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Kia PHL keeps this year’s sales target at 10,000

KIA Philippines is keeping its sales target at 10,000 units for this year, amid expectations that the auto industry is poised for a recovery.

“We’re keeping the target for now because we’re not yet in the middle of the year,” Kia Philippines President Emmanuel A. Aligada told reporters in Pasay City last week.

He backed the forecast of the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) that sales will improve in the second half, adding Kia’s sales growth is “up and running” compared to the industry’s overall growth.

Kia Philippines is targeting to sell 10,000 units in 2019, a surge from 2,238 units sold in 2018. Last year’s sales were 57% lower than 2017’s, as demand for new cars plunged due to higher taxes and rising inflation.

However, Kia’s January to April sales is already “a little over” 2,000, marking a 35% growth from the comparable period last year and nearing the full-year 2017 sales.

“We’re working still on the same elements, product lineup, awareness, [which] is a concern because we’re absent for a long time so we’re catching up on that,” Mr. Aligada said.

Ayala Corp., through its subsidiary AC Industrial Technology Holdings, Inc., acquired the distributorship for Kia vehicles in the country. The move intended to revamp the Kia brand as well as expedite its domestic growth.

Aside from expanding its dealership network, the company is working with banks to offer low downpayment options for auto loans. The promo allowed a downpayment of P13,000 for some Kia models, significantly lower than the previous minimum of P50,000.

Kia has teamed up with five banks for the promo, namely Bank of Philippine Islands, Inc., BDO Unibank, Inc., East West Banking Corp., Rizal Commercial Banking Corp. and the Philippine National Bank.

“We came up with a new low downpayment program about last month and I think that is what is getting a lot of reaction in social media,” Mr. Aligada said, adding the company has been receiving a flow of inquiries after the new offer.

He said Kia is in talks with three more banks to expand the promo.

At the same time, Kia is eyeing to roll out one more model toward the end of the year.

“The one that we will launch, it will be a popular vehicle… Smaller than the SUV…. Smaller than the Sorrento and Sportage,” Mr. Aligada said.

So far this year, Kia brought in the sports sedan Kia Stinger, a revamped Kia Forte, and the China-manufactured Soluto. — Janina C. Lim

The wisdom of the great unwashed?

Francis Galton, the great Charles Darwin’s half cousin, first noticed a curious fact in 1907: the average of the guesses of members of the crowd on the weight of an ox in the Plymouth country fair proved more accurate than the opinions of each selected recognized expert among the crowd. There is wisdom in the crowd. “Consensus forecasts” is one modern reincarnation; but now it is the average of a “crowd of experts.” The “Delphi method” goes further by using a crowd of experts who, in later rounds, are allowed to modify original predictions based on knowledge of results in earlier rounds with the expectation that the opinions will converge to the true value. The collective intelligence revealed by “social swarms” of networked players mediated by a collective intelligence platform follows the same logic in the digital space, and with surprisingly accurate predictions. The failures of collective rationality are, however, no less spectacular — booms and busts in stock market, Tulipmania, Ponzi schemes, Benito Mussolini, Hugo Chavez.

Surowiecki (2004) set down the conditions that make for one and not the other — members of the crowd must have their own pertinent private information (diversity) and coldly decide based on this information, not on how others decide (independence). These conditions are hard to satisfy in real life but seemed so in the Galton meat market experiment. On the other hand, the wisdom of the crowd becomes spectacularly wrong when decisions are subject to emotion (mobocracy), imitation, herd behavior or information cascades — that is, when individual decisions are made based on how others decide.

In a democracy, majority voting and one-man-one-vote is the platform that mediates collective decision-making. Socrates (sic Plato’s Republic) attacked democracy as a prescription for chaos and advocated totalitarianism under an enlightened dictator as ideal, pointing to the Spartan monarchy as evidence. This was the dominant opinion until the French Enlightenment philosophers chafing under the absolute monarchy of the Bourbons dared to reflect on democracy as alternative to absolute monarchy. One result of enduring beauty is the Condorcet Jury Theorems due to French Academy member Marquis de Condorcet. He proved that with enlightened voters (competence of greater than even chance to be right), the decision of the crowd is likely to be more accurate than that of the monarch; more so with a larger polity; with unenlightened voters (mobs), the monarch beats the crowd and more so in larger polities. Condorcet paid the highest price for the truth of his own theorem — he was arrested and imprisoned by the rampaging Montagnards mob and died, some say poisoned, in his cell. The conditions for the validity of Condorcet are identical to those that validate Galton’s “wisdom of the crowd.” Galton, unbeknownst to himself, had stumbled on Condorcet a century later. It took another 50 years, around the 1950s, for the world, now beknownst to itself, to formally rediscover Condorcet.

Why are we in June 2019 harping over these rather abstruse if remarkable social science moments? In May 2019, the Philippine polity voted overwhelmingly to reaffirm its faith in President Rodrigo Duterte. The people dealt the opposition’s Ocho-Diretso slate a 0-8 thrashing. And few will say that it was a flawed election; the results hued closely to pre-election surveys. Prominent journalist and respected social critic, Vergel Santos’ op ed article entitled “The Philippines Just Became More Authoritarian, Thanks to the People,” in the New York Times suggests that vox populi has been heard. It was not a stolen election and, however distasteful the result to some people, it is the people’s decision.

One reading is that the people have reaffirmed its social contract with Dutertismo: less political space in return for more economic space. The people have voted to hand the last bastion of check and balance, the Philippine Senate, to Duterte. He now has a free hand. Did the Great Unwashed give the prim and proper of the Philippines a lesson in discernment? Only time will tell.

And what can this mean? For one, oppositionist obstructionism can no longer be blamed for meager progress in the economic space. Consequently, there is less call to extend a state of emergency in Mindanao to the whole country. Will this new boost of power be used to enable the market to expand economic space? Or will it be used rather to indulge in populist excess that stifles the market? This is the mother of all questions. Deng Xiaoping of China used his autocratic power to enable the market towards shared prosperity; Hugo Chavez of Venezuela used his electoral reaffirmation to pursue aggressive populism that killed the market and engendered shared poverty.

In its first three years, Dutertismo has hued gingerly to the shores of respect for the market; Duterte has largely, if with some slips, honored his promise to leave economic policy to his economic team. What will the next three years bring? Beware of populist excess either from Duterte or from his zealous appointees. It can empty the treasury and leave little for growing the economic pie; it can sap the energy of the market as will the proposed ENDO law. Populist excess was what first denied Metro-Manila water concessionaires the rightful reimbursement for contracted income tax privilege and then penalized them for the water crisis not their making. But it was not Duterte’s; it was the water regulator’s altogether, perhaps misreading the boss’ intentions á la Becket. When Duterte at first correctly concluded that the regulators should be fired for incompetence but then switched to threats to review and void the concession contracts, he was letting his populism trump the market. Unilateral dissolution of contracts without adequate compensation would stifle the market and usher in the twilight of the “rule of law.” That is the Rubicon that not even the reaffirmed Duterte can cross without self-damage.

The great Enlightenment theologian and philosopher, St. Thomas Aquinas, identified the Rubicons that not even the Almighty God can cross — HShe cannot sin; HShe cannot clone Himerself, and HShe cannot make a triangle with more than 180 degrees. Either action will destroy the very essence of Godhead. Likewise, trifling with the rule-of-law will destroy economic progress and turn the triumph of the May elections into the curse of the Great Unwashed.

 

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

Central bank nod for LTNCDs drives Security Bank stock

THE NEWS on Security Bank Corp. receiving regulatory approval to issue up to P20 billion worth of long-term negotiable certificates of time deposits (LTNCDs) last Tuesday drew interest for some investors, but it was heavily offset by the sell-off of Philippine equities that day following the performance of the Nasdaq index that drove market sentiment at home.

A total of 3.08 million Security Bank shares worth P524.77 million exchanged hands from June 3 to June 7, data from the Philippine Stock Exchange showed.

Week-on-week, its share price fell by 1.8% to P171.90 on Friday from its May 31 closing of P175 apiece. However, its share price was up by 11.2% for the year.

One of the factors that drove the stock’s movement was the Bangko Sentral ng Pilipinas’ (BSP) approval of Security Bank’s plan to raise up to P20 billion through LTNCDs.

“Security Bank traded in a wide range for two days [between P167.9 per share to P175 on June 4-5] when the news was disclosed, but it managed to close flat a day after the disclosure,” Timson Securities, Inc. Equity Trader Jervin S. de Celis said an e-mail.

“So, instead of buying [Security Bank] shares when the news about the long term notes were approved, investors waited for the stock to go a little lower…,” he added.

Like regular time deposits offered by banks, LTNCDs offer higher interest rates. However, it cannot be pre-terminated although it can be sold on the secondary market, making them “negotiable.”

Security Bank’s board of directors approved the issuance of up to P20 billion in long-term papers in multiple tranches.

In a previous press conference, outgoing Security Bank President and Chief Executive Officer Alfonso L. Salcedo, Jr. said the LTNCDs will likely be issued “within the second half” of this year.

The last time the bank issued LTNCDs was in May 2018 when it raised P5.8 billion, marking the second tranche of its P20-billion program and following the P8.6 billion raised in November 2017.

On the same day of the disclosure, however, Philippine stocks fell, following the 1.6% decline by the tech-heavy Nasdaq index, which was dragged by Alphabet, Inc., Facebook, Inc., and Amazon.com on worries that the companies are targets of US government antitrust regulators.

On the domestic front, the bellwether Philippine Stock Exchange index (PSEi) slumped 139.51 points or 1.72% to close at 7,945.37 that day. Prior to this slide, the main index had recorded gains for five straight days supported by heavy foreign buying.

“[The Security Bank stock] was not spared from the sell-off in the PSEi on June 4 when it opened at P175, which was its intraday high… then closed at P170, the lowest price of the day… A day after the disclosure, the stock went [to as] low as P167.90 which investors took as a chance to buy at a bargain until it closed at P172.10,” Mr. De Celis explained.

“Market players were probably a bit scared to take long positions on June 4 when they disclosed the news…It’s like catching a falling knife by taking a long position in a falling market,” he added.

The bulk of the stock’s trading activity happened on the next trading day following Security Bank’s disclosure on LTNCDs, with a volume turnover of 2.18 million shares and a value turnover of P369.07 million.

For China Bank Securities Corp. Research Director Garie G. Ouano, the LTNCD issuance is a “short-term concern.”

“Since this amount (P20 billion) would approximately double SECB’s outstanding LTNCDs, the concern could be its potentially negative impact on SECB’s net interest margin (NIM),” Mr. Ouano said in a separate e-mail.

“Over the longer term, the LTNCD issuance is likely to facilitate loan growth,” he added.

Security Bank’s attributable net income of P2.38 billion in the first quarter of the year was 1.5% higher than the P2.35 billion in the same period a year ago.

“In terms of earnings growth drivers, [Security Bank] is among the banks best positioned to benefit from easier monetary policy and declining yields since the risk to NIMs from repricing is minimal,” Mr. Ouano said, adding that the bank’s loan-to-deposit ratio is “the lowest among index banks.”

Timson Securities’ Mr. De Celis said due to the lower rates and bank reserve cut, Security Bank is seen to benefit from the expansion of its loan segment and earnings.

Mr. de Celis pegged the stock’s short-term support at P161 and resistance at P181 pesos.

For China Bank Securities’ Mr. Ouano, the stock’s support and resistance levels over a two-week horizon are at P165.05 and P181.7, respectively. — MAM

Resilience and heart

This entire story about a series of tobacco tax increases was triggered by House Bill (HB) 4144, which the pro-tobacco House leadership hastily approved in late 2016. This bill wanted to increase the then unitary rate of PHP 30 per pack to a dual-tier rate of PHP 32 and PHP 36, respectively. The reformers from both inside and outside government opposed it because the proposed rates were low and the two-tier system reverses the previous reform of having a single tax for all brands regardless of prices, thereby resulting in less revenues and allowing smokers who cannot afford the higher price to shift to the lower-taxed cigarettes.

To counter the bad proposal, Congressman Joey Sarte Salceda filed HB 4575; his bill increases the unitary rate to PHP 45 followed by an increase of PHP 5 each year until the rate reaches PHP 60. Unfortunately, this superior proposal was not taken into consideration by the Lower House, which passed HB 4144 without public scrutiny.

In 2017, the battle shifted to the Senate. But the Senate was not keen on tackling the issue because it was in the midst of deliberating other tax reforms, packaged as the Tax Reform for Acceleration and Inclusion or the TRAIN law.

Through persistence, the advocates finally found a champion in Senator Manny Pacquiao in October 2017. Aiming for one million less smokers by 2022, he filed Senate Bill (SB) 1599, which increases the rate to PHP 60 per pack in the first year followed by a nine percent increase annually. A boxing champion proved to be a fitting champion against tobacco.

Two weeks later, Senator JV Ejercito, then chair of the Committee on Health, filed his own PHP 90 cigarette tax proposal. His main intention was to generate funding for the Universal Health Care (UHC), which he sponsored.

Despite this, Committee on Ways and Means Chairperson, Senator Sonny Angara, chose not to table the tax bills for discussion. Senators Pacquiao and Ejercito, together with Senators Risa Hontiveros and Bam Aquino, manifested to include the tobacco tax in TRAIN, but it did not happen.

It then came as a surprise that the bicameral conference committee bill on TRAIN in December 2017 included a hike in the tobacco tax of PHP 5 per pack in the first year, followed by incremental increases of PHP 2.50 until having a rate of PHP 40 by 2022.

As a whole, this was a weak tobacco tax provision. Although the 17-percent increase in the first year was significant, the succeeding rates were very low to prevent an increase in the number of smokers. It sure felt like the quest for higher tobacco taxes was to end there.

The year 2018 brought with it much political noise in the face of the higher-than-expected inflation that was wrongly attributed to TRAIN. Despite the fact that the surge in inflation was mainly a result of the rise of the Dubai crude oil price and the mismanagement of rice policy, the politicians were especially sensitive to tax measures that would increase prices.

Politicians all the more became sensitive to taxes because this was the year before the midterm elections. Legislators, especially those running for re-election, did not want to take risks by being associated with increasing taxes.

However, 2018 was also a year of opportunity, for the Universal Health Care (UHC) bill was overwhelmingly supported by the public and the politicians. Everyone wanted the UHC bill to be fully funded; thus, the campaign to increase tobacco taxes found its way at the top of the 17th Congress’ legislative agenda.

Following the ratification of the UHC bill, the Lower House, led by House Speaker Gloria Macapagal-Arroyo and Ways and Means Committee Chairperson Estrellita Suansing, passed HB 8677, which proposed to increase the tobacco tax rate by PHP 2.50 per year until the rate would settle at PHP 45. The rationale: fill the UHC funding gap of around PHP 62 billion for the UHC’s first year.

At this point, the Department of Finance (DOF), the Department of Health (DOH), the medical profession, and civil society joined forces to campaign for the passage of a much higher tax on tobacco.

In early 2019, Senator Angara, despite being a candidate in the midterm elections, continued the discussions on the proposed tobacco tax bills of Senators Pacquiao and Ejercito. Around this time too, Senator Win Gatchalian joined the Senate champions when he filed his bill of increasing the tobacco tax to PHP 70 per pack.

The advocates hoped that the Senate would approve a good tobacco tax measure before its adjournment to give way to the midterm elections. But they were left hanging with Senator Angara’s commitment to submit a Committee Report upon the resumption of Congress.

Last month, when the Senate resumed session after the midterm elections, advocates only had a sliver of hope for there were only eight session days to pass the tobacco tax bill. The number of days was short, but the process was long: interpellation, amendment, third reading, bicameral conference, and ratification. Senators themselves expressed their reservations in passing a tax measure at the tail-end of the 17th Congress.

But the outpour of support from the public as well as the coordinated efforts of the DOF and DOH proved the age-old adage to be true, “Kapag gusto, maraming paraan; kapag ayaw, maraming dahilan”. Despite the naysayers and strong opposition from the tobacco industry, the ultimate goal of safeguarding the health of the Filipino people shone through.

With the bill certified as urgent and the House Speaker’s commitment to adopt the Senate version, the measure made it out just in the nick of time to be ratified by both Houses before the sine die adjournment. The approved bill increases the tobacco tax rate from the current PHP 35 to PHP 45 in the first year, followed by successive PHP 5 increases until the rate reaches PHP 60 in 2023. An annual tax adjustment of five percent replaces the current four percent. Taxes on e-cigarettes and vapes have also been introduced though at low rates.

Ultimately, the tobacco tax is a victory for health. The bill is estimated to raise about PHP 15 billion in the first year and reduce the number of smokers by 200,000 by 2023.

Among many lessons, two stand out as keys to the reform’s success: resilience and heart.

Many thought that having the reform passed seemed like an impossible task. The people supportive of it, however, were not paid lobbyists who only sought to profit from the outcomes. They were true blue advocates who were steadfast in their hope to uplift the lives of Filipinos. Hence, no matter how many times it felt like a dead end, the pursuit of higher tobacco taxes never wavered.

Crucial reforms can still be won in spite of challenging and less-than-ideal circumstances. No matter how tempting it might be to surrender and declare defeat, take heart. All is not lost.

 

Karla Michelle Yu is a coalition builder and campaigner for Action for Economic Reforms.

AC Industrials brings in Maxus

By Manny N. de los Reyes

AYALA CORP.’s automotive business arm, AC Industrials, launched last Wednesday the Maxus brand in a festive event at the Blue Leaf Filipinas in Parañaque City.

Maxus Philippines thus becomes the sixth automotive brand partner under AC Industrials’ wing, which includes other world-renowned car brands Honda, Isuzu, Volkswagen, Kia and KTM motorcycles.

Maxus Philippines introduced its flagship model, the G10 MPV, and the full-size V80 van, which comes in three variants — Comfort, Flex and Transport.

The Maxus brand traces its roots to Britain’s Leyland Steam Van more than 100 years ago in 1896, followed by the start of Leyland Motors in 1907. This company eventually expanded its products to include sedans, buses and other commercial vehicles throughout its long history. The Maxus nameplate first appeared with the launch of the “Maxus” prototype LD100 van at the end of 2004. The distinctive Maxus V80 and Maxus G10 first rolled out in 2011 and 2014, respectively, with the Maxus G10 establishing the Maxus brand image.

Through this 123-year history, Maxus has become one of Europe’s most influential and recognized commercial vehicle brands, and a leader in the design, production and distribution of international commercial vehicles.

Leyland DAF Vans (LDV), a successor company to Leyland Motors, launched the Maxus brand in 2004, and in 2010, Shanghai Automotive Industry Corporation (SAIC) acquired the assets of the LDV Group and continued the Maxus brand, which has current distributorships in Latin America, Australia, New Zealand, Europe and Africa, among others. In the United Kingdom, Australia, and New Zealand, Maxus vehicles continue to be sold under the LDV brand.

Maxus has been investing in new technologies, prototyping a pure electric wide-body light bus in 2014, an all-electric MPV in 2016, and a hydrogen fuel cell vehicle and Internet-connected SUV in 2017.

It is this European heritage, coupled with the powerful global support of SAIC that provides AC Industrials with the confidence to introduce the Maxus automobile brand in the Philippines. AC Industrials and Maxus Philippines CEO Arthur Tan said: “The Maxus brand continues AC Industrials’ strategy of providing automobiles and motorcycles that not only speak of the rich heritage of their countries of origin, but are also the best examples of a global collaboration in vehicle engineering, design, assembly, and distribution.”

During the Maxus launch program, which was themed “Max It Out!” Maxus Philippines introduced the initial models to be offered locally.

MAXUS G10
Slightly longer than a Toyota Alphard, the Maxus G10 is a 9-seat MPV that offers spacious interior amenities, highlighted by adjustable seating for all seats, which includes four captain’s seats in the second and third rows and 60:40 split rear bench seat with tumble, flexible and spacious luggage room, a 7-inch touchscreen radio with USB and Bluetooth and 6-speaker system, a 220-volt power supply, and front and rear air-conditioning system.

The G10 features double-layer welding technology that meets European MPV active and passive safety standards, driver, front passenger and side air bags, 3-point seatbelts for all seats, ISOFIX child seats, and front and rear parking sensors. The G10 rides on front McPherson struts and 5-link coil springs at the rear. Chassis tuning was done by no less than world-renowned sports car and handling specialist Lotus and GM Pan-Asia.

The P1,680,000 G10 is powered by a Euro 4 1.9-liter 150ps/350Nm diesel engine equipped with a VGT turbocharger mated to a 6-speed automatic.

MAXUS V80 COMFORT, FLEX AND TRANSPORT
The Maxus V80 Comfort is a tall 13-seater van that can serve as a large and spacious family van. The widest in its class, the V80 Comfort can be loaded to up to 1.1 tons, and is powered by a 2.5-liter CRDI diesel engine with VGT. The V80 Comfort boasts dual front air bags, ABS, EBD, ISOFIX, and rear proximity sensors and comes at a price of P1,570,000.

The 3-seater V80 Flex is the cargo van version of the V80 Comfort. With the same body dimensions, engine, safety features, and load capacity as the V80 Comfort, the V80 Flex is ideal for small- and medium-sized entrepreneurs (SMEs) who require powerful and efficient transport of their cargo. The V80 Flex offers spacious, flexible interiors. The Maxus V80 Flex retails for P1,190,000.

Lastly, the V80 Transport variant offers an 18-seat passenger capacity which is ideal for school and shuttle service. It is equipped with the same engine and safety features of the other V80 variants. The Transport version comes with a price of P1,288,000.

Maxus Philippines President Felipe Estrella, in describing the company and its vehicle offers, said: “All of our automotive brands offer unique value propositions to particular segments of the motoring market, and we envision Maxus to be very competitive in the commercial vehicle category, particularly in the passenger van and MPV segments. Not only does its strength lie in transporting families, Maxus also adds a distinct proposition to cargo transport and shuttle services, offering our multitude of Pinoy small and medium-sized entrepreneurs the opportunity to get their shuttle and cargo businesses going in style, comfort and power.”

Maxus vehicles have a periodic maintenance service (PMS) interval of the first 5,000 kms and every succeeding 10,000 kms, or once a year, whichever comes first. This is more convenient and more cost-efficient compared to the industry-standard 5,000km PMS interval. The general warranty is 3 years or 100,000 kms, whichever comes first.

Maxus Philippines also offers a 24/7 emergency roadside assistance, pickup and delivery service for customers, and on-site servicing for corporate fleet accounts.

The first Maxus showroom and service center will be at the Greenfield District in Mandaluyong City. Subsequently, dealerships at ASEANA Manila Bay in Parañaque City, Quezon Avenue in Quezon City, and Cebu in the Visayas region will open. More dealers across the country will open following the establishment of its initial network.

For more information on Maxus Philippines and the G10 MPV and the V80 Comfort, Flex and Transport vans, log on to www.maxus.com.ph.

Sin no more

“Republic Act 10351, or the Sin Tax Reform Law, is one of the landmark legislations under the Aquino Administration. It is primarily a health measure with revenue implications, but more fundamentally, it is a good governance measure. The Sin Tax Law helps finance the Universal Health Care program of the government, simplified the current excise tax system on alcohol and tobacco products and fixed long standing structural weaknesses, and addresses public health issues relating to alcohol and tobacco consumption” (www.dof.gov.ph/index.php/advocacies/sin-tax-reform).

“Many thought it was impossible to pass the Sin Tax Reform Bill: the enemy is strong, loud, organized, and has deep pockets. But, as we have proven time and again, nothing is impossible with the Filipino nation rowing in one direction, heart in the right place, and ready to stand up for its principles,” President Benigno S. Aquino III said at the signing of the Sin Tax Reform Act, December 20, 2012 at Malacañang Palace.

Though civil society rallied for its approval, and the bill was certified urgent by Pres. Aquino, it took months of deliberations before Congress passed the Sin Tax Law (STL), finally winning by just one vote in the Senate. It has been hailed as “the single most important health policy legislation of the past decade” in the Philippines (Kaiser, Kai, Caryn Bredenkamp, and Roberto Iglesias. 2016. Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development. Directions in Development. Washington, DC: World Bank).

The 2016 World Bank review cited above critiqued STL’s performance in the last three years of the Aquino administration, at the cusp of its conveyance to Pres. Rodrigo Duterte’s management. By law, a congressional committee was mandated to review the impact of the STL in July 2016.

“We consider the Sin Tax Law or Republic Act 10351 to be a very good law. Our position is to fully implement the law and let it run its course,” the new Finance Secretary Carlos Dominguez III said in a statement (The Philippine Star Dec 9, 2016). The STL provided for a multiyear transition to a new tax regime, with full implementation stretching to 2017 when all cigarettes will be subject to a single unitary excise tax of ₱30 ($0.70) per pack after a quadrupling of the lowest excise tax tier of ₱12 in 2013 from ₱2.72 in 2012. After 2017 the excise tax would be increased automatically by 4 percent per year. The STL retained revenue earmarking for tobacco-growing regions (almost equal to 15 percent of tobacco revenues), with a major increase in these transfers slated for 2015, based on 2013 revenue realizations (World Bank study, 2016).

By 2016, the STL beneficiary, the Department of Health (DOH) budget was triple its 2012 level (in nominal terms), reaching ₱122.6 billion. By end-2015, the coverage of the poor and near-poor in the National Health Insurance Program (Philhealth) tripled to 15.3million families (Ibid.). Sin tax revenues were also subsequently used to subsidize the insurance coverage of senior citizens, further expanding access to care among the more vulnerable. Moving to a unitary excise tax (abolishing the easily manipulated multi-layered ad valorem taxes) promoted greater transparency and accountability in the allocation of health insurance subsidies by using existing official poverty-targeting mechanisms and by mandating annual accountability reports on the implementation of the STL by all concerned agencies (Ibid.).

To Sec. Dominguez’s consternation, instead of the mandated review of the landmark STL, the House Ways and Means Committee approved within a record one week House Bill 4144, which reversed the STL, and aimed to bring back the onerous two-tier tax system (lower tax for cheaper cigarettes), which under RA 10351 was set to be unitary beginning Jan. 1, 2017 (The Philippine Star, op. cit.). The Department of Finance already had its plan to raise excise tax on tobacco and alcohol anew by 2018 under its comprehensive tax reform program (CTRP).

Civil society and social rights groups protested rabidly on the to-and-fro for the new Sin Taxes in the House of Representatives, especially that 85 percent would be earmarked for Universal Health Care (UHC) and 15 percent for displaced/reoriented tobacco farmers. The DoF had warned that no way would the maximum tax proposed by Representatives of P45/pack be enough to fund even the first year of UHC’s implementation (2020). The program is estimated to cost around P257 to 258 billion, which the government can cover from its current funding sources from the national budget, the Philippine Amusement and Gaming Corp. (PAGCOR) and the Philippine Charity Sweepstakes Office (PCSO) in the amount of P195 billion. But without “sin” tax reform, UHC will be left with a funding shortfall of around P62 billion (dof.gov.ph).

“Sin taxes are not whimsical impositions by greedy governments. Such taxes are carefully calibrated according to the social costs incurred by consumption of certain products,” Sec. Dominguez said (dof.gov.ph May 17, 2019). After two and a half years of both houses of Congress flip-flopping on the tax rates, Senate Bill 2233 (basically adopted from the DOF and DOH recommendation) was approved with a vote of 20-0, increasing the excise tax on cigarettes by P45 per pack effective Jan. 1, 2020; P50 per pack in January 2021; P55 per pack in January 2022 and P60 per pack effective Jan. 1, 2023. This will be followed by a five-percent annual tax hike starting Jan. 1, 2024 (The Philippine Star June 4, 2019).

Finally, finally. But some mischievous minds are saying that it was curious that after that much delay in deciding on the sin tax rate increases, it was signed immediately by both Houses of Congress (overnight transmission and uncharacteristic approval in toto by the Lower House), and delivered practically at the close of the 17th Congress. Siempre naman, the May 13 mid-term elections were just over. Was it not good timing for incumbent legislators to wash hands and show pro-tobacco lobbyists: what can we do — there is social clamor for the urgent health issues on addictive tobacco use, and the DOF clamor to fill the funding gaps of UHC. Neat escape, because if ever there was indeed some lobbying against the increased sin taxes, “utang na loob” or the debt of gratitude would not be on the incoming 18th Congress but would be extinguished with the outgoing 17th Congress.

The World Bank review of the STL recognized “a challenging (Philippine) political economy characterized by pronounced rent seeking and elite capture… in which special interests had often proved hostile to major reforms seeking to serve the broader public interest” (Kaiser, et. al., op. cit.). But the tobacco industry is big, and formidable. Area planted in 2017 stood at 31,214 hectares which produced 48.22 million kilograms of tobacco, of which 58.61 million kg valued at $319 million, increasing five percent increase in both volume and value per year.

(Philippine Star June 11, 2018). The Philippines and Indonesia are among the countries with the highest numbers of smokers worldwide, according to a research study which shows 35 percent smokers among Filipino men, a number which remained the same until 2015.

What can the government do, besides doling the placebo of increased “Sin taxes” to save the lungs of smokers (and secondary-smoke foisted on non-smokers)? “Our Department of Health (DOH) estimates that 87,000 Filipinos succumb annually from complications caused by cigarette smoking. In other words, ten Filipinos die every hour from cigarette-smoking related illnesses,” Senator Franklin Drilon said of the Sin Tax Law (inquirer.com March 03, 2014).

Perhaps Pres. Duterte should ban tobacco smoking, and stop tobacco planting and manufacturing for local and for export, instead of over-exerting for War on Drugs. “You are for human rights; I am for human life,” he says.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

Coffee enterprise hoping to promote peace in conflict areas

By Vincent Mariel P. Galang
Reporter

SOCIAL enterprise Coffee For Peace, Inc. said it hopes to promote coffee growing in conflict areas with an eye towards meeting domestic demand which is currently served largely by imports.

“The concept of “Coffee for Peace” started during our involvement in peace and reconciliation in 2007 in the Pikit area of Midsayap (Cotabato). We were listening to the stories of conflict about land and resources from two different parties, the Bangsamoro Maguindanao people and migrants from the Visayan region. We observed that serving coffee to them to sit down and dialogue, facilitates clarification of issues that would lead to conflict resolution,” Felicitas B. Pantoja, chief executive officer of Coffee For Peace (CFP), told BusinessWorld in an email interview.

Incorporated in 2008, Coffee For Peace aims to promote harmony within communities through joint coffee production by training them to produce coffee.

Ms. Pantoja said 70% of Philippine coffee demand is serviced by imports from Vietnam, Indonesia, and Malaysia.

The company mainly targets communities in conflict areas which have standing coffee trees.

“These areas are mostly where our tribal communities live, and where some rebels are hiding. These also should be forested, but due to indiscriminate logging practices by private companies and slash-and-burn farming by some tribal communities, those areas are left barren and with only cogon grass for cover,” she said.

Ms. Pantoja said that coordination with the local government is a must, but it is important to not look like they are teaming up with the government or with the rebels to achieve reconciliation.

“As a developmental social enterprise, we have to classify which level of conflict we have to enter. First, we respond to the communities’ demand. It involves a lot of listening and social preparation,” she explained.

To date, CFP has trained around 880 farmers in six locations. The company has two cluster communities in Davao Del Sur; three clusters in Bukidnon, one in Mt. Matutum; two communities in Kalinga; one in Mindoro; and one in Antique.

“The communities in Mindanao Island are mostly reconciled communities. They are the communities in low-level conflict and that is why they are able to progress because of the reduced threat,” she said.

Aside from providing a livelihood, it has also helped increase their income by 300%. It has also reforested 21% of the areas in which it operates.

With an initial capital of P500,000, the company has been able to sell over 2,000 kilos of roasted coffee beans annually across the country, as well as to customers in Canada and the United States.

Its other products include green coffee beans and blends served in its coffee shop. The company is looking into producing Arabica coffee, since it has identified various Arabica sub-varieties in the country like Typica, Mysore, Yellow Bourbon, Red Bourbon, Mondo Novo, and Pacamara.

It is now working on building a Food and Drug Administration (FDA)-approved facility for roasting coffee beans to maximize its distribution in supermarkets, grocery stores and trade fairs.

“We are also working on recycling our waste into a product that can earn money like the coffee pulp. Once all of this is set up, we can replicate the model in other countries and we can use this for social franchising,” she said.

“The skill of conflict management helps the community remain intact. Of course, there will always be conflict, but what matters is how you handle it. And these is where we guide the natural peace leaders in the group,” she said.

DMCI on track to complete 2nd tower of Davao project by March

DMCI Project Developers, Inc. said it is on track to complete the second building of its residential condo complex in Davao City by next year.

In a statement, the Consunji-led property developer said it has completed structural work for the 20-storey Belvedere tower of Verdon Parc, located in Ecoland Drive corner Peacock Street in Davao City. The company will be able to deliver units to owners by March 2020.

The company, also known as DMCI Homes, added that construction for the third and fourth towers of Verdon Parc is ongoing, as they target to turnover the units by February 2021 and October 2021, respectively.

Verdon Parc’s first tower was turned over to owners in January 2017.

The entire project stands on a three-hectare property that gives people a view of Samal Island and Mount Apo. It offers units sized from 28 to 56.5 square meters. Prices start at P3.19 million.

Amenities include a kiddie pool, lap pool, gazebo, fitness gym, open lawn, entertainment room, children’s play area, and podium deck area, among others.

Verdon Parc is DMCI Homes’ first project in Mindanao, as its developments are mostly located in Metro Manila. The company said it is building up its land bank to continue expanding in the country, ending the first quarter with 150 hectares or P10.2 billion worth of land under its portfolio.

DMCI Homes will be launching ten projects valued at P104 billion this year located across Quezon City, Las Piñas City, Pasig City, Mandaluyong City, and the City of Manila. It is also set to unveil its first project in Cebu.

The company will also be turning over two residential towers this year, namely the Surya and Raja buildings of Alea Residences in Bacoor City

DMCI Homes saw its net income rise five percent to P481 million in the first quarter of the year, even as revenues slipped two percent to P4.4 billion.

The firm is part of diversified engineering conglomerate DMCI Holdings, Inc., which has core interests in coal mining, water, construction, nickel mining, and off-grid power services. — Arra B. Francia

Barcelona style

IT’S easy to write a love letter to a city like Barcelona in Spain. The capital of Catalonia, it was settled by the Romans and its age shows in its architecture built upon centuries and centuries of care and a reverence for beauty. Barcelona has also served to nurture several artists, including the famed Surrealist Salvador Dali.

For about five years now, BD Barcelona Design has been available in the Philippines through Abitare Internazionale. BusinessWorld visited the Makati store last week to see the items by BD Barcelona Design, with the help of the brand’s General Manager, Jordi Arnau.

Mr. Arnau pointed out that the brand was established in 1973, at the tail-end of the Francoist fascist regime. The brand was founded by a group of about 20 architects, and the brand was initially named Bocaccio Design, named after a famous nightclub in Barcelona at the time — Mr. Arnau compared it to Studio 54 in New York — and there, the architects rubbed elbows with the likes of Gabriel Garcia Marquez and Mario Vargas Llosa. The brand was also named so in honor of the nightclub’s owner, who was one of their first investors.

The brand was risque back in 1973: while they are proud of coming up with the first design-influenced range hoods and mailboxes, they also came up with a vase shaped like a penis, and then an avant-garde lamp that snaked on the floor, and in the advertisements, around a nude model. “That was very risky, 1973. I’m still amazed that they did it,” he said about the penis vase. It wasn’t only risque aesthetically speaking: the conservative mores of the Francoist censors could have sent them all to jail.

The designs are a lot more restrained now: BusinessWorld saw a minimalist cabinet sewn with thread called the Couture, a white console carved with reliefs, and then chairs overflowing with stuffing called the Grasso.

But what is in Barcelona that pushes people to push boundaries, to risk offending sensibilities and the loss of life and limb just to create? The ambitious Sagrada Familia church, still in construction since 1882, sends the message that the people of Barcelona can, and will, try anything. But before the buildings, there came the people, and Mr. Arnau describes them so: “The character of the people there is very daring. They like to take risks, and innovate. Innovation is something that’s very Catalan.”

But Francoist Spain was different, and everywhere you looked then, there was a roadblock to expression, which is important to art and design as breathing is to a person. Mr. Arnau talked about how the brand flourished despite the repression. “The architects, they traveled around with their families. They were 30 years old, and they came from families [that were] very advanced in culture.”

In many states where freedom is dimmed, literature is there to provide a light, as it did back in the 1970s for this group of avant-garde artists and designers: “They couldn’t find nice designs, but you could find nice books, and read.”

Speaking of the Sagrada Familia, it was created by famed architect Antoni Gaudi, who died in 1926. He changed the face of Barcelona, giving it an otherworldly air with the influence of Art Nouveau. We’ve also spoken about surrealist Salvador Dali, whom we invoke again, because part of BD Barcelona’s work involves adapting the works of both, and turning them into furniture that you can purchase. For example, chairs by Gaudi are recreated by the brand, while Dali’s Mae West Lips sofa is sold by the brand. Objects from his paintings are also given new life in three dimensions, as real, solid furniture that you can sit on. “We were very good friends with Salvador Dali,” Mr. Arnau recalled. “We were in touch with him, and his secretary, and we got the rights for them to put… them in production.”

We’ve mentioned artists, and architects, but what do they have to do with a very technical field, that of industrial design? Mr. Arnau speaks of the intersectional relationship between the fields. “It is said that every architect should design a chair. A chair is one of the most complex [pieces]… that you can make.”

“The best designers of the 20th century, all of them were architects.” — Joseph L. Garcia

Gov’t securities to fetch lower rates on demand

GOVERNMENT SECURITIES on offer this week will likely fetch lower rates amid strong demand for the debt papers and as they track the movement of US Treasuries.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today, broken down into P4 billion and P5 billion for the three- and six-month instruments, respectively, and P6 billion in one-year papers.

The Treasury will also offer on Tuesday reissued 20-year Treasury bonds (T-bond) amounting to P20 billion with a remaining life of 19 years and seven months.

A bond trader said in an interview on Friday that the yields on the T-bills on offer today will likely slip by 10-15 basis points (bp) across all tenors from the previous auction.

Last week, the Treasury fully awarded the T-bills it placed on the auction block, borrowing P15 billion as planned out of tenders totalling P49.6 billion. Rates of the three-month, six-month and one-year IOUs declined to 4.992%, 5.4% and 5.498%, respectively.

At the secondary market on Friday, yields on the 91-, 182- and 364-day T-bills stood at 5.042%, 5.345% and 5.457%.

“We still see strong demand on the short end — that’s why we still expect lower yields. It will also track the US Treasuries,” the trader said.

The 10-year US Treasury yield fell to a 20-month low of 2.08% on Friday after the US Labor Department reported job creation of only 75,000 in May, way below the market consensus of 180,000.

“The market may continue to monitor the US Treasury yield movement come auction date,” Robinsons Bank Corp. peso debt trader Kevin S. Palma said in a mobile phone message Saturday.

He added that T-bill rates will likely plummet by 15-25 bps across the board to track the week-on-week drop in yields at the secondary market.

“Market has shrugged off faster-than-expected May inflation print because BSP (Bangko Sentral ng Pilipinas) Governor [Benjamin E.] Diokno was quick to address knee jerk concerns after he assured that inflation is still on a downward trend for the rest of the year,” Mr. Palma said.

Inflation last month accelerated to 3.2% from the 3% booked in April, driven by higher prices of food and non-alcoholic beverages as well as water, electricity, gas and other fuels.

Mr. Palma added that strong demand will persist on banks’ reinvestment requirements due to T-bills worth P14.3 billion maturing on June 11.

Meanwhile, for the 20-year T-bonds, he expects the average rate to settle within 5.2-5.35% — much lower than the last successful auction of the tenor — and to be in line with prevailing yields the secondary market.

The BTr did not accept any bids for its P20-billion offer of reissued 20-year bonds at an April 24 auction.

Had the Treasury made a full award, the papers would have fetched an average rate of 6.215%, down 50.1 basis points from the 6.716% fetched when the debt notes were first offered on Jan. 22 and the 6.75% coupon.

Based on the PHP Bloomberg Valuation Service Reference Rates, the 20-year bonds were quoted at 5.492% on Friday.

“Rosy Philippine economic outlook coupled with a possible [US Federal Reserve] easing as soon as fourth quarter of the year will catapult demand for this auction,” Mr. Palma said.

Meanwhile, the first trader expects the 20-year T-bonds to fetch a rate of 5.3-5.45%.

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in T-bills and P120 billion in T-bonds.

It is looking to raise some P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal

Cross country with the Volvo XC40

Text and photos by Manny N. de los Reyes

ENTHUSIASTS of Swedish premium car maker Volvo know that the title of this article is redundant. That’s because the “XC” in the model name of this week’s test car stands for “Cross Country.”

The XC series of Volvo began with the XC70 of 2003. That long-lived model (its two generations ran until 2016) had a huge “CROSS COUNTRY” decal on its tailgate. That seminal XC model was joined by the XC90 large SUV and the midsize XC60, both of which are still on the market and helping Volvo achieve record sales growth in the last few years.

Then just two years ago, Volvo launched its groundbreaking XC40 compact SUV. The year after that, it was awarded European Car of the Year. Not bad, considering there were new models launched by Mercedes-Benz, BMW, Audi, Porsche, and other European brands that were strong contenders for the award.

The XC40 is a landmark model for Volvo, as it’s the very first compact SUV for the Swedish car maker. The XC40 completes Volvo’s global lineup of premium SUVs, completing the triumvirate with the midsize XC60 and the large XC90 flagship. The XC40 marks, for the first time in Volvo’s long, illustrious history, three new premium SUVs in what is the fastest growing segment of the world car market.

The XC40 is the first model on Volvo’s new Compact Modular Architecture (CMA), which will underpin all other upcoming cars in the 40 Series including its upcoming electric vehicles.

The new CMA delivers an energized feel — alert, precise, responsive and connected — perfect for winding country roads or busy urban traffic while still delivering Volvo’s renowned superb riding comfort.

Volvo’s CMA-based cars have an electro-mechanical rack and pinion steering system that delivers the precision the latter is known for and the effortless maneuverability of electric assist. As you would expect from a Volvo, its clever software is optimized for all weather conditions.

The XC40 offers a selection of optional Drive Modes — Eco, Comfort, Dynamic, Off-Road, and Driver-Defined — that tailor the driving experience according to driver preference and driving conditions.

I got to drive the flagship XC40 — the P3,895,000 T5 R-Design variant. (The range starts at P3,350,000.)

The all-wheel drive XC40 T5 R-Design is powered by a turbocharged 2.0-liter four-cylinder petrol engine with developing 247hp and 350Nm of torque. It’s mated to an 8-speed Geartronic automatic transmission with paddle shifters.

INTELLIGENT SAFETY
Thanks to a suite of driver-assist safety systems, Volvo brings a new safety standard to the compact luxury SUV segment with the XC40. The car is designed to reduce driver distraction and the so-called cognitive load on the driver. Volvo believes that with safety and driver assistance systems actively identifying and mitigating potential conflicts, driving becomes more enjoyable and stress-free.

Features optimized for city driving include a high seating position that gives the driver a clear view of the road, the latest generation City Safety, a 360-degree camera, and Cross Traffic Alert with brake support to assist the driver in reversing and parking situations. Volvo’s cutting-edge Pilot Assist enables semi-autonomous driving during parts of the daily commute.

Needless to say, the XC40 comes with standard Volvo safety features such as ergonomic seats with anti-submarining protection, Side Impact Protection System (SIPS), and Whiplash Protection System (WHIPS), Volvo-invented three-point safety belts and advanced restraints system, and a range of air bags all designed to help protect the occupants in the event of an accident.

Run-off Road Mitigation, Oncoming Lane Mitigation, Driver Alert Control, Road Sign Information, and Lane Keeping Aid are also some of the advanced safety systems that can be found in the XC40.

HUMAN-CENTRIC CONNECTIVITY
Volvo’s Swedish engineers and designers approach connectivity, entertainment, navigation, and car control systems from a completely different perspective — a human-centric one. This has led to a more thought-through and curated approach to connected services, native applications, and smartphone integration.

The Swedes understand that certain technologies are essential in today’s connected world. Making them easy, safe and enjoyable to use in a car is Volvo’s primary concern. Anything that does not actively add to the user experience is not included. Only the most relevant and recent technology is used. This in-car user interface is what Volvo calls Sensus.

Volvo’s cutting-edge Sensus solution is based on the concept of a fully connected and enjoyable experience in the car. The company uses the latest and most relevant technology to deliver a superior user interface and an enjoyable user experience based on what people want and what makes their lives easier.

Volvo understands what people want — seamless connectivity and an easy-to-use interface that allows them to access services and applications that they have become used to outside the car.

Sensus is designed around five basic behaviors and desires: Entertainment, Connectivity, Navigation, Services, and Control. By delivering a suite of applications and interfaces that support these basic and most human of requirements, Volvo has created an award-winning and groundbreaking approach to in-car technology — not surprising from a country that brought you the innovation and elegant simplicity of Ikea and Spotify.

SWEDISH STYLE
Individualism is at the center with the new colorful Volvo XC40. The XC40 takes Volvo into new areas and allows its designers the freedom to create a car that brings a vibrancy, individuality, and playfulness heretofore unseen in the brand — or even in its small premium rivals.

Volvo chief designer Thomas Ingenlath wanted the XC40 to be a fresh, creative, and distinctive member of the Volvo line, allowing its drivers to put their personality in sheetmetal form. He describes XC40 drivers to be interested in fashion, design, and popular culture, and often live in large, vibrant cities — and want a car that reflects their personality.

Street fashion, city architecture, high-end designer goods and popular culture were all sources of inspiration as Volvo’s design team defined materials, patterns and color options for the new XC40.

The XC40 offers a broader and more playful color palette as well as dramatic two-tone applications you’d otherwise only see in a Mini Cooper. The XC40 is, hands down, the most expressive model in Volvo’s portfolio — even considering its coupe, convertible and hatchback stablemates, past and present.

With all these features and more, European premium SUV connoisseurs can expect the XC40 to deliver benefits that will bring go-anywhere motoring to the next level. With expressive design, solid all-around performance, ingenious storage, and uniquely Scandinavian style, build quality, and luxury, the Volvo XC40 is set to raise the bar in the genre.

Duterte’s chance to be immortal

What would it take to have the Philippines progress from a “good” nation to a “great” nation in three years?

The list is kilometric. But let me pare it down to the realm of economics and what is realistic.

To be a great nation, we must: bring unemployment rate down to below 3 percent; elevate nominal per capita income from US$3,730 to US$4,500 a year, putting us in the upper middle income category; reduce the current account deficit from nearly 3 percent of GDP to within one percent; maintain the ratio of government debt to no more than 50% of GDP; boost gross international reserves from US$83 Billion to US$95 Billion, sufficient to finance seven months of imports; and of course, rise in competitiveness from 56th position last year to 38th, the level of Thailand today.

Having a s strong economy opens the doors to other fields of development. It will allow us to further upgrade our infrastructure. It will allow us to have an armed forces with credible defense capabilities. It will give us the means to finance progressive educational programs to leapfrog in the fields of engineering, the sciences, creative thinking and innovation. It will enable us to deepen the coverage of universal healthcare and education subsidies. It will permit us to invest in sports development. It will enable us to widen our diplomatic reach and give the country a louder voice in international fora. This, among many others.

Many frowned at how the political opposition (the Liberal Party) is not aptly represented in Congress and the Senate. The legislature, many say, has become a virtual rubber stamp for Malacañang’s agenda. Be it as it may, this may be a good thing. For the first time since Marcos’ Batasang Pambansa (the Philippine’s legislative body from 1978-1986), the Palace has complete sway over the legislature and can virtually dictate the laws deliberated upon and passed. It has a chance to obliterate the impediments to our development and install statutes that would set us up nicely for decades to come.

The country’s greatest weakness is its manufacturing sector and to restore its vibrancy is to unlock the nation’s full potential.

Many believe that the country is already in the midst of a manufacturing resurgence, what with the manufacturing sector clocking in an average growth rate of 7.6% between 2010 and 2017. The statistics, however, are deceiving. The truth is that nearly 45% of our entire industrial output is attributed to food and beverage manufacturing of which 90% are consumed locally. Everything else, we import — from simple construction materials to chemicals, from food ingredients to plastics, from textiles to heavy equipment.

How weak has our manufacturing sector become? A good barometer is our merchandise exports.

Last year, revenues derived from merchandise exports amounted to just US$67.49 Billion. It was a fraction of Vietnam’s US$245 Billion and Thailand’s US$252 Billion. It is also a fraction of our imports bill which topped US$108.9 Billion. This resulted in a massive trade deficit of US$41.41 Billion, the biggest shortfall in our history. If not for revenues derived by service exports (IT-BPO), OFW remittance and tourism, the country would have fallen into a balance of payments crisis.

Interestingly, 49% of our exports are made up of electronics and semiconductors; 14.3% are composed of computers and electronic machines; 3.3% are composed of technical/medical apparatus; and 1.8% are attributed to ships and sea crafts. The balance is made up of fruits, gems, minerals and ores. We have become over-dependent on just a handful of products and lost our competitiveness in auto manufacturing, smartphones, agro-industries (e.g., frozen prawns), furniture, toys, housewares, footwear, garments, textiles, paper & pulp, leather goods, jewelry, rubber and plastic, among many others. These industries continue thrive in Vietnam and Thailand.

Four impediments have dragged down our manufacturing sector and stood in the way of our industrialization. They are:

• Expensive power cost

• Expensive logistics cost

• The negative list of industries in which foreign investors can participate

• Low government spending on research and development

To rid the country of these impediments requires acts of congress. This is where President Duterte’s sway over the legislature comes in.

IMPEDIMENTS EXPLAINED
Power Cost. The Philippines’ expensive power cost is the greatest disincentive to foreign investors and the most serious barrier to industries. It is the reason why multi-national corporations choose to build their manufacturing plants in Vietnam and not in the Philippines. For instance, despite the many competitive advantages of the Philippines, Samsung chose Vietnam over us for its US$2 Billion smartphone manufacturing facility purely because of more favorable energy costs. As a result, we lost out on the windfall of capital formation, recurring export and tax revenues, jobs for our people and technology transfer. This is a story we hear over and over again.

To quantify just how expensive our power rates are, the approximate base power cost in Manila is $0.20 per kilowatt hour compared to $0.08 in Hanoi and $0.12 in Bangkok. Add to this the deluge of taxes imposed by government which are passed on to the consumer. They include VAT, local franchise tax, missionary electrification tax, environmental tax, feed-in tariff and system loss charges. With all these add-ons to our electric bill, the Philippines is priced out of the market.

So this begs the question — how do we push down the price of electricity? One solution often put forward is for government to subsidize the power industry. To this, some quarters say that to offer energy subsidies provides industries with an artificial, unsustainable advantage whilst putting stress on the national budget.

I say that the cost of subsidies have to be weighed against its benefits in terms of job creation and its economic multiplier effect. I reckon the advantages far outweigh the costs. Besides, our neighbors are directly and indirectly subsidizing their power cost, why shouldn’t we? We need to step-up our game for our manufacturing industries to thrive. Otherwise, it will go through a slow painful death.

Government should ask the question — has the EPIRA Law of 2001 worked to our advantage or against it? Has our power cost structure helped build industries or render them uncompetitive? The state of our manufacturing industries says it all. EPIRA should be amended as it is the greatest stumbling block to our industrialization.

Given the scandalous profits earned by power companies and their immense lobbying power, only the President can persuade the legislature to revisit EPIRA.

Logistics Cost. Being an archipelago, we need an extensive network of roads, bridges, railways and airports to connect our islands. Government’s Build.Build.Build program has begun to address this. More importantly, however, is to improve and expand the cargo handling facilities of our seaports. In most advance countries, a vessel can dock, unload and reload in one day. It takes two to four days to do this in our ports due to congestion. The cost of downtime is passed on to the consumer. In addition, despite passage of R.A. 10668 or the Liberalization of Philippine Cabotage, inter-island cargo shipping is still operating as an oligopoly. This needs to be revisited.

Again, most local shipping lines are owned by families entrenched in the political field. Only the persuasive power of the President can overcome this.

In parallel, we need to accelerate infrastructure spending to between 5-7% of GDP from now until 2022 to truly drive down logistics costs.

Negative List for foreign investors. To open medium to large scale retail operations, private practice, build-operate & transfer contracts, utilities operations and broadcasting industries to foreign investors will open a floodgate of foreign capital and a massive infusion of technologies. The 60-40 equity ownership of companies is also outdated.

To correct this requires an amendment of the Constitution. Again, only the president can mobilize the legislature for charter change.

Research & Development. A UNESCO study shows a direct relation between R&D spending and economic and social development. The higher the R&D budget, the more rapidly industrialization takes place and consequently, the faster social development goals are met. In 2017 the Philippines spent .7% of GDP on R&D while South Korea spent 4.3%, Singapore spent 2.2%, Thailand spent 5%; and Vietnam spent 2%.

The fruits of R&D spending are not immediately apparent and therefore hard to justify when deliberating the national budget. Due appropriations can be made towards R&D if it is mandated by the Palace.

The legislature may not have the ideal mix of oppositionists. This may be the best thing that had happen to us since reforms can sail through with relative ease and without being diluted.

Everything lies on the President. His hands is the power to correct flawed laws and enact better ones. On his hands lies the opportunity to make the nation move forward to greatness. If he does, he will prove to be the vanguard we all waited for — our very own Lee Kwan Yew. For this, he will be immortal. Let’s hope the President uses his power in this way.

 

Andrew J. Masigan is an economist.

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