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Our economic managers had done a fairly good job until the pandemic struck. Although economic reforms towards improving the business climate and attracting foreign capital have been few and far between, they nonetheless managed to eke-out GDP growth of 6.4%, on average, in the last four years. Inflation was tamed, debt levels were controlled and poverty rates were declining.
I recently met Andrés Ortola, the general manager of Microsoft Philippines. Over lunch, we spoke about how he is adjusting to life in the country and his plans for Microsoft. The Philippines is an important market for the software giant given the size of our population and the country’s rapid pace of economic development. Although Microsoft Philippines has an annual turnover that is slightly lower than its Indonesian and Malaysian counterparts, the prospects for growth are higher here given the wave of digital migrations that is underway in government.
Something that Singapore, Malaysia, Thailand, and lately, Vietnam, have in common is that they all adopted the tried and proven Asian formula for economic development. Each pursued rapid industrialization by attracting foreign capital, by building their manufacturing competencies, and by exporting their way to prosperity. Within a generation, these countries have become high or upper-middle income economies.
Last month, the International Monetary Fund announced that Vietnam will surpass the Philippines in terms of per capita income by the end of this year. This comes on the back of Vietnam’s decisive anti-virus response which significantly insulated it from the pandemic’s economic blowback. Vietnam’s economy is poised to grow by 3% in 2020 while the Philippine economy will likely contract by a massive 9%.
Like many professionals, the seven months in quarantine pushed me to reassess my values. I realized that the accumulation of wealth and the consolidation of power does not define success — neither does recognition nor fame. In the end, it is our relationships, our health, and our wellbeing that matters. I realize that this may read like a cliché, but it does not make it less true.
Businesses were so complacent in the pre-COVID days that innovation was something done only when absolutely necessary. Most companies resisted innovation as it usually entailed large investments and required management to step out of their comfort zones. Innovation is always expensive and hard.
Anyone who has recently landed or departed from the Mactan-Cebu International Airport (MCIA) will attest that it is both an architectural and operational triumph. MCIA represents redemption for the Philippines after having had the infamy of operating the worst airport in the world in previous years.
Red tape and over-regulation have been the perennial problems in doing business in the Philippines. For local businesses, it is a source of stress and an unnecessary obstacle that erodes productivity. For foreign investors, it is reason enough for them to invest in Singapore and Malaysia rather than the Philippines. So severe is our red tape that for the year 2019 (evaluation period 2018), the World Bank ranked the Philippines 124th out of 190 countries in terms of ease in doing business. Within ASEAN, the Philippines was only better than Cambodia, Myanmar, and Laos.
In August 2016, the economic ministers of Canada and the ASEAN agreed to co-sponsor a study to determine the economic outcomes should an ASEAN-Canada Free Trade Area (FTA) be put into effect.
As I write this, thousands of companies are under pressure to re-invent their businesses to adapt to the new normal. Products must be re-engineered to better suit home consumption, distribution channels must shift to direct deliveries, and brick and mortar retail outlets must morph into online stores. All these must be done in a matter of months or for as long as cash runways lasts.
All around us, businesses are closing, millions are losing their jobs, and for the first time in decades, swaths of our population are entering poverty, not escaping it. The Wuhan virus has caused havoc to our economy and around the world. But how bad is the situation exactly? Through numbers, this piece describes the severity of the situation here and abroad.
The pandemic is not exclusively a story of business failures. Many companies are doing exceedingly well during this period of crisis. Those whose businesses relate to sanitary products, healthcare products, drugstores, supermarkets, and e-commerce continue to enjoy unprecedented profits despite the economic downturn. Some enterprises are hardly affected. Those engaged in manufacturing, importation and trading as well producers of basic food products remain stable. For them, it is business as usual.
President Duterte may be enamored by China and may make overtures towards Russia, but there is no denying, the trust and confidence of the Filipino people belong to the United States. This was validated in a recent survey conducted by the Social Weather Station which showed that Filipinos’ trust quotient towards China was at an abysmal -33 points while the US enjoyed a +72 point rating.
With infection rates growing by a multiple of 2.2 times a month, it’s safe to say that our battle with the Wuhan virus will be long and painful. Its economic impact has so far been disastrous. With second quarter economic contraction plunging to an all time low of 16.5%, think-tanks agree that the economy will contract by at least 8% this year and joblessness will rise to 9 million.
The Philippines has a consumer-driven economy where 72% of economic output is attributed to private consumption. For decades, Filipino entrepreneurs have benefitted from brick and mortar stores. But all that changed when the Wuhan virus struck. Overnight, bustling restaurants, crowded malls and busy stores were empty. Retailers today only realize 15% of their pre-COVID sales, on average.
In the early days of the ECQ, the Department of Finance (DoF) announced that the economy could still eke out growth of .08%. A month later, it adjusted its forecast and predicted a contraction of -3.4. Last week, Moody’s Analytics said that the economy will likely contract more acutely at -4.5%. Meanwhile, 7.6 million Filipinos are now unemployed, five million more than in the beginning of the year. All these are happening amid the backdrop of a budget deficit which could reach 8.5% of GDP.
Had it not been for the work from home (WFH) arrangement, government’s quarantine measures would not have been sustainable. Corporations and citizens would have insisted on going back to work to survive — and this would have caused a spike in infection rates. Without WFH, the economy would have collapsed in a matter of months. Thus, it could be said that the WFH arrangement saved the economy while acting as an important tool in combating the Wuhan virus.
The tourism industry is among the strong drivers of the economy. Before the onset of the Wuhan virus, tourism accounted for 12.7% of gross national product (GDP) or roughly $46.5 million worth of goods and services. Its hefty contribution to the economy was achieved on the back of 8.2 million foreign visitors and more than 120 million domestic travelers.
British banking giant HSBC recently published its forecast for the Philippine economy and the outlook is bleak. After clocking-in a 0.2% contraction in gross domestic product (GDP) in the first quarter, the bank forecasts a deep contraction of 7% in the second quarter, another contraction of 4.3% in the third quarter, and yet another shrinkage of 3.9% for the fourth quarter. This will bring the full year contraction rate to 3.85%. The last time the Philippines posted negative growth was in 1998.
Thirty one leading business groups including the prestigious Financial Executives Institute of the Philippines (FINEX), the Management Association of the Philippines (MAP), the Philippine Chamber of Commerce and Industry (PCCI), GoNegosyo, and the Chambers of Commerce from the Americas and Europe recently signed a manifesto expressing their support for the passage of the Corporate Recovery and Tax Incentives for Enterprises Act or the CREATE Law.
The prognosis for the economy is becoming progressively worse. Last month, our economic managers were hopeful that 2020’s gross domestic product (GDP) would expand by 2.5% on the premise that we are able to catch up on the second semester. Two weeks ago, the National Economic and Development Authority (NEDA) adjusted its forecast, saying that the economy could no longer post positive growth and that we are now looking at a contraction of 2% to 3.4%.
THE RETAIL TRADE is among the hardest hit industries in this COVID crisis. The bloodbath has cut across all sectors -- from clothing to food, appliances to motor vehicles, electronics to gasoline. No sector is spared except for those relating to health, sanitation, and wellness.
Despite our fervent hopes for gross domestic product (GDP) growth in the four to five percent range, the National Economic Development Authority (NEDA) announced last Thursday that it actually contracted by 0.02% in the first quarter. This was due to the combined effects of Taal Volcano’s eruption in January, the tourist travel ban in February, and the enforcement of the Enhanced Community Quarantine (ECQ) in March. This is the first time the economy contracted in 22 years.
Governments around the world have a conundrum. Should they order longer quarantine periods to flatten the pandemic curve even if it would mean a longer and deeper recession? Or should they shorten their quarantine periods at the risk of instigating a second spike in infections?
In the early 2000s, the rise of fast-fashion brands like Zara, Mango, H&M, and Topshop caused a bloodbath among traditional fashion retailers. Unable to compete in price, style turnover, and vastness of selections, brands like Nine West, Diesel, and The Limited either filed for bankruptcy or were absorbed by bigger firms. Years later, when fast fashion brands hit the Philippines, local clothing retailers such as Regatta, Tab, Monakiki, Tyler and many others were either bought-out or closed.
Contrary to what many believe, the concession agreement between the government and the two water concessionaires, Maynilad and Manila Water Company (MWC), will not be amended despite threats from Malacañang to do so. It will stay the way it is until its expiration in 2022, said Emmanuel Salamat, the Administrator of the Metropolitan Waterworks and Sewerage System (MWSS). For the water consumers of Metro Manila, this means no significant changes in water services or rates for at least two years.
Last week, the Sandiganbayan convicted Al Vitangcol III, former general manager of the Metro Rail Transit (MRT) 3, of graft and for violating government procurement laws. Among the incorporators of PH Trams was Arturo Soriano, Vitangol’s uncle-in-law.
After decades of lethargic growth, the Philippine tourism industry is finally riding on strong tailwinds. From January to November last year, foreign tourist arrivals topped 7.46 million, which translates to 15.58% year-on-year growth. This is nearly four times the average global growth rate and 2.5 times more than the Asian average. Although whole year statistics have not yet been consolidated, it is almost certain that the country surpassed its 8.2 million foreign visitor target.
Following the Philippines’ successful hosting of the 30th Southeast Asian Games, the Philippine Olympic Committee announced its intention to bid for the 2030 Asian Games. Other countries vying for the hosting rights are Qatar, India, Thailand, Taiwan, and Uzbekistan. If successful, this would be the second time the Philippines would host the Asiad -- the first time being in 1954.
On Aug. 15, 1945, Emperor Hirohito announced Japan’s surrender following its invasions of countries in the Asia Pacific region. Its colony in Korea was divided into two spheres, with the south administered by the United States and the north by Russia. The two Koreas existed with tension between them and this culminated in June 1950 when the North invaded the South. The two Koreas have been at war ever since.
The year 2019 will be a banner year for Philippine tourism. If we are to go by the trends from January to September, the Philippines is poised to surpass its 8.2 million visitor target, clocking in a growth rate of 14.37%. At this pace, we are likely to supersede the 12.5 million arrival target by 2022.