 2019, since Sweden’s was at 60% in 1989 and Denmark’s was at 50% in 1985. A cursory check of the evidence seemed in order if only to confirm the claim.

The CITIRA position finds support in Lee and Gordon (2004) who, over a panel data throughout the period 1970-1997 for 70 countries, found a negative and significant relation between growth per capita and CIT. However, Shevlin et al.’s (2016) cross-country regressions found that the association between statutory corporate income tax and per capita income growth for the period 1995-2011 disappears altogether when area and year fixed effects are added — questioning the robustness of the Lee and Gordon result. Of even more interest is their result that statutory corporate income tax does not associate at all with long-run (two- to five-year horizon) economic or employment growth. Shevlin et al. however find that lower effective tax rate (what firms actually pay, accounting for tax avoidance and on average 7.2% lower than the statutory rates) does associate significantly with higher growth. Hunady and Orviska (2015) find a non-linear relation between economic growth and statutory corporate income taxation for the EU economies from 1999 to 2011: positive for lower corporate income tax rates but becomes negative for higher rates (see also, Misuru and Nakamura, 2019). They do not say whether 30% is high. Rebelo and Jaimovich (2018), conceding at the outset that there is no relation between the long-run growth of the US economy and corporate tax rate, nevertheless argue that the 2017 Trump corporate income tax cut can still deliver a bump in economic growth in the short run if the initial tax rate is exceptionally high. They do not say where the high tipping point lies.

How about firm level investment? Djankov et al. (2008) find that the statutory corporate income tax has no effect on the investment behavior of firms across the world. FDIs do fall with statutory corporate income tax rates, but the FDI issue in CITIRA is different — a switch from a 5% GIT (with CIT equivalence of 13% as per DoF computation) to a 20% CIT, an effective rise in statutory rates for FDI. By contrast, a higher effective corporate income tax rate (see also Ohrn, 2018, for the case of US firms) does have a negative effect on investment. While the number of studies cited here is limited, the overall flavor is clear: within a reasonable range, statutory CIT and growth/investment are not associated.

The Djankov et al. results draw from cross-country regressions for only one year, 2004. Most of the results in this area of study are for affluent developed economies, such as the EU or USA with no allowance made for low income economies as a group. The behavior of the poor is markedly different than the economic behavior of the rich — ask the authors of Poor Economics and 2019 Nobel Memorial Prize winners Banerjee and Duflo.

That the link between statutory CIT, on the one hand, and economic growth and corporate investment, on the other, seems so tenuous was a surprise. In the long debate over low investment rate in the Philippines in the last two decades, the weak rule-of-law on property rights and contracts, the high power cost, the unstable regulatory environment, and the licensing hurdles for investors were the recognized binding constraints. The corporate income tax came up occasionally only because ours is higher than regional average. If there is no real progress in those other identified binding constraints, the envisioned growth and investment boost from lower CIT may be a mirage. Lower CIT may only finance higher dividends for shareholders, more spirited stock buybacks which rewards shareholders, or, if higher corporate investing materializes at all among local firms, it may find its home not in the Philippines but in Vietnam, Indonesia, or Thailand. To embark on a reduction of the statutory CIT and make the export manufacturing sector foot the bill on such unsolid ground seems reckless. I hope I am mistaken and merely missed something really important in this cursory review.

References:

Ohrn, Eric, 2018. “The Effect of Corporate Taxation Investment and Financial policy: Evidence from DPAD,” American Economic Journal: Economic Policy 10 (2): 272-301.

Rebelo S and N Jaimovich, February 2017. “Non-linear Effects of Taxation on Growth,” Journal of Political Economy, 126 No. 1, 265-291.

Djankov S, T Ganser, C MacLiesh, R Ramalho, and A Shleifer, “The Effect of Corporate Taxes on Investment and Entrepreneurship,” NBER Working Paper 13756. Available at https://www.nber.org/papers/w13756.

Ueshina M and T Nakamura, 2019. “An Inverted U-shaped Relationship between Public Debt and Economic Growth under Golden Rule of Public Finance,” Theoretical Economics Letter, 09(06): 1792-1803).

Hunady J and M Orviska, 2015. “The Non-Linear Effect of Corporate Taxes on Economic Growth,” Timisoara Journal of Economics and Business, 8: 14-31.

Shevlin T, L Shuvakumar, and O Urcan, 2016. “Macroeconomic Effects of Aggregate Corporate Tax Avoidance: A Cross Country Analysis.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2800466.

Lee, Y and R Gordon, 2005. “Tax Structure and Economic Growth,” Journal of Public Economics 89, 1027-1043.

Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology and an honorary professor at the Asian Institute of Management. Weaving ideas in coffee shops and evidence-checking of policy proposals is an integral part of his day. He gets his dopamine fix from hitting tennis balls with wife Teena, watering plants, and bicycling.

Going back to the dark days of the water crisis

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Last month, residents of Metro Manila suffered another round of water rationing as water levels dipped in the city’s principal water source, the Angat Dam.

As if on cue, leftist groups staged a protests and called for the re-nationalization of water services citing incompetence by the two water and wastewater service providers, Maynilad and the Manila Water Co. (MWC). They demanded that the concessions of the two companies be revoked and water distribution functions be ceded back to the Metropolitan Waterworks and Sewerage System (MWSS).

Before the hate campaign of these leftist groups gains momentum, let me to put perspective on how life was like when MWSS managed our water systems.

The year was 1991 and I had just started my business. I built a factory in Mandaluyong and I still recall how water was only available for one hour, every 12 hours. We had to hoard water in drums and ration it throughout the day. Homes and factories in our neighborhood dug deep wells to ensure a steady supply, the depth of which got deeper every year as the water table slowly receded.

Dry taps left us with no recourse but to purchase water from vendors at the rate of P30 to P62 per cubic meter (a small drum). Not only was this an added overhead cost for our business, it also caused inconvenience and great stress for all. Maintaining cleanliness (essential in a food manufacturing facility) was a challenge given strict water rationing.

Back then, the MWSS was so inept that it only distributed water to 69% of the metropolis. It was saddled with more than a billion dollars in debt and operated with extreme inefficiency due to graft. The MWSS was in such a miserable state that President Fidel Ramos had to ask Congress for emergency powers to privatize it.

In 1997, the MWSS was successfully privatized with Maynilad winning the concession for the western zone of Metro Manila while MWC won the concession for the east. Both firms absorbed the debts of MWSS and collectively invested close to a P100 billion to provide water and sewerage connections. Today, 96% of Metro Manila is interconnected via underground pipes.

These days, water flows freely in our taps albeit with occasional interruptions. It is worlds away from the conditions we suffered through in the 1990s. It only proves that the private sector is more competent in delivering services than the government is. This is true for water as it is for power distribution and even in highway management.

This is why we should reject the call for the re-nationalization of water services. To go down that road is like eating the food we already vomited.

As mentioned earlier, the water rationing last month was due to the low water levels at the Angat dam. Bear in mind that the management of our dams and securing new water sources are the responsibilities of government, not the concessionaires. The latter’s role is merely to distribute water and manage sewerage systems throughout the city. To blame Maynilad and MWC for the lack of water supply is to bark up the wrong tree.

If there is anyone culpable for the water shortage, it is the governments of Marcos and Noynoy Aquino and all those in between. MWSS chief regulator Patrick Ty admitted that the government was partly to blame for this year’s water shortage due to its failure to do what had been on the drawing board 50 years ago — which is to build an alternative water source for Metro Manila’s ever-growing population.

Plans to carry out the New Centennial Water Source project, which involves the construction of the Kaliwa Dam in Quezon and the Laiban Dam in Rizal, had been discussed since the Marcos era. But the twin projects had been put off again and again amid opposition by, and accommodations for, indigenous folk, informal settlers, the church, and leftist groups.

Several proposals to build an alternative water source were proposed during the Noynoy Aquino administration but these were rejected due to being “redundant.” without this lack of foresight by the Aquino administration we should have averted the shortages we face today.

The good news is that construction of the P12.2-billion peso Kaliwa Dam was given the green light by the Duterte administration. Construction should commence soon as the project had already secured its environmental compliance certificate (ECC) from the Department of Environment and Natural Resources (DENR) last month. When completed, the Kaliwa Dam will ensure that Metro Manila has an ample supply of water, even with low levels of rainfall, for decades to come.

But again, leftist activists and leftists in congress are standing in the way of Kaliwa Dam’s construction. They claim that the project proponents failed to secure free, prior and informed consent (FPIC) from the Dumagat and Remontado residents as required by Republic Act No. 8173 or the Indigenous Peoples Rights Act. They also claim that the dam will contribute to global warning.

I cannot understand the thought process of these leftists. On one hand, they complain about the water shortage and demand long-term solutions. One the other hand, when a viable solution is presented, they demand that it by trashed. With one demand cancelling the other out, government should just proceed with the project as it serves the greater interest of the greater majority.

As for Maynilad and MWC, they are on track towards achieving 100% connection of both water supply and sewerage systems by 2037. Maynilad has set aside P200 billion to build 26 new sewer treatment plants and install 425 kilometers of new sewer lines. As for MWC, they are spending P115 billion from hereon.

Building the Kaliwa Dam will assure us that the dark age of the 1990s water crisis never happens again. We owe it to the next generation of Manileños to build it.

 

Andrew J. Masigan is an economist.

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