BusinessMirror 9th Anniversary Issue 100914

On the Horizon

A BusinessMirror 9th Anniversary Special

E1 Thursday, October 9, 2014

MONEY MATTERS

OF THE ASEAN INTEGRATION

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S Southeast Asian nations merge into a singular, integrated market to boost intra-regional trade and cooperation, Asean member-economies are also finding methods that will allow free flow of cash needed to finance the expected robust trading in the area.

While the Asean Economic Community (AEC) highlights the freer flow of goods within the region, another aspect to look at is the monetary aspect of the integration, and how to remove monetary barriers and risks to the exchange of cash brought about by the intended payments to increased trading activity in the region.

Among these risks include for-

eign-exchange (forex) fluctuations that vary from country to country, access to credit, borrowing costs and the different monetary policies in the region.

Addressing forex fluctuations

IN light of the freer trade in the region, fi rms will start to source raw materials for their products

within the Asean.

Say a furniture-design firm in Thailand seeks to import rattan from the Philippines, the owner negotiates with the supplier, finalizing a price of P100 per bundle of rattan.

Needing a hundred bundles of rattan, and with the exchange rate of P1.384 to a Thai baht, the firm prepares 7,225 baht for the continued on e4

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INNOVATION KEY FOR I T

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HE ongoing shift in the focus of multinational corporations toward Asia, the expected “golden age” brought about by a “demographic sweet spot” of the Philippines next year and the financial integration of the Asean provide challenges and opportunities for the country’s trillion-peso insurance industry.

The confluence of these developments points to tremendous opportunities for growth for the Philippines, not only in the insurance industry, but also in other industries such as services, manufacturing, banking, etc. But the government, the private sector and the country’s work force should play their roles correctly to allow the Philippines to take advantage of these opportunities and compete when the Asean Economic Community (AEC) comes into reality in end-2015.

According to a recent forum on strategic planning in the insurance industry, industry leaders said innovation and the ability to evolve with the trends are the keys to tapping the potential for growth and competing in an increasingly competitive business environment that is focused on the AsiaPacific region.

During the forum, entitled “Insurance 2025: Strategic Planning for the Next Decade,” business futurist David Smith, chief

executive of Global Futures and Foresight, talked about the projections of the global business community about the growth prospects in Asia.

Smith said the dominant driver of insurance growth in the world is the AsiaPacific region, where half of the total additional €2.2 trillion expected to be paid by all policyholders by 2020 would come from. By 2030, the emerging economies will contribute 70 percent of the total economic growth, with 25 percent of that growth coming from China.

In the Asean region alone, the projection is that the economy of the economic bloc will more than double from $2 trillion in 2012 to $4.7 trillion by 2020.

These projections on the Asia-focused economic growth are reflected in the decisions of multinational corporations in basing their businesses in Asia. In 2010 85 out of the global list of Fortune 500 companies

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are headquartered in emerging markets, and this is expected to balloon to 230, or 46 percent, of the Fortune 500 list by 2025.

With the upcoming Asean integration, the Philippines and the local insurance industry need to innovate to be able to take advantage of the opportunities that will be offered by the increased market brought about by the integration.

According to current statistics, the 10-member Asean has the thirdbiggest population in the world with 600 million people. Its combined gross domestic product is estimated at $2.3 trillion, the seventh-largest economy in the world.

Insurance Commissioner Emmanuel F. Dooc pointed out that with the huge market that will be offered by the Asean financial integration, the Philippines stands to gain more than lose in the ensuing tighter competition.

This is because the Philippines has more players in the insurance industry in a local market that is smaller compared to the markets of its Asean neighbors.

“If you compare the number of players in the Philippines with the other Asean neighbors, you will realize that we have more insurance companies than the other countries, which have larger markets,” Dooc said.

Dooc said there are now about 100 insurance companies operating DOOC: “If you compare the number of players in the Philippines with the other Asean neighbors, you will realize that we have more insurance companies than the other countries, which have larger markets.” ROY DOMINGO

in the Philippines, while the penetration rate that was registered during the first nine months of 2013 was only at 1.9 percent.

The penetration rate in the entire Asean is only 4.2 percent, according to the Asean Insurance Council.

The challenge now is for the government to provide the correct regulatory framework that will make the local insurers stronger and more competitive to be able to take on their competitors in the local and the Asean markets.

Dooc said that among the measures the government is pushing in Congress is the lowering of the tax rate on premiums paid for nonlife insurance products, from the current 27 percent to around 10 percent. Currently, the Philippines has the highest tax rate on nonlife insurance products in Asean such as fire insurance, which is taxed at 27 percent in the Philippines, as compared to 12 percent and 7 percent in Vietnam and Singapore, respectively.

But Dooc said the biggest contribution that the government’s regulatory framework has made to ensure the competitiveness of the insurance industry is the passage in 2013 of the new Insurance Code, which raised the capitalization requirements of existing and new insurance companies. Now, new insurance companies must have a minimum paid-up capital

of P1 billion, while existing insurance companies must comply with the gradual schedule of increase in capitalization, with their total capitalization mandated to be at least P1.3 billion by 2022.

The Philippines is aware that the opportunities for growth that will arise from the Asean integration should also trickle down to the poor, and one of the areas that the country is looking at is the area of microinsurance.

Dooc said the Philippines is currently ranked first in the Asean in terms of the percentage of Filipinos with microinsurance coverage, and the government aims to tap the market for microinsurance for neighboring countries, especially when Asean integration starts in 2016.

The focus on microinsurance to help the poor sectors of society cope with natural disasters is part of the government’s financial-inclusion program that aims to make economic growth trickle down to the poor.

According to the Department of Finance, in 2013 about 19.95 million Filipinos have microinsurance coverage. This high percentage of Filipinos with micro insurance coverage is evident in the big P500-million payout by microinsurers to pay off claims of policyholders living in the areas ravaged

by Supertyphoon Yolanda (international code name Haiyan) in November 2013.

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A BusinessMirror 9th Anniversary Special

MONEY MATTERS

OF THE ASEAN INTEGRATION continued from e1 purchase amounting to P10,000.

Upon the transaction date, the baht depreciates against the peso to hold a value of P1.1 per baht. Th is means that the Th ai fi rm must pay a total of 9,090 baht for the transaction, losing about 1,865 baht due to forex fluctuations.

Although forex risk comes with all crossborder trade, increased trade activity in the region would heighten this risk and may hinder the objective of freer trade in the region.

Arising from the looming risk of monetary disconnect is the discussion on the establishment of a singular monetary currency in the region, similar to euro.

“A single currency for Asia has been ‘discussed’ in various fora since the 1980s, if not even earlier. And I believe the discussion may continue many years from now,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told the BusinessMirror.

“The Asian situation is very different from that of the EU [European Union]. Asian economies are more heterogenous than those in Europe. Therefore, the conditions for a smooth transition would likely be more challenging to attain,” he added.

The International Monetary Fund (IMF) is also of the view that putting up a singular currency for the region should not be put on the table in the near future.

“Critical structural preconditions for a regional single currency, including a high degree of business cycle synchronization, do

not appear to be currently in place. A single currency would also require setting up complex intra-regional monetary, fiscal and financial supervisory institutions,” IMF Resident Representative for the Philippines Shanka Jayanath Peiris told the BusinessMirror.

Other methods of lowering forex risk have also been brought to discussion.

“What may be more plausible is that some specific currencies in Asia could become ‘polar’ currencies, against which other Asian currencies would be valued, depending on the level of intra-Asian goods trade or exchange of services,” Tetangco said.

“An alternative approach to shield international trade from exchange-rate volatility is by financial deepening and the development of hedging mechanisms to exchange-rate fluctuations. Financial integration in the Asean region can help in moving in that direction,” Peiris also said.

Financial deepening refers to the improvement of access to financial services in the country across all economic sectors.

It also could refer to the increased ratio of money supply to different economic indicators, such as the gross domestic product, gross national income, or the consumer price index.

Asked on policy recommendations for the region to cope with exchange-rate volatilities in intraregional trade, Peiris said the region should flexibly manage their currencies to ensure that exchange rates move in line with economic fundamentals, such as permanent shifts in the terms of trade.

“Financial-sector development should provide overtime hedging mechanisms against exchange-rate fluctuations” he added.

Peiris also added that while exchange-rate fluctuations serve as a risk, some exchange-rate volatility is actually “desirable” to discourage speculative bets.

Access to funding and credit

LIKEWISE, another monetary issue that comes with the freer flow of goods and services include the access to credit to fund larger trading activities.

The central bank governor and the IMF resident representative are both of the view that the integration will likely bring down the borrowing costs for countries in the region, as efficiency and security of payments in Asean also improve.

“Asean integration aims to increase intraregional economic relations by lowering barriers to the flows of goods, investment, financial services and other economic transactions. Implementing the envisaged reforms should enhance the efficiency and raise the potential growth of the Philippine economy, which should help reduce borrowing costs,” Peiris said.

Tetangco, likewise, expressed Peiris’s view, but added that the headline cost of borrowing across the region will still depend on country-specific factors, such as economic performance, quality of policies, external position and overall credit worthiness.

The synchronization of monetary policy

WITH the integration of the region’s markets, discussions on the possible synchronization of monetarypolicy stance in the region also rose due to the foreseen interconnectedness of economies and sources of funding in the region.

Tetangco said that while synchronization is still yet on the table, the region is already discussing increased policy coordination in the economic bloc.

“I don’t believe monetary-policy synchronization is a current goal under the present integration plans. But the integration, as envisioned, should necessarily bring about increased policy dialogue and consultation within the region,” Tetangco said.

“As it is, there are already several avenues for policy discussions and dialogue among the authorities of Asean economies—through various regional associations, like the Asean, Asean Plus 3, Emeap [Executives’ Meeting of East Asia Pacific Central Banks] and Seacen [South East Asian Central Banks]. The private sector has also been involved in relevant regional discussions and other activities,” he added.

IMF’s Peiris said economic leaders’ decision on monetary-policy coordination should be based on a “careful analysis of the economic and political benefits and costs.”

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Banks to help PHL rise above competition in AEC

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MART banks have plotted their growth strategy to help the country in achieving its full growth potential and increasing its economic weight in the Asean Economic Community (AEC). Believing that they can prosper together in the Asean market, banks focus on aspects that differentiate them from the rest to win the business. With the stiffer competition, entrenched incumbents will be hard to dislodge.

BDO, the Philippines’s largest bank

BDO Unibank Inc. (BDO), the country’s largest bank, said Asean integration has both positive and negative effects on its clients and the Philippine business, in general.

BDO President Nestor V. Tan said an integrated region opens up more market opportunities for local businesses to expand their customer base, while providing them more options to access cost-efficient sources of inputs and services.

“Such an environment is expected to create strong competition, not only domestically, but also in Asean member-states. Local businesses affected by the integration may not be adequately prepared to handle the effects of integration due to the absence of distinct competitive advantage, or a disruption in the supply chain of raw materials, among others,” he said.

Tan said BDO is currently focused on strengthening and building its domestic franchise.

“We need to be bigger and stronger to withstand potential competition from new entrants. In preparation for increased competition, BDO has bolstered its capital base and continues to broaden client coverage through branch expansion and market penetration,” Tan said.

CTB gives full support to SMEs

WHEN integration sets in, small and medium enterprises (SMEs) are seen to be very much affected.

Chamber of Thrift Banks (CTB) and BPI Family Savings Bank President Jose Teodoro K. Limcaoco said their customers will be challenged by the opening up of trade, and so they wanted to make sure that Philippine SMEs—the lifeblood of the economy—are prepared for it, as well as the country’s thrift banks.

CTB is promoting the deeper appreciation of what Asean integration is to SMEs. “We need to build awareness among the CTB members that this Asean integration is not forthcoming, but is here. We need to be aware of the opportunities presented to our customers and be ready to help our customers take advantage of those opportunities,” he told the BusinessMirror.

He said this year’s theme for the CTB focuses on Asean integration, as well. They have kept it at the forefront in many of their activities, including their annual convention and the most recent general membership meeting.

The Asean integration will provide their clients with new and expanded markets plus, the ability to source new suppliers from outside their traditional areas.

“Clients who understand these benefits and refocus their business to take advantage of the integration will be big winners,” Limcaoco said. Asean Business Advisory Council member and Interior Basics Export Corp. President Jay Y. Yuvallos said SMEs see exponential growth in market opportunities.

He said each sector must study and fi nd their competitive advantage. He added that business, infrastructure and supply-chain efficiency must complement the Asean brand. continued on F2

On the Horizon

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BANKS TO HELP PHL RISE AB continued from F1

“SMEs have the resiliency, but it need to harness their potential niche. SMEs need a lot of support to go international. A lot of work needs to be done,” he stressed.

CTB will make sure that SMEs are better financed to be able to expand their businesses locally, or should they look for opportunities outside the country.

PHL is indeed a bright spot

THE Philippines is an attractive market for foreign investors because of its large population and rapidly growing middle class.

These consumers will drive retail, education, health care, industries, transportation, etc. And to make sure they can be served, the infrastructure has to be there.

“For many years we awaited the day when our consumers would have significant disposable income and the confidence to spend. That day is here,” Limcaoco said.

He added that the Philippines is an attractive market for foreign banks. Competition in the next few years will intensify and so the need to be more prepared.

“We have a rapidly growing middle class in a large population. This provides opportunities for banks, both on the corporate side and the consumer side,” he said.

He explained that a foreign bank may have two strategies to come into the Philippines—serve the corporate market as a whole-

sale bank, or get into the consumer market through retail banking.

Any bank that wants to be a part of the retail sector will need branches, and this will mean banks with a decent number of branches will be attractive.

Limcaoco said the consumer space for financial products will be won by product, distribution and service.

“Products really are quite similar, so we need to find some ‘differentiating factor.’ BPI has affiliates that can provide added value to our consumer loans, so that’s how we differentiate ourselves today. Our distribution is unmatched, with our over 800 branches, a well-trained sales team, and an online presence that we believe will be key to tapping younger customers,” he said.

Banking sector fragmented

THE Philippine banking sector is fragmented but it’s rapidly consolidating. “The fragmentation provides opportunities for foreign banks to enter and consolidate. What small local banks should do is consider banding together to gain scale and presence. This allows them to remain relevant or to be attractive as an acquisition,” Limcaoco said.

“There will always be a role for small niche banking, say to serve specific underserved communities, and we must make sure that those banks are not forgotten nor pushed out of business. After all, financial inclusion is key to economic progress,” he added.

The Asean banking integration might

be seen to be a couple of years away, but the Bangko Sentral ng Pilipinas (BSP) is already preparing for it.

“We expect the BSP to raise capital requirements. We also expect some consolidation as smaller banks may need to band together,” Limcaoco said. Tan agreed that the local banking industry is fragmented, being composed of 36 universal and commercial banks (U/ KBs), 70 thrift banks and 561 rural banks as of end-March 2014.

“While the industry is fragmented now, there is some consolidation in terms of market share, with the bigger banks, or U/KBs, driving the sector due to economies of scale, wider networks and extensive suite of products and services,” Tan said.

In terms of asset concentration for example, the U/KBs account for 90 percent of the system’s total resources, with the top three banks contributing 44 percent to total U/ KB assets, according to Tan. These top 3 banks are BDO, Metropolitan Bank and Trust Co. (Metrobank) and BPI. “We expect increased mergers and acquisition [M&A] activity not only among foreign and local banks, but also among local banks, themselves, triggered by the impending Asean integration, liberalized entry of foreign banks and the potential hikes in bankcapitalization requirements,” he said. For foreign banks, the objective is to gain a foothold in the Philippine market.

Meanwhile, local banks aim to

TAN: “While the industry is fragmented now, there is some consolidation in terms of market share, with the bigger banks, or U/KBs, driving the sector due to economies of scale, wider networks and extensive suite of products and services.” BLOOMBERG

achieve the necessary scale to effectively compete in an integrated environment.

BDO’s expansion

BDO continues to pursue branch expansion and market penetration to broaden client coverage and reach the unbanked areas.

Currently, it has 857 branches nationwide, with over 50 percent of new branch openings located outside Metro Manila to tap into emerging high-growth areas and

the underserved customer segments outside the metropolis.

Tan said the bank continues to build its international footprint by opening a representative office in South Korea to focus on the overseas Filipino worker (OFW) market and cross-border transactions with Philippine and Korean firms.

He added that the bank’s representative office in Singapore is looking at Asean business opportunities, thus, complementing crossborder transactions from Hong

Kong and China, which are now being serviced by BDO’s full-service branch in Hong Kong.

“Our extensive branch network spanning major cities nationwide, expanded client coverage and brand recognition have propelled BDO as the dominant franchise in most business lines,” he said.

BDO is the first local bank to offer extended banking hours and weekend operating schedules, an innovation that has put the bank in good stead with its customers. This

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BOVE COMPETITION IN AEC customer centricity has favorably distinguished BDO from the rest.

“We are a customer-oriented bank guided by our service philosophy ‘ We Find Ways’ that brings client-bank relationship to a more personal level and elevates customer convenience above the norm,” he said.

Maybank pursues regional expansions

MAYBANK Philippines Inc., which is part of the Maybank Group, said one of the group’s strategic priorities is to accelerate the pace of regionalization.

“When I joined Maybank in March 2012, we’re already rolling out platforms and processes that are the same or uniform for Asean, so that customer’s experience can be seamless from market to market,” Maybank President and CEO Herminio Famatigan Jr. said.

He added that this is not easy, as there are local laws that they need to comply with.

Banks with well-diversified proposition, or more tailored differentiation across this segment, have more advantage in getting more customers.

“When Asean integration sets in… when you deal in various businesses in the Asean, our value proposition is ‘we are in the whole of Asean.’ You bank with us, we’re visible.

You want to trade to Myanmar, you want to export in Thailand, we will process your transactions,” he told the BusinessMirror.

Maybank Group, a regional financial services leader with presence in 20 countries worldwide,

including all Asean countries and five International Financial Centers is seriously looking for bank acquisition in the Philippines as part of its regional expansion.

“The Philippine banking industry is very competitive and there’s room for further consolidation. Every opportunity to buy is a model in itself.

If we’re going to buy a bank, it makes sense to buy a bigger bank, if the idea is to scale up,” he said.

Malaysian investment bankers study PHL market

The Malaysian investment bank, MIDF Amanah Investment Bank Berhad, said in a research note that consolidation may be tough, as the banking industry in Philippines is still fragmented—having 680 banks.

It said buying small banks would not serve the purpose of regional expansion.

“Although profitable and stable, these banks need to merge among themselves to better prepare them with the expected new foreign competition now that the new banking law allows 100-percent [foreign] ownership,” the MIDF research said.

“Along with greater competition coming from the recently approved law allowing up to 100-percent ownership by foreign banks and the upcoming Asean integration, the need for more capital will intensify industry consolidation,” Maybank ATR Kim Eng analysts said.

The Malaysian investment banker delegates, led by MIDF Amanah Investment Bank Economic Research Department chief

economist Maslynnawati Ahmad lauded the fast-growing Philippine economy and expects it to remain strong in a couple of years.

“The Philippine economic condition is likely to moderate, but to stay strong near its potential growth of about 6 percent. It may remain as one of the fastest growth country in the region in the next one to two years,” Ahmad said.

Ahmad said Permodalan Nasional Berhad (PNB) and Amanah Raya Investment at group level, themselves, have stakes in many big Malaysian companies and banks, and they were looking at the Philippines for opportunities to invest in certain sectors.

“My personal view as economist, most Malaysian companies that are looking into Philippines would focus on products or services catered for domestic consumers such as retail, food industries, health, roads, transport, water sanitation and sewerage infrastructure, housing etc.,” she said.

“They will also tap the massive untapped potential of Mindanao, mainly agriculture supply chain,” she added.

MIDF said inflation numbers are very important for foreign investors. “BSP adopts an inflationtargeting policy.

The BSP targets to bring down inflation closer to 3 percent next year and that implies quite significant tightening, especially if the supply bottlenecks continue to exert upward pressure with the coming bad weather,” Ahmad said.

T he Ma laysian investment bankers from MIDF, PNB, Philip

Capital Management Sdn. Bhd. (PCM) and Amanah Raya Investment made a two-day visit to Manila for an investor’s briefing with the BSP, Monetary Board, Bureau of the Treasury, Philippine Stock Exchange (PSE), Board of Investments, Department of Energy, Mindanao Development Authority and Asian Development Bank (ADB) on September 8 and 9.

Malaysia is one of the mostactive supporters of trade integration in the region and poises itself as the trade and exhibition hub for Asean exports.

AIM conducts study on Asean integration

ASIAN Institute of Management (AIM) Prof. Federico M. Macaranas, Asean 2015 project leader, has conducted a study on the conditions of foreign bank participation in the Asean region.

President Aquino signed a new law in July this year allowing 100-percent foreign ownership of bank.

Foreign players can set up a new banking subsidiary, or establish overseas branches with full banking authority.

He said Indonesia allowed 99 percent foreign equity participation. The entry through foreign bank branches is limited to 11.

Foreign banks must form a joint venture with local partners.

Malaysia and Singapore have no hard limits.

The determination of equity will be subject to prudential criteria and best interest of Malaysia’s criteria.

On the other hand, Singapore’s government will not allow a foreign takeover of its three major local financial institutions.

Thailand, for its part, allowed 25-percent to 51-percent foreign equity participation.

Banks in Thailand must be locally incorporated and established as a limited public company. Each foreign bank is allowed to establish one branch.

The foreign banks may apply for increased foreign participation of up to 51 percent subject to approval of the Finance Ministry. A strong case is required for application above 51 percent.

Macaranas said despite the differences in stages of development, the capital adequacy ratio (CAR) serves as equalizer.

As of September 2013, the CAR for Indonesia is 18 percent; Malaysia, 12.1 percent; Philippines, 18.89 percent; and Thailand, 16.5 percent.

In Singapore, major local banks using Basel 3, such as DBS Bank, OCBC Bank Singapore and United Overseas Bank Ltd. (UOB) has CAR of 15.9 percent, 16.1 percent, and 16.3 percent, respectively.

Macaranas said while there are benefits from financial integration, there are also challenges ahead. The benefits include better availability of specialized financial services and products.

The cost of financial intermediation will be reduced. There will be mobilization of more savings.

He sees market deepening and regional risk sharing and enhancement

of information linkages through closer cooperation among individual member-states.

“The risks include greater potential for spillovers at the institutional and system levels. Increase volatility of capital inflows into a specific member-state.

Additional risks attend to crossborder transactions and the possibility that the domestic banking market will be dominated by foreign banks,” he said.

Macaranas said the potential participants in Asean face a single set of rules. They will have equal access to the market and receive equal treatment when engaged in it.

He said in an equal environment, full or partial harmonization of financial integration and market infrastructure boosts bank’s competitiveness.

Equal access means eliminating all restrictions on cross-border access to domestic financial markets, while equal treatment simply eliminates discrimination against foreign institutions operating in the host country’s domestic market.

ABIF

THE Asean Banking Integration Framework (ABIF) allows the entry of qualified Asean banks (QABs) in the region.

Macaranas said Asean memberstates target the operation of QABs that will be accorded equal treatment as the domestic banks in the host jurisdiction in each of the Asean member-economies. continued on F4

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Banks to help PHL rise above competition in AEC continued from F3

The gradual removal of restrictions on Asean banks, insurance companies or investment companies in providing financial services in other AMS will also be implemented.

The Asean integration paves the way for capital account liberalization. He said Asean aims to achieve freer flow of capital by gradually removing restrictions on foreignexchange transactions such as those in the current account, foreign direct investments, portfolio investments and other flows, while imposing adequate safeguards.

The assessment and identification of rules of Asean-member states on foreign-exchange transactions have been completed.

He said individual road maps, showing member-countries’ plans to progressively liberalize their capital account regimes, have been drafted.

The ABIF aims to achieve harmonization of principles of prudential regulations in areas such as bank-accounting standards and disclosure requirements; minimum capital requirements; prompt corrective actions (PCA) and methodologies resolution of failed banks; the restrictions on large exposure; and money laundering and consumer protection.

The scope of capacity building includes competitiveness of domestic banking institutions, penetration of the Asean banking market by domestic institutions, coverage and efficiency of domestic credit-rating agencies and quality

of human resources.

They also need to establish financial-stability infrastructure.

The possible criteria for QABs were scope of banking activities, capital-adequacy requirements, consolidation requirements and authority for consolidated supervision, restrictions on large exposure and accounting and transparency requirements.

There were conditions on establishing QABs, and the list of qualifications for QABs should be agreed upon by all countries and must be cleary stated in a legally binding document.

“Home country has obligation to provide information to host country since the latter may not have access to all relevant information on parent bank.

Transparency of information and disclosure requirements for banking institutions should be consistent between home and host countries.

They need to develop an Asean-wide deposit-insurance scheme.

It needs regulatory convergence to guarantee an equal level playing field and align domestic regulations with the qualifications of QABs,” he said.

Asean central bank governors and finance ministers’ roles

ACCORDING to the AIM research, the Senior Level Committee (SLC) on Asean Financial Integration, comprising the central bank deputies and chairmen/co-chairmen of the different working committees have focused on issues concerning

central bank functions.

Their concerns include banking integration, capital-flow liberalization, payments and settlement systems.

Co-chaired by the BSP and Bank Negara Malaysia from 2011 to 2013, the SLC played a critical role in ensuring the implementation of key milestones and timelines of financial integration in the region in the last two years.

The finance ministries provide guidance on the sectors under their jurisdiction, such as insurance services, securities markets, taxation and customs, among others.

Macaranas said the integration will generally contribute to the overall health of the Asean memberstates’ financial sector, generating more jobs, leading to improved efficiency and creating opportunities for cost reduction.

It will offer a wide range of financial services, such as micro-financing and insurance, which will be made available to a larger consumer base, thereby providing a way for the poorest citizens to generate income, protect them from risks and to invest in opportunities as they arise.

“As countries in the region open and integrate their financial markets, it is important to establish the necessary capacities, pursue sound and consistent macroeconomic policies characterized by price stability and fiscal discipline,” Macaranas said.

Recognizing that each asean member-states has its own differing initial conditions, he said each Asean member-state may define

its own milestones and time lines to achieve the common end goal of financial integration.

Filipinos can hold their heads up high

THE Philippines offers a lot of potential and remains an attractive growth market.

BDO’s Tan said consumer-based industries, such as consumer durables, services like retail trade, food, health, housing and real estate, among others, are supported by the country’s growing domestic market, young population and rising percapita incomes.

As well, business-process outsourcing (BPOs) and knowledgebased industries are backed up by the country’s pool of educated, English-speaking and highly trainable manpower.

Fur ther, oppor tunities for large-scale infrastructure projects abound given the country’s inadequate infrastructure in the areas of transport, road network, energy/power, utilities and health facilities, among others.

The Philippines remains as one of the region’s top performers this year, with economic growth expected to stay above trend at 6 percent to 7 percent, driven by a resilient consumer sector, revived government spending and some export recovery.

He explained that inflation is not a main factor affecting the economy.

The recent uptick in inflation is partly driven by temporary weather-related supply-side pres-

sures and logistical issues—particularly port congestion—which are being addressed.

“The BSP has enforced preemptive tightening measures to control liquidity growth. These should keep inflation numbers in check and within the BSP’s inflation target,” Tan said. With greater economic efficiency, the country will have a more active participation in the financial markets.

It will become a highly preferred investment destination as “we continue to improve on our infrastructure, and more industries will become more globally competitive,” according to Communications Secretary Herminio B. Coloma Jr. In an earlier interview, he said foreign banks have expressed interest to enter the Philippine banking space to fully serve clients investing in the country.

Foreign investors would like to make more substantial investments in the Philippines, if they would transact with their own banks, he said.

“There have been concrete manifestations from Malaysian banks and Indonesian banks; and banks from Japan have indicated their willingness to put their offices here,” Coloma told the BusinessMirror.

He said that in all the places that President Aquino has visited, business leaders have raised that they want their own banks to facilitate their investments.

“What we’re aiming at is to become competitive in manufacturing industries, especially electronics. We’re also targeting auto-

motive technology. Toyota Philippines is already the manufacturer of certain major assemblies and it has established an Institute of Technology, which will serve as a training hub for all of Asean,” Coloma said.

“Our advantage really is in our human resources because we have a very talented population that can compete with the best of Asean even if there are more advanced economies. Our human-resource advantages can enable us to level up at a faster pace.

“By end of the year, we will be more prepared. Asean integration does not happen as one big bang.

Throughout 2015 and even beyond 2015, we will continue to attain the benefits from integration and we can only get better as we participate in this visionary undertaking,” Coloma said.

What’s in store for banking in the future?

WHEN asked how they see the Philippine banking sector under the Asean integration in five years, BPI’s Limcaoco said: “Greater competition, greater choice for consumers.”

BDO’s Tan hopes the Philippine banking sector will be able to rise up to the demands of an integrated market and effectively compete among the region’s key players. “I see the industry represented by top domestic banks with nationwide networks offering a wide range of products and services, along with smaller local banks and foreign banks servicing certain market niches,” he told the BusinessMirror.

G1 Thursday, October 9, 2014

On the Horizon

A BusinessMirror 9th Anniversary Special

INTEGRATION NOT A ‘DOOMSDAY’ EVENT

B C N. P

‘T

HE economic integration should not be seen as a doomsday event.”

Th is is the message that the Department of Trade and Industry (DTI) has been repeatedly conveying to domestic industries, but always with an accompanying

reminder that local enterprises need to gear up to stay competitive in an integrated regional market beginning end-2015— the dawn of the Asean Economic Community (AEC).

Asean’s integration, guided by the “AEC Blueprint,” aims to achieve, among others, the creation continued on G2

AEC On th INTEGRATION NOT A G2 Thursday, October 9, 2014

continued from G1

of a single market and production base, as well as the establishment of a competitive economic region.

On the upside, the economic integration will provide local companies with a market of over 600 million consumers.

The region has a combined gross domestic product of nearly $3 trillion, which could easily reach $4 trillion in 2020 by growing at an expected rate of 5 percent annually.

However, local businesses are more focused on how they can weather the increased competition within an integrated region that will essentially dismantle whatever remaining trade barriers to ensure freer movement of goods, services and investments within the region.

Trade Secretary Gregory L. Domingo has assured local business organizations time and again that the changes to come will be “evolutionary, not revolutionary,� as the bigger changes have already occurred in 2010, when import duties on 99 percent of tariff lines in the five biggest Asean economies were reduced to zero.

With the tariff elimination achieved under the commitments of the 10-member bloc to ensure free flow of goods, the trade department, which also heads the Committee on the Asean Economic Community, has shifted focus on tackling nontariff barriers, trade facilitation and harmonizing regulatory procedures to ease the exchange of goods and services when the single community is established.

As part of the broader stroke to facilitate trade, the DTI launched in 2010 a nationwide information program to maximize the benefits of the free-trade agreements (FTAs), including the pacts establishing a free-trade area within Asean, with the goal of increasing local

A BusinessMirr

he Horizon ‘DOOMSDAY’ EVENT

ror 9th Anniversary Special

www.businessmirror.com.ph | Thursday, October 9, 2014 G3

Certificate of Origin (CO) issued to exporting firms from 2008 – 2013* Free Trade Agreement

2008

2009

2010

2011

2012

2013

Asean Free Trade Area

13,650

12,279

15,117

16,033

17,705

18,472

Asean-Korea FTA

1,970

2,082

2,415

3,475

3,383

3,701

Asean-China FTA

678

972

2,633

3,250

3,457

3,775

Philippines-Japan Economic Partnership Agreement (PJEPA)

0*

7,382

8,214

9,514

11,547

13,806

*partial data from the Bureau of Customs Export Division in the Port of Manila

exports through better utilization of preferential tariff rates provided by the FTAs. The Doing Business in the Free Trade Area program has, as of late, been concentrating on increasing awareness of the public and the private sector on the AEC in 2015, as well as in maximizing the benefits that the Asean Free Trade Area (Afta) presents, according to Senen M. Perlada, director of the Export Marketing Bureau (EMB) of the DTI. The nationwide program, which is handled by the EMB, enhances the information drive to aid Philippine businesses break into foreign markets and increase competitiveness of Philippine-made products, a particularly pivotal move in the face of the impending integration.

According to Perlada, the program has set a target of 150 sessions for 2014 and has already surpassed the target as early as September.

The EMB has conducted 152 sessions as of September 1. Participants tally, targeted at 13,500 for

2014, has also been exceeded, as the bureau has counted 18,277 participants and attendees as of September 1.

Utilization rate for the preferential rates in the Asean Trade in Goods Agreement has shown a steady rise from 2008 to 2013, according to the EMB, which gave partial data showing the issuances of the Bureau of Customs of certificate of origin (CO) during the said five-year period.

A CO is a declaration by the exporter, submitted to the BOC for validation, that proves his export products comply with the origin requirements specified under bilateral, regional or multilateral arrangements to which the Philippines is a party to.

“The trend is that issuance of CO for exported products is increasing, for each of the seven FTAs,” Perlada said in a phone interview. Data on the other FTAs are currently being consolidated.

Perlada said the demand for information from industry players, academe and even local government

units has spiked in view of the upcoming integration.

Aside from ramping up the information drive to ease transition to a regional economy, the trade office is also tackling the harmonization and streamlining of procedures to facilitate trade.

Another project of the DTI is the establishment of the Philippine National Trade Repository (PNTR), an online portal system where all information and regulation pertaining to trade matters will be consolidated.

According to Undersecretary for the Industry Development Group Adrian S. Cristobal, the system will not only inject transparency in the system but will also cut down transaction time and costs.

The said project is handled by the Bureau of Import Services (BIS), which assured the Web-based system will be completed by 2015.

“A prototype portal will be developed this late November and soft launch the same by the end of the year. By next year, refinement

of the portal will be made. By 2015 the Philippines will have a fully operational NTR,” Sherwin Prose C. Castañeda, assistant director of the BIS, said in an e-mail interview.

“For traders, with the PNTR, they no longer have to search the different web sites or portals of various regulatory agencies. The information needed to undertake trade transaction can be easily accessible in the NTR portal.

In addition, a well-informed trader would help them to be more competitive and better integrated in the market,” Castañeda added.

The BIS also assured that all the information in the portal will be in place by the end of September, and a subcommittee on information technology and content will take over the technical aspect of the project.

The Atiga, which consolidates all commitments related to goods, envisions all the national trade repositories of Asean member-states to be interconnected by 2015 into a central Asean Trade Repository.

Still on the thrust to harmonize regulations, Trade Undersecretary for the Consumer Protection Group Victorio Mario A. Dimagiba said in a phone interview that in the area of consumer protection, laws governing it in the 10-member bloc are essentially consolidated.

The Asean Committee for Consumer Protection (ACCP) convened in the Philippines early this year to discuss further objectives to prepare for the integration and

the remaining hurdles. Dimagiba said one objective that was identified during the meeting was the cross-border mechanism for goods purchased in one territory then brought to another.

Asked for an update, Dimagiba said the study “Road-mapping Capacity Building Needs in Consumer Protection in Asean” has been completed under the Asean-Australia Development Cooperation Program Phase 2, and a meeting of the ACCP will convene next month to review the recommendations.

“It has been completed, so in the committee next month, [they] would submit the final report and the member-states would now have to review the recommendation because we have to implement it based on our national requirements,” Dimagiba said, noting that the study will identify amendments to national laws that will be necessary to comply with the Asean commitments.

Dimagiba added that strengthening the area of consumer protection is especially beneficial for small and medium enterprises (SMEs), which are, themselves, consumers of products of larger corporations.

Capacity-building for SMEs, a special focus of the trade office, is done through the Shared Service Facility (SSF) Program, which aims to set up common service facilities, or production centers, in different regions, for select “priority industry clusters” to give them access to better equipment and technology.

As of September, the DTI has established 765 SSFs nationwide, assisted 60,022 SMEs, mostly in manufacturing, and generated 25,534 jobs through the program, Cristobal noted in listing the trade office’s accomplishments during the recently held Philippine Economic Briefing.

The SSF is just one of several programs of the DTI for SMEs under the umbrella of the department’s “Big Push” to SME development.

Overall, the AEC is sure to bring its share of opportunities and challenges to Philippine companies, especially SMEs, and the key to survival is increased competitiveness.

The trade department has a slew of other programs directed toward this, including its Industry Development Program and the Broader Manufacturing Resurgence Program, to revive manufacturing’s contribution to national output and ramp up industries’ competitiveness.

Assistant Secretary for Industry Development Rafaelita M. Aldaba noted that key opportunities come integration include market access for Filipino firms, bringing in of workers will be made easier, and movement of goods across borders will be made less costly, among others.

Inefficient and uncompetitive sectors, however, stand to lose, Aldaba said. This is why assistance to SMEs should continue in the form of technology upgrading, access to finance and humanresource development.

On the Horizon

BusinessMirror

G4 Thursday, October 9, 2014

Mindanao ambivalent on single Asean economy

D

B M T. C | Mindanao Bureau Chief

AVAO CITY—There’s no single uniform emotion raised by industries and other economic groups around Mindanao when the Philippines and the rest of the 10-nation Asean open up their economies to a seamless, tariff-less headache movement of people, goods and capital next year.

Take for example, the two groups engaged in invention and innovation and the viewpoints diverge into two opposite tempers, one hoping to make the Asean economic integration work soonest, the other raising the concern that government inattention to inventions would send local inventors to the backburner against subsidized and better-packaged competitions from well-off Asean economies.

Virgilio Sangutan, president of the Davao Inventors Association, is uncomfortable at the approaching days toward an open economy in Southeast Asia, expecting a losing proposition for local inventions “because of the obvious reason that the government has not been helping local inventors through those years when we really need their support.”

“Compare it with inventors in Malaysia and other affluent nations in the Asean. With government subsidy, expect better quality and superior packaging compared to ours, when even making a prototype is already a discouraging dream,” he said.

Although he was not expecting a sudden flooding of products, including inventions, to Mindanao, “the question is: How are we able to export our inventions to other countries, when transporting them alone is already a huge problem?”

Sangutan blamed the government for years of lukewarm reception and forced support to local inventors and the consequent failed commercial production and widespread application of their products.

Some of them, though, fared well in their products, especially those engaged in food supplements and nutrition additives.

Sangutan himself is into foodsupplement production, whose products like the MI capsule, squalene and wonder oil is a popular item due to the saturation of radio airtime.

Among the other known inventors and production innovators from Mindanao who made names in the food-supplement industry include the MX3 mangosteen line of products, the Yaki oil and Dok Alternatibo.

The government said the food supplement and herbal sector alone is spending several billions of pesos in annual advertisements.

“Overall, local inventors have been struggling through the years, and opening up the economy to other nations only worsens the situation for us,” he said.

This year, Davao inventors are creating the Davao Inventors Association Multipurpose Cooperative “as the marketing arm of our association here.”

“While it seeks to bring our invention to the communities, the farms and business establishment, it would also provide us the shield against the competition posed by our rival inventors from other Asean countries,” he said.

He said the cooperative should al-

low them wider presence in the localities “and give us a good head start in promoting and patronizing our products than those of other foreign inventions.”

“We are not expecting a sudden influx of their inventions and it would allow us a good time to work out marketing their products,” he said.

Local inventions already include portable harvesters, threshers, and agricultural inputs, even three organic concoctions to fight the dreaded Panama disease and black sigatoka ravaging the banana plantations in Mindanao.

Their counterpart in the outsourcing sector appears more comfortable and expectant of the benefits to be derived from a single Asean Economic Community.

Lawyer Samuel P. Matunog, chairman of the Software Industry Association of Davao City, said the market opportunities are expected to widen further for Davao City and Mindanaobased software developers.

“There are ICT [information communication technology] trends and devices in other countries that are not here,” he said. In Malaysia, for instance, “they have a big market in the Middle East but they lack the human resource.”

“Malaysia and Brunei [Darussalam] have this similar lack of personnel while we have an adequate number to offer,” he said. “So we can partner with them, our skilled and creative human resource for their infrastructure and resource to access their markets.”

He said the partnership is devoid of the so-called opportunity risk.

“Right now, we have offers to relocate to Kota Kinabalu and Cyberjaya,” he said, elaborating on the dire need of Malaysia and other Asean countries for more information-technology graduates. “They have a problem of their personnel pirated by Singapore and Europe, and we want to avoid the same to happen to our own personnel.”

The ICT sector in Mindanao also had a head start, similar to the claim of Mindanao that it has the advantage over the Visayas and Luzon in the integration due to the two decades of experience of Mindanao with the Brunei, Indonesia, Malaysia, the PhilippinesEast Asean Growth Area (BIMP-Eaga).

“For us here, we have the BIMPEaga ICT-Chief Executive Officer Forum since 10 years ago,” said Matunog, who is also the chairman of the ICT Davao City.

Among its programs is the establishment of the start-up hub in key centers, such as in Kuala Lumpur and Kota Kinabalu in Malaysia, and Davao City in the Philippines.

“We have 3,000 start-up softwares ready to be incubated or sent to commercial use with these hubs,” he said. Davao City already signed an agreement with Brunei on this, he said.

For the small software companies, Matunog said they can likely easily

find contacts to access resources and markets because of the open market.

Other sectors are also similarly wary and expectant like the two inventors’ groups.

Small agribusiness ventures cite similar dearth in capital mainly due to lack of access to credit, with banks imposing stringent measures for borrowers. The Davao City Chamber of Commerce and Industry Inc. said the difficulty would be felt heavily among its members, nearly all of them belonging to the scarcely capitalized small and medium industries.

Until access to financing is relaxed, business leaders said they just have to adjust and devise ways to survive.

The island’s coconut industry is not bothered, according to Administrator Romulo N. Arancon of the Philippine Coconut Authority.

He acknowledged that Malaysia is among the well-off economies in the Asean after it has positioned its key industries, like oil palm, in the other countries, long before the envisioned single Asean market. It has oil-palm plantations in many poorer Asean countries like the Philippines, Lao PDR and Indonesia.

Arancon said, however, that the availability of the palm oil product, expected to be bought at a cheaper price, could relax the demand for coconut oil, including the other coconut by-products.

“With oil palm around, we can now engage in value adding to increase the incomes for our farmers,” he said. The machineries and gadgets are already available, both manufactured by local inventors or can be bought at a cheaper price in other Asean countries.

He said value adding the coconut products could result to by-products “that are underproduced here but in big demand, not only in the Asean but in the world market, as well.” The by-products include virgin coconut oil (VCO), coco water, coco sugar, coir and peat.

VCO is used for therapeutic purposes despite demand for appropriate labelling, and for cosmetics, with the Korean market alone using it as the main base of the concoction.

Coco water is currently touted as a better source for electrolytes, much higher in concentration than commercial drinks.

Coir and peat are currently used as matting in mountain slopes with road constructions along them, Arancon said matting materials in the Caraga region alone is inadequate to meet the demands of mining companies.

Sangutan warned against a cavalier look at the Asean integration among coconut industry leaders, saying that moves to replace the coconut plantations would be devastating to the people relying on coconut.

The warning came as Davao Oriental Gov. Corazon Malanyaon announced she would allow oil-palm companies to replace its typhoonravaged coconut plantations.

“Imagine the factories engaged in producing at least the nine major products of coconut that are providing countless jobs to rural residents. And imagine the countless others that may be displaced as an indirect effect of an unprotected coconut industry,” Sangutan said.

The establishment of the singleeconomic market was decided in the summit meeting of Asean leaders in November 2007 in Singapre.

The integrated market would be called the Asean Economic Community to be implemented next year.

The main objective was creating a single market and production base by ensuring a free flow of goods, services, investment, capital and skilled labor.

On the Horizon

A BusinessMirror 9th Anniversary Special

H1 Thursday, October 9, 2014

INFRA LACK STILL PHL’S

ACHILLES’HEEL T

Major arteries, seaports and aviation hubs have been peaking to exceed their maximum capacities, causing congestion that has resulted in angry commuters and higher logistics costs.

B L S. M

HE lack of infrastructure is widely seen as the Achilles’ heel of the Philippine transportation sector come the integration of Asean economies.

In fact, the said weak spot has always been one of the major problems of the country’s transport industry, as shown by the bottlenecks on roads, sea terminals and airports.

The country’s current infrastructure could no longer keep pace with the rate of growth that

the Philippines has been posting for the last several quarters.

Major arteries, seaports and aviation hubs have been peaking to exceed their maximum capacities, causing congestion that has resulted in angry commuters and higher logistics costs. continued on H2

TRAFFIC stands congested in Manila. JES AZNAR/BLOOMBERG

AEC On th INFRA LACK STILL PH

A BusinessMirr

H2 Thursday, October 9, 2014

A WORKER takes a break from laying concrete on a road in Manila. Manila’s commuters are victims of a decade of neglect that President Aquino is trying to reverse with the capital’s biggest transport upgrade since the 1990s. JES AZNAR/ BLOOMBERG

continued from H1 The national and local governments have been deploying measures to improve the flow of goods and services.

One such example is Manila’s imposition of a daytime truck ban, a measure that was aimed at reducing the road congestion in the city. The capital is host to the largest international seaport in the Philippines, as well as another major terminal.

The Manila International Container Terminal and the Manila South Harbor saw the inflow and outflow of cargoes in their ports surging during the past months. But with the increase in cargo and the limited time to take them out of the ports, the terminals went over their maximum capacity, resulting in billions of dollars in losses to businesses.

Business leaders, at one point, came out lashing against the government for its inefficiency to address the problem.

Industry players even tagged the phenomenon as a logistics crisis that resulted in the escalated prices of goods and services during the last quarter. This would have plagued the country, if not for the easing of the capital’s truck ban.

It is also worth to note that the four terminals of the Ninoy Aquino International Airport (Naia) are now operating at overcapacity.

As of end-2013, the aviation hub’s annual passenger traffic reached 32.865 million from 31.877 million in 2012, representing a 3.1-percent rise in volume.

The optimal capacity of Naia’s three terminals is 30 million passengers per year, while its maximum capacity is at roughly 35 million passengers annually.

A study conducted by the Japan International Cooperation Agency (Jica) showed that the Naia could no longer accommodate another round of increase in passenger traffic next year.

The Japanese agency said the Naia would “totally be capacity-saturated in 2015, and not be able to cater to the increasing passenger demand anymore.”

The report noted that by next year, the airport is expected to handle 37.78 million passengers, the bulk of which, or 21.31 million, would be domestic traffic, while the remaining 16.46 million would be international passengers.

“What we have now is terminal and runway congestion,” Civil Aeronautics Board Executive Director Carmelo L. Arcilla lamented. “Infrastructure would be a major challenge for the Philippines come the integration.”

Aside from the bottleneck at the air and seaports in the capital, Metro Manila continues to face road congestion— including a sardine-like situation in the four railway systems that promise fast, efficient and convenient travel.

In fact, two of the train lines are now hot items in the media.

The Philippine National Railways, a dilapidated line that connects Manila to as far as Laguna, figured in a video that circulated on the Internet, showing that the system is in lack of platforms. This has sparked criticism from Filipinos and the international community alike.

The Metro Rail Transit Line 3 continues to stall during operations due to lack of upgrade and rehabilitation. It has been operating beyond its capacity since 2004.

It hasn’t seen concrete improvements since it was built 15 years ago.

One fateful incident even attracted questions on the integrity of the line. In August a wayward train rammed against a concrete barrier after uncoupling from an assisting light-rail vehicle. The incident injured at least 40 passengers and the blame was passed on to four employees.

“It’s obvious to us that we have a catching up to do in terms of infrastructure and

he Horizon

ror 9th Anniversary Special

www.businessmirror.com.ph | Thursday, October 9, 2014 H3

HL’S ACHILLES’HEEL we are pushing things out. If it’s our Achilles’ heel, the government is doing something for that,” Transportation Secretary Joseph Emilio A. Abaya conceded.

Fast and efficient flow of goods and services is paramount before a country can be touted as competitive in terms of transportation. So what is the government doing to address this lack of infrastructure that would effectively result in savings in the long run?

Port development, modernization

FOR one, Philippine Ports Authority (PPA) General Manager Juan C. Sta. Ana said his agency is deploying several port projects over the next few years.

He said his office will modernize the ports in Cagayan de Oro, Iloilo, General Santos and Zamboanga, and bid out the operations and maintenance of several others.

“This year we are expected to introduce breakthrough changes in our policies, particularly in the streamlining of our requirements, more deployment of technologydriven processes to improve the delivery of our services, and reform in the modality of adjusting cargohandling tariff and other charges and fees,” Sta. Ana noted.

“We have to be competitive in our facilities, processes, services and manpower skills to be able to take advantage of the immense opportunities that a single Asean Economic Community would offer,” he added.

The transport chief noted that his agency will also roll out several key infrastructure deals that would involve the construction of the P56.6-billion Central Spine Roro, which will cut the travel time from Manila to Northern Mindanao, and the P4.04-billion modernization of the Davao-Sasa Port.

The government is also mulling over the construction of a new port somewhere in the Manila Bay area, he said.

Abaya was referring to the proposal of the Tieng group to construct a seaport in the Cavite area, pursuant to Executive Order 629, which directs the Philippine Reclamation Authority to convert “Sangley Point in Cavite into an international logistics hub with modernized seaport and airport.”

The proposal of All-Asia Resources and Reclamation Corp. was submitted to the government in 2013. It involves the reclamation of 150 hectares off Danilo Atienza Airbase and the construction of a bulk liquid depot with a 200 million-liter capacity.

The Tieng group also proposed the construction of a container with a 4-million twentyfoot equivalent units capacity that would accommodate Post Panamax and Malaca-max class ships.

The proposal carried an initial P35.8-billion price tag, excluding the construction of port thoroughfares.

Near-term and long-term aviation goals

IN the aviation front, the Cabinet official said the state has been pursuing pocket open skies with other Asean nations.

The air-services regulator has successfully struck air contracts with its counterparts in the economic bloc.

“We are supporting the Asean open skies. All members of the Asean have ratified certain protocols that would further liberalize air travel around the region,” Arcilla said.

This, he explained, involves the agreement on unlimited traffic rights from one capital city to another.

“We are already under the open-skies policy, but we have yet to ratify it internally,” he lamented, pointing out that the document is still with President Aquino, two years after it was sent to his office.

The regulator added his agency

is making inroads in the Brunei Darussalam-Indonesia-MalaysiaPhilippines East Asean Growth Area.

“Now we have seen quite a relatively developed aviation industry compared to 10 years ago. In terms of traffic, we have seen double-digit growth rates through the years except 2013. But we are also challenged by so many problems that stand in the way of this growth, like infrastructure limitations that prevent airlines from expanding their operations,” he stressed.

But to address this, the government is pursuing the redevelopment of the Naia, which will soon be managed by a private proponent.

Public-Private Partnership Center Executive Director Cosette V. Canilao said the government is preparing the auction of the contract for the overall rehab of the decades-old Naia, tagging the deal as urgent given the current situation at the capital’s main international gateway.

“If everything has been laid out and we have already received the approval, by June or July next year, we could start the bidding process. The awarding will definitely happen during the administration and we can accelerate it further to hasten the implementation, hopefully within the administration,” she explained.

“This project is urgent given the current condition of our airport,” Canilao pointed out.

But for Arcilla, this venture is just a short-term measure on top of what the country’s aviation sector really needs: an airport that could handle twice the capacity of the current one.

“We need a new airport with higher capacity. Our airlines are very competitive now. We are on the way to be very competitive as a hub because we are a natural hub, what we need is more infrastructure,” he stressed.

Civil Aviation Authority of the Philippines Deputy Director General John C. Andrews agreed, stressing that infrastructure would be a major challenge in the commercial front.

“What we want to do is to jump-start the possible integration of all the Asean countries to one unit like the European Union’s aviation market. That’s a very big step, but the seeds will have to be planted now,” he said. “And infrastructure will prove to be a major roadblock to the integration.”

To address this, Jica proposed for the government to embark on the construction of a new international gateway, which would require at least $10 billion in investments. It has recommended Sangley Point in Cavite as the most strategic location for the new airport.

The proposed airport could handle some 130 million passengers annually when fully developed. It will boast of four runways that could handle 700,000 aircraft movements per year.

The tourism sector is seen to flourish with the improvements in the aviation sector.

The government aims to generate $4.6 billion in tourism revenues by the end of the Aquino administration. It also aims to attract 6 million tourists and create 3 million jobs by 2016. Th is would allow the sector to contribute 6.35 percent to gross domestic product (GDP).

Decongest major arteries

THE transfer from one mode of transportation to another requires roads to be free of congestion.

This, according to Public Works and Secretary Rogelio L. Singson, is the aim of his agency.

He said the government aims to spend 5 percent of the country’s GDP by 2016 for infrastructure projects.

In absolute terms, the figure could go as high as $18 billion, which is a 1.9-percent increase from $4 billion in 2011.

The public works chief noted

that his office is currently upgrading major roads and bridges to easily facilitate the flow of traffic.

“We commit that by 2016, all national roads and bridges, estimated to measure 32,000 kilome-

ters, will have been paved,” Singson stressed.

The transportation agency is also pursuing several projects to decongest Edsa, such as the improvements in the railway lines

and the construction of intermodal terminals.

The integration, however, will not go on full blast by 2015.

Government leaders were one with the prospect that the full-

blown integration in the transport sector will only happen in a decade’s time.

“What is important is for us to compete in the Asean market come the integration,” Abaya said.

AEC On the Horizon A BusinessMirror 9th Anniversary Special

H4 Thursday, October 9, 2014

LACK OF AWARENESS

ON AEC A CAUSE FOR CONCERN

T

B R M

HE Asean, a vast area covering 4.46 million square kilometers— about half the land area of the United States—and populated by 600 million people, is preparing for full economic integration by end-2015.

It was established on August 8, 1967, by Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Brunei and Myanmar (then Burma), Cambodia, Laos and Vietnam joined later, with Timor Leste and Papua New Guinea as observers.

With such a large number of people involved, one of the biggest challenges for the region is to train and educate its 600-million-strong population to seize the opportunities that lay ahead.

“It’s an exciting time for business and the entire region; but I think one of the challenges that remain that will become a hurdle for Asean to really realize its full potential is human capital. We need to make sure that each country and each person has the adequate

human capital to be able to compete and also receive the benefits of this integration,” said John Riady, director of The Lippo Group and dean of the Faculty of Law at Universitas Pelita Harapan.

Riady made the comment during a dialogue with policy-makers and businesspeople, who were at the World Economic Forum in Myanmar’s capital Naypidaw this year.

At the Department of Foreign Affairs, however, the mood is upbeat.

Assistant Secretary for Asean Affairs Luis Cruz, when asked about the benefits that would accrue to the Philippines once the integration is accomplished, said: “The biggest benefit that will be gained by the Philippines from the

integration is that it becomes an integral part of a very large economic bloc that can compete with the world’s largest economies. As such, flows of investments will increase, trade will expand, and enhanced freedom of movement will be attained.”

He said these benefits will redound to job opportunities and employment. “It will also open the gates for Filipino professionals and skilled workers to practice their trade in the Asean member-states.”

However, Cruz warns that the flow of migrant professionals and workers within the Asean is not unrestricted.

“It must be stressed that this is not equivalent to unrestricted, free flow of foreign professionals as the relevant domestic regulations and market demands will still apply,” he said.

This would constitute as a caveat to the many Filipinos, who might expect that Asean integration would allow them unhindered access to jobs and opportunities, for example, in Malaysia.

Already, there is an estimated half-a-million Filipinos living in Malaysia, many of them considered illegal residents, while a small number are migrant workers and a few are permanent residents.

Cruz’s warning also applies to

Filipino fishermen and even big conglomerates that are engaged in tuna fishing in the waters of Indonesia and part of the waters between Mindanao and Borneo that are rich fishing grounds. Despite the integration, these areas are still governed by existing laws.

Filipinos are concentrated in Sabah, Borneo, where they are engaged mostly in fishing, construction and plantation work.

“One of the challenges with an integration like this is about how you tie countries together economically but respect the political and social differences that exist in a region that is as diverse as the Asean region,” said John Rice, vice chairman of General Electric, one of the participants in the WEF Forum in Myanmar.

Despite the optimistic outlook of bureaucrats and politicians, however, Reuters reported that many of Asean’s residents are still unaware of the full meaning and impact to them of the 2015 economic integration.

“Please do not expect a big-bang event in 2015, where everything is going to happen overnight when the Asean Economic Community [AEC] comes into being. We’ve made progress in some areas and, unfortunately, regressed in some areas,” said for-

mer Singapore Ambassador to the United Nations and Dean of the Lee Kuan Yew School of Public Policy Kishore Mahbubani.

He added that over time, and following the Asean pace, the economic community will be realized by the end of the decade. “If it’s not done by 2015, it will be done by 2020,” Mahbubani said.

He highlighted that politicians and bureaucrats from the region met freely to cooperate on various matters, engaged major global powers and, most important, have enjoyed peace for many years.

“The region of the world that is the most diverse, with 300 million Muslims, 80 million Christians, 150 million Buddhists and Taoists and Confucianists, and all that. Guess what, this most diverse region in the world has achieved peace, so it brings metaphysical significance to the world as a whole because Asean is teaching the world that as you become a global village, we can all live together and work together. And that’s why it’s such a tragedy that this Asean story is not even understood by the citizens of Asean,” said Mahbubani, as quoted by Reuters.

Awareness among the 600 million people living in Asean on the AEC and the changes it will bring is very low, according to the participants.

This was expressed by Indonesian Trade Minister Gita Wirjawan, who said a mere 15 to 20 minutes out of Jakarta, many people still don’t have a clue as to what the AEC is and what it means to Indonesia.

Serge Pun, executive chairman of Singapore Exchange-listed Burmese conglomerate Yoma Strategic Holdings, airs the same view, saying businesses were not familiar with how things will change when the AEC takes effect on December 31, 2015.

“We talk about Asean integration, and we actually don’t know what we are going to integrate; or at least, the vast population doesn’t. The vast number of businesses doesn’t.

A few government officials may.

So there’s a lot of concern about what is this zero tax, how does it really affect us, does it benefit us or does it hurt us. There’s no answer,” he said.

Import duties for Asean products and services will be cut to zero, and all economic sectors will be open for investment, with equal treatment of Asean investors in all other Asean countries.

Some restrictions, such as visa requirements for some member-states, will remain, which was raised as a concern for some panelists and members of the audience in Myanmar.

On the Horizon

A BusinessMirror 9th Anniversary Special

I1 Thursday, October 9, 2014

ENERGY SECTOR

BULLISH ON INTEGRATION T B L L

HE country’s energy sector stands to reap significant benefits from the economic integration of the 10 member-states of the Asean.

The Power Sector Assets and Liabilities Management Corp.

(PSALM), which took ownership of most of the National Power Corp.’s (Napocor) assets, said the integration will attract more investors, especially at a time when the state fi rm is bidding out a

number of power facilities.

“The anticipated Asean integration would have a significant impact to the Philippines’s privatization program in terms of further expanding the base of prospective investors, therefore promoting increased competition

in the power sector,” PSALM President Emmanuel R. Ledesma Jr. said in an interview.

PSALM was formed under Republic Act 9136, or the Electric Power Industry Reform Act of 2001, to assume ownership of and manage all Napocor assets, liabilities, contracts with independent power producers, real estate and other disposable assets. It is also in charge of privatizing and disposing of these assets to liquidate Napocor’s financial obligations.

As of June this year, PSALM has so far privatized 19 generation assets and independent power producer contracts valued at $10.210 billion.

While the Philippines, an archipelagic country, may not be physically integrated with other

Asean economies in terms of infrastructure for cross-border energy trade, Ledesma firmly believes that the benefits of the integration of Asean economies are enormous.

“It would boost investments in existing and new power projects, facilitate exchange of technologies and best practices, and movement of human capital, as well as create new energy products and services,” the PSALM official said.

For Henry Sy Jr., president of the National Grid Corp. of the Philippines (NGCP), the ultimate goal of the Asean integration is for every member-country to engage in so-called power sharing.

“The ultimate goal of Asean integration is the sharing of power, and NGCP is on the right track in linking the large islands of the

Philippines, and making sure that power is delivered and shared by the island grids when and where it is needed,” he said in a text message when sought for comment.

NGCP won a 25-year concession to run the country’s transmission assets, after it took over the management of the country’s national transmission network in 2008 from the state-owned National Transmission Co. “After merely five years of operations, NGCP is making significant headway in laying the groundwork for Asean integration. We have done a lot in terms of technical operations standardization, our Integrated Management System improvements, and our smart grid preparations, which include Scada [Supervisory and Control Data

Acquisition], but so much more needs to be done to achieve integration on a larger scale,” Sy added.

NGCP established the Scada and Overall Disaster Control Center, which would allow it to supervise and monitor power grid more effectively and mitigate the damage brought by typhoons, earthquakes and other calamities.

Its technical partner, State Grid Corp. of China (SGCC), is helping out in crafting a smart grid technology to boost the Philippines’s transmission system.

“The new technology will help integrate different systems and allow us to accept renewable-energy sources,” NGCP Spokesman Cynthia D. Perez-Alabanza said.

“SGCC can help us maximize continued on I4

AEC On th

A BusinessMirr

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PALACE: NO NEED M

B B F

ALACAÑANG sees no need to name a new authority solely tasked to further improve the competitive footing of Philippine industries under the new Asean Economic Community (AEC) setting, Communications Secretary Herminio B. Coloma Jr. said.

The Palace, in effect, thumbed down the proposal of a top official of the Philippine Exporters Confederation (Philexport) and the Philippine Chamber of Commerce and Industry (PCCI), Sergio Ortiz-Luis, for the Aquino administration to appoint a so-called Asean czar whom will be tasked to address problems arising from existing government regulations, unstable power supply and financing sources, among others.

Ortiz-Luis had suggested the urgency of appointing an official specifically tasked to synchronize ongoing efforts to boost Philippine competitiveness in the region under an

integrated Asean economic system.

Asked if President Aquino would heed the call of the PCCI and Philexport official for the Palace to name a chief overseer with a specific assignment to align all measures to bolster the country’s competitiveness under the AEC, Coloma indicated the Palace does not think one is needed.

“We already have a National Competitiveness Council [NCC], headed by Guillermo Luz,” Coloma told the BusinessMirror.

The NCC, formerly known as the Public-Private Sector Task Force on Philippine Competitiveness, is currently chaired by Trade Secretary

A YEAR after assuming the presidency in 2010, President Aquino signed Executive Order (EO) 44 reconstituting the original Public-Private Sector Task Force created in 2006 by then-President Gloria Macapagal-Arroyo into a council.

Mr. Aquino’s EO 44 expanded its membership, with marching orders to “promote a more competitive Philippines and instill a culture of excellence, through public-private sector collaboration as means to reduce poverty through inclusive growth” and “implement an action agenda with privatesector initiatives that support public policies.” BLOOMBERG

he Horizon

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D FOR ASEAN CZAR Gregory L. Domingo, with Luz as co-chairman for the private sector.

Coloma also pointed out that at the Cabinet level, “we have an economic-development cluster, headed

by Finance Secretary Cesar V. Purisima.” But Ortiz-Luis was reported to have aired serious misgivings over the lack of coordination among government agencies concerned with Philippine preparations for the AEC despite the NCC’s existence.

A year after assuming the presidency in 2010, Mr. Aquino signed Executive Order (EO) 44 reconstituting the original PublicPrivate Sector Task Force created in 2006 by then-President Gloria Macapagal-Arroyo into a council.

President Aquino’s EO 44 expanded its membership, with marching orders to “promote a more competitive Philippines and instill a culture of excellence, through public-private sector collaboration, as means to reduce poverty through inclusive growth ” and “ implement an action agenda with private-sector initiatives that support public policies.”

On its web site, NCC’s metrics by 2016 listed, among other goals, “higher foreign direct investments [with new investments reaching 3 percent to 4 percent

of gross domestic product, or GDP, from $1.7 billion in 2010], doubling of export revenues to $120 billion by 2016, with new products and services to account for 30 percent of exports; GDP growth of 7 percent to 8 percent per year; jobs growth to reduce unemployment; lowering of poverty incidence from 26.5 percent in 2009 to 16.6 percent by 2015, and expansion of the C socioeconomic class [currently 8.6 percent] and shrinking DE class [currently 91 percent].”

Asean integration and job opportunities

AS the 10 member-states of the Association of Southeast Asian Nations are moving forward to the Asean Economic Community (AEC) by end-2015, where there will be free flow of goods, services, investments, capital and work force, this integration is expected to diversify job opportunities in the region.

The Asian Development Bank (ADB) and the International Labor Organization (ILO), in a study entitled “Asean Community 2015: Managing Integration for Better Jobs and Shared Prosperity,” said the AEC is expected to change the structure of the labor market in the region.

The study, which was published in August this year, noted that most of the Asean members will be largely in need of low- and medium-skilled labor force in 10 years of implementing the economic integration.

However, demands for mediumand high-skilled work force will have the fastest growth until 2025.

The ADB and the ILO study has listed projected occupations with highest demand under the AEC from 2010 to 2025.

For Cambodia, top occupation demands will be in agriculture, forestry and fishery; street and market salesperson; construction and mining; market gardens and crop growers; animal producers; and machine operators of textile, fur and leather products.

For Laos, highest job demands will be in market gardens and crop growers. For Thailand, there will be huge demands in other sales workers; laborers in agriculture, forestry, fishery, construction and mining; street and market salespersons; and waiters and bartenders, among others.

For Indonesia, highest occupation demands will be in other sales workers; mixed crop and animal producers; and building frame and related trades workers.

For the Philippines, highest demands will be laborers in agriculture, forestry, fishery, construction and mining; shop salespersons; and managers in manufacturing, construction, mining and distribution, among others.

For Vietnam, there will be large labor demands in street and market sales, and agriculture, forestry and fishery sectors.

Concerns on movement of foreign workers

ALONG with the increasing job generation, concerns on movement of foreign workers who may eat up jobs created in the local economy will also rise.

Will this worsen the situation of Asean member-states with high unemployment rate like the Philippines? Is the Philippines ready for AEC’s program of free flow of labor?

Free flow of skilled labor

THE fifth core element of the AEC Blueprint is the free flow of skilled labor, which limits the movement of work force only to eight professions, comprising doctors, dentists, nurses, engineers, architects, accountants, surveyors and professionals in the tourism industry.

The AEC does not cover critical

issues of nonskilled workers and illegal migration.

Preparations for AEC

AS economists from both public and private sectors said, the Asean integration will bring more job opportunities for the Philippines.

However, the local work force must be equipped with skills to meet the standards of employment that will be created once integration takes place. The government shall also prepare its environment to make it more attractive for investors to venture in the Philippines by building necessary infrastructure.

Socioeconomic Planning Secretary and National Economic and Development Authority (Neda) Director General Arsenio M. Balisacan said during the recent Philippine Economic Briefing 2014 that the current administration is increasing its spending for infrastructure and social services.

Balisacan said focusing on investments on these sectors will not only attract investors but will also support the country to sustain its remarkable economic growth.

“As we have been showing, we are moving, we are investing in our economy, in such a way that high quality employment will be generated; and we’re talking

about reviving our manufacturing; we’re talking about improving productivity in agriculture; and integrating agriculture to the rest of the economy, particularly in foreign markets and urban areas,” he said. “We are creating new drivers of growth, tourism, infrastructure; and logistics,” the Neda chief added.

The country’s chief economist noted that in order to address unemployment and poverty in the Philippines, productivity in the agriculture sector, which employs one-third of the labor force, shall increase.

Aside from increasing productivity in agriculture, there should be more job generation outside of the said sector, which would require a wide range of skills and which will pay better wages.

“The structural transformation of employment where low productivity labor found employment outside of agriculture, that’s the one that creates poverty reduction,” Balisacan said.

“We have to generate a lot of that, for the meantime, while it takes time to upgrade quality of skills of our labor force,” he mentioned.

“To expand our capacity, to train our workers, we equip them with skills needed by new growth drivers,” Balisacan added. With PNA

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Energy sector bullish on integration continued from I1

the grid capability. Apart from the physical technology, SGCC is also helping us with procedural technology systems the way we can go about the transmission business in the most efficient manner so the technology transfer is something that SGCC wants to emphasize and as a foreign partner of NGCP, we hope to bring back this technology to the Philippines,” Alabanza added.

Part of the Asean integration is the implementation of the proposed Asean power grid and crossborder power trading.

The Asean power grid aims to interconnect the countries that can export electricity to countries that need to buy electricity.

For his part, Energy Secretary Carlos Jericho L. Petilla said interconnection is difficult given the country’s geographical location.

“For some other countries, the Asean integration is really advantageous for them. But for us, since we are made up of group of islands, it would be difficult. Yes, it will make transactions easier, but the bottom line is we still are not interconnected with them,” the energy chief said.

Perhaps, one of the obvious benefits is fuel security. The Philippines, Petilla said, can source or trade fuel with neighboring countries. “Trading of upstream resources, such as oil, is a plus because as it is, we have a free market today. But with the Asean integra-

PETILLA: “For some other countries, the Asean integration is really advantageous for them. But for us, since we are made up of group of islands, it would be difficult. Yes, it will make transactions easier, but the bottom line is we still are not interconnected with them.” AP

tion it will make transactions even easier,” he said.

Early this year NGCP Chief Technical Officer and concurrent Director of the Philippine Office of SGCC China Wen Bo said there are plans to set up a grid to intercon-

nect countries within the region.

This, he said, would be named “super Asean grid.”

“We are confident that we could bridge the gap in the supply and demand of power sources and NGCP commits itself to this

super Asian grid,” Bo said.

The Department of Energy (DOE) fully supports the overall objective of establishing the Asean power grid. It also said the crossborder interconnection of membereconomies would hasten and further

optimize the utilization and sharing of energy resources to promote energy security and reliability within and among Asean member-economies.

Mylene C. Capongcol, DOE director for Electric Power Industry Management Bureau, stressed the importance of regional cooperation in the power sector.

“There should be generous sharing of relevant information among member-countries that is deemed critical in attaining the Asean power grid particularly on the current and long-term power supply and demand outlook, including any existing or proposed power-generation projects, new policies and programs in the electricity industry, current and any proposed changes in the electricity sector, among others,” Capongcol said.

Meanwhile, Country Chairman of Shell Companies in the Philippines Edgar Chua said an integrated Asean will help “ improve ourselves, enabling us to compete more through operational excellence.”

“Shell also looks at AEC [Asean Economic Community] and its growing energy demand as an opportunity to help broaden the energy mix in Asia and ensure a more secure supply of energy. Another major crucial factor in the success of the AEC is the provision of cleaner energy and the promotion of energy efficiency. All these are necessary for sustainable development,” he said.

One of the energy sources that Shell develops is natural gas, the cleanest-burning fossil fuel.

In the Philippines, Shell’s Malampaya Deep Water Gas-toPower Project is a clear example of how Shell responds to the growing need for cleaner energy.

Malampaya supplies as much as 40 percent of Luzon’s electricity requirements. To date, the project is implementing Phases 2 and 3 to extend the life of the project.

Another project that Shell is seriously considering is the construction of an LNG (liquefied natural gas) import facility to further promote and broaden the use of natural gas in the country. Singapore and Thailand already have LNG import facilities, while Malaysia, Vietnam and Indonesia are also in the process of installing such facilities. “The opportunities that the AEC will provide are significant and Shell, an energy company with more than a hundred-year presence in a number of Asean countries, is committed to be at the forefront of developing and delivering cleaner, smarter, and innovative energy products and technologies in keeping with its sustainable development platform,” Chua added.

The anticipated integration will be marked by the establishment by December 2015 of the AEC, which will then allow Asean companies to enter each other’s markets, encouraged by zero tariffs and reduced red tape.

J1 Thursday, October 9, 2014

On the Horizon

A BusinessMirror 9th Anniversary Special

HOUSE D LEADERS: FRESH OPPORTUNITIES, CHALLENGES AWAIT FILIPINOS IN 2015 ASEAN INTEGRATION

B J M N. D C

ESPITE issues of corruption among its officials, natural and man-made calamities that the Philippine government faced in the past years, the leadership of the House of Representatives said the country remains on track for the 2015 Association of Southeast Asian Nations (Asean) integration.

House Speaker Feliciano “Sonny” Belmonte Jr., however, said the Asean integration, which seeks to establish “a single market and production base with free movement of goods, services, labor and capital by 2015,” will be an occasion for fresh opportunities, as well as challenges, for Filipinos.

That’s why Belmonte said the Executive and Legislative branches of government have agreed to pass several measures that will help the country and the people to maintain the Philippines’s global competitiveness and integration toward sustainable economic development.

“We have a list of economic bills.

Among these measures are the Philippine Fair Competition Act or Anti-Trust Law and the Resolution of Both Houses No. 1 or the amendments to the economic provisions of the 1987 Constitution,” Belmonte said.

He said these bills will make the country more competitive than the rest of the Asean.

He said the lower chamber is set to amend economic provisions of the 1987 Constitution, particularly the 60-40 rule that limits foreign ownership of companies in the Philippines.

Belmonte said they will include the phrase “unless provided by law” in the foreign ownership item of the Constitution, particularly land ownership, public utilities, natural resources, media and advertising industries.

“What we want is inclusive growth and that really involves creating jobs and new industries and, I think, that effects the FDI [foreign direct investments] and that is increasing our GNP [gross national product] and so forth,” he said, adding, “That’s a very big phrase because, right now, it’s still a safe that is locked. Now you will just put a combination and key to it.”

Under Article 12 of the Constitution, foreign investors are prohibited to own more than 40 percent of real property and businesses, while they are totally restricted to exploit natural resources and own any company in the media industry.

“To enable our country attract more foreign direct investments, I continue to make representations to discuss possible amendments to the restrictive economic provisions of the Constitution. I fi rmly believe that relaxing the provisions on ownership of land, utilities, educational institutions and mass media will bring in investments that will create muchneeded jobs,” he said. continued on j2

AEC On the Ho

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HOUSE LEADERS: FRESH OPPORTUNITIES, CHALLENGES AWAIT FILIPINOS IN 2015 ASEAN INTEGRATION continued from j1 The House Speaker said he is very optimistic that the Charter change will get three-fourths of votes in the House and Senate.

On the need to have a well-defined national policy on competition, the House speaker also said the passage of his proposed Philippine Fair Competition Act of 2013 contained

in House Bill (HB) 1133, which aims to minimize, if not totally eradicate, unfair competition, monopolies and cartels, will be prioritized.

The HB 1133, now pending at the House Committee on Trade and Industry, proposes to create the Philippine Fair Trade Commission that will prosecute those engaged in unfair and deceptive trade practices and other such practices with the

purpose of preventing, restricting or distorting competition.

Also in preparation for the integration, Belmonte said the Lower Chamber has recently approved on third and final reading a bill allowing international players to acquire, purchase, and own banks in the Philippines.

HB 3984 amends Republic Act 7721, or An “Act Liberalizing the

Entry and Scope of the Operations of Foreign Banks in the Philippines and for Other Purposes.”

The bill said the Monetary Board may authorize foreign banks to operate in the Philippine banking system through any one of the following modes of entry: By acquiring, purchasing or owning up to 100 percent of the voting stock of an existing bank; By investing in up to 100 percent (from 60 percent) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; and By establishing branches with full banking authority.

He said the Fiscal Incentives Rationalization bill and the Land Administration Reform bill are included in the priority bills for the upcoming integration.

Belmonte said these economic bills should be prioritized to help the government attract more FDI and sustain the country’s robust economic growth.

“We are doing very well in terms of legislations. We have monthly meetings with the Senate counterparts to discuss all passable measures that will help us in 2015 integration,” he said.

The speaker, however, said the country’s global competitiveness should also be supported by the private sector as the key to continued growth.

“Greater competitiveness will allow us to attract the much-needed investments that will create many jobs and opportunities for our people. The public and private sectors should work together in establishing the right set of policies and laws that will impact upon key socioeconomic areas,” he said.

“Let us not be complacent but move forward with the necessary structural reforms. In the face of increasing globalization, in the wake of ever-increasing competition, let us continue to make ourselves more ready and able to face the challenges ahead, particularly the Asean economic integration targeted for 2015,” said the House leader.

While economic integration

does not ensure the equitable distribution of benefits, markets work to benefit constituents more within a competitive economy, Belmonte then cited the Filipinos’ resiliency and creativity, as well as the current positive state of the economy, which “show our preparedness for integration.”

“It, thus, becomes imperative for policy-making bodies and the legal systems of Asean countries to acquire the capability to promote economic activities while enforcing the proper implementation of competition policies and laws,” he said.

Institutional and structural reforms, he added, are critical to the success of liberalization and in ensuring that the Asean market is kept open to new entrants, noting that the country’s existing laws do not sufficiently equip the nation to hurdle problems that may arise in 2015 when the Asean constitutes itself into a single market.

“Promoting a more conducive environment for business is necessary to help our local industries and to encourage the inflow of foreign direct investments. Our industries will need to be more efficient to be able to compete with their Asean counterpart,” Belmonte said.

While the country’s competitiveness rankings and general business sentiments toward the Philippine economy have improved, Belmonte also said, “we still need to ensure that the Philippines becomes a preferred investment destination.”

Parallel to the proposed changes to the “restrictive” economic provisions in the Constitution, Belmonte said he will push for the revision of the Foreign Investment Negative List to reduce the number of industries where foreign participation is limited.

The House leader also proposed amendments to the following: Foreign Investment Act, by lowering the minimum paid-in capital for foreign equity, reducing foreign investment employment requirement and removing divestiture requirements for foreign investors; and the Condominium law, by allowing foreign

ownership of the capital stock of horizontal condominiums, industrial and tourism estates, and retirement villages.

The Retail Trade Act, by reducing the threshold for foreign investment in the retail sector to the level stipulated in the Foreign Investment Act, needs to be reviewed, he said.

Belmonte said having well-developed infrastructure reduces the effect of distance between regions, making it possible for the Philippine market to be integrated, at a low cost, to markets in other countries and regions.

Under the 2015 proposed budget, at least P339.4 billion in funds will go toward various infrastructure programs, including the construction of national roads and integrated transport systems nationwide.

He said the proposed Coastwise Trade bill or the HB 1789 intends to promote competition in the shipping industry by allowing foreign vessels to transport passengers and cargoes among ports within the country’s waters.

To curb smuggling and facilitate trade during the integration, he said the Congress will pursue the proposed modernization of the Bureau of Customs and strengthen the anti-smuggling provisions in the Tariff Code.

National Unity Party Rep. Karlo Nograles of Davao City intends to hit two birds with one stone with his HB 4969 or “The Philippine Green Jobs Act.” HB 4969 seeks to address the problem of climate change by creating employment opportunities in ecofriendly industries and prepare the country’s labor force and industries in the smooth transition into an integrated Asean economy.

Nograles’s bill also seeks to create employment opportunities that will be less harmful to the environment by using green technology, or innovations that conserve natural resources.

Also, to help the country’s workforce cope with infl ation and the higher costs of living in 2015,

orizon

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Nationalist People’s Coalition Rep. Angelina Tan of Quezon has already fi led HB 4278 seeking to reduce the income-tax rate of individuals from the present 32 percent to 15 percent for the country.

Tan said her bill seeks to prepare Filipinos for the Asean in 2015 by amending Section 24 (A) (2) of the National Internal Revenue Code, as amended, pertaining to rates of “Income Tax on Individual Citizen and Individual Resident Alien” of the country.

The lawmaker said for the country to fully benefit from the integration, the Philippines needs to amend its current income-tax schedules since it is expected that human capital would flow to where it could earn best.

Tan said among the 10 membercountries of the Asean, the country has the highest tax rate at 32 percent after Thailand andVietnam.

Deputy Majority Leader and Citizens Battle Against Corruption (Cibac) party-list Rep. Sherwin Tugna and LP Rep. Edcel Lagman of Albay said with these legislations, the Philippines is now ready for the integration.

“The Philippines shares practically the same interests with respect to the geo-political-economic-cultural status in Southeast Asia. It’s high time that we take our cue from the European Union and other like amalgamation of nations with common interests especially in the backdrop of an everincreasing China aggression in the West Philippine Sea,” Lagman said.

Tugna, meanwhile, said, “I believe that we are ready with qualifications.

Meaning, our government, despite being a party to treaties and the Asean agreements, should protect basic industries in our country like agriculture and manufacturing.”

In 2007 Asean leaders adopted the Asean Economic Blueprint at the 13th Asean Summit in Singapore to serve as a coherent master plan guiding the establishment of the Asean Economic Community in 2015.

The AEC areas of cooperation include human resources development and capacity building; recognition of professional qualifications; closer consultation on macroeconomic and financial policies; trade financing measures; enhanced transactions through e-Asean; integrating industries across the region to promote regional sourcing; and enhancing private sector involvement for the building of the AEC. Nacionalista Party Rep. Mark Villar of Las Piñas City, chairman of the House Committee on Trade and Industry, said his panel has been actively preparing for the integration.

“We actively assist and monitor preparations for Asean integration. In fact, several measures have been filed and referred to the Joint Committee on Trade and Industry and the Economic Affairs to conduct an assessment on the readiness of the Philippines for integration into the Asean Economic Community in 2015,” he said.

Villar, citing his panel current hearing, said the government, through the Department of Foreign Affairs and the Department of Trade and Industry (DTI) assured the lower chamber that the country remains on track for the process.

“The DTI cited that a considerable number of our local companies have since established their presence and engaged in healthy competition with businesses located in the Asean region,” he said. “We in Congress are taking a close look at the situation and are ready to assist the executive in whatever way we can to ensure our readiness and capability for the challenges ahead.”

He said his committee will invite different stakeholders to get their positions on the integration in November after three lawmakers have fi led resolutions urging the House Committee on Trade and Industry and Committee on Economic Aff airs to conduct a joint inquiry, in aid of legislation, on the status of the Philippines’s preparation for the integration.

House Resolution (HR) 746 and HR 666, filed by Pwersa ng Masang Pilipino Rep. Rufus Rodriguez of Cagayan de Oro, his brother Party-list Rep. Maximo Rodriguez Jr. of Abante Mindanao and Liberal Party Rep. Maria Lourdes AcostaAlba of Bukidnon, seek to gauge how prepared the country is for the integration and if we are fully capable of maximizing the benefits it brings.

The two resolutions are both pending in the said joint committee.

Nestor Tan, president of the BDO, quoting HR 746, said many Philippine companies are not ready to compete with other Asean companies, so he “sees economic integration as a threat.”

“I’m not one of those looking for-

www.businessmirror.com.ph | Thursday, October 9, 2014 J3

ward to the integration and ready to embrace it because, honestly, I don’t think our industries are prepared. I honestly don’t know yet how we’re going to compete when our borders open up,” he said.

The resolution added “there is a need to look into this and determine how to ensure that our country is ready for AEC in 2015.”

HR 666 said “there is a need to asses whether or not the Philippines is prepared to enter into this Community in 2015, specifically the country’s comparative advantage through the competitiveness of its agricultural, industrial and manufacturing sectors, and the capacity of the country’s human resources to compete for opportunities.”

It said “Congress should enact the necessary policy guidelines to ensure that the country will not lag behind other Asean countries once integration takes places, since this may result in widening poverty, especially in rural areas, due to the possible influx of inexpensive imported agricultural goods, and the inability of our industries to compete due to possible lack of competitiveness vis-à-vis other Asean industries.”

Two lawmakers said Philippine agriculture is not ready for the integration next year of the economies of the 10 members of the Asean.

Liberal Party (LP) Rep. Teddy Brawner Baguilat Jr. of Ifugao, chairman of the House Committee on Agrarian Reform, said Filipino farmers would have a hard time competing against the counterparts in the other Asean countries, where production costs are much lower.

“I think there are doubts and a lot of anxieties, particularly for the agricultural sector. We might not able to compete in that field given our not so robust production and relatively high cost,” he said.

“I really doubt if we can compete on vegetables, meat and poultry,” he said.

Baguilat said the government should invest more on irrigation and farm-to- market roads (FMRs) in preparation for the integration.

“But without better irrigation and farm-to-market roads, the government should postpone the integration at least in agricultural products if it’s possible,” he said.

LP Rep. Ben Evardone of Samar expressed fears that the country might lose out to its Asean neighbors, especially in the agricultural sector.

“We are behind in infrastructurel the cost of our power supply is very high. Our seaports and airports are congested. How can we compete?” he said.

“We might swamped with cheap agricultural and consumer products. If that happens, factories or companies might close and the employment opportunities and income for our people will be affected,” he said.

LAWS AND BILLS FOR 2015 ASEAN INTEGRATION ■ House Bill 1133, or the Philippine Fair Competition Act or Antitrust law, filed by Speaker Feliciano Belmonte Jr., aims to minimize, if not totally eradicate, unfair competition, monopolies and cartels.

The bill will impose heavy penalties on monopoly, anti-competitive mergers and other unfair trade practices.

Now pending at the Technical Working Group of the House Committee on Trade and Industry chaired by Nacionalista Party Rep. Mark Villar of Las Piñas City, the bill also proposes to create the Philippine Fair Trade Commission that will prosecute those engaged in unfair and deceptive trade practices and other such practices with the purpose of preventing, restricting or distorting competition.

Villar said the committee is still consolidating 12 competition bills.

He said the passage of the antitrust measure will ensure fair competition by breaking oligopolies and, in turn, attract FDI which will stimulate job creation.

The bill is still pending in the said House committee.

■ The Resolution of both Houses 1, fi led

by Belmonte and Sen. Ralph Recto, is eyeing to amend economic provisions on the 60-40 rule that limits foreign ownership of certain activities in the Philippines.

The resolution will include the phrase “unless provided by law” in the foreign-ownership provision of the Constitution, particularly land ownership, public utilities, natural resources, media and advertising industries.

Under Article XII of the Constitu-

tion, foreign investors are prohibited to own more than 40 percent of real property and businesses, while they are totally restricted to exploit natural resources and own any company in the media industry.

The bill is now in the plenary for second reading.

The fiscal-rationalization bill seeks to institute structural reforms and policy to enhance transparency and accountability in the grant and administration of tax incentives.

Currently, several bills on fiscal rationalization are pending in the Committee on Ways and Means in both the House and the Senate.

Earlier, Liberal Party Rep. Romero Quimbo of Marikina City, chairman of the House Committee on Ways and Means, said a consolidated fiscal rationalization bill may be approved in the committee level this year. The bill is pending in a House committee.

■

■ The coastwise-trade bill or the House Bill 1789, filed by Pwersa ng Masang Pilipino Rep. Rufus Rodriguez of Cagayan de Oro, intends to promote competition in the shipping industry by allowing foreign vessels to transport passengers and cargoes between ports within the country’s waters.

Rodriguez said the move to liberalize the country’s Cabotage law is a key to lower the transport cost of agricultural and industrial products, spurring tourism, and increasing port revenues through the entry of foreign-vessel operators.

HB 1789 is pending in a House panel.

Land Administration Reform bill. Currently, there are three bills on Land Administration Reform in the lower chamber.

■

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HOUSE LEADERS: FRESH OPPORTUNITIES, CHALLENGES AWAIT FILIPINOS IN 2015 ASEAN INTEGRATION

A BusinessMirror 9th Anniversary Special continued from J3 The three bills, filed by Pwersa ng Masang Pilipino Rep. Rufus Rodriguez of Cagayan de Oro (HB 1981), Lakas Rep. Gloria Macapagal-Arroyo of Pampanga and Lakas Rep. Diosdado Ignacio Arroyo of Camarines Sur (HB 2044), and Liberal Party Rep. Romeo Acop of Antipolo (HB 3109), all seek to create a Land Administration Authority (LAA) which will be placed under the Office of the President.

Under the bills, the LLA shall be the primary agency responsible for land administration and public land management.

The measures said the LLA shall be the sole agency that shall prepare, issue and register all titles to land issued pursuant to Commonwealth Act 141, as amended, and subsequent dealings of registered lands including all types of tenure instruments intended for the implementation of RA 6657 or the Comprehensive Agrarian Reform Law and RA 8371 or the Indigenous People’s Rights Act.

The three bills are still on committee level for consolidation.

Foreign-investment bill or HB 2818, fi led by Nacionalista Party Rep. Mark Villar of Las Piñas City, seeks to amend the Foreign Investment Act (FIA) of 1991 by excluding the practice of professions from Foreign Investment Negative List by providing that the same shall not be covered by the scope of the act, and by lowering the employment threshold to 15 direct employees for $100,000 foreign investment in small and medium-sized domestic market enterprises.

Villar said that in the practical application of the law, these two areas are inconsistent with the objectives of the FIA. He said the law was intended to attract investment from foreign sources and expand livelihood and employment opportunities for Filipinos.

The Foreign Investment Bill, which is pending in a House body, is one of the priority measures of the Palace and the 16th Congress.

■

House Bill 4402 seeks to grant 100-percent ownership to foreign investors who will engage in retail business in the country. Filed by Deputy Speaker and Nationalist People’s Coalition Rep. Giorgidi Aggabao of Isabela, the bill seeks to amend the Retail Trade Liberalization Law or Republic Act 8762 by removing the capital-requirement provision of the retail trade law that prohibits foreign investors from owning wholly retail business in the Philippines.

The bill also seeks to address some of the perceived loopholes in the Retail Trade Liberalization Law, particularly in the capital requirement before a foreign entity may wholly own a retail establishment.

Under the bill, foreign capitalists may be allowed to wholly own a retail business in the country with a paid up capital of $2.5 million to $7.5 million.

Likewise, foreigners may wholly own enterprises specializing in high-end or luxury products with a paid-up capital of only $250,000 per store.

The bill provides that foreign investors shall be required to maintain a full amount of their capital or the unsold amount of their capital in case any part of the capital is sold to a Filipino citizen or a local corporation when they cease operation in the country.

The Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI) shall impose sanctions to foreign investors who fail to maintain the prescribed capital of their retail business.

This bill is still under a committee for deliberation.

■

■ HB 4278, or the measure seeking to reduce the income-tax rate of individuals from the present 32 percent to 15 percent for the country, will prepare the Filipinos in 2015 integration.

The bill seeks to amend Section 24 (A) (2) of the National Internal Revenue Code, as amended, pertaining to rates of Income Tax on Individual Citizen and Individual Resident Alien of the country.

Nationalist People’s Coalition Rep. Angelina Tan of Quezon, author of the bill, said for the country to fully benefit from the Asean Integration, the country needs to amend its current income-tax schedules since it is expected that human capital would flow to where it could earn best.

The House Committee on Ways and Means is still consolidating the nine bills that seek the restructure of individual and corporate income-tax system.

■ HB 4969 or Philippine Green Jobs Act of 2014, fi led by National Unity Party Rep. Karlo Nograles of Davao City, seeks to create employment opportunities that will be less harmful to the environment by using green technology, or innovations that conserve natural resources.

More than highlighting labor as an essential economic force needed in sustainable development, the bill also seeks to promote the right of individuals to a safe and clean ecology. To carry this out, It said the government shall identify needed skills and develop programs for research and the training of workers.

HB 4969 seeks to address the problem of climate change by creating employment opportunities in eco-friendly industries and at the same time prepare the country’s labor force and industries in its smooth transition into an integrated Asean economy.

The bill requires the government to strengthen the capacity of workers and businesses to prevent, manage, mitigate and adapt to, the adverse impact of climate change and disasters and continue to create, sustain or expand opportunities for employment, by improving our business climate and working conditions.

To recognize efforts, fiscal incentives will be granted to individuals and enterprises who participate in the creation of green jobs, use green technologies, and produce green goods and services. This is also to encourage others to engage in the same practices, the measure said.

HB 4969 is now on first reading.

■ RA 10641, or the reconciled version of House Bill 3984 of Liberal Party Rep. Nelson Collantes of Batangas and Senate Bill 2159 of Sen. Sergio Osmeña III, amends Republic Act 7721 or An Act Liberalizing the Entry and Scope of the operations of Foreign Banks in the Philippines and for other purposes.

Under the law the Monetary Board may authorize foreign bank to operate in the Philippine banking system through any one of the following modes of entry: By acquiring, purchasing or owning up to 100 percent of the voting stock of an existing bank; By investing in up to 100 percent (from 60 percent) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; and By establishing branches with full banking authority.

It added that “foreign bank branch may open up to five sub-branches as may be approved by the Monetary Board.”

This law was signed by President Aquino in July.

■ The Go Negosyo Act of 2014, which was passed recently, is the reconciled version of Senate Bill 2046 and House Bill 4595, which promotes the development of Micro, Small and Medium Enterprises (MSMEs) to ease doing business in all cities and municipalities in the country.

Under the law, a “Negosyo Center” shall be established in all provinces, cities and municipalities under the supervision of the Micro, Small and Medium Enterprises Development (MSMED) Council.

The Negosyo Centers shall be responsible for promoting ease of doing business and access to services for MSMEs within its jurisdiction. It shall accept and facilitate all registration applications for MSMEs, integrate a unified business-process system, encourage government institutions that are related to the business application process and supply information and services in training, financing and marketing.

A unified and simplified business registration form shall be created by the Department of Trade and Industry (DTI) and shall be made available in all Negosyo Centers, it said.

The law has the potential to assist MSMEs to integrate themselves in the formal economic market, which will bring forth more job opportunities and the enhanced growth of the nation’s economy.

On the Horizon

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INTEGRATION WILL NOT GET IN THE WAY OF REAL ESTATE SECTOR GROWTH

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HE Philippine real-estate industry still has more space for expansion even with the integration of the 10 member-states of the Asean at the end of next year.

“By 2015, when the Asean integration takes place, the real-estate market should have matured further and the Philippines should be in a good position to compete fairly with the other Asean partners,” Jones Lang Lasalle CEO Lindsay Orr told the BusinessMirror.

“So we think, it will be very exciting for the country,” CBRE Philippines Founder, Chairman and CEO Rick Santos said.

Most property-consultancy firms in the country agree that growth will continue across all segments, particularly in the office and industrial sectors.

Santos said a lot of companies in the region are seen moving more of their operations or headquarters here for “cost reasons, as well as for high-quality real-estate perspective, labor pool and good quality of life.”

The office sector continues to look very promising during and after the integration, particularly with the continuing growth of the information technology-business process outsourcing (IT-BPO) sector and considering the relatively low base rate for rents at present.

“There is no letdown seen in the growth of IT-BPOs in the country. IT-BPO companies come here for the cost and grow quickly because of the people,” Santos said.

What’s fueling the continued strength of the outsourcing business are office rental rates in the Philippines, which remain to be the lowest and best value in

Asia—at $29 per square feet per annum—thus, increasing further the demand for office space.

In fact, for the three quarters of 2014, a total of 124.55 square meters (sq m), or 1,340.65 square feet, of office space has been occupied—the highest transaction ever in the last six years. This bullish take-up, according to CBRE, is projected to track supply as more spaces are now being developed.

Aggregate vacancy declined to 2.45 percent from 3.3 percent in the first quarter of this year. Upcoming office supply will offset the drop with more than 400,000 sq m of new space within the year.

Location-wise, the traditional Makati Central Business District remains most attractive to global firms, followed by the emerging business hub of Bonifacio Global City.

Not to be ignored also are the outsourcing growth areas in the country identified by global outsourcing advisory firm Tholons, such as Santa Rosa City, Bacolod City, Davao City, Iloilo City and Cebu City. Philippine Economic Zone Authority-registered industrial sites are, likewise, going to contribute to the supply.

The ample pool of highly skilled work force also draws the interest of foreign locators to do business here.

Based on the 2014 A.T. Kearney Global Services Location Index, the Philippines is ranked 7th among 51 countries as prime BPO location.

The study highlighted the coun-

try’s labor sector as one of the “deepest” or that of large, untapped value and skill. Beyond voice as its major strength, the industry is expanding into higher value-added services, as well as into IT and business processes in the medical or health care, legal, financial, insurance and other specialized fields.

“BPO full-time equivalent employees are expected to reach 1.3 million by 2016. This, as well as the upcoming Asean integration, will be favorable to the strengthening of the country’s position as a top BPO destination,” Santos said.

The direct boost by the single economic community is also expected for manufacturing and, thus, industrial sector as free trade expands the size of the “domestic” market, according to Antton Nordberg, manager for research and consultancy of KMC MAG Group Inc. “Real-estate industry is ready for this. There are enough industrial parks and offices to serve these companies,” he said.

For Orr, this property segment also looks promising given the interest now being shown by manufacturers looking to scale down in China. Warehousing and distribution, among other areas, have considerable growth prospects, particularly with the development of more industrial business parks in Central Luzon and the South, he said. continued on K2

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Integration will not get in the way of real-es

continued from K1 Apart from Japanese companies, Santos cited that Southeast Asian locators who are “very aggressive” to set up their production facilities here are from Indonesia, Malaysia, Singapore and Th ailand. He added that those from Brunei Darussalam , Cambodia, Lao PDR, Myanmar and Vietnam are also keen to expand in the Philippines.

But what concerns most of them in putting up a business in this archipelago is infrastructure that could hinder the growth,

stressed Orr. He said that “the poor level of infrastructure is limiting the manufacturing sector and is also the reason why services sector is bigger than industrial in the country.”

As to the other real-estate sectors, bright prospects for the retail, hospitality and residential segments will continue in the next couple of years.

Much like the office space, retail will still be one of the prime movers of the property market, according to CBRE Philippines Senior Director for Global Research and Con-

sultancy Jan Paul Custodio.

In terms of lease rates, he said that Manila charges the lowest rent of $38 per square foot as compared to its counterpart cities in the Asia-Pacific region. “This actually gets attraction from most international retailers.

Normally, the rates paid by retailers in terms of their renting expenses is probably two or three times higher than what they pay here,” he said.

Apart from the big malls, he said that a lot of new convenience stores are coming in.

Smaller store formats, he added, are being spread out especially in the ground floors of new office buildings, as community malls rise up in areas where there’s a high density of residential developments.

The increasing purchasing power, especially among the middle-income earners and families of overseas Filipino workers, help drive the continued growth in the retail space, Custodio said.

This, in turn, has encouraged more developers and global retailers to set up stores in the country.

The upbeat tourism of the country, with 5 million projected tourist arrivals by end of the year, has pulled the demand for more hotels and retail establishments in tourist spots and CBDs nationwide. Such momentum is seen to continue for the hospitality segment, with the developments of new accommodation and gaming facilities, particularly in The Entertainment City of the Philippine Gaming and Amusement Corp. in Pasay City, with an inventory of 1,624 rooms.

These include the Belle Grand-City of Dreams, which is expected to be opened any time soon with 920 rooms, as well as Radisson Hotel with an inventory of 500 rooms. In November 2014, Malaysian hospitality brand Tune Hotel will be opening its 200-room branch in Aseana City. All these are included in the estimated 4,000 additional rooms set for completion this year, as 2,000- plus rooms are expected in 2015.

A vibrant residential sector will keep on the rise, especially in the development of vertical housing projects. From 2014 up to 2019, it is estimated that additional 169,000 units will be constructed, of which 96 percent will be in the mid-range and only 4 percent in the luxury sector.

The mid-end condo projects are those with a price range between P1.5 million and P10 million, and unit size below 150 sq m; while the high-ends are offered at P10 million and above with over 160 sq m unit size. The majority of residential condominiums both existing and future are priced under P3 million.

While the Philippines is fairly competitive across most sectors of real estate, Orr cited that residential land and condominium prices are now higher than several of its neighbors, as well as five-star hotel room rates. These sectors, he said, should “sharpen their competitiveness to reap the rewards of integration and maintain the flow of goods, services and business or tourist arrivals.”

Beyond sustaining its core competencies, capital values, rental rates, costs of labor and the sufficiency/cost of power are key areas that the entire property industry should consider to ensure that the Philippines stays on track or much ahead of the competition.

“Technically, the integration will make your expertise in certain industries to become stronger when you gain com-

petitive advantage. Therefore, you need to benchmark the economic structures of Asean countries to see which these industries could be,” Nordberg said.

NO PROPERTY BUBBLE BURST IN THE OFFING

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AVAO CITY—Bangko Sentral ng Pilipinas (BSP) Deputy Governor for the Monestary Stability Sector Diwa C. Guinigundo brushed aside a warning of a European financial-service firm that allowing the banks to exceed their ceiling on borrowing may lead to another episode of a property bubble burst similar to what caused the financial meltdown in the region in 1996.

“We have already instituted macroprudential measures and these are all in place since then,” he said.

He said the banks remained obligated to the ceiling of their lending to the property sector “and what have been loaned so far remained within these ceilings.”

“In fact, the total loans on real estate and property sector is still way below the level in those years leading to the Asian financial crisis,” he said. Joey Cuyegkeng, chief economist and director at the Manila unit of the Dutch financial services giant ING, told reporters last week that “because the banks continue to lend more in support of even more real-estate projects and investments, the BSP may need to put up additional measures to safeguard banks from risks down the line.”

“Part of the increase in bank loans to the sector is due to the expanding outsourcing industry, which also requires residential and commercial spaces,” Cuyegkeng said.

Guinigundo said the banks have at least three items that would determine if they have stretched their loan capacity so far.

Aside from the required ceiling of 20 percent of total loan portfolio, there is also the 70 percent loan-to-value limitation and lending cap of 25 percent of net worth of the bank to single but big borrowers.

What the ING saw as a concern when some banks have loaned as much as 22 percent of their loan portfolio was the sum of the aggregate items of the banks’ required ceiling. “There’s nothing to worry about that,” he said.

Besides, he said, property loans were not given to property developers alone.

“We include holding companies, their debt securities, bond flotations and all their instruments”.

Overall, he said, “the total loan value amounts to only 22 percent of the total loan portfolio of banks.”

“It’s even smaller compared to other Asian countries. They have reached 30 percent even,” he said.

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estate sector growth

“We have not seen any overstretched valuation of real-estate,” he said.

Also, he said, there will only be a bubble burst “if you overbuild and no one buys.”

In the case of the Philippines, he said the construction of residences and other real properties remained far from the backlog.

He said demand from the overseas Filipino workers (OFWs) alone remained unmet.

He said the entry of BPO com-

panies have added to the increasing demand for real-estate and property development.

His statement came at the heels of a World Bank projection this week that countries like the Philippines, Malaysia and other countries in the East Asia and the Pacific region have “experienced sharp increases in realestate prices.”

While it said this may have been fueled “by high demand, not all these were fueled by stable

sources, such as income, population growth and employment.”

The Philippines’s weak spot in real estate, it added, “is that about 40 percent of new housing units in the country are financed by OFWs.” “Where housing price growth is mainly driven by rapid credit expansion, for instance linked to loose monetary policy or easily reversed portfolio capital inflows, the economy may be more exposed to the risk of an abrupt downturn,” the bank said. With Manuel Cayon

www.businessmirror.com.ph | Thursday, October 9, 2014 K3

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On the Horizon

A BusinessMirror 9th Anniversary Special

PHL SEEN AS ASEAN LEADER IN ‘CONTINUOUS COMMERCE’

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NLINE shopping is projected to have a big potential for growth in the Philippines come the realization of the Asean integration on the back of high Internet and mobile-phone penetration in the country.

“The e-commerce landscape here has a huge opportunity,” said Guilia Lina Callegari, OgilvyOne head of e-commerce and luxury for Asia Pacific. “Usually it grows proportionally. So the more Internet [access] you have, the more social users you have, and the more online shoppers you will have. So it is one of the disciplines that will grow the most in the next five years.”

Recent data from OgilvyOne show that the growth of digital shopping in the Philippines is coherent with the expansion of e-commerce globally with $1.4 trillion in sales. Of the $400-billion sales generated throughout Asia in 2013, the country accounted for P11 billion, or roughly around $250 million.

This, according to the executive, was mainly due to tremendous rise in the number of Filipino Internet users, at 530 per-

cent, compared to their counterparts in the region like Indonesians, which grew by only 71 percent in 2013.

“What’s interesting also is that in 2013, you had more Internet users that used social media than in Australia and Japan,” Callegari noted. “You have one of the biggest social-media communities in the world.”

With approximately 103 million population at present, the company reported that mobile Internet access accounts for 20 percent. Current online users count 33.6 million, of which almost one-third, or 29 percent, have Facebook accounts.

On the average, each person spends 45 minutes per day on social web sites.

Of the population of netizens, 65 percent of them are online buyers, who made continued on L4

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B.O.C. ON ASEAN ECONO

STILL TOO MANY B J R. S J

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HERE are many challenges, but we will be there. We’ll get ready.”

CUSTOMS Chief John Sevilla (left) and Presidential Assistant for Food Security and Agricultural Modernization Francis Pangilinan, reveal sacks of Thai rice on September 24, after the shipment was seized by customs agents at the international port in Manila. Some 1,250 metric tons (1.25 million kilograms) of white rice in 50 container vans with an estimated market value of P50 million ($1.36 million), were seized by customs authorities allegedly for lack of an “import permit” and for being left unclaimed by their consignees since June of this year. AP/BULLIT MARQUEZ

Customs Commissioner John Sevilla made this assurance, when sought for the status of the agency’s preparations for the much-anticipated economic integration among the 10-member states of the Asean.

Instituting a single window that will facilitate customs and trade processes is one of the major tasks of the Bureau of Customs (BOC) and its counterparts in Asean that need to be completed before December next year.

The success of the Asean Single Window, however, would depend on the reliability and efficiency of the National Single Window (NSW) of each of the 10 Asean member-states.

Unfortunately, the country’s current NSW, undertaken with P400-million budget had been described by Sevilla as bulok (rotten), giving the agency more of a headache, instead of confidence, going to the final stretch of the preparation for the Asean integration.

“I’ve said before ’yung IT [information-technology] platform ng BOC is very insufficient, it’s very backward. So the Asean integration requires that we have a much more robust IT platform, so we could share information with our counterparts in other countries,” Sevilla said.

Ideally, Sevilla said the NSW is designed to have links to other agencies but while it reflects the import permits emanating from government agencies, the actual import entry and the tabulation of duties and taxes are in a separate system.

“The BOC has a commitment to deliver, in terms of efficiency of processing, in terms of sharing information with customs authorities in the Asean. The deadline is until the end of next year. We will meet the deadline,” Sevilla said.

Customs Deputy Commissioner Primo Aguas for Management Information agreed the country is facing a problem with the current NSW. He said the system is slowing down due to connectivity problems, which have discouraged other agencies from using it.

Out of the 30 agencies that should be linked to the NSW, he said less than 10 are actively in the system.

When asked if he agrees with Sevilla’s description of the NSW as bulok, Aguas replied: “Yes, in the sense that it doesn’t meet our requirements.”

Aguas said the problems besetting the NSW should be addressed immediately for the country to be able to reach its goal of i-connectivity with the other nine Asean countries.

He said the ASW is a big deal because the country stands to lose potential exports to other member-countries if we fail to provide them information that should have been made readily available in the system.

“If I am an importer in Singapore and I want to buy copra or sugar in the Philippines, how do I go about doing it? What license do I need to work with a potential seller. Th at kind of information will be there in the single window, because it’s the single window of all the customs-related information,” Aguas said.

“It will facilitate trade because you already know the requirements. Then, ‘di ka na magkakapa-kapa at maghahanap and reciprocate. What we provide they will also provide to us,” Aguas said.

When trade facilitation happens faster, Aguas said, the release of goods will also be faster; thus, there is more business and more revenues as a result.

In order to address the problem on the NSW, Aguas said the BOC is coming

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NOMIC INTEGRATION:

Y THINGS TO DO out with a new system to be called the Enhance Philippine Customs System (EPCS).

Aguas said the EPCS is a combination of the functionality of the aborted NSW2 and the Customs Administration System.

“So what we are doing now is we’re combining the Customs Administration System and the NSW2 terms of reference into one so that we will only have one system. A lot of countries only have one system,” he said.

Aguas said the BOC is now finalizing the terms of reference with the procurement services, and the project will be bidded out as soon as possible.

The new system, he added, should be made operational, as soon as possible, to address inadequacies and deficiencies of the current system.

“Until we have a proper platform or foundation, only then we can move forward,” Aguas said.

2015 scenario

AGUAS admitted he was already feeling pessimistic about meeting the deadline for the interconnectivity requirement for the ASW until two weeks ago, when he presided over the 13th ASW steering committee meeting held in Singapore.

The BOC official proudly reported that during the meeting, the committee achieved a lot, including the endorsement by all the Asean members of the protocol for legal framework and the approval of the terms of reference for the ASW. “So we are releasing the terms of reference for

the ASW system. Once the vendor has been selected, then the system will be ready for implementation for the ready states, and then the protocol for legal framework will be signed by the senior ministers during their meeting in March,” Aguas said.

“So the steering committee achieved a lot last week, and we in the Philippines were the ones that chaired it. They were very impressed,” Aguas said.

However, Aguas lamented that even if the ASW will be up and running in 2015, it is likely that not all member-states will be ready to connect to the system.

He said some countries have just started implementing their customs administration system, while other countries are just starting their NSW. “So the scenario is the ASW-ready states or countries will be connected or will go live and as the other countries get ready, they would then be connected,” Aguas said.

Aside from the Philippines, Aguas said he expects Singapore, Malaysia, Indonesia and Thailand to be ready for the ASW. But, Aguas noted that even without the ASW, the economic integration among the Asean countries will push through.

“Economic integration means also a Filipino can work in Singapore without a work permit, work in Thailand without permit. The National Single Window is just a tool. It won’t derail [the economic integration]. It is only one part of the program,” Aguas said.

PORT workers practice their skills on a radiation isotopeidentification device, which is used to detect radiation levels on shipments arriving from other countries at Manila’s south harbor in this March 22, 2011, file photo. AP/AARON FAVILA

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PHL SEEN AS ASEAN LEADER IN ‘CONTINUOUS COMMERCE’ continued from L1 purchase transactions in the past three months, Callegari said.

“The Philippines is also the largest English language online market in Southeast Asia. So this is why international brands see that as a huge opportunity,” she added.

Among the manifold offerings found on the Web, apparel and footwear, consumer electronics and video-games hardware, consumer appliances, food and drinks, and others, are the most bought items online in the country.

Callegari said the popularity of buying on the Web is expected to continue once the Asean Economic Community (AEC) takes effect at the end of next year given the strong engagements of Filipino buyers in the cyberspace.

In fact, she said local digital shoppers are the more avid followers

of brands on social media than their counterparts in Southeast Asia.

Based on the “2014 Content Matters—The Impact of Brand Storytelling Online” report of Waggener Edstrom in January of this year, 89 percent of Filipinos on social media follow mobile-devices brand, 77 percent for consumer electronics, 86 percent for food and beverage, 84 percent for personal care, 84 percent for health care and 64 percent for travel and tourism.

“So closing the sale is not a huge gap [here],” she said, while citing, for instance, the lower engagement rates in Singapore (50 percent), Indonesia (70 percent) or Vietnam (75 percent) than the country’s 86 percent in personal-care segment.

“Therefore, selling to them is hard because these people don’t want to talk to you, don’t care and don’t engage. Whereas in a country

Recent data from OgilvyOne show that the growth of digital shopping in the Philippines is coherent with the expansion of e-commerce globally with $1.4 trillion in sales. Of the $400-billion sales generated throughout Asia in 2013, the country accounted for P11 billion, or roughly around $250 million. like this, where 86 percent is willing to have a conversation and it’s open, well then that indicates a great opportunity for the sale or the transaction to get closed,” the executive stressed.

Apart from being highly wired and engaged, what’s driving the growth of e-commerce in the Philippines, she said, are the strong macroeconomic fundamentals and increased purchasing power of the people.

In fact, Callegari noted that 70 percent of the country’s gross domes-

tic product (GDP) comes from consumption, unlike other Asean economies, which are driven by exports.

With the GDP rate rebounding from 5.6 percent in the first quarter to 6.4 percent in the second quarter, the outlook for investment flow into the country continues to be on an uptrend, affirmed as well by rosy growth forecasts by creditrating agencies and financial institutions, such as the International Monetary Fund, Asian Development Bank and Standard & Poor’s, among others.

“I think, you’re one of the countries with the biggest opportunity in Southeast Asia come the economic integration next year,” she said, while noting the growth of online retailing as forecast to reach 20 percent in 2014 and the uptrend to continue beyond, given that more than 10,000 Filipinos buy online for the first time.

Seeing that e-commerce has already evolved not only in the digital space but also in social channel, mobile and brand platforms, Callegari said the market should

now regard it beyond the convention.

“We should now call it ‘continuous commerce’ instead of e-commerce. It means continuity for the brand and the consumer across multiple channels, devices and locations. It’s all about end-to-end experiences that happen before, during and after the purchase.

Whether new to the brand or a loyal advocate, these experiences are tailored to the individual. So it’s about continuous business performance, interactive and always on,” she stressed.