Monthly Archives: November 2014

The Philippines to lead in solar energy

Wow. Suddenly, the Philippines is making a record in generating solar energy like in this case of a local mall being the largest to use solar energy for its needs. Let’s see if we can help to do more in order to reduce the amount of energy supply shortage expected next year. And maybe even further reduce the need of more coal plants that will pollute the environment and contribute to climate change.

From BusinessWorld Philippines

November 20, 2014

SM City North Edsa becomes largest mall to tap power from the sun SM CITY North EDSA, one of the country’s largest shopping malls, will soon be partly powered by renewable energy, with inauguration of a 1.5-megawatt (MW) solar facility at the mall’s rooftop set for Nov. 24. Homegrown solar rooftop maker Solar Philippines Commercial Rooftop Projects, Inc., which was tapped by tycoon Henry Sy’s SM group for the project, made the announcement yesterday. SM City North EDSA will be the Sy family’s first mall in the Philippines, and the second SM mall after SM City Xiamen in Fujian, China, to use solar power for its operations. That mall in China has a 1.1-MW rooftop project that was launched in July last year. Solar Philippines claimed that SM City North EDSA will be the world’s largest solar-powered mall, with 5,760 solar panels and 60 inverters covering a 12,000-square-meter parking building. “The 1.5 MW plant will be able to augment the mall’s power requirements, or the equivalent of 2,000 Filipino homes,” the company said in a statement. The facility is expected to operate for over 25 years and offset some 40,000 tons of carbon dioxide. Leandro L. Leviste, president of Solar Philippines, said in the statement that the latest project is a testament to the synergy that exists between business and environment. “Solar has gained the reputation of being expensive, not because of the technology, but because previous efforts were too small to benefit from economies of scale,” Mr. Leviste said. “By building the country’s largest projects, we’ve become the first local company to make solar cost-competitive with fossil fuel,” he added. Solar Philippines’ maiden facility — a 700-kilowatt solar rooftop inaugurated last September — is in Central Mall in Biñan, Laguna. The company said it is building similar facilities at Robinsons Place Palawan and CityMall in Roxas City. Solar Philippines is a local company that finances solar installations at zero upfront costs. The company designs, engineers, constructs, installs and maintains large-scale rooftop projects. — Claire-Ann Marie C. Feliciano Article location : City North Edsa becomes largest mall to tap power from the sun&id=98298

Paying everybody in Government the same rate of compensation

In the Philippines, working for the government is considered in general to have a low paying salary and benefits compared to the private sector. The exemption to this is the close to 600 government-owned and -controlled corporations (GOCCs) who are mostly not covered by the Salary Standardisation Law and are able to price their compensation levels comparable to the private sector. For obvious reasons anybody planning to for government would certainly opt to work for a GOCC than the regular government department or agency. Its time to remove such double standard in paying people and pay everybody the same rate of compensation.

From BusinessWorld Philippines

November 12, 2014

Government corporate reform: All for show?

WHEN THE LATE President Cory Aquino took power in 1986, she was shocked by the sheer number of government-owned and -controlled corporations (GOCCs). If my memory serves me right (sorry, but it’s been a quarter of a century), Mrs. Aquino succeeded in cutting the number of GOCCs significantly as part of her overall public sector reform.

The rationale for reducing government corporations and reducing budget support to them is fairly straightforward. The more government corporations there are, the lesser public resources that could go to essential public services. Government corporations sap the finite public funds that otherwise would go to essential public services such as education, health and public infrastructure.

This is especially true when officers and staff of government corporations are paid many times over compared to their counterparts in regular government agencies. And since salaries, wages and bonuses are often more attractive in GOCCs, they naturally attract more workers. As a result, GOCCs are almost always overstaffed.

As a strategy for rationalizing government corporations, Mrs. Aquino adopted the “shape up or ship out” policy. Government corporations that regularly ask for budgetary support became candidates for regularization, merger, privatization or abolition.

Again, if my memory serves me right, Mrs. Aquino successfully reduced the number of GOCCs from about 600 to less than 200, and she succeeded in slashing budgetary support to government corporations.

Now, fast forward. President Aquino III, the son of the late President Cory Aquino, was supposed to reduce budgetary support to government corporations. In fact, he even asked Congress, and the latter dutifully obliged, to create the Governance Commission for Government-Owned and -Controlled Corporations (GCG).

The mission of the GCG is to serve as “an efficient and effective central advisory, oversight, and monitoring body with authority to formulate and implement policies in the active exercise of the State’s ownership rights over GOCCs, thereby ensuring their financial viability and fiscal discipline through adherence in the highest standards of corporate governance.”

Sadly, there was a wide gap between the promise and the reality. The promise to streamline, rationalize and reduce government corporations remains illusive. To date, there exists 596 GOCCs, according to the Commission on Audit’s 2013 report.

Worse, during the past three fiscal years, Mr. Aquino deviated viciously from what Congress has authorized him to spend for government corporations.

In 2011, Congress authorized the President to spend P1.8 billion in equity and P20.5 billion in subsidy to GOCCs. Instead, he spent P12.9 billion and P45.8 billion, respectively.

In 2012, Congress authorized the President to spend P2.1 billion in equity and P31.8 billion in subsidy to GOCCs; instead, he spent 21.3 billion and P42.1 billion, respectively.

In 2013, Congress authorized the President to spend P1.3 billion for equity and P45 billion for subsidy to government corporations. Instead, he spent P11.5 billion for equity and P66.3 billion for subsidy, respectively.

Such large deviations are highly irregular. But how were the large deviations financed? Elementary. They came from the ill-conceived and unconstitutional Disbursement Acceleration Program (DAP).

In the midst of massive poverty, here’s a revolting finding by the Commission on Audit: executives of GOCCs continue to enjoy high salaries and numerous perks. Even lower-ranking executives and staff receive benefits that are not expressly authorized by law.

I don’t see any fiscal discipline when heads of favored government corporations continue to receive obscenely high salaries, allowances and other perks.

The 2012 Family Income and Expenditures Survey (FIES) survey results show that one in four Filipinos is poor — surviving on less than P51.88 per day or P18,935 per year, the official annual poverty threshold. Today, with some 100 Filipinos, some 25 million of them have daily incomes lower than P51.88.

By contrast, the highest-paid government corporate executive received P12,088,476.14 in salaries and allowances in 2013, or about P33,119.13 per day. His total compensation package was 638 times — repeat, 638 times — that of the annual poverty threshold!

In its 2012 report, the COA noted that GOCCs still paid “bonus[es] and allowances and benefits to the board of directors and employees without or in excess of legal basis or proper authority.” The amount involved was P2.31 billion. Last week, it was again reported that the COA had ordered more than 30 GOCCs to return to the Bureau of the Treasury some P1.6 billion in allowances, retirement pay and other fringe benefits unlawfully given to their employees.

The COA discovered that 10 GOCCs have used agency funds to pay for the health insurance of their employees who were already covered by the state-owned Philippine Health Insurance Corp. Six other government-owned and -controlled corporations were found to have paid “unauthorized consultancy fees, honoraria, representation allowance, clothing allowance, bonus and incentives and other reimbursable expenses” to their consultants, lawyers and regional officers.

Here’s another revolting fact: some of the government corporations (in agriculture, natural resource, housing, trade and industry, for example) have been the parade ground of corrupt politicians, civil servants and civil society officials. If they are abolished, will the legal accountabilities of their former executives stay or will they be extinguished?

No doubt, more needs to be done before the GCG can meet its lofty objectives, especially when the President and his budget chief continue to fatten GOCCs with additional funds.

Benjamin E. Diokno is a former secretary of Budget and Management.

Article location : corporate reform: All for show?&id=97773

A bubble in Makati may be already happening

The columnist if memory serves me correct was a former English professor of mine. Not economist or even a professional real estate investor (I assume on the latter), she shares what a number of people has raised on the current property market that may be developing in Makati where most of the property boom is concentrated. While the Philippine property market is much bigger than just the city of Makati, the dangers of a bubble happening may be better addressed than ignored. To this effort, I had made a Startup that will seek to track property prices throughout the country not just Makati. Hopefully, the market data my Startup will generate will help try to give some accurate measure of property prices and how we can help avoid this economic calamity from happening.

From BusinessWorld Philippines

November 09, 2014

Makati condo bubble?

CAPTURED IN the notorious EDSA traffic en route to Makati, there’s time, waiting in the car, to look around and peer through the gray haze at the tall buildings on the skyline. Makati has the tallest buildings in the country, rising from 40 to 70 storeys high, most of them residential condominium developments. Awesome urban scenery, in spite of the unrelenting traffic to reach Makati and the 83.91 very high pollution index there.

The “daytime population” of Makati is over four million people versus its “nighttime population” of just over 500,000 live-in residents. Those high-rise office buildings and malls in the business and commercial areas are densest with the daytime population going to work, eating, recreating and eking out their workaday life in Makati. Many still commute back to their residences outside of Makati in the evening.

Vertical housing (condominiums) has been practically mass-produced to answer to the demand for residential communities to be built closer to work and recreation areas. Developers and realtors have also whetted demand for other buyers and investors with disposable income, who would like to live “New York style” in the glamor and efficiency of a self-contained condo unit. A third group of condo buyers would be those who foresee rental or resale income from investing in condo units at a rate of return higher than financial products and other investments in the prevailing low-interest economic climate.

The Housing and Land Use Regulatory Board (HLURB) reveals that the condominium building craze started in 2001 with 34 projects, all in the National Capital Region (NCR or Metro Manila), building up to over 1,060 various developments having been issued licenses to sell as of 2013. These developments (construction projects) have supplied more than 500,000 units from 2001 to 2013 in Metro Manila alone. At an estimated average of two persons occupying a condo unit, does that mean that about a million people in Metro Manila are now enjoying the advantages of condo living?

The majority of Metro Manila condos are in Makati — about 80%, according to the HLURB — judging only on licenses to sell issued. But by ocular experience, one can really feel and know that the humongous condo complexes rising and already built are almost brusquely nudging each other for positioning in busy Makati. (Second most condos built or being built is in Taguig, in the Fort Bonifacio parcel.) Whether high-end or medium-end, Makati condos are more in demand than condos in Quezon City or Pasig, for example, and this reflects in the pricing for these, in preselling, selling, reselling and rental.

From what started as P40,000 per square meter for initial sales of Makati condos in 2001, the price per square meter of new condos in Makati now range from P150,000 to about P220,000. While classification as to high-end or medium-end used to depend much on the density or number of units per floor and the size of cuts (studio, one-, two- or three-bedroom) in the earlier years, now the developers simply hype up the offered amenities and other come-ons, offering unbelievably easy instalment schemes at little or no interest.

How can they do this? Well, their cost is probably already built into the pricing to the buyer, as they, the developers ride on the easy cost of borrowing from banks and financial institutions, favored as they are by their creditworthiness as big, listed corporations. Furthermore, pregselling, or selling condo units even before completion of construction, has kept the condo developer whole up-front, having already received full or instalment payments with the right to forfeiture of payments made by the defaulter. How can the developer lose?

And how can the bank lose, if the bank had financed the loan to buy the condo, since the condo unit would surely be collateralizing the bank loan? The buyer has all the risk in buying a condo.

According to the HLURB, the condo boom peaked in 2012, rising 151% from the previous year, when there were 183 developments in NCR (versus 230 total in the entire country), providing 108,335 units in Metro Manila. In 2013, the high of 62,000+ units in NCR was still 35% higher than 2011.

Supply has evidently been bullheadedly charging forward and up, purposely riding on the perceived increasing appetite of buyers assumed to be still elastic with further price increases. But a BusinessWorld article on the rising prices of development land in Metro Manila’s five major business districts elicited fearful thoughts on what may pierce the condo bubble.

Real estate groups and brokers warned that “developers are now prepared to push their pricing for development land by 20%-30% over previous highs.” In Fort Bonifacio, a 1,600-sqm site was sold in September at a record P500,000 per sqm, 80% higher than the previous government-owned site sold in the area.

To cover their costs, particularly the rising land costs, developers would have to raise their selling prices by 21% for office space and 30% more for apartments (residential units), one big broker said. At the increased acquisition costs, buyers and investors must be ready to suffer the tucked-in increases in developer costs, and worry that the expected yields from resale or rentals will shrink even lower.

Rentals on Makati condos are advertised at about P1,000 per sqm per month for a 20-sqm studio up to cuts of below 50 sqm. For condo units of more than 50 sqm, the rental rates would be around P800 per sqm per month. However, for the really premium developments (all two- and three-bedroom units, no studios), the rental price would be around P1,200 per sqm per month. Per annum yields on condo rentals (net of costs) are somewhere around 7% per annum, according to the group of realtors and brokers. But “investors must be ready to accept yields closer to 5%.”

Resale prices hold at the current prices for new condo buildings, provided these are of comparative construction and location, and the unit to be resold is not over five years old. But is there a vibrant enough market for reselling? Or even for rentals? Owners of older condos have a difficult time trying to sell units, or even rent them out, in the face of declining prices, and little demand for old units. Is there a glut?

Near the Makati Fire Station is a new condo complex 59 storeys high, dense with 74 units per floor, composed of one- and two-bedroom units from 20 sqm to 36 sqm each unit. Further down is a four-tower condo complex, 41 storeys high sitting on top of a five-floor commercial podium, 50 units per floor of one- and two-bedroom units, 22.25 sqm to 39.7 sqm each unit.

There seems to be a big condo bubble blowing in Makati.

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

Article location : condo bubble?&id=97570

Is there an opportunity for a SME IFRS provider

Since the time as far as I can remember, access to credit for SMEs has been a systemic problem from my experience as an ex-banker. The root cause is the lack of collateral and limited or no credit record to show good credit performance. It is the hope with a national credit bureau through the presence of the Credit Information Corporation (CIC), a new lending practice can be developed that will focus more on the viability and credit worthiness of the borrower. Having read this article, it mentions inadequate financial records as a third issue. While I find that true, in most cases, this is a distant third issue brought about by the inability of the small business owner to engage a reliable but at the same time low cost accountant/ bookeeper to maintain his records. In most cases, adequate financial records are available but the pawnshop mentality of local lenders make borrowing collateral driven then otherwise. But its an opportunity I would like to explore and see whether there is a market demand for a service that would address this need.

From BusinessWorld Philippines

November 09, 2014

Financial reporting: A challenge to SMEs

SMALL AND MEDIUM-sized enterprises (SMEs) vary in size and type across countries and industries; despite these differences, it is globally recognized that SMEs play a vital role in economic development.

Based on a report presented by R. Aldaba in August 2014, “Gearing Up SMEs for Association of South East Asian Nations (ASEAN) Economic Community 2015 (AEC 2015),” ASEAN SMEs account for about 99% of all registered businesses, employ more than 60% of the work force, and contribute 16% to 35% in exports.

These statistics explain why SME development is a significant component of AEC 2015, which will officially commence on December 31, 2015. In the Philippines alone, the latest data from the Department of Trade and Industry show that SMEs represent 99.6% of total registered enterprises, contribute 35% to the gross domestic product, and employ about 70% of the total Philippine work force.

SMEs are the lifeblood of our country’s economy. They stimulate economic activity, generate employment, prompt innovation, heighten competition and contribute largely to the country’s progress. However, Philippine SMEs continue to face serious difficulties and challenges in relation to their existence, development and competitiveness.

The reality is that most SMEs start small and generally remain small until liquidation or bankruptcy. Many research studies report that access to financing remains one of the most critical, if not the foremost, constraint facing Philippine SMEs.

This is despite the fact that, by law, all lending institutions are required to set aside and lend 6% of their total loan portfolio to small enterprises and 2% to medium enterprises. In addition, Government has also implemented plans and programs to support SME development and growth, such as the National SME Agenda, and the 2011 — 2016 Micro, Small and Medium Enterprises Development Plans.

Yet, many SMEs still find it very difficult to access funds due to the voluminous and stringent requirements (some of which are unfamiliar to them, including adequate financial statements) from the financial institutions and credit corporations or cooperatives.

As a result, SMEs tend to rely heavily on internally generated funds from operations and additional cash infusions from the personal savings of the owners. In a study, “SMEs’ Access to Finance: Philippines” conducted by R. Aldaba in 2012, it was revealed that SMEs, particularly the smaller ones, have been unable to access funds due to their limited track record, limited acceptable collateral and inadequate financial statements.

From a financial reporting perspective, it is clear that SMEs — despite having different products, services and business strategies — have a common and immediate need for an adequate accounting infrastructure that will provide them with timely and accurate financial statements. An adequate accounting structure will address the availability of financial information that is acceptable and useful for potential lenders or capitalists as they evaluate the SME’s true financial health and condition. With this information, lenders can evaluate the feasibility of extending a loan to the SME. A successful loan application will allow SMEs to build up their credit history and enhance the viability of its business, which are the essential requirements for SMEs when attempting to secure additional funding.

Beyond the issues of credit, having timely, accurate and consistent financial statements can help management and stakeholders make timely financial and investment decisions. However, considering the way most SMEs are structured, many do not prioritize their finance and accounting infrastructure, often due to cost considerations. They may also have insufficient finance personnel who are knowledgeable about the latest accounting standards and fast-changing tax regulations.

Philippine accounting standards have recognized the need of SMEs for simplified financial reporting tailored for the users of their financial statements (including investors, management and lenders). This is the reason why the Philippines Financial Reporting Standards (PFRS) Council and the Philippine Securities and Exchange Commission (SEC) adopted in 2010 the International Financial Reporting Standards (IFRS) for SMEs issued by the International Accounting Standards Board in 2009, to simplify the many complex and onerous accounting requirements required of large enterprises by full PFRS, and to reduce the SMEs’ cost and effort to produce financial statements that are consistent with internationally accepted standards.

However, despite the adoption of PFRS for SMEs four years ago, it seems that a big number of SMEs have yet to fully appreciate, maximize and realize the benefits of the accounting simplifications made available under PFRS for SMEs. Many SMEs still question and challenge sections of PFRS for SMEs, mainly: (i) the many simplified recognition and measurement principles, and (ii) the removal of accounting policy options and allowing a single generally simplified method.

Some hold the view that if certain recognition and measurement principles under full PFRS are useful to the users of financial statements of large enterprises, then these should be similarly allowed for SMEs. Others also prefer making accounting options available to, but not necessarily required of, SMEs if these will result in more useful financial information for financial statements users. While some points may be valid, SMEs should not forget that the ultimate objective of PFRS for SMEs is a simplified, independent and acceptable accounting framework specifically tailored to meet the specific needs of users of SMEs’ financial statements, such as lending institutions that are considering an SME for a loan.

With the mounting challenges SMEs are experiencing with their financial reporting, now is the right time for the SMEs to look into their accounting infrastructure and to commit to producing useful and reliable financial information. With the country’s improving economy and expected results of AEC 2015, such as the existence of a bigger ASEAN market of about 600 million people, the removal of trade and investment barriers, improvements in regional value chains and wider financing sources from integrated regional capital markets, SMEs should get ready to reap their share of the benefits within this highly anticipated competitive and beneficial business environment. Getting ready means having timely and adequate financial reports that, in turn, will translate into ready access to credit for the SMEs.

Sherwin V. Yason is a partner of SGV & Co.

Article location : reporting: A challenge to SMEs&id=97580

E-Tricycles are more fun with SHGs like Cooperatives than LGUs

Electric powered tricycles are an ideal solution to lessen pollution caused by gasoline powered tricycles in the Philippines. However, a US$300 million project by the ADB to roll out an 100,000 of them is already taking 3 years running (the bank expects to complete the rollout in 2017). However, it appears the root cause of the delay is the final stakeholder (LGUs) has to meet the requirements set by Land Bank to be lent the funds to purchase these vehicles. Is there a workaround this problem? Why not allow self help groups like cooperatives play a role in the process. I am sure they can be in a better position than LGUs in bringing these vehicles to the market.

From BusinessWorld Philippines

November 05, 2014

DoE invites new bids for e-trikes

THE GOVERNMENT is set to conduct another round of auctions for the supply and delivery of first 3,000 tricycles powered by electricity early next year, according to a notice published on Wednesday.

The electric tricycle (e-trike) project is a joint undertaking by the Philippine government and Asian Development Bank (ADB).

The Department of Energy (DoE), which serves as the executing agency, said in its notice that it is now inviting eligible bidders to submit sealed bids.

The department said 1,200 units are required to be produced and delivered between April 1 to June 30, with initial delivery of the first 500 units on April 2015.

There was no deadline given for the remaining 1,800 units.

“International competitive bidding will be conducted in accordance with ADB’s single stage, two-envelope procedure and is open to all eligible bidders from member-countries,” the DoE said.

Bid documents will be made available upon payment of P30,000 non-refundable fee. There will be a pre-bid conference on Dec. 2.

The deadline for bid submissions is 9:00 a.m. on Jan. 15, 2015. Bids will be opened at 9:30 a.m. of the same day.

This is the second time the DoE started seeking offers for the supply and delivery of first 3,000 e-trikes, which will initially benefit local government units (LGUs) in Luzon.

The first round of auctions held in August last year drew offers from four companies: Lirica Rising Sun & Shoyo-Terra Group and Uzushio Electric Co. Ltd. of Japan; Eco One Co. of South Korea; and Teco Electric & Machinery Co. Ltd. of Taiwan.

However, the awarding did not materialize after the LGUs failed to meet requirements set by the Land Bank of the Philippines.

Energy Secretary Carlos Jericho L. Petilla said last month that a recipient of the e-trikes should have the “seal of good housekeeping” — a certification given by the Department of Interior and Local Government.

In order to secure the “seal of good housekeeping,” an LGU is judged based a set of standards that include good planning, sound fiscal management, transparency and accountability.

Article location : invites new bids for e trikes&id=97360

The price of keeping the peace

After the peace agreement and the formation of an autonomous region now comes the public spending to build the infrastructure and the delivery of public services. I do not agree it is comparable to the US Marshall Plan (US$17 Billion which in today’s current value is worth $160 Billion) but may be more likely closer to the amount of aid the US had given to South Vietnam until its fall in 1975 (in 1973 which was at its peak, US aid was at US$2.3 Billion). Still the amount matters less than the intention. West Germany had to spend to bring East Germany to its same level of standard of living to an estimated cost of 2 Trillion Euros or PHP111 Trillion). Even now, after 20 years years of public spending, the divide between East and West still exists. Let’s hope the money is spent if only to keep the peace. If War is cruel, maintaining the peace is not cheap.

From BusinessWorld Philippines

November 06, 2014

P226B eyed till 2016 for Moro region

THE ENVISIONED new autonomous Moro region will need about P226 billion to lay development foundations until 2016, with nearly half that amount requiring international assistance and private sector funding, state economic officials said at the Philippines Development Forum for Bangsamoro yesterday in Davao City.

“It’s a work in progress… what was discussed and presented this morning to the President and (Finance) Secretary (Cesar V.) Purisima is an amount equivalent to about P220 billion from 2014 to 2016, and the available fund that’s already… in the budget is about P111 billion,” Budget Secretary Florencio B. Abad told reporters at the sidelines of the forum.

The Bangsamoro Development Plan (BDP), Mr. Abad said, still faces a funding shortfall of about P109 billion.

A presentation of the Bangsamoro Development Authority showed the plan will need P225.7 billion until 2016.

Mr. Abad said figures are preliminary and would need the approval of President Benigno S.C. Aquino III which could come “pretty soon.”

National Treasurer Rosalia V. de Leon said in an interview at the sidelines of the forum that the gap could be filled with additional government funding or tapping the help of the private sector and multilateral lenders.

“It can be national government (NG), it can be private sector, it can be a GOCC (government-owned and -controlled corporation),” Ms. de Leon said.

“Most likely it would be NG. That would be our support to the Bangsamoro.”

Other options being considered include official development assistance, internal revenue allotment of local governments concerned, as well as private sector financing of livelihood programs.

Sought for more details on funding requirements, Al Haj Murad Ebrahim, chairman of the Moro Islamic Liberation Front (MILF), said “[f]or the long term, it’s more than P500 billion”.

The BDP, described as “a blueprint for the development of the Bangsamoro into a just, peaceful, and prosperous society”, focuses on seven key areas: livelihood, infrastructure, education, social services, environment, culture & identity, as well as security and normalization.

The entire plan has three phases: the first phase (2015 to mid-2016 when Mr. Aquino steps down) will consist of “stabilization and pump-priming programs”, while the second phase (mid-2016 to 2022) will consist of “medium-term strategic interventions and investments to build a strong foundation for the Bangsamoro”. A “third phase” after 2022 will consist of “long-term development towards a sustained just economy”.

Speaking at the forum, Mr. Aquino cited government plans to “uplift” the situation of Muslim Mindanao which, he said, has been deprived of “legitimate opportunities” amid the four-decade-old conflict.

The national government’s role, Mr. Aquino said, ranges from enacting the Bangsamoro Basic Law that will replace the failed Autonomous Region in Muslim Mindanao (ARMM) with a new political entity that will govern a bigger area to be determined in a plebiscite next year, as well as investments in infrastructure and livelihood programs aimed at supporting “lasting” peace.

The government’s 1996 peace deal with the Moro National Liberation Front, from which the MILF seceded, is widely perceived to have failed in its objective of bringing peace and development to conflict-ridden provinces in Mindanao.

Latest official data cited by the BDP show ARMM’s:

• gross domestic product (GDP) growing 3.6% last year — the slowest among Mindanao’s six regions — compared to the entire economy’s 7.2%;

• GDP per capita at P29,608 last year, compared to the entire Mindanao’s P79,902 and the country’s P117,603; and

• poverty incidence at 55.8% in 2012, compared to Mindanao’s 39.1% and 25.2% for the entire country.

In her welcome statement yesterday, Presidential Adviser on the Peace Process Teresita Quintos-Deles cited the need for a massive reconstruction program similar to the Marshall Plan that helped rebuild war-torn Europe.

“Forty years of protracted armed struggle in Mindanao may be a far cry from the aftermath of World War 2 in Europe, but we are here to humbly take counsel from the lessons of the past,” Ms. Quintos-Deles said in her speech, a copy of which was e-mailed to media.

“Where the Marshall Plan was a strategic move to forestall the march of communism over the impoverished millions of Europe, our Bangsamoro Development Plan is our very own shield against the raging forces of extremism that are advancing to the shores of other lands,” she added.

“This is the best way forward.”

In his opening remarks at the forum, Socioeconomic Planning Secretary Arsenio M. Balisacan cited the need for a strong start.

“We cannot overemphasize the importance of this transition period, which has already begun in mid-2014 and will continue until mid-2016,” Mr. Balisacan said in his speech.

“In just two short years, we need to demonstrate the dividends of peace in the Bangsamoro region by progressively bridging the development gaps caused by decades of conflict; we need to attain the stability and normality necessary to achieve sustainable and inclusive growth in the succeeding years and ensure lasting peace in all its communities,” he added.

“The social, economic and political foundations that will be laid during this time are crucial to the success of the new Bangsamoro government that will be established pursuant to the Bangsamoro Basic Law.”

Representatives of foreign funding agencies expressed support but did not offer specific commitments.

“We are fully committed to help all the parties in successful peace efforts and long-term development,” Axel van Trotsenburg World Bank vice-president for the East Asia and Pacific Region, said in an interview at the sidelines of the forum.

“We also don’t define it by making a big declaration today and then checking out tomorrow,” he added.

“What you need to have is a long-term commitment. We would like to have a very active part.”

Steven A. Rood, The Asia Foundation’s country representative to the Philippines, said: “The fact of the matter is donors take a while because they have to have plans and those plans are approved by headquarters.”

“In the short term, the initial quick winds will be under the national government,” Mr. Rood stressed.

“There are many possibilities. I’m not sure everything will be funded by 2016 [but] the World Bank — many donors in fact — have expressed interest.” — with Imee Charlee C. Delavin

Article location : eyed till 2016 for Moro region&id=97482

Who can we trust

Here’s a nice article about doubts on whether a trust index can be a reliable tool to measure the level of trust among the various institutions in the Philippines. There is a basic management concept that trust is not given to a person but earned based on his actions. And in a country where public trust is so much a basic issue in good governance, the question is can you measure it if the institution’s actions is so unpredictable? Maybe the index can put more substance by measuring the actions taken by an institution to gauge if it can be trusted based on what it claimed to what was acted. Whatever is the solution, the question of who can we trust (other than God) may be a very personal issue and difficult to measure.

From BusinessWorld Philippines

November 02, 2014

A Philippine trust index?

THE CHURCH is the most trusted among six major socio-political institutions in the country, with 75% of the public saying they trust it “very much.” Of course it is, and ever shall be, world without end, amen. If “The Church” here is specifically the Catholic Church in the Philippines, those percentages would roughly parallel the 75.5 million Filipinos, or roughly 80% of the population who profess Catholicism, with perhaps the underage in percentages revealing ambiguity in perception between what is trust in the institution and what is faith in God. Insh Allah, the Muslim minority might say, in the universal moral tradition of trusting God above all.

It has always been difficult even for sociologists and other scientists to define trust. Nevertheless, social scientists, psychologists, even economists agree that trust can only be measured in terms of a present relationship looking forward to future expected outcomes, where “one party (trustor) is willing to rely on the actions of another party (trustee), taking risk and abandoning control over the actions performed by the trustee.”

The Philippine Trust Index (PTI) for 2014 was presented to the media last week by public relations company EON. It is the third year of the survey, polling two survey groups, the “informed public” (IP) or those who have extraordinary access to mass and social media, and the “general public” (GP) or those who have little or no access to the bare minimum of communication in mass media. The 1,626 respondents from various socioeconomic and educational backgrounds in urban and rural areas all over the country were asked about their trust in six key institutions — the government, the business sector, the media, nongovernment organizations (NGOs), the Church, and academe.

Following the expected increased trust (from 2012) in the Church, which topped the 2014 survey as the most trustworthy with 75% from GP and 66% from IP, academe has the increased trust of 53% of GP and 45% of IP. Media, in 2014 as in 2012, is the third most trusted, with 33% GP and 22% IP trust ratings, respectively.

Within the business sector, the industries of health care, water, information technology, telecommunications, and tourism are most trusted. Least trusted industries are real estate, alcohol and tobacco, and mining. Over 30% of both GP and IP claimed that businesses that give fair salaries and benefits, and implement fair labor practices, are most trustworthy. The ratings for business are higher in urban areas compared to rural areas, the PTI reveals.

The government is still fighting for no. 4 in trustworthiness, although The Office of the President and the Philippine Senate experienced a significant decline in trust ratings from both the general and informed publics compared to 2012. Less than two of 10 in the PTI survey believe that the government is not corrupt. It was clarified in the open forum at the PTI presentation that the survey was conducted at the height of the pork barrel investigations, covered extensively by the media. And in the same setting of the alleged scams, the NGOs were evaluated by the PTI, with only 22% of respondents believing that Philippine NGOs are not corrupt. Both the general and informed publics note that to earn the trust of the people, NGOs should be free from political interest, help those in real need, have competent leaders, provide livelihood, and communicate and listen to their stakeholders’ advocacies.

At the panel discussion after the presentation of PTI results, Dr. Malou Tiquia (University of the Philippines professor and secretary-general of the Association of Political Consultants in Asia) asked to review the survey instrument and study the methodology of the survey. Surely without meaning to revalidate the results, but perhaps for a clearer professional understanding of such, Prof. Tiquia also wanted to determine whether the Filipino (assumedly represented in the random sampling) was speaking in the survey at the level of the individual, the community or the nation.

A question from the floor worried about the determination of the “informed public” and “general public” groups in the sampling. Another panelist, Cora Guidote of SM Investments, pointed out that the ranking is perplexing because “for businesses, the prime motivation is for profit, but for the government and NGOs, the prime motivation is service.” A question from the floor pointed out that aside from (the lack of or less) corruption, which derives from perceptions of honesty and integrity, one of the other major drivers of trust for the government would be safety and security. Perceptions of trust in the military and the police would be critical to the prevalent perception of trust in the country. The EON group immediately took up the challenges from the misgivings voiced by the panelists and the audience, among which would be the further subdivisions of groups under the government in the next survey.

But the point remains, can trust or the perception of trust be really tested and measured? And we have to go back to the sociologists’ and other scientists’ dilemma of how to grasp and record the individual bases and measurements of trust — changes in personal experience within personal relationships can build or destroy trust before trust is even recognized as such. Trust is never static. And, as the scientists say, trust is for the future, not the moving present.

Note that there is no known, or well-known national trust survey among other countries, at least none that are high-profile and well-disseminated in the news or Internet. But surveys abound on quantifiable and measurable aspects of country or global reliability, competitiveness, corruption, transparency and popularity or acceptance.

A nationwide self-rating of the country for the abstract value of trust can be counter-productive to the nation’s struggle precisely to earn that elusive badge of acceptance by its own people — for anything big or small can go wrong at any point which the country will have to collectively address. Perhaps the Philippine Trust Index can be broken into smaller confidence or acceptance (as distinct from trust) indices per institution or per industry, based on scientific methods of stratified and cluster sampling that can produce more representative samples than simpler “blind” sampling methods.

Ultimately, there is only one solution to adversities in life and relationships: In God we trust. Insh Allah.

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

Article location : Philippine trust index?&id=97126

Potential and Reality

The current Philippine government’s use of the PPP program as the end all answer to the need for public infrastructure is as the article below best describes it as a work of progress. While that may be true, with less than 2 years left in its term, I would think a greater level of focus, resource allocation and program execution should be given to address the knowledge management needs of the program. This is particularly critical as the projects become more complex. The time has come to spend the available time to use the lessons learned the past 4 years to develop a system that will strengthen and document the processes and procedures in place so that they can be robust enough to continue even in the next administration (assuming it will adopt it). Then maybe can we transform the potentials of the program into the reality of an infrastructure building country we aspire to be.

From BusinessWorld Philippines

November 02, 2014

The PPP promise, a work in progress

AFTER A FALSE START back in 2010, the Aquino administration’s flagship public-private partnership (PPP) program finally roared to life. Several large projects have been auctioned off under seemingly competitive conditions that, contrary to model forecasts, yielded substantial revenues for the government. Moreover, the government, with the help of a donor-sponsored project development fund, has built up a pipeline of about 50 projects for PPP that it has taken on international road shows to attract more foreign investors.

However, as the government exhausts the first batch of projects — which featured revenue streams that appealed to private investors — and moves to more complicated greenfield projects, there is a high risk of another stall. Having observed closely the problems the government encountered in the newly awarded projects, we’ve identified some policy, institutional and political issues that, left uncorrected, will make it hard to sustain the winning streak.

After a false start and a few years limping along, the Aquino government’s flagship PPP program finally roared to life. In relatively quick succession, the government bid out or awarded four projects worth P125 billion and rolled out six more costing about P170 billion. What was particularly surprising was that the auctions yielded substantial concession fee payments to the government, as against pre-bid financial model results showing that the government would have to provide subsidies to enhance project cash flows.

Encouraged by the successes, the government through the PPP Center has lined up another seven projects worth about P180 billion for approval by the National Economic and Development Authority (NEDA) board, and is preparing feasibility studies for 10 other projects. In all, there are about 50 projects in the PPP Center’s pipeline which the government is also actively marketing to foreign investors through a series of international road shows.

The mood has not always been this upbeat due largely to unmet expectations following the government’s high publicity launch of the program back in 2010. Then, the much-hyped “PPP is the solution to the infrastructure shortage in the country” failed to consider that in the wake of controversies surrounding failed PPPs in the past, both sides of the partnerships had their guard up and were distrustful of each other. In particular in the aftermath of the Asian crisis, the public sector had to grapple with and absorb some of the liabilities in PPP contracts, and for years leading up to 2010 preferred to manage the risks from contingent liabilities by avoiding them altogether. In turn, the private sector was particularly leery of government contract promises that the latter had time and again failed to keep, notably delays in tariff adjustments in most sectors — power, water, rail, toll roads — particularly during politically sensitive periods.

Moreover, there were very few market-ready projects in the pipeline at the time and fast-tracking last-mile adjustments to ready projects was constrained by technical limitations in implementing agencies. It was thus a slow process of learning by doing on a per-project basis, tentatively delineating risks among the parties involved, with the government deftly testing what risks the market could bear through actual biddings of smaller projects.

These included (a) a small 4-kilometer (km) toll road in December 2011 that very soon became stuck in right-of-way (ROW) disputes, and (b) a project to build classrooms, awarded in September 2012, that was the first of its kind in that it relied solely on government payments for its cash flows and thus was not able to attract more bidders willing to assume congressional appropriations risk. Critics also pointed out that this project and its second phase the following year lacked features of true PPPs in that the private sector merely handled construction of the schools and were not exposed to market and operating risks.

The first major win for the Aquino government was the P15.5-billion, 7.75-km, four-lane elevated NAIA Expressway project that had been in the drawing board for decades and was finally brought to market with donor technical assistance. Albeit it attracted only two bidders, the auction, won by a consortium led by one of the large domestic conglomerates (SMC) in May 2013, yielded P11 billion in concession fees to the government and by early 2014 had already broken ground. Another win six months later was a five-way bid in November to install a P1.7-billion single-ticketing system for Metro Manila’s rail system, where the winning bid was a P1.1-billion payment to the government.

But it has not become easier. The latest auctions, involving three multibillion-peso transport projects, have been uphill struggles for both the government and the private sector. The challenges that have emerged during the bid stage are reminders of the inherent difficulty and associated time lag of doing PPPs, especially in a developing country like the Philippines where institutions remain weak and bidders take for granted that calling on the courts, Congress or the President to intervene on their behalf is part of the rules of the game. Such politicization of the formal PPP processes tarnishes the program’s image and dulls investors’ appetites. Here are a few of the project holdups:

The biggest and the most complicated one to date, it has been subjected to repeated feasibility studies. The first bidding in August 2013 failed due to misallocation of risk (shifting to the private sector the uncertainty of real property taxes) and the insufficiency of allowed subsidy. It was rebid in May this year with the lone bidder (out of seven prequalified) winning. The award was delayed to September by a still ongoing legal tussle involving the location of a “common station” shared with another rail line.

Seven bidders showed up in November 2013, with the consortium of Megawide Construction Group, which partnered with India’s GMR Infrastructure, winning the bid. Citing conflict of interest, the losing bidder challenged the qualifications of the winning group, which was then subjected to a Senate inquiry. Even with a legal challenge filed before the Supreme Court, the project was awarded in April, delayed by a few months.

Four groups vied in the June bidding, with the SMC consortium disqualified based on a noncompliant bid bond. Of the three remaining, the Ayala-Aboitiz consortium offered the highest premium, amounting to P11.66 billion. The SMC group claimed that it would have won with a P20 billion had it not been disqualified on a “technicality.” It appealed to the President to overturn its disqualification and the Palace issued an order in late June suspending the awarding of the project. The issue has yet to be resolved.
(Next week: Moving forward)
This piece is based on a GlobalSource report by Christine Tang and Romeo Bernardo

Romeo Bernardo was finance undersecretary during the Cory Aquino and Ramos administrations, and board director of Institute of Development and Econometric Analysis Inc.

Article location : PPP promise, a work in progress&id=97127

Private Initiative and Government Policy in Rural Development

This article perfectly highlights one of the problems in developing a robust agricultural industry in the Philippines. The balance (or its imbalance) of private initiative and government policy is essential to rural development.

From BusinessWorld Philippines

October 27, 2014

Momentum and inertia in rural development

IN MY TOUGH physics class at the University of the Philippines in Diliman many moons ago, I learned that the momentum of an object depends on how heavy the object is and how fast it is moving.

It is obvious that an object has a large momentum if both its mass and its velocity are large. By contrast, inertia is the natural tendency of objects to resist changes in their state of motion.

Let us apply these to Philippine rural development. Many governments worldwide are talking about inclusive growth. Given the high incidences of rural poverty, there is no need to look very far.

Recent data show that the poverty incidence of fishermen was at 41.4%, and that of farmers at 36.7% in 2009. The former worsened from 35% in 2003 and the latter was practically stagnant at 37% (Philippine Statistical Authority).

Development momentum and inertia can be applied to rural development. Let us take rice, coconut and banana.

Rice has momentum because of a large mass of government support. Coconut has inertia under slow motion due to low government support or hostage to the saga of levy recovery. Banana has the momentum: smaller mass but faster velocity, as it is driven by the private sector.

Given the dramatic differences in typical farm yields — at least six tons per hectare per year for irrigated rice and less than one ton of copra per year for coconut farms — the revenue differs widely: about P120,000 per hectare for rice and at best P30,000 per hectare for coconut. The former could net about P75,000 per hectare per year for an owner-operator, and the latter just about P20,000 per hectare per year for a typical farmer-lessor.

There are no official data on poverty rates by crop. My guess is: only about 20% of irrigated rice farmers are poor and close to 70% of coconut farmers and workers are poor. Why is this? Irrigated rice farms have better road network. They are in the lowlands, and therefore families are better educated and have access to non-farm and off-farm jobs. Coconut farms are mostly along the coasts, they have poorer roads, less likely to be well-educated and limited chances of finding off-farm jobs.

With respect to Cavendish banana, its area is small but exports are growing and very competitive. It earns about $10,000 per hectare per year as compared to less than $500 per hectare per year for coconut. Rice employs one worker for every two hectares, coconut every six hectares, but banana at one worker every one-half hectare.

Where is the momentum and inertia in the scheme of things?

The rice industry has momentum for several reasons. First is the massive investments in irrigation over the years, currently at P25 billion a year. Irrigation works are usually rehabilitated every five years, longer if well-maintained. Second is the presence of the dedicated and well-staffed Philippine Rice Research Institute. Third, rice is mostly in the lowlands where physical infrastructure is more developed. Fourth, advances in technology in inbred seeds and hybrid rice seeds, such as from SL Agritech, boosted yields and incomes. Fifth, a substantial part of farm credit and crop insurance go to rice.

By contrast, coconut has low inertia. Why? First, for decades, capital outlays for replanting and intercropping have been small. Second, there is no dedicated coconut research institute. The research program of the Philippine Coconut Authority is not well-funded. In Southeast Asia, major tree crops have dedicated research institutes. Third, coconuts are located along the coastlines and physical infrastructure is generally poor. Fourth, hybrid seedlings multiplication is at a snail’s pace. Fifth, little credit has flowed for fertilization and inter-cropping.

There are several reasons rice, with 2.7 million hectares of land, is getting more resources than coconut with 3.5 million hectares.

First, there is a wider constituency for rice than coconut among the urban class, the media, civil society and the politicians. A former Agriculture Secretary once said: “If you fail in rice and succeed in the rest, you fail as a secretary. On the other hand, if you succeed in rice and fail in the rest, you succeed.”

The math needs clarity. Of all the farmers and fishers, only about 25% are rice farmers while 75% are non-rice farmers and fishers. There are about three million workers in rice, and nine million workers in non-rice and fishing. The sense of proportion of the media and the politicians, however ingrained, is erroneous but it has persisted. This has been a big challenge to change.

Second, and this is a challenge, too, for economists: Investing in irrigation including maintenance subsidies is classified as “public investment.” Planting coconut is a “private investment.” Economics literature always include irrigation as part of public investments. But never planting tree crops for smallholders!

Third, for multilateral agencies such as the Asian Development Bank, International Fund for Agricultural Development, and the World Bank, irrigation projects are easier to package and faster to execute than tree-crop development. They believe, without saying, that the irrigation institutions in the country are better organized than the tree-crops institutions.

Fourth, rice advocacy groups are better organized than, say, coconut groups. They are better organized because they are concentrated in irrigated areas in the lowlands while coconut farmers are dispersed and less accessible.

After all the public pronouncements about the coconut levy fund, the money is still stuck in the National Treasury. Farmers who have waited for decades fulminate. The powers-that-be procrastinate.

Meanwhile, private investments in banana have made it the No. 2 world player, dominating markets in China, Japan, Korea, ASEAN and the Middle East. Multinationals helped in opening markets, but Filipino managers brought the industry to a higher level. The barrier to expansion appears to be land access which is government-policy related: land reform and poor infrastructure. Despite these constraints, the industry may reach $1 billion in five years or less.

Indeed, there is momentum and inertia in rural development, which are outcomes of government choices. The private sector can accelerate the speed of development but there are roadblocks in the way. It is the law of physics in policy-making.

Rolando T. Dy is the chair of the MAP Agribusiness and Countryside Development Committee, and the executive director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

Article location : and inertia in rural development&id=96774

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