roundtable (short version) charts mar 20 · pdf file20/03/2017 · rizal ballroom...

3/20/2017

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QRT CHARTS (SHORT VERSION) MARCH 20, 2017 1

ROUNDTABLE PRESENTATION

Peter WallaceChairman

Rizal ballroom Shangri‐La Hotel, Makati City

March 20, 2017



Controversial isn’t the word

7000+ drug‐related deaths

Marcos buried

Gloria freed

A senator in jail

Martial law threatened

The US dropped

The Russians and Chinese embraced

What’s going on?

(Don’t) Read My Lips

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Reject the US

Embrace China, Russia, Japan

It’s shock treatment

Time for RP to stand on its own feet

Time to be pragmatic

DI (Diplomatically Incorrect) but it worked

Trump won ‒ 1st talk as equals

Fishermen back

More than $20B in investment pledges from China

$9B from Japan

vs $2.7B from the US in 2010

China and Japan pledges “trump” US commitments

Prescience or Luck?



Among the projects pledged by China

• Subic‐Clark railway project by Bases Conversion and Development Authority (BCDA) and China Harbour Engineering Co.

• Safe and smart city projects for BCDA by BCDA and Huawei Technologies

• Transportation and logistics infrastructure at Sangley Point by Cavitex Holdings, International Container Terminal Services Inc. and China Harbour Engineering

• Biomass project by North Negros Biopower and Wuxi Huaguang Electric Power Engineering

• Globe Telecom infra projects to improve network quality and capacity

• Jin Jiang hotel room capacity expansion from 1,000 to 2,000 by Double Dragon Properties

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Among the projects pledged …

• Steel Manufacturing Plants by Mannage Resources and SIIC Shanghai International Trade HK;

• Renewable energy projects by Xinjiang TBEA Sunoasis

• Davao coastline and port development project by Mega Harbor Port and Development and China Harbour Engineering;

• Manila Harbour Center reclamation by R‐II Builders Inc. and China Harbour Engineering

• Cebu International and Bulk Terminal project by Mega Harbour Port and CCCC Dredging Company

• Cabling manufacturing facilities by MVP Global Infrastructure Group and Suli Grp Ltd.

• Manila EDSA Bus Transportation program by Phil State Group and Yangtse Motor group and Minmetals International

• Hybrid rice production by SL Agritech and Jiangsu Hongqi Seed Inc.



Among the projects pledged …

The projects are a mix of agribusiness , renewable and manufacturing investments

These exclude the financing facilities worth a total of $9 billion that would come from the China State ($6 billion) and Bank of

China ($3 billion) – that Filipino businesses could tap

The Chinese government also committed to help the government build key infrastructure projects throughout the country

Sustained FDIs from China is expected following the restoration of Philippines‐China Joint Commission on Economic and Trade

Cooperation

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PRAGMATISM

Duterte! I Can’t Stop China in PanatagInquirer

“What do you want me to do?

Declare war against China?

I can’t”

“Even the Americans could not stop them”

Well, Trump could. But would he?

Not even he would be so foolish

Panatag shoal—230 km from RP—crosses a red line

But a red line who’s going to challenge

It puts China in full control of the South China sea

With terrifying possibilities

China has thumbed its nose at the world

Duterte



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The Philippines under Rodrigo Duterte

Sceptred bileThe new president may undo the economic gains of recent yearsSep 17th 2016 | MANILA



NY Times photojournalist:

"What I experienced in the Philippines felt like a new level of ruthlessness: police officers’ summarily shooting anyone

suspected of dealing or even using drugs, vigilantes’ taking seriously Mr. Duterte’s call to “slaughter them all”

Bloomberg:

“Duterte’s death squads are no tourist attraction”

CNBC:

“President Duterte's war on drugs threatens the Philippines's rule of law”

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He hasn’t accepted that the world takes a leader at his word ‒ so says what he likes.

The world’s media think they’re dealing with a trapo so report verbatim

(Don’t) Read My Lips

The media should use “creative imagination” when decoding Duterte, says Spokesperson Abella

There’ll be no martial law

No says media—so who to believe

Me. There’ll be no ML



According to Social Weather Stations polls:

Do you approve of PRRD Yes ‐ 74%No ‐13%

Do you agree with his war on drugs

Are you afraid of drug killings

Should suspects be caught alive?

Yes ‐ 84%No ‐ 8%

Yes – 80%No – 20%

Very important ‐ 71%Somewhat important – 23%

A Dichotomy

That’s the world view. Domestically ‐

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+7 Cory

+26 Arroyo

‐17 Arroyo (2004‐2010)

+29 Aquino

+12 Estrada+19 Ramos

+63 Duterte

Net Satisfaction Ratings of previous presidents + Duterte

Arroyo posted the largest drop



A Simple Life

Duterte Marcos (one of many houses)

Why the people emphasize

Is that a corrupt leader? This is

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Beyond rhetoric:Duterte’s Achievements as a City Mayor

From the “killing fields” or “Murder City” of the Philippines in the 1970’s to one of Asia’s 10 Safest Cities and one of the world’s 20 Safest Cities (Numbeo survey)

Davao’s economy (GRDP) grew 6‐7% p.a. past 27 years double its pace in the 1970’s. Nation grew 4% from 1970 to 2015

The 5th most competitive city in the country after Manila, Cebu, Makati & Quezon City, according to the

Nat’l Competitiveness Council (NCC)



Is DU30 business friendly?... 2

Among PH’s top cities in World Bank’s Doing Business Survey: #2 in starting a Business; #1 in Dealing with Construction Permits

Among the best in terms of health support services, according to NCC

Business registration, getting local permits 1 day

Change came in 1988 and onwards, when Duterte became Mayor

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What his economic team said (10‐Point Agenda)

What has been done

1. Continue & maintain current macroeconomic policies

Relatively unchanged from the Aquino admin’s policies. GDP growth goals revised upwards

2. Progressive tax reform and more effective tax collection while indexing taxes to inflation

DOF sent major personal and corporate income tax reform bills to Congress. Yet to be approved by plenary.

3. Increase competitiveness and the ease of doing business

DTI and DICT have partnered to streamline business registration procedures at the LGU level. DICT introduced a business licensing software to LGU officials.

Action on the 10‐point Agenda




What has been done

4. Accelerate annual infrastructure spending, raise to 5% of GDP

Allocated P860 Bn (5.4% of GDP) for public infrastructure in the 2017 budget, up a 1/3 YoY. Plans to allot atleast P1 trillion annually in the next 5 years

5. Promote rural and value chain development in agriculture, rural enterprise; rural tourism.

P150Bn, for agri and tourism‐related programs in the 2017 budget, up 30%. Greater allocation for farm‐to‐market roads, irrigation facilities, etc.

6. Security of land tenure No real action

7. Invest in human capital development

Fully implemented the K to 12 program. Raised the budget for Training for Work programs.

Action on the 10‐point Agenda…/2

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What has been done

8. Promote science, technology and the creative arts

DOST’s 2017 budget raised by 14%. Allocated bigger budget for Science and Math scholars and improvement of weather forecasting capability.

9. Improve social protection programs, including conditional cash transfers

Budget for CCT ‐> P79 B in 2017 vs. P65 B in 2016 . Now includes rice subsidy .Implemented controls to minimize “leakage rate” Additional P1000 for pensioners, second tranche by 2020.

10. Strengthening the implementation of the RH Law

Issued EO for full implementation. The SC stalling on contraception ‐18 months of TRO.

Action on the 10‐point Agenda …/3



What He’s Done After 9 months in Office

After 6 years of too little of it

We’re seeing action

But will the courts and the bureaucracy and Congress perform too?

Called 340 businessmen to get their inputs on what business needs – before inauguration

A sensible 10‐point agenda — started

“3 presidents tried, I will do it” – constitutional change started

EO on FOI signed (after 30 years), law will follow

Initial agreement w/ NPA to a ceasefire ‒ Talking to the Moros

Fishermen back in Scarborough shoals—but now?

Family planning clinics initiated

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What He’s Done After 9 months in Office…2

PPP now solicited and unsolicited. And no premiums, just lower fees.

24/7 construction of infra

Created IMAG or Infrastructure Monitoring Advisory Groupto ensure quality and timely implementation.

Simplification of permit requirements for infrastructure projects

17 PPP projects approved in 6 months (vs 12 in 6 years)

Business permit approvals down to 6 days, even 1

Ordered LGUs to release licenses in 1‐2 days

Dep’t of ICT pilot‐testing business licensing software

Driver's license validity in NCR increased to 5 years

Formation of Anti‐red tape unit at DOF



Stopping “Endo, 5‐5‐5”

Removal of general aviation from NAIA which raised on‐time arrivals from 47% to 71%.

Waiting time between trains at MRT was cut to 4.5 minutes from 5 minutes.

Launched additional point‐to‐point buses to decongest traffic

Agreed to a common station ‒ after 7 years ‒ for LRT‐1, MRT‐3, MRT‐7

New emergency and citizen hotlines – that work

Ended “tanim‐bala” (bullet planting) 6 days after being sworn into office

On‐time submission of the 2017 budget

Worked with DND and DBM to ensure that soldiers and policemen get additional monthly allowances.

What he’s done after 9 months …3

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Minimizing the leakages and the administrative costs inthe CCT program so only the poorest of the poor benefit.

Approved P21 billion worth of assistance to rice farmerswith hybrid or certified seeds, fertilizer, and other farminputs.

Establishment of one‐stop shops for OFWs (1 in Clark)

Launch of a 1‐hour morning television show devoted toreceive public complaints on erring government officials.

What he’s done after 9 months…4



Called for Congress to:

Provide Emergency Powers for traffic

Reduce corporate income tax to 25%

Re‐align personal income taxes

Will hold more LEDAC meetings to set Congressional priorities

What he’s done after 9 months…5

Ramos convened LEDAC 84 times, Aquino only 2 times

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What He Hasn’t

The top one: Mining

Here he’s let Gina Lopez have her head – in wild abandon.

23 mines closed, a dozen more threatened.

All without proper due process

ISO 14001 was ignored

All done by an “audit committee of amateurs”

Finance Sec. Sonny Dominguez was furious

The MICC will now do another audit.

MICC is co‐chaired by Lopez and Dominguez

Lopez has been bypassed

Will Duterte re‐appoint her? 2 to go



Duterte understands the role of the private sector in an open market as being the correct policy

And is leaving his economic team to define it.

They are all pro‐business, mostly from business

So we don’t see him effecting a massive turnaround to doing business

Mining is a worrying exception

But there is s ll the risk of whimsicality ─ the hierarchical system encourages it.

What Needs To Be Done

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In Sum

Filipinos wanted change, wanted a break from traditional politics

They got it

But not quite what they expected

A man way outside the norm

The West is horrified(But they’ve now got Trump)

Filipinos shrug their shoulders — an overwhelming 74%

It’s the uncertainty that worries

— in the political, social arena

For business it’s stable – except mining



The economy in 2016: Still going strong

GDP growth 6.8% in 2016, up from 5.9% in 2015

Strong start cushioned some weakening in 4Q16 (6.6%)

2nd best performer among Asia’s emerging market economies

Growth essentially domestically‐driven PH didn’t need a lift from external sources (which wasn’t that favorable anyway)

7.16.8

6.6 6.6

5

4.2

3.2

1.8

0

1

2

3

4

5

6

7

8

India Philippines China Vietnam Indonesia Malaysia Thailand Singapore

GDP growth selected Asian economies 2016 (%)

0

1

2

3

4

5

6

7

8

9

10

QUARTERLY GDP GROWTH RATES (%)

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The growth drivers:

Infrastructure spending

– election‐related, but projects sustained beyond the election period as construction period is multi‐year

Investment in factory plant and equipment, transport facilities, and other equipment –supported construction boom, upgrading of all modes of transport, capacity expansion to meet growing domestic demand

Property development: tourism – related projects + commercial & residential developments nationwide

Still going strong… 2

+29%

+32.6%

+9.5%




Household spending

– lifted by low inflation (1.8%), more jobs, and all‐time high consumer confidence

All these growth drivers boosted construction (+12.6%), manufacturing (+7%), real estate and business services (+9.1%,

where BPOs are a part), finance (+7.7%) and government services (+6.9%)

+6.9%

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There’s a bit of bad news, though:

Agriculture declined – 1.3% in 2016 for its 2nd straight year of reversal: hit by bad weather + low productivity. Plus habitual lack of government support. Change promised by Duterte

Mining fell ‐0.3%, also its 2nd year of decline, on weak global mineral prices, government’s worrying stance on mining

Which meant rural population is still not benefitting from the high rate of growth




2016 2015

GDP 6.8 3.9

Consumer spendingGov’t operating expensesFixed investment

ConstructionPlant and equipment

Export, goods & servicesImport, goods & services

6.923.529.09.532.69.117.5

6.315.219.06.521.89.014.0

AgricultureIndustryServices

‐1.38.07.3

0.16.07.1

Economic Results Summary (% growth rate)


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PH doesn’t need a lift from global market to grow, although favorable global economy can provide extra help

PH economy is actually doing well under the new leadership – but political noise tends to overlook the success of sound, business‐friendly policies the bright and talented economic managers are executing

Focus on social safety nets (enhanced CCT, universal health care, etc.) should make growth more inclusive, provide more resilience to the domestic market over the medium‐term

2016 Economic Results:What they mean going forward



Watchlist: Next 2‐3 years

Infrastructure spending

Seen as a major domestic growth driver: 5.2% of GDP in 2017 (vs. ~ only 3% past 7 years), up to 7% of GDP next 5 years

But will there be sufficient absorptive capacity for higher level of infra spending? DBM say yes.

PPP projects approved in 2016 have yet to start, 2 more approved in 2017 (MM skyway stage 3; LRT Line 1 extension O & M)

MRT‐7, approved in 2013, finally starting now

MRT/LRT Common Station, finally resolved after 8 years, but still threatened by a possible new court case

No emergency powers to solve traffic yet so no new major transport projects in Metro Manila. Congress taking its time

NAIA Improvement/Enhancement frozen by need to give due course to proposals to build airport in Cavite, Bulacan, Rizal, etc.; Clark airport development could also be affected

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Watchlist: Next 2‐3 years… 2

Tax reforms

1st package in place by the 2nd half of the year?

Key Features:

Lower personal income taxes

Reduced estates and donor taxes

Funded by

VAT exemptions limited

Higher excise taxes on petroleum: Mandating use of fuel marking

Higher excise taxes on automobiles, depending on the values of the unit

Interconnection of firms POS machines & accounting system with BIR; relaxation of bank secrecy for fraud cases



FDI Outlook for 2017/2018 is mixed, could be more on the low side:

Duterte’s statements creating foreign uncertainty

Trump’s “America First” policy could slow U.S. investments overseas, including BPO’s in PH

Euro area facing political uncertainties, have expressed hesitance in entering PH market

EJKs & possible passage of death penalty also puts EU’s GSP + privilege (zero duty on 6,300 PH products) in jeopardy

Businesses operating in PH have become less bullish, Grant Thornton survey and BSP survey said so, although confidence still relatively high

Foreign Direct Investment

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Watchlist: Next 2‐3 years… 3

Mining now in shambles‐supposed to be an added boost to FDI

Korean businessmen seething with indignation over the killing of their compatriot under police custody

Japan and China coming to the rescue?

— $9B pledge from Japan, but mostly ODAs for infrastructure spread over 5 years.

— $20B for China, in ODA’s, manufacturing and renewable projects and financing facility



PH Economic Outlook Update, 2017‐2018

Reliance on domestic drivers of growth increases with inward‐looking U.S. economy under Trump, political uncertainties in Eurozone, and slowing Chinese economy

Global outlook now less bright than it was 3‐6 months ago

More subdued world economic conditions mean not only weak export prospects (albeit slightly better than in 2016 and outpacing rest of the world) but also sluggish FDI flows

But given the country’s strong performance vis‐à‐vis its peers, China wages rising, questions on ethical treatment of workers in some countries some investors might see better opportunity in PH

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Although perceived policy uncertainties under Duterte could be another hurdle that could result in further falling off of FDI numbers esp. among firms in the US and Euro zone

Infrastructure, though, will present a clear opportunity given the government’s all‐out support – even if actual spending falls short of program

PH Economic Outlook… 2

₱860B in public spending on infra projects in 2017

₱200B in PPP projects for implementation over 3‐6 years

China, Japan extending financing

Tax reforms will bring in more funds

0

1

2

3

4

5

6

2010 2011 2012 2013 2014 2015 2016 2017

Public Infrastructure Program (% of GDP)



Business will also spend if government spends:

Sustained property development projects especially in areas with huge infrastructure spending – Davao, Bulacan, Calabarzon, Iloilo, Cebu, etc.

Tourism enterprises with improved access to tourist destinations – where airports & ports will be improved

Roadmaps to revive manufacturing through industry winners will sustain robust manufacturing growth in 2010’s – iron and steel; fabricated metal products; machinery, auto and aircraft parts; petrochemicals, oleochemicals and organic chemicals; electrical products (switches, regulators, transformers, etc.); processed food.


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Social protection program of the Duterte Administration will support the consumer market

₱3B special allocation to achieve 100% Philhealth coverage

₱23B for rice subsidy under CCT

Free irrigration for farmers

Subsidy for indigents affected by higher fuel taxes

Tax breaks for the poor and middle class

Continuation of macroeconomic policies ensures stability and robust fundamentals – conditions conducive to sustained growth





Item 2016 2017 2018

GDP 6.8 6.5 7.0

Household spendingGov’t current expensesFixed investmentExport, goods & servicesImport, goods & services

6.923.529.09.117.5

7.06.09.310.011.8

7.06.712.310.010.0

AgricultureIndustryServices

‐1.38.07.3

2.46.57.3

3.08.27.7

PH Economic Growth Outlook (%)

No change in our economic (GDP) growth forecast in January: slightly slower 6.5% in 2017, up nearly 7% in 2018:

FDI has become even more uncertain, esp. in 2017

Inflation is picking up as anticipated, and will be fueled further by higher taxes on fuel and automotive and limit to VAT exemptions

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Duterte’s contentious public remarks appear to not be having significant impact on forex as predicted in January, but:

Less bullish view of developments in Europe, Trump’s “America First” policy and increased “safe haven” perception of the U.S. market means sharper fall of PH and other currencies vis‐à‐vis U.S. $ than previously anticipated

PH trader’s forward positioning on $ (buying at higher rates for future use) has increased

BSP said it won’t align its policy rates with adjustments in U.S. Fed rates (we said in January BSP would) – but maybe later, perhaps late this year or early next year

So it’s now ₱50.5:$, ave. in 2017, ₱51:$1 in 2018

FOREX



Slight change in interest rate forecast – specifically slightly higher 91‐Tbill rate of 3% for 2017 (ave. bank lending rate unchanged @ 6%)

T‐Bill rates are adjusting to higher inflation, and T‐Bill rates’ unusually low levels in 2016

Bank lending rates unmoved due to hesitance by the BSP to adjust policy rates at this time, & forecast already provides sufficient buffer to assure positive real returns despite higher inflation

PH Economic Outlook… 7INTEREST RATES

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Inflation forecast revised upwards to 3% (from 2.5%) in 2017 due to:

Sharper peso depreciation

Impact of tax reforms on prices of fuel, transport & other items no longer VAT‐exempt

Uptrend on world oil and commodity prices (already mentioned in January) will also be a key source of inflationary pressure

Cost of Doing Business Forecast

ANNUAL AVE. 2016 2017 2018

₱:$ Rate 47.5 50.5 51.5

Bank lending rate (%) 5.6 6.0 6.3

91‐day T‐bill rate (%) 1.5 3.0 3.0

Inflation (%) 1.8 3.0 3.0

INFLATION



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roundtable (short version) charts mar 20 · pdf file20/03/2017 · rizal ballroom...

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