By VG Cabuag, Lorenz S. Marasigan, Jonathan L. Mayuga & Joel R. San Juan
DESPITE challenges experienced by the equities market and the new administration of President Duterte, players and government officials remained optimistic of the new year.
Market executives noted that 2016’s biggest lowdown was the failure of the Philippine Stock Exchange (PSE) to secure regulatory approval to merge with the bond market.
For the newly elected President, an underestimation of how the illegal-drugs syndicate permeated the bureaucracy and the intensity of violence in stamping this menace overshadowed pressing economic concerns.
During the closing ceremonies of the PSE for 2016, PSE Chairman Jose T. Pardo asked for a continued positive outlook.
“As we close the year, let us remain optimistic about the year ahead of us,” Pardo said. “I know that 2016 has been very challenging for many markets, given the major events that transpired both locally and internationally. But as with many things in life, we draw from this experience and find ways on how to make good and do good out of any situation, including the more difficult ones.”
Pardo exhorted all market players to “draw inspiration from our achievements in 2016, and try to do more for the development of the capital markets in 2017.”
For officials like Customs Commissioner Nicanor E. Faeldon, the government can only achieve its goals for the year if it continues to gain the support the Duterte administration received last year. Faeldon noted specifically the support from purveyors of information: the media.
Market threads
ACCORDING to Justino B. Calaycay Jr., head of marketing and research at A and A Securities Inc., among many threads to dominate the narratives for the market this year include a new US government and the continuing controversies generated by Duterte’s rhetoric.
This year is part of the era of rising oil prices and China’s rise as an economic and military power, according to Calaycay. Other major threads he sees weaving the next 365 days are sustaining the country’s growth momentum, specific industry policies, interest rates and inflation.
“All told, even the technical condition posits increased caution for investors moving into the New Year,” Calaycay said. “That would be the central theme of our portfolio, even as we look with optimism on select sectors, which stand to benefit from the administration’s plans and projects for the next six years.”
For online brokerage firm 2Tradeasia.com, “There are ‘risk zones’ to consider at least for the early part of the year; the bulk of which will depend on the US Fed’s aggressiveness in monetary tightening.” The firm added, “It would be prudent [for now] to hold onto defensive plays, as well as putting investors’ money on stocks with promising dividend stories.”
Slow growth
THE online brokerage firm’s views came after Swiss investment bank UBS AG said it expects growth in the Philippines to slow this year, having accelerated sharply last year.
The Zurich-headquartered firm said 2016 has seen “extremely” strong domestic demand and, in particular, booming investment growth delivered better than expected GDP growth, driven mainly by election-related spending and loose monetary conditions that fueled credit growth.
“We expect both of these to reverse in 2017, as deficit projections show a smaller fiscal impulse and global monetary conditions tighten,” it said, adding that it forecast real GDP growth of 5.6 percent and 6 percent in 2017 and 2018, respectively.
“We expect growth to slow in the Philippines—while the external balance has deteriorated, removing a buffer to global capital flows as the Fed is due to raise rates,” the bank said. “Rising inflation and higher oil prices will also hurt the Philippines, as it is a net oil importer.”
Tax reforms
FOR the Department of Finance (DOF), reforming taxation could inject fresh blood into the economy.
One of the primary goals of the DOF coming into the new year focuses on its comprehensive tax-reform package, in line with Duterte’s promise of lowering tax rates mentioned at his state-of-the-nation address.
The DOF has submitted to Congress on September 26, 2016, a package of its proposed Tax Reform for Acceleration and Inclusion Act, which includes the lowering of personal-income tax (PIT) rates from 32 percent to 25 percent. The tax measure aims to generate a net gain of P174 billion, equivalent to 1 percent of the country’s GDP in 2018.
Finance Secretary Carlos G. Dominguez III explained that the DOF tax-reform program is still on track since submitting its first package to Congress. Dominguez pointed out that in their original plan, lower PIT rates are expected to be implemented during the third quarter of the year or the first quarter of 2018.
“In fact, if you look at the original plan, it [lowering of PIT rates] will be either effective July 1 or first part of January 1, 2018,” Dominguez said.
According to the DOF, the successful implementation of the tax-reform program will help alleviate from poverty at least 6 million Filipinos by the year 2022. But Dominguez said the failure of its approval will translate to 21.6 percent of the Philippine population to remain under extreme poverty. He also warned that the country’s GDP expansion will not be sustained at 7 percent; the economy will suffer a credit ratings downgrade; and the benefits of continued high growth will remain exclusive to the rich.
In earlier reports, Dominguez explained the completion of some of the goals of the Duterte administration will not be possible if the tax-reform package is not approved.
Aside from the lowering of the PIT rates, the first package also includes the expansion of the value-added tax (VAT) base by limiting exemptions to necessities, such as raw food, education and health care, and increasing excise taxes on oil products and automobiles. The tax-reform package of the DOF contains four packages in total, with the remaining packages yet to be submitted to Congress.
BOC reforms
FOR Faeldon, the reforms being undertaken by the Duterte administration would come to naught if the Bureau of Customs (BoC) remains incorrigible in its image as a corrupt agency.
He cited the plan to rebuild the country’s entire port facilities, which is hoped to materialize this year. Faeldon said modernizing the port facilities were among the project proposals the BoC submitted to the DOF for 2017.
Faeldon added the agency is now consulting with engineers and developers to come up with a conceptualized framework on how to build a 300-hectare world-class port facilities in Manila.
These new port facilities will cover the Port of Manila (POM) and the Manila International Container Port (MICP), according to the BOC chief, which would include a rendering capability.
“These facilities will include everything that we need, like for example, we have these sibuyas [onions] and karne [meat], sometimes it takes us more than a year to render,” Faeldon explained. “I mean to destroy them.”
“We need to come up with a rendering facility, meaning, everything we need to destroy, nandiyan na kaagad. Hindi na po tayo pupunta sa malayo [If we need to destroy something, the facility is readily available; we need not go far],” he added.
Faeldon cited for example Singapore, which is considered a trading hub of the world as far as movement of import and export is concerned. He noted that Singapore’s economy largely depends on port activities as it caters to the entire Asia-Pacific region.
The Philippines, according to Faeldon, is geographically better than Singapore since the country is between South China Sea and the Pacific Ocean.
“So we can easily cater [to] the Asian region and the Pacific, including Australia. So we will be building world-class port facilities here, where the transshipment of commodities all over the world can be traded,” he said. “Can you imagine the impact of that in our economy?”
But Faeldon admitted that plan would not be feasible without the help of the people, particularly the media.
He said it is important for the BOC to create a credibility that is very high as far as the international industries are concerned.
“If you will continue to stereotype the BoC, even if we build a very beautiful facility next year, nobody is going to use our facilities,” Faeldon said. “That’s why I appeal to you to help develop the Bureau of Customs because these port facilities will substantially contribute to the economy of the country.”
Zero tolerance
FOR Environment Secretary Regina Paz L. Lopez, not tolerating corruption under her watch is a mark of the Department of Environment and Natural Resources’s (DENR) performance this year.
“All the money we have are not going to do any good if the DENR doesn’t have the right people. So I am inviting the public to join hands as together we can build a better Philippines,” she said. “These are not my dreams but rather the hopes and aspiration of the Filipino people.”
The DENR chief vowed to intensify this year programs that will generate more green jobs to open up new economic opportunities for rural folk through the Enhanced-National Greening Program (E-NGP).
“I want to facilitate economic zones through the NGP funds… similar to the La Mesa Watershed and Eco Park, which is earning more than P40 million a year and has been declared the gold standard for reforestation by the United Nations,” Lopez told the BusinessMirror.
According to Lopez, the E-NGP will be used to establish mangrove and bamboo plantations, which will similarly become economic zones.
Lopez said rural and upland communities will be the first to benefit from the DENR programs.
“We have 29 convergence areas and our E-NGP program is all over the country,” she said. “The communities can do agri-forestry in our NGP areas and we will even help them sell the products.”
According to Lopez, the DENR will help E-NGP partners sell agro-forestry products.
“We will buy the products from them. We have orders of up to a million hectares of cacao. They can do abaca. [There are] many good organic cash crops,” she said. “Mangroves give rise to fish, oyster, shellfish, shrimp and can be wonderful ecotourism areas. But most important is that they will protect our country from climate change.”
According to Lopez, the islands with mangroves suffered 80 percent less damage.
On the other hand, she said bamboo plantations are amazing for low-cost housing, medicine, cosmetics, health, cleaning water and even mined out areas.
“[The bamboo] has so many uses,” she said. “It is inexpensive and we can fund the plantations.”
Convergence zone
ACCORDING to Lopez, the DENR will have 29 convergence areas where “climate-change economies” will be implemented together with nongovernmental organizations, church, academe and business sector.
“I want to prove that taking care of the environment is our sure way out of poverty. I want to implement extensive biodiversity research and do value adding,” she said.
According to Lopez, currently, the DENR is conducting thorough studies on the legacy of mines, including open pit mines, coal plants and diesel.
She said that, by the first quarter of 2017, the DENR would have finished the study of all environmental compliance certificates focusing on the ones that have far-ranging impact on the common good.
“It needs to be clear that the DENR has adopted social justice as its heart and soul—and to this end our policies will be reviewed and new ones implemented. Because of this, we have decided to adopt an area development program—the prime performance indicator being the quality of life of our people,” she said.
According to the DENR chief, all DENR programs will have broad civil-society participation.
Transport reforms
LAST year saw the transportation department pushing for reforms in the transport sector albeit in small ways, and it plans to continue on doing that in a much larger scale this year.
The year 2017 will mark the start of the transportation agency’s endeavor in forcing more infrastructure projects out of its pipeline.
“We are working on our infrastructure projects, and we are planning on the bigger scale to decongest and promote interconnectivity for the whole country,” Transporation Spokesman Cherie Mercado-Santos said.
While she declined to give a full list of the priority projects this year, she mentioned that railway development will be on top of the list, after all, Duterte mentioned in his first State of the Nation Address that he will put prime importance on the construction of train systems around the Philippines, most particularly in the South.
The program for railway development involves billions of pesos in investments stretched beyond the term of the Duterte administration.
This includes the construction of the East-West Line, which will run from Commonwealth to Quiapo, a railway that will run from Malolos to Clark, another one from Solis to Los Baños, and the Mindanao Railway, among others.
In Mindanao alone there is about 1,533 km worth of rails to develop. The dream for Mindanao is to have a railway line that will run from Cagayan de Oro to Davao City.
It will be done in three phases—divided into so-called corridors. Corridor 1 will be from Cagayan de Oro to Butuan. The second corridor will run from Butuan to Davao City. The third corridor will be the loop to Cagayan de Oro from the city of Davao.
Airport modernization
AIRPORT construction and modernization is next on the list.
This year will mark the resumption of the bidding process for the rehab and upgrade of five regional airports, and the redevelopment of the Ninoy Aquino International Airport (Naia).
Even with these projects at hand, the government is entertaining proposals from the private sector—there are two to date—for the construction of a Naia replacement.
According to Santos, the government is also planning to modernize Clark to accommodate flights of full-service airlines like Philippine Airlines, while constructing a railway that will connect Metro Manila to the area.
Interisland connectivity via Philippine waters will also be promoted next year. The vision is to upgrade and expand the existing ferry routes in the coming months.
“A lot of the ideas and projects that are going to be rolled out are not unique and are not new. A lot of them are from our past administrations,” she said. “What we are doing is to push ourselves to work to get things done,” Santos said. “In the history of infrastructure, we are a laggard. We also have a history of projects not finished. So our vision is to finish what we have started.”
Image credits: AP/Bullit Marquez