contents · transportation department. (see story page on p57) congresswatch bill reorganizing ph...

Philippine ANALYST September 2013

Contents THE MONTH’S HIGHLIGHTS

WORD FOR WORD

COMMENTARY

SPECIAL REPORTS

POLITICAL

15 Pres. Aquino orders review of state fi rms linked to pork scam

16 Top Disincentives to Doing Business in the PH: Infrastructure, corruption and bureaucracy

18 Policing body convened for Bangsamoro police force

THE ECONOMY

20 PH competitiveness ranking rises further

22 Beauty, hygiene, health and convenience push PH consumption

23 Unemployment continues to worsen as of 3Q

PHILIPPINE REGIONAL UPDATE BUSINESS

37 PH auto industry roadmap a must amidst ASEAN integration, growing market

38 PH tourist arrivals in the fi rst 7 months up 11.5%

39 San Miguel takes over ALECO management

Mining, Oil and Gas

40 Chamber of Mines opposes alternative mining bill

IT Update

42 Businesses urge Customs to adopt full computerization

BUSINESS CLIMATE INDEX

CORPORATE BRIEFS

INFRASTRUCTURE

54 Pres. Aquino gives green light to Skyway Stage 3 project

56 DOTC on PPP after 3 deferred projects: ‘It is really just a sophisticated process’

57 Only 2 of 5 contracts awarded for PSIP Phase 2

CONGRESSWATCH

60 Bill reorganizing PH statistical system signed into law

61 IMF pushes legislative reforms highlighted in SONA

63 Asia Pacifi c Executive Brief81 Asia Brief contributors

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54

60

Philippine ANALYST

the month’s highlights 1

September 2013

Political

PAST DEVELOPMENTS

Pres. Aquino orders review of state fi rms linked to pork scamPresident Aquino has ordered the Governance Commission for GOCCs (GCG) to evaluate the state-owned fi rms that have been linked to the pork barrel controversy. The GCG was established following the enactment of the Republic Act 10149 or the Government-Owned and Controlled Corporations (GOCC) Governance Act of 2011. The GCG is attached to the Offi ce of the President that serves as an advisory, monitoring and oversight body. (see story page on p15)

Top Disincentives to Doing Business in the PH: Infrastructure, corruption and bureaucracyThe Philippines’ rankings in global competitiveness surveys have been improving. In the latest Global Competitiveness Index released by the World Economic Forum (WEF) the country placed 59th, up 6 places from its 2012 ranking. From a dismal 85th in 2010 the country has managed to climb 26 notches and is now in the upper half of countries surveyed. Despite the improvement, some sectors still urge the Aquino administration to aggressively address several governance issues that have impeded the country’s ability to attract more job-creating investments. Among the barriers to investing in the Philippines that were also specifi ed in the latest WEF report are the following: inadequate supply of infrastructure; corruption; ineffi cient government bureaucracy; restrictive labor regulation; and policy instability. (see story page on p16)

FUTURE DEVELOPMENTS

Policing body convened for Bangsamoro police forceThe Philippine Government and the Moro Islamic Liberation Front (MILF) peace panels convened an independent policing body that will formulate recommendations for establishing a Bangsamoro police force. (see story page on p18)

Economy

PAST DEVELOPMENTS

PH competitiveness ranking rises furtherThe Philippines continued to rise in ranking in the Global Competitiveness Report (GCR) of the World Economic Forum (WEF) for the 3rd straight year, gaining another 6 notches to No. 59 out of 148 economies in the 2013-2014 edition of the Report. The country ranked 85th out of 139 countries/economies 4 years ago. (see story page on p20)

Beauty, hygiene, health and convenience push PH consumptionA survey on Filipino purchasing habits conducted by Kantar Worldpanel from June 2009 to June 2013 revealed an increasing Filipino consumer preference for beauty, hygiene, health and convenience products. (see story page on p22)

Unemployment continues to worsen as of 3QThe unemployment rate worsened to 7.3% of the labor force or 3 million in the July (3rd quarter) 2013 survey of the National Statistics Offi ce (NSO), up from 7% or 2.85 million in July 2012. This brought the average unemployment rate also to 7.3% or 3 million during the 1st three quarters of 2013, indicating deterioration from 7% or 2.85 million in the 1st 3 quarters of 2012. (see story page on p23)

Business

PAST DEVELOPMENTS

PH tourist arrivals in the fi rst 7 months up 11.5% Tourist arrivals reached 2.8 million in the fi rst 7 months of 2013 due to a rapid increase in Chinese visitors. DOT is optimistic that the country will reach its 2013 tourist target of 5.5 million.(see story page on p38)

San Miguel takes over ALECO managementThe San Miguel Power Corp., through its subsidiary SMC Global Power Holding Corp (SMC-GPHC)., will be running the Albay Electric Cooperative, Inc. (ALECO) after the private sector participation scheme of management won over the coop-to-coop option in a referendum among member-consumers of ALECO. (see story page on p39)

FUTURE DEVELOPMENTS

PH auto industry roadmap a must amidst ASEAN integration, growing marketAutomotive businesses in the country are calling for the government to come up with an auto industry roadmap before the Association of the Southeast Asian Nation (ASEAN) economic integration in 2015. The Philippines is in need of an industry roadmap to catch up with more competitive ASEAN countries, especially that the ASEAN cluster is projected to become the 5th largest automotive market in the world by 2019. (see story page on p37)

the month’s highlights 2

September 2013Philippine ANALYST

Mining, Oil and Gas

Chamber of Mines opposes alternative mining billThe Chamber of Mines of the Philippines (COMP) is strongly opposing the alternative mining bill that was refi led in Congress, stating that the measure will only ‘kill’ responsible mining in the country. The COMP added that changing regulations on mining will take a toll on all industries and will degrade investors’ confi dence in the country. (see story page on p40)

IT Update

Businesses urge Customs to adopt full computerizationBudget Watcher Bantay Budget expressed concern that various computerization programs in Customs over the past 19 years have made the trading process more complicated than becoming a seamless process. (see story page on p42)

Infrastructure

PAST DEVELOPMENTS

Pres. Aquino gives green light to Skyway Stage 3 projectThe Metro Manila Skyway Stage 3 project is 1 of the 2 connector road projects of the North Luzon and South Luzon Expressway eyed to shorten travel time and decongest roads in Metro Manila. (see story page on p54)

DOTC on PPP after 3 deferred projects: ‘It is really just a sophisticated process’Business leaders urged the government to review the PPP process after the bidding for 3 PPP projects under the DOTC were deferred. But for the Transportation department, ‘it’s just the nature of PPP.’ (see story page on p56)

Only 2 of 5 contracts awarded for PSIP Phase 2The Public-Private Partnership (PPP) Center awarded 2 of the 5 contracts for the PPP for School Infrastructure Project (PSIP) Phase 2, this accounts for less than half of the total number of classrooms to be built. PISP 2 is the 4th PPP project to exhibit diffi culties following the deferred projects under the Transportation department. (see story page on p57)

CongressWatch

Bill reorganizing PH statistical system signed into lawPres. Benigno Aquino III signed into law on 12 September Republic Act No. 10625 or the Philippine Statistical Act on 2013. RA 10625 which will consolidate the functions of the National Statistics Offi ce (NSO), National Statistical Coordination Board (NSCB), Bureau of Agricultural Statistics (BAS), and Bureau of Labor and Employment Statistics (BLES) into a single entity called the Philippine Statistics Authority (PSA). (see story page on p60)

IMF pushes legislative reforms highlighted in SONA International Monetary Fund (IMF) supports legislations that will increase the country’s competitiveness and Foreign Direct Investments (FDI). (see story page on p61)

CORPORATE BRIEFS 3


“The government is listening to the concerns of our people. The Senate is listening. I am listening and I will do what I can do so that our Congress can regain the trust of the people” Senate President Franklin Drilon on restoring the people’s trust in Congress and holding accountable the lawmakers who would be proven to be involved in the P10-billion pork barrel scam

“If there’s one hint that trust and confidence has waned, then I think the head of the agency has no option but to offer himself as the first to go.”

National Bureau of Investigation (NBI) Director Nonnatus Rojas on his resignation.

“While the government is exhausting all avenues for a peaceful resolution to the situation, let it be clear to those defying us that they should not entertain the illusion that the state will hesitate to use its forces to protect our people.”

Malacañang tells the Moro National Liberation Front (MNLF) that it is time to cooperate to resolve the situation in Zamboanga City.

COMMENTARY

Philippine ANALYST

COMMENTARY4

September 2013

COMMENTARY

As the failure of the bidding for the LRT-1 extension shows (see page 56) this is what happens when you don’t have the right people. And putting people into senior positions who don’t have the necessary experience and expertise for the job has been a weakness of this government since the beginning. Add to that the poor pay

and uncertain tenure (when it’s a political choice as these are) make attracting the right people difficult.

In the DOTC, where 42% of the PPP projects reside, most of all the Undersecretaries are lawyer, now there is nothing wrong with lawyers in comparison to anyone else, but their expertise is in practicing (do they never get it right, so must always practice?) law it is not in designing railroad systems, or airports, or communication systems. They should be available to review RFP’s (Requests For Proposals) after the draft has been written to ensure it conforms to Philippine law, nothing else.

In business we are very careful to only hire people who are qualified, highly qualified if possible, for the job. The President needs to do the same if PPP is to take off. There is no indication he will.

Also needed is for the courts to throw out cases filed by lawyers of disgruntled losers. Government executives are, understandably, hesitant to act because criminal cases can be too easily filed against them.

One of the biggest delays in completing infrastructure projects is “Right-of-Way”, acquiring the land to put a road through, or a railroad, or build an airport, or whatever else the nation needs. And there’s the key word “nation”. These projects are in the national good, they are one of the rare occasions where the government can infringe on personal rights.

If it is for the greater good of all, one person must sacrifice a little.

The constitution says: “Private property shall not be taken for public use without just compensation”

So why does it take so long, even require going to court on some occasions?

It takes so long because government does not act in the forthright manner that it has every right to do. Not even with squatters on the land, who have no legal rights to it.

Part of the problem is that the land owners are not given a fair deal, so I am entirely sympathetic to their opposition in this regard. What it should offer is market rate plus a premium of say 50% more so the land owners is encouraged to sell and have no justifiable reason to oppose. The cost would be small compared to the huge loss delay causes.

As to squatters, there will be no problem as long as where they are moved to still gives them easy access to their workplace. Something that must be done for all relocated squatters.

SPECIAL REPORT 5


8 Glasses A Day

The MWSS released a decision on the request of Manila Water Company (MWC) and Maynilad (MWSI) to raise their tolls under the 5-year Appropriate Discount Rate (ADR) on September 12. It not only rejected the request, but reduced the tolls and excluded taxes from recovery even though inclusion was guaranteed in the

25-year contracts. Here is a proven success story being threatened by changes that if upheld could do not only the concessionaires, but the general economy great harm by the negative signal it will send to potential investors. If these changes are sustained it will put participation by the private sector in PPP at huge risk.

There is understandable sympathy for to those with little money who have to struggle to pay for water, and everything else, but the reality of it is we must have water and providing it costs money. And, sadly, whether you like it or not we must pay what something costs, not what we can aff ord.

Focusing on cash savings today is a simplistic failure too many fall into (just look at the long lines at the tolls without an E-pass. The cost over a year is far higher in gas and lost time than the cost of a pass). The benefi ts of the cost savings achieved by reduction of the water tariff are more than outweighed by the negative ramifi cations into the greater economy. As the European Chamber said, “what NGO’s have to understand is that making a profi t is not a sin.” The profi t motive has driven the world’s economies into creating a quality of life unheard of in previous millennia. Yet is something NGO’s do not seem to get their heads around.

And it’s not just a simple matter of looking at the cost today, but also tomorrow, future supply is just as important as today’s. That means you must build a capital base to pay for better and bigger, and new facilities in the future. It’s no good arguing the concessionaires should pay, they are just the people chosen to do the job for us. It’s we who are paying, through them. We can build up funds now, or take out loans later. The former is fi nancially more attractive so is why it’s done. The money is going into capital expense we will need, needed with a growing population, and a continuing need to upgrade.

Consumers should be easily able to understand the concept of paying for future benefi ts by relating it to cellphones. The great bulk of them pre-pay use of those cellphones. Those pre-payments help fund the growth of the cellphone companies. No one complains, yet it’s the same thing.

When it comes to taxes, whether you include them in the pricing calculation or not the net eff ect must be the same. The investor must get a certain percent return AFTER TAX. That’s what investment is all about, you take money out of your pocket to put money in to an investment to (hopefully) get more money back - in your pocket. It came out of your pocket, that’s where it goes back to.

If you remove tax from the calculation then you must increase the rate of return so that after tax the amount the proponent needs to make the project viable is achieved. MWSS does not seem to have understood this simple fact. Worse, it has decided that income tax can’t be recovered despite what the contract stipulates.

SPECIAL REPORT6


And let me quote directly from the contract SIGNED BY THE MWSS so there’s no misunderstanding on this: ““The rates for water and sewerage services provided by the Concessionaire shall be set at a level that will permit the Concessionaire to recover over the 25-year term of the Concession (net of any grants from third parties and any possible Expiration Payment) operating, capital maintenance and investment expenditures effi ciently and prudently incurred, Philippine business taxes and payments corresponding to debt service on the MWSS Loans and Concessionaires Loans incurred to fi nance such expenditures, and to earn a rate of return (referred to herein as the ‘Appropriate Discount Rate’) on these expenditures for the remaining term of the Concession in line with the rates of return being allowed from time to time to operators of long-term infrastructure concession arrangements in other countries having a credit standing similar to that of the Philippines”. It’s an internationally-accepted practice. This statement was in the MWSS’ request for proposals that said taxes should be included, it was not the concessionaires that asked for it. Now the MWSS is saying taxes shouldn’t be included in complete contradiction to their contract? I’ll repeat it: you put money in from your pocket to get a little bit more money back into your pocket. That’s what business is all about. That’s what’s driven the huge success of the open markets of the world.

THE MWSS VIOLATED ITS CONTRACTS.

When you buy a hamburger from Jollibee, or McDonalds, or Burger King, or anyone else you pay its taxes, when you buy anything you pay the taxes. Why should public services be diff erent. If you can’t recoup your taxes you lose money, so you don’t enter the business. Or government subsidizes it, and that’s our taxes anyway. MWSS has created a risk investors won’t accept.

If the MWSS decision to exclude tax, let alone the other charges, holds then add that to the inexplicable SC decision to require Meralco to refund consumers the tax they paid and private sector investment into the much-needed public services will rethink their interest. That loss would be huge.

PRIVATE SECTOR INVESTMENT WILL RETHINK THEIR INTEREST

But not only do the concessionaires pay taxes they pay MWSS a whopping P800 million yearly directly to MWSS to pay for MWSS’s regulatory role and whatever residual role they have left since privatization. Why is no one complaining about that? What is the money being used for? What does MWSS do with all that money? In Rey Arcilla’s column this week he said the executives of MWSS paid themselves P74.36 million in bonuses last year. If true, for doing what?

MWSS said there were some errors in the fi nancial reports submitted by the concessionaires, but they are of relatively minor items that could have been clarifi ed with the concessionaires particularly as the external and independent auditors found no such faults.

Take for example, the cost of fl owers charged to us? How dare the concessionaires. Well how about complaining to the recipients. They go to inaugurations of Barangays, to the families of people who have died, it’s an accepted Philippine custom. But let’s bring some (un) commonsense to this. Based on MWC numbers, and no doubt Maynilad would be similar, the cost of fl owers from 2008 to 2012 was about P0.000013 per cubic meter. If deducted from our water rates it would reduce our rate by less than a hundredth of a centavo per cubic meter. It’s the same with entertainment expenses, something incidentally every company has. The reduction would be a miniscule P0.006539 per cubic meter (or 65 hundredths of a centavo).

As to sewerage and sanitation costs that some consumer groups are apparently objecting to. Why? Where do they want their shit to go? Into the Pasig like the squatters do? The agreement requires sewerage and sanitary facilities to be built, surely something everyone wants. And wants them to look after our environment in all they do. So it’s hard to understand why there’s opposition to these highly desirable activities.

METRO MANILA WATER RATES ARE AMONG THE LOWEST.

SPECIAL REPORT 7


Prior to privatization the people from informal settlements would buy commercially vended water at P30 per drum. Today, the comparable water prices are P1.70 – P4 per drum for the East Zone (MWC), and P2-P5 per drum for the West (Maynilad), so some ten times cheaper for connected, potable water. (One cu.m. is fi ve drums). Metro Manila water rates are among the lowest, sometimes the lowest depending on consumption, when compared among 14 Metro cities in the country.

Over the past 16 years the concessionaires have invested over P100 billion in Metro Manila’s water and wastewater systems.

Does that sound like gouging the public to you?

The international investment houses certainly don’t think so.

Credit Suisse said in part in its report on the MWSS decision, which they viewed negatively:

“We believe that a successful execution of the government’s push for greater private sector investments is predicated on the Philippine Government ensuring reasonable returns to existing investors”.

“In our view, the severe reduction in the company’s opening cash position and recoverable expenses are not justifi ed as we believe that concessionaires have been compliant with the parameters set in the concession agreement. In particular, we believe that the inclusion of income taxes as a recoverable expense should be upheld.”

SPECIAL REPORT8


“We also believe that it is in the best interest of the Philippine Government to be supportive of a tariff increase for the concessionaires. From a broader perspective, we believe that a successful execution of the government’s push for greater private sector investments will be on the line. Attracting potential investments under the public-private partnership model is predicated, in our view, on the Philippine Government honoring its commitment to ensure reasonable returns for concession agreements to the private sector.”

J.P. Morgan said:

“Investors are likely to be skeptical of public-private partnership and raises question marks on infrastructure bid outlook. While we were turning slightly more constructive in recent weeks on the infrastructure bidding outlook, we see this tariff cut as a key negative event for confi dence in PPP bidding and expect the two stocks to remain weak in the near term.”

While Deutsche Bank was blunt about it:

“The parameters set for both concessionaires - Manila Water and Maynilad - were nothing short of disastrous, especially for MWC. We estimate a strict implementation of the decision could mean as much as an 80% cut in MWC’s value and 50% in Maynilad’s value”.

“WE BELIEVE THAT THE INCLUSION OF INCOME TAXES AS A RECOVERABLE EXPENSE SHOULD BE UPHELD.”

“GOVERNMENT’S PUSH FOR GREATER PRIVATE SECTOR INVESTMENTS WILL BE ON THE LINE.”

“A KEY NEGATIVE EVENT FOR CONFIDENCE IN PPP BIDDING.”

“NOTHING SHORT OF DISASTROUS.”

All three are independent, well-respected investment banks and fi nancial analysts on a world scale that are listened to. This does not send a good message about investing in PPP in the Philippines.

THIS DOES NOT SEND A GOOD MESSAGE ABOUT INVESTING IN PPP IN THE PHILIPPINES.

The concessionaires have won over nine global awards for the excellence of their performance. The IFC, for example quoted as one of only two cities (Phnom Penh was the other) where the achievements of the water companies was world class for a developing country. They wouldn’t win these if they are cheating the public. But we don’t need that, just turning on our taps tells us that.

SPECIAL REPORT 9


Today 98% of the Manila service area has 24-hour potable water, 16 years ago only 26% had water 24/7.

INDICATORManila Water Maynilad

1997 Q1 2013 1997 Q1 2013Water Coverage (Penetration) 49% 90% 55% 86%Population served with water (in millions) 1.99 6.3 3.6 8.3Water Availability (24/7 Water Supply) 26% 99.69% 26% 97%System Losses (NRW) 63% 13.5% 67% 41%No. of marginalized communities served (population in millions) n/a 1.7 n/a 1.7

Staff per Thousand Connections 6.6 1.4 5.8 2.1

The MWSS is now the regulator of the two private sector companies who have totally reversed the system-at huge cost, over P100 billion that they have every right to expect will be repaid to them by us as we use the water they supply.

The MWSS is now saying “no, we won’t, we won’t honor our contractual commitment to you”. For the past 16 years the concessionaires have submitted quarterly, yes quarterly, that’s 64 reports on performance, revenues, costs, etc in great detail. For 16 years MWSS have accepted these reports and not complained. Now, suddenly, they have raised objections to expenses they’ve always accepted before. They also disallowed monies already spent on capital equipment to improve the service. What the MWSS did defi es any fi nancial logic and is in contradiction to the contract. So why did it do it, because nothing signifi cant has changed in those 16 years.

MWSS HAS ACCEPTED ALL EXPENSES FOR 16 YEARS—NOW THEY DON’T.

The President should get involved here and call for new discussions between MWSS and the concessionaires without the need to go to arbitration. And, in particular, conform to the original contract. Otherwise his PPP program will be at risk. And with the still fragile beginnings of a possible economic take-off this is not the time to deter investors. To achieve 7%+ growth on a sustained basis you must build infrastructure (PPP) and provide public services, such as water and electricity (electricity too is at risk today due to NGO objections).

THE PRESIDENT SHOULD ACT.

The Philippines is lagging behind in attracting investment. One of the reasons is changes of policy from one admin to the next, or even within an admin. This includes contracts. Even if the public were suff ering from an unfairly high tariff , but that’s what t he contract allowed. That must be sacrosanct – except if corruption can be proved. At least must be if you want investors. What can be done is call back the other party to negotiate possible change. Change that can only happen if both parties agree. If it’s unfair then be more careful in future contracts because “unfairness” is judgmental. The ADR allows for this negotiation, so it’s there where a “better” deal can be threshed out. The President should send MWSS back to the negotiating table. Not go through the hassle and cost of arbitration.

Doctors say you must drink 8 glasses of water a day (San Mig has water in it, so that’s OK). The MWSS decision puts people’s health at risk. Let’s hope they can be convinced to reconsider these strange decisions to take into account the greater economic good of the country.

SPECIAL REPORT10


Stumbling Block on the Road to Peace

By Amina Rasul1

Zamboanga Siege

On September 8, Moro National Liberation Front (MNLF) troops led by Ustadz Habier Malik, loyal to MNLF Chair Nur Misuari, entered Zamboanga City and held off government troops in 5 Muslim dominated barangays (villages) for over 20 days. Zamboanga City has 73% Christian population while less than 27% are Muslims. Hundreds of hostages were taken. The fi ghting escalated in the days that followed, aff ecting 14 barangays by the 2nd week. 120,000 were displaced, some 200 killed, more than 10,000 homes burned.

The 3-week long armed confrontation between troops loyal to Misuari and government in Zamboanga City has negatively impacted on the region’s economy and is a threat to the peace process between government and the Moro Islamic Liberation Front. The city serves as the hub of commerce for the Muslim dominated provinces of Sulu, Tawitawi and Basilan, which are 3 of the 5 provinces under the Autonomous Region in Muslim Mindanao (ARMM).

While the devastation of Zamboanga City has been tremendous, many – including civil society and Christian and Muslim religious leaders - believe that it could have been prevented if government had adhered to the SOP of negotiations in a hostage-taking situation. Instead, the military implemented a “calibrated response”. Unfortunately, the military and the police are still mopping up since government proclaimed victory last September 28.

Why did government not see this coming, when Misuari loyalists had executed exactly the same operation in 2001, when over a hundred were killed or wounded? How could the military and the police have failed to anticipate that such an incident may follow Misuari’s declaration of independence, in spite of the warnings relayed by Zamboanga City Mayor Isabelle “Beng” Climaco?

This siege is the consequence of Misuari’s declaration of independence on August 12. Citing the non-implementation of the 1996 GPH-MNLF Final Peace Agreement (FPA) as justifi cation, Misuari said at the MNLF assembly: “To the Philippine government, I think the message is quite clear: we don’t like to become a part of the Philippines anymore. I know these people are just too happy to see us go.” As in 2001, charges of rebellion and violation of International Humanitarian Law have been fi led against Misuari and 83 of his followers.

Government has to be very careful on how it handles Misuari and Ustadz Malik, the leader of the siege. Reports from Muslim communities have relayed great fear that the situation is far from stable; that the confl ict can fl are up in other areas. Further, in spite of the devastation of the Muslim barangays of Zamboanga City, there are indications that sympathy for Ustadz Malik and the MNLF troops is building up. 1 Amina Rasul is the President of the think tank Philippine Center for Islam and Democracy.

11SPECIAL REPORT


The question now is: will this armed confl ict derail the government’s peace process with the Moro Islamic Liberation Front, which is reportedly close to succeeding? Eff orts are underway to ensure that it will not. But there is now an uncertainty.

The Precursor: Government-MNLF Peace Process

Over the last 40 years, the Philippines has been on a rocky, twisted path to peace in Muslim Mindanao as government has attempted to fi nd a political solution to the wars of independence waged by the Moro2 liberation fronts. The basis of the war of independence: when the United States Government granted independence to the Philippines on July 4, 1946, it had illegally annexed the sovereign sultanates to the newly established Republic. During the peace processes, the Muslim liberation fronts have agreed to drop the war for independence, ensconced in the hearts and minds of Moro activists, in favor of genuine autonomy for the Bangsamoro3.

Any analysis of autonomy in Muslim Mindanao cannot be meaningfully accomplished without a discussion of the historical antecedents that have determined the path in which peace and development have been pursued in the southern Philippines. This discussion of autonomy cannot be divorced from the diff erent stages in the peace eff orts with the Muslim separatists, the Moro National Liberation Front (MNLF). After all, it was to conciliate the interests of the Muslims as represented by the MNLF that the idea of autonomy in Muslim Mindanao was fi rst advanced.

The military operations of then President Ferdinand E. Marcos, who needed a justifi cation to be able to rule indefi nitely4, lit the fuse of the Moro war for independence. Marcos proclaimed Martial Law, using Muslim secessionism in Mindanao as one of two major threats5. The MNLF, under Professor Nur Misuari, was organized in reaction to Martial Law and the fear of genocide felt by the Muslims of Mindanao.

Unable to win the war that he started against the so-called Muslim separatists, Marcos sought the assistance of the Organization of the Islamic Conference (OIC) to broker peace talks. The government and the MNLF signed the Tripoli Agreement in 1976. The MNLF later denounced Marcos for violating the agreement and resumed hostilities6.

President Corazon C. Aquino, who defeated Marcos in the snap elections of 1986, resumed the peace process with the MNLF. Under her administration, Congress passed Republic Act 6734 (An Act Providing for an Organic Act for the Autonomous Region in Muslim Mindanao). A plebiscite was implemented to allow the provinces identifi ed under the Tripoli Agreement, to vote on whether or not they would join the ARMM. Only Sulu, Tawitawi, Maguindanao and Lanao del Sur7 joined. The MNLF boycotted the plebiscite, accusing the government of taking unilateral action on the creation of the ARMM.

It would take the administration of President Fidel V. Ramos to bring back the MNLF to the peace table. On September 2 1996, the Philippine Government and the MNLF signed the “Final Agreement on the Implementation of the 1976 Tripoli Agreement”. The fi rst peace agreement signed in South East Asia, the historic act earned for MNLF Chair Nur Misuari and President Ramos the UNESCO Felix Houphouet-Boigny Peace Prize.

2 “Moro” or “Moor” was the term used by the Spanish colonizers to refer to the Muslims they encountered when they landed in these islands. It became a derogatory term in the Philippines until adopted by the MNLF, transformed into a political badge and an identity of the indigenous Islamized tribes of Mindanao. Eventually, the term has gained acceptance among Muslim Mindanaoans. 3 “Bangsamoro” or Moro Nation.4 The 1935 Philippine Constitution prohibited a President from serving for more than 2 terms, with four years per term.5 Then President Ferdinand E. Marcos issued Proclamation 1081 declaring Martial on September 21, 1972 to secure the state against the Communist threat in the North and the secessionist movement in the South. Proclamation No.1081 cited that the Mindanao Independence Movement (MIM) was “engaged in an open and unconcealed attempt to establish by violence and force a separate and independent political state out of the islands of Mindanao and Sulu which are historically, politically and by law parts of the territories and within the jurisdiction and sovereignty of the Republic of the Philippines”.6 On March 25, 1977, President Marcos issued Proclamation 1628 declaring autonomy in the provinces of Basilan, Sulu, Tawi-Tawi, Palawan, Zamboanga del Sur, Zamboanga del Norte (which then included Sibugay), Lanao del Norte, Lanao del Sur, Maguindanao, Sultan Kudarat, North Cotabato, South Cotabato (which included Saranggani), Davao del Sur and the 13 cities of Isabela, Lamitan, Puerto Princesa, Zamboanga, Dipolog, Pagadian, Iligan, Marawi, Cotabato, Tacurong, Marbel, Kidapawan, and General Santos. The MNLF objected, stating that this was a unilateral decision, violating the terms of the Tripoli Agreement. In spite of the MNLF objections, Marcos called for a plebiscite on April 17. 7 Only 4 of the 5 still Muslim dominant provinces joined. Basilan would join later.

SPECIAL REPORT12


The Final Peace Agreement (FPA) between the GRP and the MNLF contained 81 points of consensus on defense, education, economic and fi nancial systems, mines and minerals, Shariah courts, representation in the national government, the functions of the Executive Department under an elected Regional Governor and the Regional Legislative Assembly.

Misuari was elected Regional Governor of the ARMM after the signing of the FPA, eff ectively the only candidate running. He was governor from 1996 to 2001 (He was jailed in November 2001 for rebellion). Development assistance was poured into the region.

To implement the 1996 FPA, the Philippine Congress fi nally passed Republic Act 90548 in 2001 to amend RA 6734. During the plebiscite that followed on August 14, Muslim dominated Basilan Province and Marawi City fi nally joined ARMM.

Misuari was later replaced by another MNLF leader, Dr. Parouk Hussin, following the creation of the “Council of 15”, rumored to have been engineered by then President Gloria Macapagal Arroyo to oust Misuari as Chair of the MNLF. Misuari was found to be diffi cult to deal with. Misuari’s armed loyalists then entered Zamboanga City thru Cabatangan in 2001, a show of force to protest what they called the government’s violation of the 1996 FPA. The fi ghting that ensued over 2 days was not as devastating as the recent 3-week occupation of 5 barangays. A compromise was entered into with the MNLF commanders, allowing their return to the islands. Misuari, who was in Malaysia at the time, was deported and incarcerated for over 7 years. He would later be freed for lack of evidence.

Complaints about mismanagement and corruption, already loud before Misuari took over, continued to grow under the administration of ARMM by the MNLF. The ARMM remains the most confl ict-aff ected, poorest, least served region of the Philippines. MNLF as well as Bangsamoro leaders have been vocal in their claims of violation of the implementation of the 1996 FPA. Since 2001, the OIC has facilitated a tripartite9 review of the implementation of the FPA to determine how best to address the problem areas. 42 consensus points were identifi ed by the tripartite reviews.

Meanwhile, the government had been undertaking peace talks with the Moro Islamic Liberation Front.

The GPH-MILF Framework Agreement on the Bangsamoro

It has been 17 long years after the signing of the 1996 FPA. The path to peace has been rocky, even as the government undertook a peace process with the Moro Islamic Liberation Front.

The reality of ARMM, which had led President Benigno Aquino III10 to label it as a “failed experiment”, is this: years after the signing of the 1996 FPA, Muslim Mindanao remains as the least served region with the lowest human development indicators, poorest of the poor, and has the lowest contribution to Gross Domestic Product. It has become even more confl ict aff ected since 1996 and has the highest unemployment rate, with half of the adult population in the dark due to illiteracy (some 600,000 of adults, half of the voting population, are functionally illiterate11). The ARMM Regional Government, burdened by ineffi ciency and lack of funds for development as well as plagued by corruption since 1996, had failed to deliver dividends of peace to the Bangsamoro.

The negotiations between the government of President Aquino and the MILF have yielded the Framework Agreement on the Bangsamoro (FAB). The agreement signed on October 15 2012 is a harbinger of hope, particularly for the Central Mindanao communities. The details of the agreement, however, will be contained in four annexes, which will cover the transitional mechanism, revenue and wealth sharing, power sharing, and normalization. To date, only the fi rst two have been signed.

8 Republic Act 9054 is formally known as “An Act to Strengthen and Expand the Organic Act for the ARMM, Amending for the Purpose RA No. 6734, Entitled ‘An Act Providing for the Autono-mous Region in Muslim Mindanao’, As Amended”. 9 The tripartite review involves the OIC as facilitator, government and the MNLF. MNLF leaders from the Council of 15 as well as from Misuari’s group have participated in these reviews. 10 President Simeon Benigno Aquino III is the son of the late President Corazon C. Aquino.11 The Magbassa Kita Foundation Inc (MKFI) has been working on reducing illiteracy. Over the last 3 years, it has succeeded in graduating over 50,000 neo-literates.

SPECIAL REPORT14


The framework agreement builds on the achievements of the 1996 FPA, which itself was based on the 1976 Tripoli Agreement. It also picks up the core issues resolved by the rejected Memorandum of Agreement on Ancestral Domain (MOA-AD)12.

With this October 15 accord, a New Political Entity for the Bangsamoro would be established. The Autonomous Region of Muslim Mindanao would be abolished and perhaps will be called the Autonomous Region of the Bangsamoro.

The FAB will recreate the existing ARMM to make it truly autonomous. The Transition Commission, tasked to draft the Basic Law that will set up the new autonomous political entity called “Bangsamoro” by June 30, 2016, has been established. President Aquino appointed members of the TC on February 25, 2013. Mohagher Iqbal, the head of the MILF Negotiating Panel, chairs the TC. Eight of the members are with the MILF and 7 are with government. The FAB adopted a ministerial system for the new region, wherein the Bangsamoro Government’s relationship with the national government is ascribed as “asymmetric”. It may have greater territorial jurisdiction if the residents of the identifi ed barangays and municipalities agree to join the new region, in a plebiscite to be conducted after Congress passes the Basic Law. Many Bangsamoro leaders believe that the successful conclusion of the negotiations with the MILF will ensure a more just and lasting peace, once genuine autonomy is provided to the Bangsamoro.

Concluding note

The Framework Agreement on the Bangsamoro is the closest the government has come to ensuring lasting and just peace as well as equitable development in Mindanao. However, assuming there are no successful moves to destabilize the negotiations, the greater challenge will be the transition period. If the new Bangsamoro regional government proves to be as problematic as previous administrations of ARMM, then the experiment of autonomy will risk permanent failure. The process of creating the basic law, from draft to congressional approval, must be truly inclusive13, as the agreement states: “It shall be formulated by the people and ratifi ed by the qualifi ed voters within its territory.” However, PCID’s year long research on the state of local democracy of the ARMM has revealed the general ignorance of local residents on autonomy and the ARMM – in spite of its decades of existence. Further, citizens are generally not consulted on any crucial issue. Perhaps one reason has been the dismal illiteracy rate of the ARMM. According to MKFI14’s estimate, half of the voting population of ARMM is illiterate. Ignorance and lack of consultations must be rectifi ed, if all aff ected citizens are to support the New Political Entity.

In closing, government and the MILF should learn from the mistakes of the past, particularly the experience in the implementation of the 1996 Final Peace Agreement. Further, care and restraint are needed in bringing Misuari and the 83 MNLF charged with rebellion to face justice. Martyrdom will make them magnets for disillusioned and disenfranchised Bangsamoro, particularly the unemployed young. The citizens of Muslim Mindanao should be empowered to fully participate in Bangsamoro governance – thus education needs, particularly literacy and civic education, should be addressed.

12 Government negotiations with the MILF during the administration of President Gloria Macapagal-Arroyo was a dizzying roller-coaster ride crashing to a halt with the fi ghting that broke over the non-signing of the Memorandum13 The indigenous peoples or the Lumad also claim that they have been out of the loop. A statement for the Lumad or IPs shows their alarm: “The Erumanen or Menuvu have also expressed their apprehension over the expanded ARMM area despite their long-standing protest against it in various plebiscites. … The fi rst people of Mindanao (“Unang Katawhan”) who were not converted to Islam were excluded in the discussion points in Kuala Lumpur because accordingly, it only pertained to the GPH-MILF.”14 MKFI is the Magbassa Kita Foundation Inc.

15POLITICAL


Pres. Aquino orders review of state fi rms linked to pork scamPresident Aquino has ordered the Governance Commission for GOCCs (GCG) to evaluate the state-owned fi rms that have been linked to the pork barrel controversy. The GCG was established following the enactment of the Republic Act 10149 or the Government-Owned and Controlled Corporations (GOCC) Governance Act of 2011. The GCG is attached to the Offi ce of the President that serves as an advisory, monitoring and oversight body.

The GOCC Governance Act was signed into law to promote financial viability and fiscal discipline in GOCCs and strengthen the role of State

in their governance and management to make them more responsive to the needs of the Filipino people.

Among GCG’s key responsibilities are to evaluate the performance and relevance of the state fi rms, and reorganize, merge and streamline the operations and structures of the GOCCs. It can also recommend the abolition or privatization of any state-owned company (see box).Among GOCCs ordered to be evaluated by President Aquino for involvement in the pork barrel scam were the following: National Agribusiness Corporation (NABCOR);Zamboanga del Norte College Rubber Estates Corp.

(ZREC);Technology Resources Center (TRC);National Livelihood Development Corp. (NLDC); and Philippine Forest Corporation (PFC).

A Commission on Audit report revealed that of the P6.15 in pork barrel funds released to more than 80 questionable NGOs from 2007 to 2009, some P2.4 billion came from TRC, P1.2 billion from NABCOR, P1.259 billion from NLDC, P400 million from PFC, and P282 million from ZREC.

According to a statement released in the Offi cial Gazette, the GCG has completed its study and recently submitted to the Offi ce of the President its recommendation to abolish ZREC and NABCOR, and is already in the process of submitting its recommendation on the abolition of PFC. The Commission has also accelerated its evaluation of NLDC and TRC. It should be noted that the use of the GOCCs for projects funded by PDAF were also among the reasons for recommending abolition, aside from their redundancy with other agencies and lack of fi nancial sustainability.

16 POLITICAL


Department of Agriculture (DA) secretary Proceso Alcala supports the abolition of ZREC and NABCOR. Both corporations are attached to the DA. Sec. Alcala wants the 2 GOCCs abolished before the end of the year.

Presidential Communication Operations Offi ce Secretary Sonny Coloma assured the ‘deserving’ employees of ZREC and NABCOR that they will be absorbed by other government off ices while those involved in anomalous transactions will be held accountable.

The GCG must be more proactive in identifying state-led fi rms that are no longer required for public interest and those that serve as conduits in anomalous government transactions. Also, they must ensure that public funds coursed through GOCCs reach the intended benefi ciaries and not line up the pockets of corrupt public offi cials.

Top Disincentives to Doing Business in the PH: Infrastructure, corruption and bureaucracy

The Philippines’ rankings in global competitiveness surveys have been improving. In the latest Global Competitiveness Index released by the World Economic Forum (WEF) the country placed 59th, up 6 places from its 2012 ranking. From a dismal 85th in 2010 the country has managed to climb 26 notches and is now in the upper half of countries surveyed. Despite the improvement, some sectors still urge the Aquino administration to aggressively address several governance issues that have impeded the country’s ability to attract more job-creating investments. Among the barriers to investing in the Philippines that were also specifi ed in the latest WEF report are the following: inadequate supply of infrastructure; corruption; ineffi cient government bureaucracy; restrictive labor regulation; and policy instability.

THE GOVERNANCE COMMISSION FOR GOCCs (GCG)

- Offi cially constituted in October 2011 pursuant to the “GOCC Governance Act of 2011” (Republic Act No. 10149);

- As the central oversight and policy-making body for GOCCs, one of its primary mandates is to evaluate all GOCCs and determine whether each should be streamlined, reorganized, or recommended to the President for abolition or privatization;

- The evaluation of each GOCC is guided by the following standards:

(1) The functions or purposes for which the GOCC was created are no longer relevant to the State or no longer consistent with the national development policy of the State;

(2) The GOCC’s functions or purposes duplicate or unnecessarily overlap with functions, programs, activities or projects already provided by a Government Agency;

(3) The GOCC is not producing the desired outcomes, or no longer achieving the objectives and purposes for which it was originally designed and implemented, and/or not cost effi cient and does not generate the level of social, physical and economic returns vis-à-vis the resource inputs;

(4) The GOCC is in fact dormant or nonoperational;

(5) The GOCC is involved in an activity best carried out by the private sector; and

(6) The functional, purpose or nature of operations of any group of GOCCs require consolidation under a holding company.

As the Commission continues to identify GOCCs that are no longer required for public interest, it also ensures that there is an orderly transition and proper balancing of interests in the implementation of each abolition or privatization. The abolition or privatization of a GOCC requires, among others, the transfer of assets and liabilities, and the transfer of the GOCC’s functions to another GOCC or agency that is capable of continuing the services to aff ected stakeholders.

Currently, the formation of technical working groups for the implementation of the abolitions or privatizations is being processed to ensure a coordinated and unifi ed eff ort between GCG and concerned agencies.

171POLITICAL


The country’s inadequate supply of infrastructure is very evident. In fact, it estimated that the Philippines is 10-20 years behind its neighbors like Thailand, Malaysia, Singapore, and Indonesia in terms of infrastructure development. The Aquino administration’s fl agship public-private partnership (PPP) program has been progressing at a snail’s pace. Of the 23 key PPP projects identifi ed, only 3 have been awarded so far: Daang Hari-SLEX, PPP for School Phase 1, and NAIA Expressway Phase 2 while 7 others have been lined up for bidding. The slow implementation of PPP projects can be partly attributed to the administration’s focus on correcting misdeeds and abuses of the past, including review of anomalous transactions. At present, infrastructure spending is a measly 2.5% of GDP but this is expected to rise to 3% in 2014, 4% in 2015, and 5% in 2016, making the Philippines at par with its ASEAN neighbors in terms of infrastructure spending.

The president’s single-minded attack on corruption is commendable. It has happened at a level unimaginable in prior decades and will be the outstanding legacy of President Aquino. This contributed to the business community being more confi dent than in a long time. High level cases were pursued (Arroyo, Corona, Gutierrez); nearly 300 tax evasion and smuggling cases were fi led; graft cases versus former military offi cials are being pursued; competitive bidding implemented by the DPWH; and national budgets were crafted using zero-based scheme. These measures helped the Philippines improve its rank in Transparency International’s corruption perception index (105th last year from 139th in 2009). A Freedom of Information law would’ve provided a major boost but President Aquino has been reluctant to certify the measure as urgent. Also, the institutionalized corruption has not been addressed.

Among the measures proposed to solve ineffi cient government bureaucracy is to computerize and integrate ALL government services. This is one area where a Department of ICT could play an important role. But President Aquino is unwilling to support the bill. So it’s unlikely to be approved this 16th Congress. Another proposal to improve the bureaucracy is to signifi cantly raise government salaries. During the Wallace Business Forum’s August roundtable Senate President Drilon mentioned that included in the 2014 budget is a performance-based grant that will encourage good performance, and is to be preferred over across-the-board increases. Insofar as salary increases are concerned, there is already a salary standardization law allowing increases within a particular grade or promotion. However, the “Singapore Concept” of private sector competitive wages wasn’t addressed.

In several global competitiveness surveys the Philippines ranks poorly in terms of labor market effi ciency, due primarily to the lack of fl exibility in determining wages and rigid ‘hiring and fi ring policies.’ Global experience has shown that countries with more fl exible labor laws grow faster and create more jobs. Hiring and fi ring should require minimal bureaucratic procedures and approvals. Businesses must also be given more leeway in adjusting wages and benefi ts during tough economic times. Businessmen have been urging lawmakers to amend the 4-decade old Labor Code but the proposed bills have been languishing in Congress for the past 10-15 years.

The Aquino administration must demonstrate that the government’s business policies are stable and will not be altered on a whim. Contracts entered into by the government must be inviolate. Changing rules in the middle of the game will greatly turn off investors, hampering the government’s objective of attracting job-generating and poverty-alleviating investments.

18 POLITICAL


Policing body convened for Bangsamoro police force

The Philippine Government and the Moro Islamic Liberation Front (MILF) peace panels convened an independent policing body that will formulate recommendations for establishing a Bangsamoro police force.

The Philippine government and the Moro Islamic Liberation Front (MILF) remain committed to complete the remaining annexes (see table) of the Framework on the Bangsamoro (FAB) and forge a comprehensive agreement within the year even after the attacks of the Moro National Liberation Front (MNLF) in Zamboanga city. The attack resulted in 313 casualties, more than 100,000 people were displaced while 10,000 homes burned down. Government peace panel chairman Miriam Ferrer said that the incident has given them more reason to push the process forward. On September 9-20, 2013, the peace panels of the government and MILF met for the 40th round of formal exploratory talks in Kuala Lumpur, Malaysia and created an Independent Commission on Policing (ICP) that will propose recommendations for establishing a police force in the future Bangsamoro.

The ICP consists of 7 members, 5 of which attended the talks (see box). The other 2 who have not yet been named will come from Australia and an Asian country. The ICP will begin work in mid-October which will take about 6 months to complete.

FAB ANNEXES DATE SIGNED

Annex I. Transitional Arrangements and Modalities February 27, 2013

Annex II. Revenue Generation and Wealth Sharing July 13, 2013

Annex III. Power Sharing Ongoing discussion

Annex IV. Normalization Ongoing discussion

The group will be headed by Mr. Randall Beck of the Royal Canadian Mounted Police (RCMP). The ICP is expected to make recommendations on the name, structures, educational and professional development, recruitment, relationships, budget, and a roadmap for implementation of a Bangsamoro police force. The ICP is mandated to consult with different relevant sectors including the Philippine National Police (PNP), Armed Forces of the Philippines (AFP) and the civil society. The recommendations will be based on a needs-based assessment which must refl ect the following: (1) public perception of the police, (2) the needs and the demands of the communities in the Bangsamoro, (3) human rights situation and (4) other performance indicators.

The formation of ICP is part of the “normalization” annex that aims to ensure security in the future Bangsamoro. It envisions the total demilitarization of MILF fi ghters. However, MILF said they are not yet willing to give up their arms given the presence of other armed rebel groups in Mindanao particularly the MNLF which strongly opposes the peace talks. Indeed, ICP’s recommendations are crucial and both parties need to sustain trust and confi dence at the negotiating table. The peace panels therefore have sought the intervention of the International Contact Group (ICG) to help them swiftly resolve the issue so as not to delay the peace process.

It has been more than a year since the government and the MILF envisioned a Bangsamoro political entity to replace the Autonomous Region of Muslim Mindanao (ARMM) and there are roughly 3 years left in the timeline set.

Source: Offi ce of the President Adviser on Peace Process (2013)

STATUS OF FAB ANNEXES

YEAR TARGET

2013Completing the FAB annexes to seal a fi nal peace agreement and drafting of the Bangsamoro Basic Law (BBL) by the Bangsamoro Transition Commission (BTC)

2014 Passage of the BBL

2015Abolition of ARMM and establishment of Bangsamoro which will temporarily be administered by the Bangsamoro Transition Authority (BTA)

2016 1st Bangsamoro election (May 2016)

MEMBERS OF THE INDEPENDENT COMMISSION OF POLICING

1. Mr. Randall BeckAssistant Commissioner, Royal Canadian Mounted Police (RCMP)

2. Mr. Von Al-haqSpokesperson, Bangsamoro Islamic Armed Forces (BIAF)

3. Mr. Amerodin HamdagRetired Police General, PNP

4. Dr. Ricardo de LeonRetired Police Director, PNP

5. Atty. Jesus DoquesFormer Head, Department of Interior and Local government Leagal Bureau (DILG)

MEMBERS OF THE INDEPENDENT COMMISSION ON POLICING

20ECONOMY


PH competitiveness ranking rises furtherThe Philippines continued to rise in ranking in the Global Competitiveness Report (GCR) of the World Economic Forum (WEF) for the 3rd straight year, gaining another 6 notches to No. 59 out of 148 economies in the 2013-2014 edition of the Report. The country ranked 85th out of 139 countries/economies 4 years ago.

The Philippines’ Global Competitiveness Index (GCI) score also improved slightly to 4.29 from 4.23. It was 3.96 four years ago, or in GCR 2010-2011. GCI represents the weighted

average score in WEF’s so-called 12 pillars of competitiveness (7 is best, 1 is worst). For an economy like the Philippines, the highest weight, at 47.7%, is assigned to basic requirements, consisting of the following pillars: institutions; infrastructure; macroeconomic environment; and, health and primary education. The lowest weight is in innovation and sophistication factors – business sophistication pillar and innovation pillar – at 8.1%. Effi ciency enhancers are assigned a weight of 44.2%.

Institutions continued to improve dramatically, rising to 79th in GCR 2013-2014 from 94th in GCR 2012-2013, on perception that the government is doing a good job addressing corruption, the strength of the country’s auditing and reporting standards, and corporate governance. The fi nancial market development pillar also advanced markedly, to 48th from 58th, perhaps due in large part to the local banking system’s high liquidity, low interest rates, soundness of banks and the stock market boom. Most surprisingly, the innovation pillar moved up to 69th from 98th, presumably due to the general belief that local industries are making some effort to adopt to new technologies and business approaches to remain competitive.

But despite being among the very few fastest-growing economies in Asia – and most probably the world – and the credit rating upgrades this year, the country’s ranking

Highlighted the need for the country to reform its labor laws.

Sources: World Economic Forum (WEF), The Global Competitiveness Reports 2011-2012 to 2013-2014

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

5

Philippine Global Competitive Index (GCI)(7=most competitive; 1=least competitive)

212ECONOMY


PH placed ahead of Sri Lanka, Vietnam and Cambodia, but behind Malaysia, Thailand and Indonesia.

Country/Economy2013-2014 2012-2013 2011-2012 2010-2011

Global rank GCI score Global rank GCI score Global rank GCI score Global rank GCI score1 Singapore 2 5.61 2 5.67 2 5.63 3 5.432 Hong Kong 7 5.47 9 5.41 11 5.36 11 5.303 Taiwan, China 12 5.29 13 5.26 13 5.26 13 5.214 Malaysia 24 5.03 25 5.06 21 5.08 26 4.885 Korea, Rep. 25 5.01 19 5.12 24 5.02 22 4.916 Brunei Darussalam 26 4.95 28 4.87 28 4.78 28 4.777 China 29 4.84 29 4.83 26 4.90 27 4.848 Thailand 37 4.54 38 4.52 39 4.52 38 4.519 Indonesia 38 4.53 50 4.40 46 4.38 44 4.43

10 Philippines 59 4.29 65 4.23 75 4.08 85 3.9611 India 60 4.28 59 4.32 56 4.30 51 4.3312 Sri Lanka 65 4.22 68 4.19 52 4.33 62 4.2513 Vietnam 70 4.18 75 4.11 65 4.24 59 4.2714 Lao PDR 81 4.08 - - - - - -15 Cambodia 88 4.01 85 4.01 97 3.85 109 3.6316 Bangladesh 110 3.71 118 3.65 108 3.73 107 3.6417 Pakistan 133 3.41 124 3.52 118 3.58 123 3.4818 Timor-Leste 138 3.25 136 3.27 131 3.35 133 3.23

Total # of countries/economies in the GCR survey 148 144 142 139

RANKINGS OF SELECTED ASIAN COUNTRIES/ECONOMIES IN GLOBAL COMPETITVENESS 2013-2014

Sources: World Economic Forum (WEF), The Global Competitiveness Reports 2011-2012 to 2013-2014

Pillar 2013-2014 Ranking 2012-2013 RankingBasic requirements (47.7%)

Ins tu ons 79 94Infrastructure 96 98Macroeconomic environment 40 36Health and primary educa on 96 98

Effi ciency enhancers (44.2%)Higher educa on and training 67 64Goods marker effi ciency 82 86Labor market effi ciency 100 103Financial market development 48 58Technological readiness 77 79

Innova on & sophis ca on factors (8.1%)Business sophis ca on 49 49Innova on 69 98

PHILIPPINES COMPETITIVE PILLAR RANKINGS

Sources: World Economic Forum (WEF), The Global Competitiveness Reports 2012-2013 and 2013-2014

22 ECONOMY


in the macroeconomic environment pillar fell to 40th from 36th, albeit still a good result. Its position on higher education and training pillar also declined to 67th from 64th.

The Philippines placed highest in market size at 33rd, up from 35th a year ago. It ranked lowest on labor market effi ciency at 100th, although a slight improvement over 103rd in last year’s report, which WEF said highlighted the need for the country to reform its labor laws. Infrastructure was the 2nd lowest-ranked pillar at 96th, which WEF blamed for the weaknesses in seaport, airport and fi xed telephone infrastructure. As these are all under the watch of the Department of Transportation and Communications (DOTC), it partly refl ected the ineffectiveness of this agency.

Among the East and South Asian countries covered by the WEF survey, the Philippines ranked 10th. It overtook only India, which fell to 11th place (and 60th worldwide). It placed ahead of Sri Lanka, Vietnam and Cambodia, but behind Malaysia, Thailand and Indonesia.

Globally, the country moved ahead of India, Peru, Slovenia, Hungary, Rwanda and Colombia. But they were overtaken also partly because the GCI scores of these countries deteriorated. This means the Philippines took advantage of the misfortunes of these countries to advance.

The goal of the National Competitiveness Council (NCC) is for the Philippines to reach the Top one-third of the WEF competitiveness ranking by 2016. To do so, the country should rank better than 50th place by then, or gain at least 9 notches in 3 years. This is possible if the Aquino administration continues to effect positive changes especially in the supply of infrastructure, business entry rules and competition policy.

The world’s most competitive country is Switzerland (GCI: 5.67) in GCR 2013-2014. It is followed by Singapore (GCI: 5.61), Finland (GCI: 5.54), Germany (GCI: 5.51) and the United States (GCI: 5.48). For the Top 3 there was no change in rankings from last year. Germany jumped from 6th, while the US improved from 7th. On 6th place was Sweden, which fell from 4th; 7th was Hong Kong, up from 9th; 8th was the Netherlands, down from 5th. Japan took 9th place, while the United Kingdom claimed 10th.

Beauty, hygiene, health and convenience push PH consumption

A survey on Filipino purchasing habits conducted by Kantar Worldpanel from June 2009 to June 2013 revealed an increasing Filipino consumer preference for beauty, hygiene, health and convenience products.

These 4 factors are the “key trends that would explain [Filipinos’] buying behavior,” consumer knowledge and insights fi rm Kantar Worldpanel said In a media briefi ng held on September 4. And these factors apply across all income classes.

The focus on beauty products is due to the desire of Filipinos, especially women, to look good. And, for 72% of Filipino women respondents, looking good means improving their hair and complexion. Women tend to equate having a fair skin with beauty.

Hence, sale of whitening personal care products rose 10% from June 2009 to June 2013, while non-whitening products grew by only 1% from 2011 to 2013. The purchase of whitening body lotion grew 8% compared to non-whitening lotion’s 5%. The beauty trend is also being driven by young households (those with children 12 years old and below) and adult homes (those whose members are 19 and up). This was also supported by the 12.6% growth in the purchase of hair conditioners and 6.3% in hand and body lotion from June 2009 to June 2013. Notable growths were observed from Visayas and Mindanao, particularly in socio-economic classes C and E. (Class E households, though, live below the poverty line, hence have incomes that hardly enable them to make ends meet.) They buy mostly from supermarkets and direct sales channels.

The trend in hygiene among Filipinos was refl ected in the 19% increase in the purchase of hand sanitizers and 9% in baby wipes/wet tissues from June 2009 to June 2013. It also led to a 54% increase in razor purchase, 11% in panty liners and 10% in sanitary pads. Just like it was on beauty, hygiene was driven by Visayas and Mindanao consumers from socio-economic classes D and E who are members of young and mixed households (those with children 12 and below, and teens).

Filipinos are now choosing the healthier lifestyle as shown in their food product choices: over the past 5 years, there has been an increase in purchases of cereals (17%), yoghurt/cultured milk (9%), canned vegetables (6%) and biscuits (6%). Moreover, for beverages, the fastest-selling items were soy milk (20%), bottled water (12%), energy/sports drink (10%), fruit/vegetable juices (7%) and powdered milk (6%). These patterns in purchase behavior were most pronounced in North Luzon and Mindanao, especially among socio-economic classes AB, C and E and in mixed and adult homes.

Nonetheless, the faster pace of lifestyle showed up in the Filipinos increasing preference for food, beverages and cooking that are fast, easy and convenient – and in some cases not healthier. During the 5 past years, purchases have risen sharply in the following: Ready-to-drink choco drinks (21%) Ready-to-drink coffee (17%) Ready-to-drink energy/sports drinks (11%) Instant noodles (9%) Instant pasta (7%) Canned meat (7%)

There has also been signifi cant growth in the purchase of products that make cooking easy, including meal fl avorings (17%), liquid seasoning (11%), breading (7%) and bouillon (5%).

These lifestyle shifts have occurred more in South Luzon and Mindanao, most notably among consumers from the socio-economic class C who are mostly from young and adult homes.

The survey had a sample size of 3,000 households.

232ECONOMY


Unemployment continues to worsen as of 3Q

The unemployment rate worsened to 7.3% of the labor force or 3 million in the July (3rd quarter) 2013 survey of the National Statistics Offi ce (NSO), up from 7% or 2.85 million in July 2012. This brought the average unemployment rate also to 7.3% or 3 million during the 1st three quarters of 2013, indicating deterioration from 7% or 2.85 million in the 1st 3 quarters of 2012.

Socio-economic Planning secretary Arsenio Balisacan explained that one reason for the rise in unemployment was the “unusual jump in the entrants to the labor force” as the booming economy encouraged more people to seek jobs. He said the economy created 620,000 jobs in July, but 777,000 sought jobs.

NSO defi nes unemployment as persons 15 years old and over who are “without work and currently available for work and seeking work, or without work and currently available for work but not seeking work for the following reasons: tired/believed no work available, awaiting results of previous job application, temporary illness/disability, bad weather, or waiting for rehire/job recall.”

WBF thinks Sec. Balisacan’s reasoning isn’t supported by offi cial statistics. NSO data showed a slight decline in labor force participation rate (LFPR) to 63.9% in July 2013 from 64% in July 2012, which means a lesser proportion of the working-age population were encouraged to join the labor force. It’s worse on the basis of the 3-quarter average, with LFPR falling to 64% from 64.3% a year ago.

Economics professor and budget secretary under Pres. Corazon Aquino Benjamin Diokno noted that the Philippines’ unemployment rate is “the highest in the ASEAN region… [and] is proof that economic growth has not been inclusive.”

It appears that this year a notable shift in the nature of jobs occurred instead of a signifi cant increase in job creation. This suggests a shift to better quality employment but the opportunity for workers to access this type of job remained limited.

For example, underemployment, or a situation where workers desire to have additional work, improved to 19.8% of the employed or 7.5 million in the fi rst 3 quarters of 2013 from 20.3% or 7.6 million in the same period last year. In short, fewer workers were dissatisfi ed with their jobs this year. The underemployment rate was 19.2% (7.3 million) in July 2013, better than 22.8% (8.6 million) in July 2012.

The number of wage and salary workers also improved 3.9% to a 3-quarter average of 22.26 million, in contrast with the -7.5% decline to 3.85 million in unpaid workers in family farms or business (a major source of employment growth during the Arroyo administration). The self-employed remained almost unchanged at 10.61 million, while owners of family farms or businesses fell -6.1% to 1.25 million.

In terms of sector, gain in employment was experienced by industry (up 3.7% or by 210,000 to 5.98 million) and in services (up 2.7% or by 530,000 to 20.27 million) in the fi rst 3 quarters of this year. Agriculture incurred a substantial loss of jobs, a drop of -2.8% or by 340,000 to 11.73 million. Hence, net job creation was 400,000 so far this year. But this wasn’t enough to absorb even the relatively modest average increase in the labor force of 530,000 in the fi rst 3 quarters.

JULY 3RD QUARTER 1ST 3 QUARTER AVERAGE2013 2012 2013 2012

Labor Force Par cipa on Rate (%) 63.9 64.0 64.0 64.3Labor Force (‘000) 41,195 40,393 40,976 40,431Unemployment Rate (%) 7.3 7.0 7.3 7.0Unemployed (‘000) 3,002 2,847 2,994 2,847Underemployment Rate (%) 19.2 22.8 19.8 20.3Underemployed (‘000) 7,341 8,565 7,509 7,632

Employed (‘000) 38,175 37,555 37,978 37,576Wage and Salary Workers 22,212 22,578 22,261 21,433Self-Employed 10,821 9,901 10,614 10,649Employer, family-owned farm or business 1,287 1,451 1,253 1,334Worked without pay in own family operated farm or business 3,856 3,624 3,850 4,160

Agriculture 11,808 11,635 11,729 12,066Industry 5,969 5,906 5,977 5,763Services 20,398 20,014 20,272 19,735

RESULTS OF THE LABOR FORCE SURVEY

Source: National Statistics Offi ce (NSO)

Economic growth has not been inclusive.

September 2013Philippine ANALYST ECONOMIC INDICATORS

ECONOMIC INDICATORS24

inflation rate(%), 2006 = 100

price inDices by commodity

inflation rate

inflation rate

inflation rate

inflation rate

cpi WHolesale retail

(2006=100) (1998 = 100) (2000=100)

2013 2012 2013 2012 2013 2012

Jan. 132.0 128.2 228.7 231.3 158.8 154.0

Feb. 132.4 128.1 230.8 231.8 159.2 153.6

March 132.5 128.3 229.6 234.9 159.0 154.1

April 132.8 129.4 228.4 233.4 159.2 154.4

May 132.9 129.5 228.5 229.5 159.3 154.3

June 133.7 130.1 230.1 224.6 159.7 155.1

July 133.8 130.5 - 225.7 160.0 155.6

Aug. 134.2 131.5 - 230.2 - 157.8

Sept. 135.0 131.4 - 231.3 - 158.5

Oct. - 131.3 - 229.1 - 158.2

Nov. - 131.4 - 228.0 - 158.2

Dec. - 131.3 - 227.3 - 158.3

Housing, Water, electricity, gas anD

otHer fuels

furnisHing, HouseHolD equipment

anD routine maintenance of

tHe House

HealtH

2013 2012 2013 2012 2013 2012

Jan. 3.5 5.3 4.9 2.4 3.3 2.8

Feb. 2.5 4.6 5.1 2.1 2.9 3.2

March 2.1 4.5 4.7 2.3 3.2 2.8

April 1.3 4.7 4.0 3.2 3.1 3.3

May 1.5 4.3 3.7 3.3 2.7 3.2

June 1.5 4.0 3.3 3.7 2.8 3.3

July 0.6 4.9 2.9 4.1 3.0 3.2

Aug. -0.5 5.6 2.4 4.4 2.9 3.1

Sept. 1.1 4.5 2.3 4.6 2.7 3.1

Oct. - 4.2 - 4.8 - 3.0

Nov. - 3.6 - 4.8 - 3.1

Dec. - 3.4 - 4.8 - 3.1

fooD anD non-alcoHolic

Beverages

alcoHolic Beverages anD

toBacco

clotHing anD footWear

2013 2012 2013 2012 2013 2012

Jan. 2.3 3.3 17.3 5.6 4.9 3.9

Feb. 2.9 1.4 29.0 4.7 4.9 3.7

March 2.8 1.4 31.5 4.3 4.9 3.6

April 2.2 1.8 31.4 5.1 4.2 4.6

May 2.4 1.8 31.1 5.2 3.5 5.2

June 2.3 2.1 31.2 4.8 3.3 5.2

July 2.4 2.3 31.1 4.9 3.1 5.0

Aug. 1.9 3.4 31.0 4.8 3.0 5.2

Sept. 2.5 3.7 31.2 4.8 2.9 5.0

Oct. - 2.5 - 4.8 - 5.0

Nov. - 2.1 - 5.0 - 5.0

Dec. - 2.3 - 5.1 - 4.9

transport communication recreation anD culture

2013 2012 2013 2012 2013 2012

Jan. 1.4 5.5 0.3 -0.2 2.0 2.5

Feb. 1.4 3.9 0.4 -0.1 2.2 2.6

March 0.8 3.4 0.5 -0.2 2.3 2.2

April -0.6 3.3 0.3 0.0 1.8 2.6

May -0.4 2.3 0.1 0.1 1.7 2.8

June 0.7 1.5 0.1 0.1 2.7 2.4

July 1.6 0.9 0.1 0.2 2.5 2.6

Aug. 1.0 1.5 0.1 0.2 2.5 2.8

Sept. 0.6 1.7 0.0 0.3 2.5 2.7

Oct. - 1.9 - 0.3 - 2.6

Nov. - 1.5 - 0.4 - 2.6

Dec. - 1.7 - 0.4 - 2.6

eDucationrestaurants anD

miscellaneous gooDs anD services

2013 2012 2013 2012

Jan. 4.4 5.0 2.8 3.5

Feb. 4.4 4.8 2.8 3.0

March 4.4 4.8 2.9 2.9

April 4.4 4.8 2.7 3.3

May 4.4 4.7 2.3 3.4

June 4.5 4.8 2.1 3.4

July 4.8 4.4 2.0 3.5

Aug. 4.8 4.4 2.2 3.3

Sept. 4.7 4.4 2.2 3.2

Oct. - 4.4 - 3.2

Nov. - 4.4 - 3.2

Dec. - 4.4 - 3.2

pHilippines metro manila outsiDe mm

2013 2012 2013 2012 2013 2012

Jan. 3.0 4.0 2.4 3.5 3.3 4.0

Feb. 3.4 2.7 2.3 2.3 3.8 2.8

March 3.2 2.6 1.9 2.7 3.6 2.6

April 2.6 3.0 1.7 2.5 2.8 3.2

May 2.6 2.9 1.9 2.2 2.9 3.1

June 2.8 2.8 1.6 2.2 3.0 3.0

July 2.5 3.1 1.0 3.1 3.0 3.1

Aug. 2.1 3.8 -1.0 4.5 2.7 3.6

Sept. 2.7 3.6 1.1 3.5 3.1 3.7

Oct. - 3.1 - 2.9 - 3.3

Nov. - 2.8 - 2.6 - 2.9

Dec. - 2.9 - 2.8 - 2.9

peso remains at p44:$1 level in septemBer

The peso-to-dollar exchange rate averaged P43.832:$1 in September. The exchange rate has remained on the upper P43:$1 level for the 3rd straight month, with the United States’ Federal Reserves expected to taper its stimulus program within the year. According to the Bank of the Philippines’ lead economist Emilio Neri Jr., the peso won’t go below the P41:$1 level for the remainder of 2013 as “hot money” inflows will be affected negatively by the U.S. Fed’s tapering. The strongest close for the peso was recorded at P43.07:$1 on Sept. 23, which was a 3-month high, after the U.S. posted less-than-expected employment data.

25ECONOMIC INDICATORS


Bsp reference rates Peso equivalent per unit of foreign currency as of Sept. 02, 2013

91-Day t-Bill rate at 0.866% in septemBer

The rate for the bellwether 91-day Treasury bill (t-bill) rose 27.7 basis points to 0.866%. The 182-day t-bill rate was at 0.92%, up 2.3 basis points while the rate for the 364-day bills also rose to 0.955%, up by 2.2 basis points. Rates across the board spiked up as the expected stimulus tapering in the United States caused bidders to seek higher rates. The bellwether t-bill rate could have gone as high as 1.127% if the government did not reject a significant amount of bid. Total amount of bids for the 91-day t-bill amounted to P7.27 billion, but the government accepted only P1.65 billion. Bids for the 182-day t-bill reached P12.3 billion with P6 billion worth of bids accepted, while the 364-day t-bill’s tenders amounted to P18.32 billion and only P10 billion accepted.

septemBer inflation up 2.1%

Inflation picked up from 2.1% last month to 2.7% in September, mainly due to higher food and non-alcoholic beverages index which increased by 2.5% from 1.8% last month. Other indices which posted faster growth were alcoholic beverages and tobacco (31.2% from 31%); housing, water, electricity, gas and other fuels (1.1% from -0.3%), and; health (2.7% from 2.6%). The rest of the commodity groups either have slower annual growth or retained their previous month’s annual rate. The Bangko Sentral ng Pilipinas or BSP (central bank) said that inflation will be manageable and, notwithstanding any unforeseen developments, the current policy setting continue to be appropriate. The year-on-year inflation rate in NCR rose to 1.1% in September from -0.1% last month. Meanwhile, annual inflation in Areas Outside NCR rose to 3.1% in September from 2.7% in August.

gross intlreserves

(us$B)

peso-DollareXcHange rate

perioD ave.

treasury Bill rate91-Day, Wair in percent(us$B)

2013 2012 2013 2012 2013 2012

Jan. 85.27 77.36 40.73 43.62 0.05 1.55

Feb. 83.62 77.77 40.67 42.66 0.05 1.86

March 83.95 76.13 40.71 42.86 0.08 2.27

April 83.21 76.54 41.14 42.70 0.04 2.33

May 81.97 76.08 41.30 42.85 0.22 -

June 81.26 76.13 42.91 42.78 0.90 -

July 83.17 79.76 43.36 41.91 0.67 1.90

Aug. 83.20 80.73 43.86 42.05 0.59 1.47

Sept. - 82.03 43.83 41.75 0.87 1.00

Oct. - 81.75 - 41.45 - 0.59

Nov. - 83.93 - 41.12 - 0.18

Dec. - 83.83 - 41.01 - 0.20

-50

-48

-46

-44

-42

-40

Php: US$ EXCHANGE RATE

ave. montH agoave.

%cHange

Australian dollar 39.70 38.99 1.8

Bahrain dinar 118.31 115.44 2.5

Brunei dollar 34.83 34.11 2.1

Canadian dollar 42.33 42.36 (0.1)

E.M.U. euro 58.95 57.89 1.8

Hong Kong dollar 5.75 5.61 2.5

Indonesian rupiah 0.0041 0.0042 (2.4)

Japanese yen 0.45 0.44 2.3

Kuwaiti dinar unquoted unquoted unquoted

Saudi Arabian rial 11.89 11.60 2.5

Singaporean dollar 34.96 34.24 2.1

Swiss franc 47.92 46.99 2.0

Thai baht 1.38 1.39 (0.7)

UAE dirham 12.14 11.85 2.4

UK pound 69.08 66.19 4.4

US dollar 44.60 43.52 2.5

0

0.5

1

1.5

2

2.5

3

3.5

4

91-DAY T-BILL RATE

40

60

80

100

GROSS INT’L RESERVES



2013 2012 groWtH rate

CURReNT ACCOUNT 5,623 2,669 110.7

GOOdS ANd SeRvICeS (3,283) (5,796) -43.4

Export 33,330 31,827 4.7

Import 36,613 37,623 -2.7

Goods (5,178) (7,483) -30.8

Credit: exports 23,990 23,031 4.2

Debit : Imports 29,168 30,514 -4.4

Services 1,896 1,687 12.4

Credit: exports 9,339 8,796 6.2

Debit : Imports 7,443 7,109 4.7

Income (624) (603) 3.5

Credit: Receipts 3,885 3,810 2.0

Debit : Disbursments 4,509 4,413 2.2

Current Transfers 9,531 9,068 5.1

Credit: Receipts 9,831 9,321 5.5

Debit : Disbursments 300 253 18.6

CAPITAL ANd FINANCIAL ACCOUNT (757) (238) 218.1

Capital Account 46 55 -16.4

Credit: Receipts 57 61 -6.6

Debit : Disbursments 11 6 83.3

Financial Account (803) (4,099) -80.4

Direct Investment (1,417) (818) 73.2

Debit: Assets, Residents Investment abroad 772 1,155 -33.2

Credit : Liabilities, Non-residents Investment in the Phil 2,189 1,973 10.9

Portfolio Investment (2,090) (1,611) 29.7

Debit: Assets, Residents Investment abroad (681) 736 -192.5

Credit : Liabilities, Non-residents Investment in the Phil 1,409 2,347 -40.0

Other Investment 2,681 (1,612) -266.3

Debit: Assets, Residents Investment abroad 1,278 (2,216) -157.7

Credit : Liabilities, Non-residents Investment in the Phil (1,403) (604) 132.3

net unclassifieD items (3,896) (5,507) -29.3

overall Bop position 2,576 1,316 95.7

AVERAGE 2 WEEKS AGO

Peso Deposit Rates ( September 23 - 27, 2013 )

Saving Deposits 0.00 0.00

Time Deposits

below 1 year 1.05 1.18

1 - 2 years 1.93 1.48

Over 2 years 0.93 0.85

Dollar Deposit Rates (September 23 - 27, 2013)

Saving Deposits 0.24 0.23

Time Deposits

60 days and below 0.64 0.63

61-90 Days 0.76 0.74

91-180 Days 0.90 0.90

181 days and above 1.02 1.04

Bank Lending Rates (September 23 - 27, 2013)

All Maturities 3.87 3.97

High 6.83 6.92

Low 4.48 4.49

Treasury Bill Primary Rates ( September 02, 2013 )

91 days 0.866 N.I.

182 days 0.920 N.I.

364 days 0.955 N.I.

Money Market Rates (September 23 - 27, 2013)

Promissory Note 1.87 1.76

Commercial Papers w/o recourse 3.59 3.27

Manila Reference Rates (September 23 - 27, 2013)

MRR 60 1.50 1.44

MRR 90 2.38 1.75

MRR 180 2.13 2.50

government fiscal performance January - may 2013

total eXternal DeBt January - marcH 2013

selecteD interest rates Balance of payments

JANUARY - JUNE 2013 (in US$ million)

Source : BSP Key statistical Indicator

Data(in pm)

year-ago(in pm)

groWtHrate (%)

By type of Debt 59,046 60,337 -2.1%

Medium and Long-term 49,260 51,855 -5.0%

Short-Term 9,786 8,483 15.4%

By Borrower 59,046 60,337 -2.1%

Banking System 11,982 10,537 13.7%

Public Sector 38,344 40,385 -5.1%

Private Sector 8,719 9,415 -7.4%

By institutional creditor 59,046 60,337 -2.1%

Banks & Other Financial Institutions 10,245 8,963 14.3%

Suppliers 2,945 3,296 -10.6%

Multilateral 10,984 11,698 -6.1%

IBRD 3,296 3,343 -1.4%

IMF 0 0

ADB 5,592 6,065 -7.8%

Bilateral 12,615 13,717 -8.0%

Bondholders/Noteholders 21,292 21,859 -2.6%

Others 965 804 20.0%

Data(in pm)

year-ago(in pm)

groWtHrate (%)

I. Revenues 708,375 645,645 9.7%

Tax Revenues 632,993 565,739 11.9%

Non-Tax Revenues 75,300 79,849 -5.7%

Grants 81 57 42.1%

II. Expenditures 751,213 668,431 12.4%

III. Surplus/deficit -42,839 -22,789 -88.0%

IV. Financing 56,702 171,645 -67.0%

Domestic Financing 109,365 101,401 -7.9%

Foreign Financing -52,663 70,244 -175.0%

v. Change-in-Cash -142,095 149,938 194.8%

-1200

-200

800

1800

2800

3800

BALANCE OF PAYMENTS

-500

0

500

1000

1500

2000

CURRENT ACCOUNT

27ECONOMIC INDICATORS


eXports imports surplus/(Deficit)

2013 2012 2013 2012 2013 2012

Jan. 4,011 4,123 4,725 5,134 (716) (1,010)

Feb. 3,741 4,430 4,708 4,996 (967) (566)

March 4,329 4,323 4,922 5,371 (593) (1,048)

April 4,121 4,635 5,141 4,773 (1,100) (138)

May 4,893 4,932 5,258 5,386 (367) (454)

June 4,490 4,314 4,860 5,089 (370) (775)

July 4,836 4,727 5,486 4,963 (649) (236)

Aug. 3,798 5,057 (1,260)

Sept. 4,784 5,266 (482)

Oct. 4,408 5,240 (832)

Nov. 3,550 5,139 (1,589)

Dec. - 3,970 5,300 (1,331)

mercHanDise Balance of traDe (in US$ million)

2013 2012 groWtH rate%

Total Agro-Based Products 2,518 2,136 17.9

Coconut Products 918 853 7.7

Sugar and Products 182 106 71.6

Fruit and Vegetables 869 682 27.4

Fish, Fresh or Preserved of which: shrimps and prawn 270 265 2.0

Forest Products 64 28 125.8

Mineral Products 1,985 1,305 52.1

Copper Metal 401 174 130.5

Petroleum Products 538 212 153.6

Manufactures 24,700 27,065 (8.7)

Electronic Products 11,969 14,093 (15.1)

Garments 908 1,074 (15.4)

Textile Yarns / Fabrics 101 106 (4.9)

Furniture & Fixtures 129 108 19.7

Chemicals 1,518 1,268 19.7

Machinery & Transport Equipment 2,764 3,461 (20.1)

Iron and Steel 116 159 (26.6)

TOTAL eXPORTS 30,422 31,487 (3.4)

mercHanDise eXports Jan-July 2013 us$ mn

Jan-July traDe amounts to $66Bn

Total merchandise trade for January to July 2013 was at $65.52 billion, down by 2.67% compared to the same period last year. Trade performance has recorded negative growth rates for 7 straight months, but a positive growth at least for the end of the year is possible given that the month-to-month growth rate deficit has been steadily decreasing. Total imports posted $35.1 billion in payments, down by 1.62% from the same period last year. Total exports meanwhile was at $30.4 billion in revenues, down by 3.38% from the same period last year.

For July alone, total trade amounted to $10.32 billion. Aggregate export revenues registered $4.84 billion (up by 2.3% compared to July last year), while total import payments for the months posted $ 5.49 billion (up by 8.7% compared to July last year). The top 3 exports for the month were: Electronic Products, with total receipts of $1.89 billion (accounting for 39.1% of the total exports revenue); Machinery and Transport Equipment, $516.46 million (10.7% share), and; Other Manufacturers, with $285.25 million (5.9% share). Meanwhile, the top 3 imports were: Electronic Products, with total payments of $1.63 billion (29.7% share of the aggregate import bill); Mineral Fuels, Lubricants and Related Materials, $1.03 billion (18.8% share), and; Transport Equipment, $389.98 million (7.1% share).

mercHanDise imports Jan - July 2013 in US$ million 2013 2012 % cHange

CAPITAL GOOdS 9,259 10,103 (8.3)

Telecom eqpmt & elec's eqpmt 4,225 4,871 (13.3)

Power generating & spec'd eqpmt 2,260 2,179 3.7

Office and edP machine 878 1,215 (27.8)

Transport 745 731 1.9

Others 296 339 (12.7)

RAW MATeRIALS & INTeR. GOOdS 13,288 12,833 3.5

Semi-processed raw materials 11,747 11,520 2.0

Unprocessed raw materials 1,541 1,313 17.3

MINeRALS, FUeLS & LUBRICANTS 7,733 8,221 (5.9)

Crude petroleum 3,682 4,455 (17.4)

Others 3,622 3,339 8.5

CONSUMeR GOOdS 4,527 4,306 5.1

Non-durable 2,339 2,312 1.2

Durable 2,188 1,995 9.7

SPeCIAL TRANSACTION 293 370 (20.8)

TOTAL IMPORTS 35,101 35,833 (2.0)

3000

4000

5000

6000

FOREIGN TRADE

EXPORT IMPORT



Data year-ago level

year-on-year groWtH

GROSS NATIONAL INCOMe

(at constant prices) 2,025.2 1,896.9 6.8%

(at current prices) 3,398.8 3,150.7 7.9%

GROSS dOMeSTIC PROdUCT

(at constant prices) 1,714.9 1,594.7 7.5%

(at current prices) 2,846.4 2,623.2 8.5%

GNP (at constant prices) by Expenditure Shares

1. Household Final Consumption Expenditure 1,149.5 1,092.7 5.2%

a. Food and Non-alcoholic beverages 479.0 456.7 4.9%

b. Alcoholic beverages, Tobacco 15.3 16.2 -5.3%

c. Clothing and Footwear 21.3 19.8 7.3%

d. Housing, water, electricity, gas and other fuels 129.8 124.7 4.1%

e. Furnishing, household equipment and routine household maintenance 66.4 66.8 -0.6%

f. Health 26.3 24.6 6.8%

g. Transport 99.2 93.2 6.4%

h. Communication 63.5 60.5 4.9%

i. Recreation and Culture 25.7 23.5 9.4%

j. Education 34 33 5.1%

k. Restaurants and Hotels 44 41 6.7%

l. Miscellaneous goods and services 145 133 8.9%

2. Government Final Consumption Expenditure 224.8 192.1 17.0%

3. Capital Formation 298.7 264.0 13.2%

4. Exports 807.4 863.3 -6.5%

5. Imports 782.4 806.3 -3.0%

GNP (at constant prices) by Industrial Origin

1. Agriculture 161.3 161.9 -0.3%

2. Industry Sector 561.2 508.8 10.3%

a. Mning & Quarrying 26.5 27.3 -2.7%

b. Manufacturing 373.3 338.5 10.3%

c. Construction 102.9 87.6 17.4%

d. Electricity, Gas and Water 58.5 55.5 5.5%

3. Service Sector 992.3 923.9 7.4%

a. Transport., Comm., Stor 132.8 128.3 3.5%

b. Trade, Repair of Motor Vehicles, Motorcycle & Household Goods 268.4 250.1 7.3%

c. Financial Intermediation 128.0 116.8 9.6%

d. Real Estate, Renting & Business Activities 195.4 178.4 9.5%

e. Public Administration & Defense: Compulsory Social Security 82.4 77.8 5.9%

f. Other Services 185.2 172.4 7.4%

Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2009

percentage DistriBution of total family eXpenDiture national accounts 2nd quarter 2013

laBor anD employment (New definition) 2012 2013

eXpenDiture group 2009 2006

Percent 100.0 100.0

Food 42.6 41.4

Alcoholic Beverages 0.7 0.7

Tobacco 0.8 0.9

Fuel, Light and Water 7.1 7.6

Transportation & Communication 7.7 8.2

Household Operation 2.3 2.3

Personal Care and effects 3.8 3.7

Clothing Footwear & Other Wear 2.2 2.4

Education 4.3 4.4

Recreation 0.4 0.5

Medical Care 2.9 2.9

Non-Durable Furnishing 0.2 0.2

Durable Furniture and Equipment 2.7 2.7

Rent/Rental value of dwelling Unit 12.8 12.7

House Maintenance and Minor Repairs 0.6 0.6

Taxes Paid 2.0 1.6

Special Family Occasions 2.7 2.8

Gifts and Contributions to others 1.4 1.4

Other expenditure (inc.value Consumed, Lossess 2.9 3.0

total family eXpenDitures (in billion pesos) 3,239 2,561

apr Jul oct Jan apr Jul

Total labor force (000) 40,659 40,393 40,419 40,820 40,914 41,195

Labor force parcitipation (%) 64.7 64.0 63.9 64.1 63.9 63.9

Employment (%) 93.1 93 93.2 92.9 92.5 92.7

Unemployment (%) 6.9 7 6.8 7.1 7.5 7.3

Underemployment (%) 19.3 22.8 19 20.9 19.2 19.2

6

7

8

9

0

5

10

15

20

25

EMPLOYMENT/UNDER EMPLOYMENT RATES

UNDEREMPLOYMENT UNEMPLOYMENT

0

300

600

900

1200

1500

1800

OFW DEPLOYMENT

philippine regional update


30 philippine regional updatephilippine regional update

NCR – NATIONAL CAPITAL REGION (METRO MANILA)

BCDA sets auction for Taguig propertyThe Bases Conversion and Development Authority (BCDA) is auctioning a 5.2-hectare prime property for commercial development. The property is located along the C-5 Road in Usuan Village, Taguig City. The auction is for a long-term lease for 25 years, renewable for another 25 years, with a bid fl oor of P93 million, inclusive of VAT, paid in advance for the fi rst 3 years. Minimum bid for the 4th year is P53 million based on a gross fl oor area of commercial development of 37,000sqm or lower; in excess of 37,000sqm, bidders should pay an additional lease equivalent to 70% of the average lease per square meter.

CAR – CORDILLERA ADMINISTRATIVE REGION

Revival of Baguio airport being consideredA study coordinated by the Cordillera regional development council (RDC) recommended the revival of the Loakan airport, but only for smaller commercial aircraft servicing Metro Manila, Batanes, Cebu and Davao routes. The existing airport will require minimal improvement for serving the small interisland fl eet of airplanes, except for a slight extension of the runway. The concern, however, is that if the Tarlac-Pangasinan-La Union (TPLEx) is completed, travel time on bus trips from Manila will be reduced further to 3-4 hours (from 5-6 hours presently), encouraging more land travel instead of fl ights to Baguio City. But the RDC study is targeting markets that prefer air travel, such as those coming from Visayas and Mindanao.

Region I – ILOCOS

Ayala’s wind power project implemented Implementation of the Northern Luzon UPC Asia Corp. (NLUPC) 81-megwatt wind power project in Pagudpud, Ilocos Norte started on September 3, the Department of Energy (DOE) reported. It is expected to be operational in early 2015. The project consists of the installation of 27 wind turbines of 3-MW each to be supplied by Siemens Wind Power A/C and Siemens, Inc. NLUC is a joint venture among Ayala Corp.’s AC Energy Holdings, Inc. (ACEHI, 64% equity share), UPC Philippines Wind Holdco I B.V. (32% share) and Philippine Investment Alliance for Infrastructure (PINAI) fund (4%).

Region III – CENTRAL LUZON

Bailey bridge set up at SCTExA bailey bridge is being set up on the Subic-Clark-Tarlac Expressway (SCTEx) as a remedial measure to allow light vehicles to pass through the south Clark section of the road while repair of the collapsed portion of the Pasig-Portero Bridge is being conducted. A bailey bridge is a portable, pre-fabricated truss bridge that can be put up without special tools or heavy equipment. The remedial measure is a joint undertaking of the Bases Conversion Development Authority (BCDA) and the Department of Public Works and Highways (DPWH). Portion of the Pasig-Portero bridge collapsed at the height of a typhoon (local code name: “Maring”) on the 3rd week of August due to heavy fl ooding that carried debris (lahar) from Mt. Pinatubo.

Region IV – SOUTHERN TAGALOG

Region IV-A - CALABARZON

Major fl ood control projects plannedPres. Benigno Aquino III announced government plans for 2 major fl ood control and drainage improvement projects in CALABARZON during his visit to fl ood-stricken Cavite province on 22 August. The projects are a retarding basin in Cavite and a ring dike around Laguna de Bay. The government is presently negotiating the purchase of a 50-hectare property for the retarding basin from fl oodwaters coming from rivers and other waterways in the towns of Imus and Bacoor. The ring dike will be built as a road constituting the “C-6 Extension to Laguna”. It will have 11 pumping stations, 11 bridges and a 4-lane road and is estimated to cost P23 billion. It will be put up as a build-operate-transfer (BOT) project.

31philippine regional update


LRT-1 extension project to be rebidThe Department of Transportation and Communications (DOTC) said it would rebid the P60-billion Light Rail Transit Line 1 Cavite extension project after revising the terms of the auction. Of the 4 groups which initially expressed interest in bidding for the build-operate-transfer (BOT) project, only the consortium of the Ayala Group and Metro Pacifi c Investment Corp. formally submitted a proposal, only to also back out of the bidding after the Ayala Group withdrew from the partnership. The project seeks to construct an 11.7-km extension of the existing 20.7-km LRT 1 system to Baccor, Cavite. Presently, LRT 1 runs from Roosevelt Ave. in Quezon City to Baclaran in Parañaque City.

SLEX extension to Lucena implemented next yearSouth Luzon Tollway Corp. (SLTC) confi rmed that the company will start construction of Toll Road 4 (TR4) in the middle of next year and expects the project to be completed by 2018. TR4 is a 57-kilometer, 4-lane extension of the South Luzon Expressway (SLEX) to Lucena City. It will have 5 sections – Sto. Tomas town to Makban in Batangas (TR4-A); Makban to San Pablo City in Laguna (TR4-B); San Pablo to Tiaong town in Quezon province (TR4-C); Tiaong to Candelaria town, also in Quezon (TR4-D); and, Candelaria to Lucena City (TR4-E) – and 5 exits. The project is estimated to cost P12 billion.

STAR Tollway upgrade updateStar Infrastructure Development Corp. (SIDC) reported that the expansion and upgrade of the Southern Tagalog Arterial Road (STAR) Tollway is proceeding as scheduled and will be completed no later than 1Q15 as expected. The improvement project started in June 2013. It consists of the construction of 2 additional lanes from Lipa City to Batangas City, re-surfacing and asphalt overlay on the road from Sto. Tomas to Batangas City, and installation of fi ber optics, CCTV cameras and a more advanced lighting system. Project cost is estimated at P2.3 billion.

Region VI – WESTERN VISAYAS

Ayala plans more investments in Negros…Jaime Augusto Zobel de Ayala, chairman and CEO of Ayala Corp., said the Ayala Group is interested in bringing in more investments in Negros Occidental, especially in Bacolod City, during his speech at the Bacolod Government Center in late August. Ayala Land Inc. opened the P1-billion The District Mall at Ayala North Point in Talisay last April, and plans a much larger P7-billion, 215-hectare development project that includes a hotel and a clinic also at the Ayala North Point soon.

… as COA approves deal between ALI and Negros Occidental governmentThe Commission on Audit (COA) has approved with fi nality the deed of conditional sale and contract of lease between the provincial government of Negros Occidental and Ayala Land, Inc. (ALI) covering a 7.7-hectare property of the province in Bacolod City. COA threw out the complaint of SM Prime Holdings Inc., (SMPHI) on the province’s declaration that the bidding was a “failure”. SMPHI claimed it had submitted a more superior bid. COA, which the provincial government said has the jurisdiction to resolve the issues arising from the auction of the property, said “SMPHI failed to present valid and categorical arguments suffi cient to overturn the fi nding of the Commission.” COA explained that previous Supreme Court rulings support the actions taken by the Commission. Given the COA ruling, ALI said it would resume talks with the provincial government on its so-called Bacolod Capitol project, “an integrated mixed-use civic and commercial center that will combine the center of government with commercial and residential uses…”

Megaworld raises investment in Iloilo Property developer Megaworld Corp. disclosed that it is raising its investment to P35 billion from P25 billion in the 72-hectare Iloilo Business Park, making the area its single largest project outside of Metro Manila and the largest business and tourism district in Western Visayas. Megaworld also said it will make Iloilo one of the country’s biggest business process outsourcing (BPO) hubs in the country, and will introduce “a unique leisure, commercial and residential development concept” to the Iloilo market. Timeline for the development is 10 years, with the BPO offi ce space project consisting of 100,000 square meters of leasable space completed within the fi rst 3-5 years.

32 philippine regional update


Region VII – CENTRAL VISAYAS

Mactan Island eyed as BPO hubMegaworld Property has announced plans to develop a 20-hectare property on Mactan Island as Cebu’s business process outsourcing hub, to be known as The Mactan Newtown. Some 150,000 square meters of offi ce space will be built within the next 3-5 years for BPO companies. Premier residential communities, upscale hotels, and premium commercial establishments will also rise in The Mactan Newtown. Megaworld has earmarked P20 billion for the Mactan Island property development project.

Region IX – ZAMBOANGA PENINSULA (WESTERN MINDANAO)

Sardine canneries say their losses reached P1BThe Sardine Canneries Association of the Philippines said their industry lost at least P1 billion in September due to the shutdown in operations resulting from the confl ict between the government and the Muslim rebels belonging to the Moro National Liberation Front (MNLF) in Zamboanga City. The group estimated that they incur sales opportunity losses of P33 million for each day their operations are shut down. The confl ict started on September 9 when about 100 armed MNLF members occupied 3 villages in Zamboanga City, engaged government troops in a shootout, and held a number of villagers hostage.

Region X – NORTHERN MINDANAO

SM to build 2nd shopping mall in CDOSM Prime Holdings, Inc. revealed that it is building a 2nd shopping mall in Cagayan de Oro City to be located in the downtown area. SM offi cials did not disclose details, except that construction is expected to start after the completion of its shopping mall project in Butuan City in 2014. SM presently has 4 shopping malls in Mindanao: SM Davao City (2011); SM Lanang Premier, also in Davo City (2012); SM City Cagayan de Oro (2002); and SM City General Santos (2012).

Region XII – SOCCSKSARGEN (CENTRAL MINDANAO)

Mindanao coal plant to operate in 2015Sarangani Energy Corp. reported that it is on track to complete the 1st 105-megawatt plant of its 210-MW coal-fi red power project in Maasim, Sarangani by 3Q15. Sarangani Energy Corp. is a subsidiary of publicly-listed local holding company Alsons Consolidated Resources Inc. Project cost is estimated at P13 billion. Construction started in June 2012, with South Korea’s Daelim Industrial as turnkey contractor and the steam generator being built by Fuji Electric Co. of Japan.

Tribal council endorses Tampakan mine FTAAThe South Cotabato Provincial Tribal Council (PTC) has endorsed the formal appeal to Pres. Benigno Aquino III of the B’laan indigenous people for the approval of the fi nancial and technical assistance agreement (FTAA) for the $5.9-billion Tampakan Copper-Gold Project (TCGP). The Tribal Council offi cials expressed sadness over the loss of livelihood resulting from the recent scale-down of the Sagittarius Mines, Inc. operations in South Cotabato. They fear that SMI might discontinue the mining project, adversely impacting on the lives of the indigenous cultural communities, if the government does not give its full support to the Tampakan project.

Region XIII – CARAGA

Mine waste processing facility opensMine waste processing facility of THAL Nickel Corp. in Surigao del Norte started operations in September. The plant will process mine wastes of Taganito Mining Corp., bought at $15-20 per metric ton, into nickel sulfi de and cobalt sulfi de for further refi ning in Japan. The facility has a minimum processing capacity of 5 million metric tons per year. THPAL is partly owned by Sumitomo Metal Mining Co. Ltd. (70%) and Nickel Asia Corp. of the Zamora Group (22%).

33philippine regional update


RATE OF INFLATION FOR ALL INCOME HOUSEHOLDS IN THE PHILIPPINES BY REGION (2000 = 100)

2012 2013

REGIONS SEPT OCT NOV DEC AVE. JAN FEB MAR APR MAY JUNE JULY AUG SEPT

PHILIPPINES 3.6 3.1 2.8 2 .9 3.17 3.0 3.4 3.3 2.6 2.6 2.8 2.5 2.1 2.7

METRO MANILA 3.5 2.9 2.6 2.8 2.97 2.4 2.3 1.9 1.7 1.9 1.6 1.0 -0.1 1.1

AOMM 3.7 3.3 2.9 2.9 3.20 3.3 3.8 3.6 2.8 2.9 3.0 2.9 2.7 3.1

CAR 5.2 4.7 4.4 4.3 4.22 4.5 4.7 4.5 4.0 3.7 3.3 3.1 2.2 2.1

I Ilocos 2.7 1.8 1.1 0.7 1.65 1.3 2.0 1.8 1.5 2.0 2.5 2.7 2.1 1.9

II Cagayan Valley 4.2 2.7 2.2 2.2 2.74 2.8 2.9 2.9 3.0 3.4 3.7 3.8 3.2 3.1

III Central Luzon 3.7 2.6 2.2 2.6 3.23 3.3 3.7 3.1 1.6 1.7 2.6 2.5 2.0 1.9

IV-A Southern Tagalog 2.8 2.4 1.9 1.8 2.51 2.1 2.3 2.6 2.2 2.4 2.5 2.3 1.9 2.8

IV-B Southern Tagalog 3.8 3.7 3.7 3.6 3.60 3.4 3.7 3.0 2.1 2.1 1.6 1.9 1.9 2.5

V Bicol 3.6 3.1 2.1 2.0 2.79 3.1 3.4 3.7 3.0 3.3 3.5 2.9 2.3 3.4

VI Western Visayas 4.4 4.5 4.3 4.0 4.35 4.7 4.7 4.6 4.0 3.5 3.1 3.3 3.1 3.3

VII Central Visayas 7.4 7.2 7.1 6.9 6.34 6.9 7.4 7.2 5.2 4.6 3.6 3.8 3.7 3.3

VIII Eastern Visayas 3.2 3.3 3.4 3.4 2.91 3.5 4.0 3.7 3.2 3.4 4.0 3.7 3.7 4.8

IX Western Mindanao 3.1 3.1 2.7 2.9 2.57 3.6 4.2 3.6 3.9 3.7 4.0 4.2 3.9 4.4

X Northern Mindanao 4.4 4.3 4.2 3.9 4.11 3.8 4.6 4.3 3.8 4.3 4.3 4.3 4.5 5.1

XI Southern Mindanao 1.8 2.3 2.6 3.0 2.10 2.7 3.1 3.1 3.0 3.0 3.2 3.4 3.4 3.4

XII Central Mindanao 2.8 2.7 2.8 2.6 2.63 3.0 3.6 3.5 3.1 2.6 2.8 3.1 3.8 4.4

ARMM 4.9 5.0 4.6 4.6 4.51 4.5 4.9 4.6 3.3 3.1 2.9 2.9 3.0 3.6

CARAGA 2.0 1.9 2.0 2.4 2.21 2.3 3.15 2.8 3.0 3.3 3.8 3.5 3.5 3.5

REGIONAL ECONOMY

REGION GRDP(PM at current prices)

REAL GRDPGrowth Rate POPULATION ('000) LANDAREA

(sq km) PERSONS/sq km GRDP/CAPITA (P)

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Philippines 9,735,521 9,003,480 3.9 7.6 94,185 92,604 300,000 314 309 103,366 97,226

Metro Manila 3,479,905 3,236,353 3.5 7.6 12,080 11,888 619 19,515 19,205 288,072 272,237

Cordillera Administrative 210,079 197,994 2.1 6.3 1,646 1,621 19611 84 83 127,630 122,143

Ilocos Region 293,918 274,103 3.0 7.1 4,812 4,758 12974 371 367 61,080 57,609

Cagayan Valley 167,492 150,038 5.4 -1.1 3,278 3,236 28265 116 114 51,096 46,365

Central Luzon 882,806 788,898 7.5 10.7 10,363 10,170 22014 471 462 85,188 77,571

Calabarzon 1,644,843 1,557,069 2.6 11.1 12,994 12,665 16644 781 761 126,585 122,943

Mimaropa 176,176 162,002 -2.5 1.1 2,797 2,752 29620 94 93 62,987 58,867

Bicol Region 206,619 191,534 2.6 5.2 5,506 5,433 18139 304 300 37,526 35,254

Western Visayas 395,417 359,703 5.5 3.7 7,206 7,118 20794 347 342 54,873 50,534

Central Visayas 601,880 538,646 7.9 12.5 6,928 6,819 15885 436 429 86,876 78,992

Eastern Visayas 242,594 228,815 1.8 2.0 4,159 4,110 23253 179 177 58,330 55,673

Zamboanga Peninsula 200,883 187,255 0.1 3.6 3,475 3,417 17046 204 200 57,808 54,801

Northern Mindanao 367,100 340,457 2.5 6.9 4,390 4,311 20496 214 210 83,622 78,974

Davao 408,450 372,074 4.1 5.0 4,561 4,482 20357 224 220 89,553 83,015

Socksacksargen 261,548 237,814 4.0 2.0 4,213 4,125 22436 188 184 62,081 57,652

Autonomous Region of Muslim Mindanao 86,048 81,688 9.6 7.4 2,468 2,435 33511 74 73 34,865 33,548

CARAGA 109,765 99,037 -1.0 2.3 3,309 3,264 21412 155 152 33,172 30,342



EMPLOYMENT RATE BY REGION (IN%)

(New Defi nition) 2011 2012 2013

JULY OCTOBER JANUARY APRIL JULY OCTOBER JANUARY APRIL JULY

PHILIPPINES 92.9 93.6 92.8 93.1 93 93.2 92.9 92.5 92.7

Metro Manila 89.1 89.6 87.8 89.6 90.1 89 90.5 89.6 89.1

Cordillera CAR 95.3 95.2 94.4 94.3 95.1 94.1 94.6 95.9 94.9

1-Ilocos Region 92.1 93.4 91.1 92 91.4 92.6 92.4 90.6 91.5

2-Cagayan Valley 97.6 97.2 97.6 97.2 96.8 97.6 96.7 97.1 96.3

3-Central Luzon 90.4 91.7 90.3 92 90.8 90.7 90.9 91.1 91

4A-Calabarzon 89.6 91.0 91.5 91.2 90.6 90.8 91.1 89.4 90.9

4B-Mimaropa 96.2 96.5 96.6 95.3 95.9 95.7 95.9 95.8 96.1

5-Bicol Region 94.6 94.7 93.2 93.1 94.4 95.1 94.2 92.2 93.7

6-Western Visayas 94.0 93.6 93.7 93 93.6 93.5 94 92 92.5

7-Central Visayas 93.7 93.9 92.5 92.8 92.9 93.5 92.6 93.6 93.5

8-Eastern Visayas 95.3 96.0 94 95 95.7 94.9 93.9 95 95

9-Zamboanga Penisula 96.7 96.6 96.6 95.9 95.9 96.6 96.6 95.7 96.9

10-Northern Mindanao 94.8 96.1 95.7 95.8 95.3 94.9 94.4 94.5 93.9

11-DAVAO 94.2 95.4 93.8 93.6 93.6 95.2 93.7 91.7 93.5

12-SOCCSKSARGEN 95.5 96.3 96 95.5 95.6 96 95.2 95.9 94.3

CARAGA 94.1 94.5 93.6 95 93.1 95.7 91.7 93.4 94.5

ARMM 96.3 97.7 97 97.1 95.7 96.5 93 96.7 95.7

UNEMPLOYMENT RATE BY REGION (IN %)

(New Defi nition) 2011 2012 2013

JULY OCTOBER JANUARY APRIL JULY OCTOBER JANUARY APRIL JULY

PHILIPPINES 7.1 6.4 7.2 6.9 7 6.8 7.1 7.5 7.3

Metro Manila 10.9 10.4 12.2 10.4 9.9 11 9.5 10.4 10.9

Cordillera CAR 4.7 4.8 5.6 5.7 4.9 5.9 5.4 4.1 5.1

Ilocos Region 7.9 6.6 8.9 8 8.6 7.4 7.6 9.4 8.5

Cagayan Valley 2.4 2.8 2.4 2.8 3.2 2.4 3.3 2.9 3.7

Central Luzon 9.6 8.3 9.7 8 9.2 9.3 9.1 8.9 9

Calabarzon 10.4 9.0 8.5 8.8 9.4 9.2 8.9 10.6 9.1

Mimaropa 3.8 3.5 3.4 4.7 4.1 4.3 4.1 4.2 3.9

Bicol Region 5.4 5.3 6.8 6.9 5.6 4.9 5.8 7.8 6.3

Western Visayas 6.0 6.4 6.3 7 6.4 6.5 6 8 7.5

Central Visayas 6.3 6.1 7.5 7.2 7.1 6.5 7.4 6.4 6.5

Eastern Visayas 4.7 4.0 6 5 4.3 5.1 6.1 5 5

Zamboanga Penisula 3.3 3.4 3.4 4.1 4.1 3.4 3.4 4.3 3.1

Northern Mindanao 5.2 3.9 4.3 4.2 4.7 5.1 5.6 5.5 6.1

DAVAO 5.8 4.6 6.2 6.4 6.4 4.8 6.3 8.3 6.5

SOCCSKSARGEN 4.5 3.7 4 4.5 4.4 4 4.8 4.1 5.7

CARAGA 5.9 5.5 6.4 5 6.9 4.3 8.3 6.6 5.5

ARMM 3.7 2.3 3 2.9 4.3 3.5 7 3.3 4.3



FLOOR AREA OF PRIVATE BUILDING CONSTRUCTION (IN ‘000 SQM)

2013

2Q 3Q 4Q TOTAL GROWTH YR-TO-DATE 1Q 2Q TOTAL GROWTH

YR-TO-DATE

Philippines 6,094,589 6,374,133 6,518,687 18,987,409 341.3 4,792,067 5,655,573 10,447,640 92.9

Metro Manila 1,692,352 2,220,055 2,745,634 6,658,041 300.1 1,607,382 1,851,176 3,458,558 140.5

Cordillera CAR 72,376 53,764 77,103 203,243 438.5 61,012 193,078 254,090 64.3

1-Ilocos Region 219,420 163,951 179,238 562,609 225.7 230,328 218,821 449,149 112.5

2-Cagayan Valley 71,788 91,550 181,557 344,895 479.1 56,125 60,374 116,499 49.4

3-Central Luzon 654,684 568,530 591,432 1,814,646 379.5 477,040 560,193 1,037,233 22.7

4A-Calabarzon 1,274,447 960,896 1,084,594 3,319,937 363.2 948,425 1,074,796 2,023,221 108.1

4B-Mimaropa 75,873 59,815 59,554 195,242 186.0 50,737 87,322 138,059 75.1

5-Bicol Region 100,633 115,018 153,535 369,186 422.8 88,156 155,177 243,333 82.8

6-Western Visayas 174,650 256,170 127,378 558,198 276.0 205,742 237,304 443,046 231.8

7-Central Visayas 764,133 945,950 432,231 2,142,314 441.5 298,615 537,615 836,230 72.8

8-Eastern Visayas 83,379 114,837 81,598 279,814 276.7 73,424 82,161 155,585 38.7

9-Zamboanga Penisula 71,623 109,969 64,542 246,134 611.3 106,823 67,978 174,801 129.0

10-Northern Mindanao 218,426 169,804 197,343 585,573 349.8 104,994 125,376 230,370 22.4

11-DAVAO 298,327 371,350 192,293 861,970 265.7 333,456 216,125 549,581 99.5

12- SOCCSKSARGEN 120,151 94,233 152,298 366,682 388.6 71,537 126,598 198,135 123.6

CARAGA 75,197 77,079 94,221 246,497 428.0 75,496 59,427 134,923 97.8

ARMM 521 1,162 7,789 9,472 608.5 2,775 2,052 4,827 46.1

VALUE OF PRIVATE BUILDING CONSTRUCTION (IN ‘000)

2013

2Q 3Q 4Q TOTAL GROWTH YR-TO-DATE 1Q 2Q TOTAL GROWTH

YR-TO-DATE

Philippines 60,922,598 64,317,143 66,994,382 241,391,540 357.4 58,650,381 66,395,194 125,045,575 154.4

Metro Manila 19,418,031 29,650,227 35,225,565 101,131,001 302.2 22,294,383 25,584,996 47,879,379 184.4

Cordillera CAR 986,179 591,895 770,179 3,684,848 543.9 634,837 1,698,666 2,333,503 74.6

1-Ilocos Region 1,780,078 1,446,330 1,525,908 6,447,972 257.6 1,923,479 1,828,485 3,751,964 121.3

2-Cagayan Valley 554,007 731,969 1,812,563 3,700,023 586.0 456,868 462,116 918,984 52.8

3-Central Luzon 5,655,195 4,063,846 5,388,836 21,475,575 404.5 4,052,246 4,330,087 8,382,333 31.6

4A-Calabarzon 13,198,025 8,473,267 8,095,093 37,882,398 424.2 8,281,225 16,079,432 24,360,657 200.2

4B-Mimaropa 631,966 552,117 422,656 2,171,202 225.1 348,249 1,566,460 1,914,709 239.2

5-Bicol Region 748,521 736,152 995,157 3,403,658 274.3 692,416 1,066,486 1,758,902 90.4

6-Western Visayas 3,116,319 2,266,614 2,042,793 9,185,894 252.7 1,942,943 2,349,127 4,292,070 143.8

7-Central Visayas 6,227,128 7,720,937 3,938,162 21,802,528 553.7 2,638,087 5,188,035 7,826,122 99.8

8-Eastern Visayas 872,433 873,368 633,500 3,918,937 289.9 663,863 652,514 1,316,377 (14.5)

9-Zamboanga Penisula 516,393 764,604 674,686 2,413,731 973.9 1,457,917 501,789 1,959,706 327.8

10-Northern Mindanao 2,031,184 1,559,918 1,673,443 6,630,508 419.9 690,105 1,035,881 1,725,986 26.4

11-DAVAO 3,993,836 3,769,290 2,522,834 12,922,864 470.2 11,447,281 2,456,851 13,904,132 427.3

12-SOCCSKSARGEN 714,124 651,021 765,278 2,703,320 335.3 439,251 1,172,517 1,611,768 181.3

CARAGA 477,405 460,570 481,050 1,871,140 507.0 675,619 409,168 1,084,787 139.9

ARMM 1,774 5,018 26,679 45,941 356.5 11,612 12,584 24,196 94.0

BUSINESS


37BUBUBUBUSISISISINENENENESSSSSSSSBUSINESS

PH auto industry roadmap a must amidst ASEAN integration, growing marketAutomotive businesses in the country are calling for the government to come up with an auto industry roadmap before the Association of the Southeast Asian Nation (ASEAN) economic integration in 2015. The Philippines is in need of an industry roadmap to catch up with more competitive ASEAN countries, especially that the ASEAN cluster is projected to become the 5th largest automotive market in the world by 2019.

An automotive industry roadmap will be the main basis of investment-making decisions in the country and can help put the Philippines in the auto manufacturing

map of the ASEAN. According to the Japanese Chamber of Commerce and Industry of the Philippines (JCCIP), there is a very good opportunity to expand the car business in the country because of the upcoming ASEAN Economic Community (AEC) in 2015 where there will be a freer fl ow of goods, services and workforce across the ASEAN nations. The JCCIP called for the government to extend the needed incentives as determined in a roadmap to revitalize a lackluster local automotive industry which is currently trailing behind other ASEAN countries.

The auto and motorcycle assembly businesses are actually among the 7 industries that will enjoy government support under the draft roadmap by the Aquino administration in an effort to revive Philippine manufacturing. The roadmap will recommend measures that should be taken in the short-run (from 2014-2017), and those needed for the medium term (from 2018-2021). The Department of Trade and Industry (DTI) was supposed to release a roadmap for the auto business within the 2nd quarter of the year but has delayed it until the 4th quarter,

citing the need to consult with other government agencies on the fi scal and non-fi scal measures included in the roadmap.

Trade secretary Gregory Domingo said that the government, under the industry roadmap, will provide incentives to car manufacturers based on their production and export volumes. These incentives will keep the sector more competitive in time for the AEC in 2015. However, DTI stated that any incentive for the auto industry should be within the domain of the fi scal incentives

The auto and motorcycle assembly businesses is among the 7 industries that will enjoy government support under the draft roadmap by the Aquino administration.

38 BUSINESS


reform bill, which seeks to remove foregone revenues for the government by removing redundant tax and duty-privileges for the private sector. The bill also limits the grant of incentives to registered export enterprises, strategic activities and micro and small enterprises (MSEs) for a period of not exceeding 25 years.

The presence of well-established automotive regulatory schemes in ASEAN countries such as Thailand and Indonesia, makes them leaders of the industry among ASEAN member countries. In a study of market research fi rm Frost & Sullivan, Thailand and Indonesia will top the ASEAN automotive market by 2019, during this period the market will grow at an annual rate of 5.8% to reach 4.71 million vehicles produced to become the 5th largest market in the world.

Indonesia is expected to be the largest market with 2.3 million vehicles demanded, while Thailand will continue to be the main producer of vehicles. According to Frost & Sullivan, Indonesia’s automotive market is supported by increased investments in the automotive sector and the introduction of automotive regulations supporting market growth, while Thailand is backed up by signifi cant expansion in capacity and availability of a skilled labor force with a well-developed automotive component industry.

The Philippines cannot take advantage of the expected boom in the auto industry and the AEC 2015 without an effective roadmap. Currently the Philippines lags behind ASEAN countries in terms of both sales and production of motor vehicles. As of July, it sold a total of 102,913 units compared to Thailand which sold 839,053 units and Indonesia with 714,400. In terms of vehicle production, the Philippines was also at the bottom of the list of 5 ASEAN countries with only 43,233 units (see table).

The local automotive sector is expecting a boost in sales in the 2nd semester of the year with total annual sales of 210,000 units, according to the Chamber of Manufacturers of the Philippines. The country is also expected to reach the $2,500 income per capita level this year which will allow motorization to kick in. These developments should be complemented by a targeted incentives approach as emphasized in the industry roadmap in order to kickstart the growth of the local automotive industry.

The DTI stated that any incentive for the auto industry should be within the domain of the fi scal incentives reform bill.

COUNTRIESSALES PRODUCTION

JULY 2013 YEAR-TO-DATE (JAN-JULY)

YEAR-ON-YEAR GROWTH (%) JULY 2013 YEAR-TO-DATE

(JAN-JULY)YEAR-ON-YEAR GROWTH (%)

Brunei 1,819 11,046 -0.3 --- --- ---

Indonesia 112,184 714,400 12 106,116 692,666 11.3

Malaysia 68,431 381,919 5.9 54,792 348,303 3.7

Philippines 15,686 102,913 17.8 8,151 43,233 -3

Singapore 2,888 19,590 -14.6 --- --- ---

Thailand 98,258 839,053 13.6 201,481 1,542,440 20.8

Vietnam 8,209 53,302 25.6 7,001 48,092 19.6

Source: ASEAN Automotive Federation.

ASEAN MOTOR VEHICLES’ SALES AND PRODUCTION

PH tourist arrivals in the fi rst 7 months up 11.1%

Tourist arrivals reached 2.8 million in the fi rst 7 months of 2013 due to a rapid increase in Chinese visitors. DOT is optimistic that the country will reach its 2013 tourist target of 5.5 million.

Tourist arrivals within the fi rst 7 months of 2013 reached 2.8 million, which is 11.05% higher than the tourist arrivals registered during the same period last year. The Department of Tourism (DOT) is optimistic that the country will achieve the 5.5-million tourist target in 2013. Based on the current trend, 5 million can be achieved at a growth rate of 15.2%, but only if Chinese tourists continue to increase.

The DOT said, “It may be the fi rst time in history that we will be able to hit the 5-million tourist arrival mark.” In 2012, the country failed to reach its 4.8-million target but still managed to cover 90% of the target with 4.3 million tourists. As of July, the country slightly outpaced the growth rate of tourist arrivals last year (see chart), while the trend has become similar to the trend in 2010 when growth surpassed the 16% mark.

Korea continues to be the country’s top source of tourists followed by the U.S. However, the accelerating growth of tourist arrivals is greatly attributed to the rapid increase in

Data source: Department of Tourism

0

2

4

6

8

10

12

14

16

18

20

Growth in Total Tourist Arrivals by Year(in percent)

2010 2011

39BUSINESS


PH tourist arrivals may register a 15.2% growth rate and reach 5Mn tourists in 2013.

TOTAL TOURIST GROWTH RATE AND ARRIVALS BY COUNTRY ORIGIN-JANUARY TO JULY 2013

the volume of Chinese tourists coupled with the increasing entry of tourists from Singapore (see table). This has offset the massive decrease in tourist arrivals from Taiwan (due to the fi shing boat incident) and the slowing entry of Koreans. The DOT is confi dent that the increasing number of Chinese arrivals will be sustained. According to DOT, “China (tourist arrivals) is just growing faster. They have a growing middle class that wants to see beautiful places like the Philippines.”

The DOT added that their efforts to promote the Philippines as an attractive tourism destination are slowly bearing fruit and identifi ed the following markets to have also shown signifi cant gains: Russian Federation (34%) with 20,402 arrivals; Indonesia (27%) with 26,233 arrivals; Saudi Arabia (23%) with 22,034 arrivals; France (20%) with 24,617 arrivals; Thailand (18%) with 28,351 arrivals; and India (17%) with 32,003 arrivals.

As for the slowdown in the entry of Korean tourists, President Benigno Aquino III will visit South Korea on October 17 and 18 to meet with South Korean President Park Geun-hye and discuss how trade and tourism can be improved. In addition, the meeting will touch on political, defense, and development cooperation matters.

In preparation for the ASEAN Integration in 2015, the DOT highlighted the country’s push for greater openness in visa regulations. DOT expects 8 million tourist arrivals and a boost of 5% in the tourism industry by the time the ASEAN Economic Community is formed in 2015.

San Miguel takes over ALECO management

The San Miguel Power Corp., through its subsidiary SMC Global Power Holding Corp (SMC-GPHC)., will be running the Albay Electric Cooperative, Inc. (ALECO) after the private sector participation scheme of management won over the coop-to-coop option in a referendum among member-consumers of ALECO.

Around 5,500 member-consumers voted for the private sector participation (PSP) option as the management scheme to be implemented for ALECO against 3,500 who voted for a coop-to-coop (C2C) scheme in a province-wide referendum held on September 14. Only 8,997 or 9% of the 100,000 ALECO consumers showed up and qualifi ed to vote at the voting precincts. The PSP, which entails the use of private

COUNTRY OF ORIGIN JAN FEB MAR APR MAY JUN JUL TOTAL ARRIVALSKorea 32 26 24 23 23 23 22 706,998

U.S. 4 1 4 3 3 3 3 417,904

China -42 1 2 7 18 32 49 246,967Japan 8 8 9 8 8 7 6 245,817

Australia 21 11 13 12 12 12 11 118,186

Singapore 10 15 15 16 17 18 18 100,334

Taiwan -27 -5 -7 -8 -16 -25 -30 95,545

Canada 4 2 5 4 4 5 4 77,656

capital, will be used in operating ALECO, while C2C would depend on funds from the consumers investing in a non-stock, non-profi t electric cooperative. Both options for rehabilitation were recommended by the Department of Energy (DOE).

The SMC-GPHC was the lone bidder after Aboitiz Power Corp. and Manila Electric Railroad and Light Company (MERALCO) backed out from the bidding. It will take over the cooperative for 25 years as a private corporation guided by its technical bid approved by the board (see box). SMC President Ramon Ang said that SMC-GPHC will infuse P1.2 in billion initial investment which will be released over a 3 to 4-year period and constitute capital expenditure and working capital to rehabilitate ALECO. It was clarifi ed that SMC will not own ALECO but will run the coop, shoulder its debt and pay monthly concession fees. Turnover is expected within the year.

ALECO has been ridden with debt problems for 18 years and has been constantly under the threat of disconnection, leaving the Government of Albay little option but to resort to an alternative management scheme for the cooperative. ALECO has an outstanding debt of P1 billion with Philippine Electricity Market Corp. (PEMC) and P2 billion with the state-owned Power Sector Assets and Liabilities Management Corp. (PSALM) among others (see table). The cooperative has a present collection effi ciency rate of only 52%, far from the 95% target that will enable it to pay its debts. It has outstanding collectibles of P500 million from delinquent consumers, mostly

Note: Countries are the top 8 markets of Philippine tourism.

As sole and exclusive agent or concessionaire of ALECO, it will act on ma ers such as “applica ons for increase in tariff ” with the Energy Regulatory Commission (ERC), provided the concessionaire shall only collect fees that ERC may approve;

The bid presumes the transmission assets and facili es necessary to connect the ALECO distribu on system to the grid and assets used for conveyance of electric power from the transmission facili es or embedded generators to end-users are func oning and in good working order, and free from all liens and encumbrances;

All equipment of ALECO for transmission and distribu on should be in good condi on and considering that the technical systems loss the coopera ve has been suff ering are due to equipment that is in need of repair, ALECO must fi rst restore them before SMC takes over, and;

ALECO shall indemnify, defend and hold the concessionaire, its directors, offi cers and employees free and harmless from any claim or ac on brought by the employees by reason of their separa on from employment.

SOME OF THE SMC-GPHC TECHNICAL BID PROVISIONS

Source: Various press releases

40 BUSINESS


The SMC-GPHC will implement a viable settlement plan for the payment of the P4- billion debt of ALECO.

big power users. According to Albay Governor Joey Salceda, the DOE estimates fi nancial losses from systems losses at P1.96 billion. In 2012 alone, the amount was at P240 million.

The SMC-GPHC will implement a viable settlement plan for the payment of the P4 billion debt of ALECO. The debt payment will be subject to the positive performance of the business and none of the debt will be passed on to consumers. Mr. Ang said that among their immediate priorities are the rehabilitation of ALECO, improvement of operational effi ciencies, and reduction of systems losses. Over the next 3 years, the SMC-GPHC will work out a series of programs that include upgrading and construction of new substations, correction of metering installations and improvement of transmission lines.

Gov. Salceda said that SMC may have to invest at least P1 billion for ALECO’s rehabilitation alone. The amount could fund improvements to curb systems losses. ALECO ranks 6th among power distributors nationwide in terms of sales, but is also among those with the largest debt. ALECO may also give San Miguel some P600 million a year in revenues from operations, said Gov. Salceda. If the takeover is successful, ALECO’s case could become a model for other electric cooperatives which suffer from the same problem.

ALECO’S DEBT BREAKDOWNENTITIES AMOUNT OF DEBT (in pesos) INTEREST RATE/ANNUM

Power Sector Assets and Liabilities Management Corp. (PSALM) 2.03 billion 8.73Philippine Electricity Market Corp. (PEMC) 1.2 billion 2.7Transmission Corporation of the Philippines (Transco) 140 million 9.0National Electrifi cation Administration 220 million 8.0National Grid Corporation of the Philippines 56 million 9.8


MINING, OIL, & GAS

Chamber of Mines opposes alternative mining bill

The Chamber of Mines of the Philippines (COMP) is strongly opposing the alternative mining bill that was refi led in Congress, stating that the measure will only ‘kill’ responsible mining in the country. The COMP added that changing regulations on mining will take a toll on all industries and will degrade investors’ confi dence in the country.

Advocates of the Alternative Minerals Management Act (AMMA) refi led House Bill No. 984 and Senate Bill No. 43, 2 versions of the bill that emerged from House Bills 206, 3763, and other several mining related bills. The AMMA is eyed to replace the Mining Act of 1995 and focuses on the protection of indigenous peoples and the environment. According to the AMMB

co-author and Dinagat Islands representative Arlene “Kaka” Bag-ao, they are confi dent that the bill will gain strong support from party-list groups in the House, especially the Liberal Party.

Among the proposals in the AMMA is an increase from 2% to 10% of gross revenues in the government’s share from mining. If the mining area is identifi ed as an ancestral domain, the royalties of 10% will go to indigenous peoples. The AMMA will also identify more areas where mining should be prohibited, which will include prime agricultural lands, critical watersheds and small-island ecosystems. Another proposal is the cancellation of all existing mineral production sharing agreements and technical assistance agreements with foreign and domestic mining companies (see table).

However, the COMP found it unnecessary to repeal the existing Mining Act of 1995, deeming it as “a world class piece of legislation that already balances the interests of the mining industry, the State, host communities, indigenous peoples and the environment”. The chamber refuted some of the proposals listed in the AMMA, saying that the proposed mechanisms for determining areas open or closed to mining and for deliberating and approving mineral agreements are “unwieldy, protracted, repetitive, and impractical” .

Regarding the proposal to increase the government’s share in the gross revenues of mining operations to 10%, the COMP cited an International Monetary Fund (IMF) study showing that the government is receiving much more than the 2% share stated in the current law. According to the IMF, the Philippine government’s share under the present fi scal regime is approximately 60%, with the remaining 40% going to the contractor. Aside from the 2% excise tax, mining companies also pay for corporate income tax, value added tax, real property tax, and other fees and royalties. The IMF deems the Philippines’ existing mining tax structure as already “not competitive internationally”.

The COMP also claimed that changing the regulatory scheme for mining will only deter possible investors. A stable fi scal and regulatory regime is a necessary foundation to encourage investors to develop and operate large-scale mining. They said that the current fi scal regime will generate an annual revenue of P8.6 billion in mineral royalties alone. But because of uncertainties in the country’s mining policies, COMP President Benjamin Philip Romualdez said some $12 billion or P528 billion in mining investments are already on hold for the next 3 years. Mr. Romualdez added that the Philippines may not be able to meet its $16 billion mining investment

41BUSINESS


AMMA COMP

Mineral resources are owned by the state, except those within ancestral domains that belong to indigenous cultural communities (ICCS) and indigenous peoples (IPs)

A “collective private ownership” by indigenous cultural communities of all mineral resources found within their claimed ancestral lands would place substantial portions of the Philippines outside the scope of the Philippine Constitution (10 million hectares or 1/3 of the entire Philippine territory and 80% of the country’s natural wealth)

The government secures at least a share equivalent to 10% of the gross revenues from the development and utilization of mineral resources it owns, with the same amount paid as royalty to the ICCs/IPs for mining operations within ancestral domains

Increasing government’s share in mining to 10% is uncompetitive and would discourage investments in the country: tax is set on gross revenues and not profi tability, thus companies with lower-margin rates will be penalized, even lose money

Financial and technical assistance agreements (FTAAs) are signifi cantly prohibited, with additional rights provided by the 1995 Mining Act removed

Draft bill only covers the exploration, development, and utilization of onshore mineral resources and quarry resources, but excludes off shore mining, petroleum, and coal – yet it aims to cancel all mining permits, licenses and agreements, including exploration permits and FTAAs

The Mines and Geosciences Bureau (MGB) is the primary government agency that will regulate mining, with the following powers and duties, among others: conduct of research; exclusive control over the conduct of exploration; inventory of all mineral resources; identifi cation of strategic minerals; etc.

This will reduce the MGB from industry regulator to a research institution limited to non-invasive work

The assignment and transfer of mineral agreements are disallowed, wherein the maximum term for the contract is deemed at 15 years

The proposed shortening of agreement terms from 25 years to 15 will only serve to stunt the growth of the mineral resources industry

Areas closed to mining, deemed as “no-go zones”, are: head waters of watershed areas; areas with potential for acid mine drainage; critical watersheds; critical habitats; climate disaster-prone areas; geo-hazard areas; cultural sites, etc.

1995 Mining Act already provided an environmental protection plan that more than adequately addresses the perceived environmental concerns of the AMMA (see box)

SELECTED AMMA PROPOSALS AND COMP’S COUNTERPOINTS

Source: EnDefense Policy Forum Series; various press releases.

An environmental work program to make sure that the impact of extracting minerals are mitigated and immediately given remedy

An environmental protection and enhancement program (EPEP), detailing the rehabilitation, regeneration, re-vegetation and reforestation of exhausted mines

Slope stabilization of mined-out areas; proper waste and tailings management; watershed development and water conversation

Socio-economic development projects

Final mine rehabilitation or decommissioning plan, reviewed 2 years after approval and every 2 years thereafter

Contingent liability and rehabilitation fund

Large scale mining fi rms set aside more than 50% of EPEP for environmental management of land resources: reforestation, forest protection, adopt-a-mining forest, surface subsidence control, solid

ENVIRONMENTAL MEASURES REQUIRED FOR MINING FIRMS UNDER THE MINING ACT OF 1995

The Philippines’ existing mining tax structure is already “not competitive internationally”.


target under the Aquino administration unless the government shows political will to address the industry’s problems.

The COMP recommended further consultations and interaction between the private sector and government policymakers. According to the chamber, the current mining regime should help guarantee that the country’s benefi ts from its exhaustible mineral resources will accrue to the future generations.

42 BUSINESS


I.T. UPDATE

Businesses urge Customs to adopt full computerization

Budget Watcher Bantay Budget expressed concern that various computerization programs in Customs over the past 19 years have made the trading process more complicated than becoming a seamless process.

With 3 computerization programs, the processing of trade documents in the Bureau of Customs (BOC) somehow still requires human intervention and businesses are still burdened by the need to produce hard copies. According to business leaders at the Bantay Budget (Budget Watch) Customs Computerization Programs Symposium and Forum held on September 4, the redundant computerization programs have made the Customs process even more complicated.

Budget Watch believes that the i-PCS would just entail additional cost to the government while it does not improve the system.

Computerization in Customs started in 1994 with the Automated System for Customs Data (ASYCUDA) designed by the United Nations Conference on Trade and Development (UNCTAD) for developing countries to maximize trade opportunities (see table). It was later announced that all Customs systems around the world would be standardized through the ASYCUDA World system. But the Philippines was unable to adopt the system because it failed to reach an agreement with UNCTAD. Instead, Customs opted to create and adopt the electronic-to-mobile (e2m) system in 2004. In 2009, Customs was required by the ASEAN Integration agreement for 2015 to integrate all systems into a National Single Window (NSW), which would later be linked to the ASEAN Single Window. The purpose of the NSW is to facilitate trade by allowing a single submission and accelerated processing of applications for licenses, permits and other authorizations required prior to undertaking a trade transaction.

BOC COMPUTERIZATION PROJECTSPROJECT YEAR CONTRACTOR BUDGET PROJECT DESCRIPTION

ASYCUDA 1994 World Bank $82.30MnEstablished a computerized tax administration system through tax software, data-entry processing equipment, training, and technical assistance.

e2m 2004Unisys (contract ended in 2012). P463Mn

An internet-based technology that streamlines the import and export processing of BOC and enhances trade facilitation between the bureau and its stakeholders.

NSW

Phase 1 2009 Crown Agent P398MnConnects 40 agencies and 70 regional offi ces for the transmission and access of required licenses, permits, and clearances for the release of shipments.

Phase 2 2011 Webb Fontaine and COMSINET P442Mn

Government-wide rationalization, standardization, and harmonization of all trade data and trade portals, and link NSW to the ASEAN Single Window.

Source: Bantay Budget Customs Computerization Programs Symposium and Forum; Bureau of Customs: Its Role in Export Control by Atty. Louis Adviento

E2M FEATURES TO BE RETAINED IN IPCS

Interim Customs Accreditation Registration Unit (ICARE). Accredits all stakeholders dealing with the BOC.

Entry Processing Unit (EPU). System where import entries are fi led for review and assigned to their appropriate Customs sections.

NEW FEATURES TO BE INTRODUCED IN IPCS

Petroleum Inventory System. System that will monitor the movement and inventory of petroleum imports;

Integration of x-ray imaging in the importer’s declaration. System that will make scanned images of shipments viewable to examiners;

Government Executive Vision. A reporting tool that will be used for “data mining and customs business intelligence”.


43BUSINESS


As of today, BOC stated that the e2m Customs remains unconnected to the NSW because the NSW could disrupt the existing system and affect the warranty to fi x the software. However, the warranty ended in 2012, which does not make it a reason for BOC to keep e2m unconnected from the NSW.

Businesses complained that there are too many documents that must be signed and uploaded in each system. Customs transactions are not fully digital since businesses need to scan signed documents and bank receipts for the payment of duties and other fees. Then businesses still have to access both the e2m and NSW to retrieve all clearances and other documents and input the same information into each system. The whole process entails hassle and added costs to businesses since there are 2 terminals used for clearing shipments.

The BOC is aware of the concerns of the private sector with the system but as a solution decided to create another computerization system called the Integrated Philippine Customs System (i-PCS), which would integrate all Customs processes into the NSW and eventually eliminate manual processing of documents (see box). But Budget Watch believed this could just entail additional cost to the government (a P418 million budget) while not improving the system.

The i-PCS was awarded to the joint venture of Webb Fontaine and GROW, Inc. (a leading overseas human resource provider in the Philippines) in June 2013, but a temporary restraining order was issued in July by the Manila regional Trial Court in response to a complaint by Omni Prime Marketing, Inc. on the integrity of pre-qualifi cation documents submitted by the winning bidders. Omni Prime is a disqualifi ed bidder of i-PCS.

LIST OF BOI-REGISTERED PROJECTS

AUGUST 2013

INDUSTRY ACTIVITY PROJECT COST(IN PHP MILLION)

EQUITYLOCAL/FOREIGN

ELECTRICITY, WATER, AND GAS

Phil. Solar Farm-Leyte, Inc. (PSFLI) Renewable Energy Developer of 30 MW Solar Power Plant 2881.0 60% Filipino 40% Korean

FDC Misamis Power Corporation Operator of 405 MW Coal- Fired Power Plant 31943.2 100% Filipino

Universal Robina Corporation Renewable Energy Developer of Biomass Resources (Manufacturer of Bio-ethanol) under RA 9513 (Renewable Energy Act of 2008) 1636.3

76% Filipino 24% Foreign (various

nationalities)

MISCELLANEOUS MANUFACTURES

Nakayama Technology Corporation Producer of Kitchen Systems 44.6 99.9% Japanese

REAL ESTATE AND PROPERTY DEVELOPMENT

P.A. Alvarez Property Ventures, Inc. Developer of Low-Cost Mass Housing (Bridgepointe Place Phase 3) 130.3 100% Filipino

P.A. Alvarez Property Ventures, Inc. Developer of Low-Cost Mass Housing (Bridgepointe Place Phase 3A) 244.5 100% Filipino

Household Development Corporation Developer of Low Cost Mass Housing Project (Camella Montego) 369.4 100% Filipino

Household Development Corporation Developer of Low-Cost Mass Housing (Cerritos Hills Phase 2) 62.2 100%Filipino

Household Development Corporation Developer of Low Cost Mass Housing Project (Camella Del Rio) 162.9 100% Filipino

Newhall Realty Group Corporation Developer of Low-Cost Mass Housing (Beverly Homes Phase 3 and 4) 235.9 100% Filipino

TOTAL 37,710

44 BUSINESS


INDUSTRY ACTIVITY EQUITYLOCAL/FOREIGN ZONE

AUTOMOTIVE TRADE

TOYO SEAT PHILIPPINES CORPORATION Manufacture of automotive seats Greenfi eld Automotive Park - SEZ

EDUCATIONAL SERVICES

CRESTAMAR DIVE PRO, INC. Provides Scuba Courses: Teach and certify guests of Amanpulo and El Nido Resorts on Scuba Diving Courses

Green Tourism Ecozone - Pangulasian

CRESTAMAR DIVE PRO, INC. Provide Scuba Courses: Teach and certify guests of Amanpulo and El Nido Resorts on Scuba Diving Courses 100% - Filipino Pamalican Island Tourism

Ecozone

ALLIANCE MANSOLS INC. Provision of training services exclusive for the semiconductor and electronics companies Laguna Technopark - SEZ

ELECTRONICS

YONG SHIN PRECISION INTERPHILS., INC.

Manufacture/assembly of CD/DVD-ROM Sub-Deck and Injection Parts

Carmelray Industrial Park II - SEZ

TOSHIBA INFORMATION EQUIPMENT (PHILIPPINES), INC.Manufacture of New Advanced Technology 2.5-inch Hard Disk Drives, related component parts and accessories

Laguna Technopark - SEZ

TEMIC AUTOMOTIVE (PHILS.), INC. Manufacture of MK100 (Electronic Brake System) Food Terminal Inc. - SEZ

TAIYO YUDEN (PHILIPPINES), INC. Manufacture of metal core wire-wound chip power inductor of LQS Mactan Economic Zone

SK DENKI TECH. INC. Manufacture/fabrication of control panels, electrical component parts and electrical/cable assembly 99.97% - Japanese Laguna Technopark - SEZ

SIIX EMS PHILIPPINES, INC.Manufacture and sub-assembly of Printed Circuit Boards (PCBs), Flexible Printed Circuits (FPCs) and Box-build

99.55% - Japanese Carmelray Industrial Park I - SEZ

SCP MICRO COIL ELECTRONICS, INC. Cable assembly and electronic components cable assembly Cavite Economic Zone

ROHM ELECTRONICS PHILIPPINES, INC. (Small Outline Package) SOP 08 Wide IC People's Technology Complex - SEZ

PHILIPPINE KENKO CORPORATION

Processing of attachments, enhancement and accessories such as, but not limited to, protector, clip stand and scoop lens system for smart phones, IPADs, tablets and other similar electronic gadgets

Mactan Economic Zone

PANASONIC PRECISION DEVICES PHILIPPINES CORPORATION

Manufacture of Optical Pick-Up (OPU), such as SMD OPU and Half-Height OPU Laguna Technopark - SEZ

NAZCA PRECISION PHILIPPINES, INC. Installing, tuning and inspecting process of mobile telephone base station antenna 100% - Japanese Laguna Technopark - SEZ

MICROSEMI SEMICONDUCTORS-MANILA (PHILIPPINES), INC.

Production of Electronic Devices for Commercial and Industrial Applications Food Terminal Inc. - SEZ


Transfer / Qualifi cation / Manufacturing (Assembly and Test) of Microsemi High-Reliability Hermetic Products, such as Metal Can, Glass and PPIN Packages

Light Industry & Science Park I - SEZ


Assembly and test of Power Modules (Powermite Project) Food Terminal Inc. - SEZ

IZU NOBLELINK INC. Manufacture/assembly of camera module devices, parts and accessories Cavite Economic Zone

IZU NOBLELINK INC. Assembly of power operated hanger parts and accessories Cavite Economic Zone

INTEGRATED MICROELECTRONICS, INC. Mobile communication system base station antenna assembly Laguna Technopark - SEZ

INTEGRATED MICROELECTRONICS, INC. Power module assembly Laguna Technopark - SEZ

FX NINETY EIGHT CORPORATION PHILIPPINE BRANCH Manufacture of semi-conductor of process equipment 100% - American Mactan Economic Zone

EXCELITAS TECHNOLOGIES PHILIPPINES, INC. Include "designing and developing" Light Industry & Science Park I - SEZ

EMS COMPONENTS ASSEMBLY, INC. Assembly, Testing, Inspection of High Power, Low Power Shielded Inductors (SD)


CIRTEK ELECTRONICS CORP.

Assembly and Test of IC's of the following products: Rhone optical meter reader; Power SOP with thermal slug; LNA 1.3 x 2; Power switches & protection devices; and LED Optics


CSB BATTERY CO., LTD. (PHILIPPINES BRANCH) Manufacture of VRLA (Value Regulated Lead Acid) Battery 100% - Taiwanese Cavite Economic Zone

FOOD AND BEVERAGE MANUFACTURES

VUQO, INC. Manufacture of premium VuQo Vodka64% - Filipino

35% - American 1% - Japanese

Victoria Wave - SEZ

PEZA APPROVED PROJECTS 2ND QUARTER 2013

45BUSINESS


HOTEL, RESTAURANT, AND LEISURE SERVICES

TRAVELLERS INTERNATIONAL HOTEL GROUP, INC. Operates a convention center and related facilities, such as exhibition and dining facilities, integral to the tourism establishment

Newport City CyberTourism Zone

IT AND IT-ENABLED SERVICES

PROVIEW GLOBAL ADMINISTRATION INC. Offi ce space architectural design and 3D pho-realistic rendering and sales-support administration Hanston Square

LINGUAGE INC. Online English Tutorial 99.8% - Japanese Crown 7 I.T. Center

BRIDGECULTURE INC. Online English Tutorial 100% - Japanese GAGFA IT Center

FREIGHT PROCESS OUTSOURCING SOLUTIONS, INC. Data entry, data processing, data analysis, computer programming and back-end offi ce services

60% - Filipino 40% - British Leyte Mikyu Economic Zone

IKKOS GLOBAL E-SERVICE, INC. Online English as a Second Language (ESL) course and tutorial 99.84% - Russian Keppel Center

MACHINERY AND EQUIPMENT

3DT PHILIPPINES CO. Manufacture of MultiDyne and PlasmaDyne Corona and Plasma Treatment Systems Machinery 100% - American Lima Technology Center - SEZ

MEDICAL AND HEALTH SERVICES

TERUMO (PHILIPPINES) CORPORATION Manufacture of Nanopass Needle Device Laguna Technopark - SEZ

TERUMO (PHILIPPINES) CORPORATION Manufacture and sssembly of SRV3 Medical Device Laguna Technopark - SEZ

METAL INDUSTRIES

YONGHWA OF PHILIPPINES, INC. Fabrication of tool and die including modifi cation and repair Cavite Economic Zone

TSUNEISHI HEAVY INDUSTRIES (CEBU), INC. Fabrication of gantry crane for port (Portainer) and fabrication of overhead crane West Cebu Industrial Park - SEZ

TONG HSING ELECTRONICS (PHILIPPINES), INC.Expansion of the DPC Production Area and Installation of additional machines for the manufacture of Metalized Substrates

Carmelray International Business Park

TAE SUNG PHILS., CO., INC. Manufacture of metal pressed parts Cavite Economic Zone

SUMINAC PHILIPPINES, INC. Engage in the fabrication of steel First Cavite Industrial Estate - SEZ

STEELWELL INDUSTRIAL HARDWARE (PHILS.) CORPORATION

Manufacture, production, fabrication or assembly and export of shaft kits, fasteners for sheet metal and customized components such as bracket pins and shafts

99.99% - Chinese Laguna Technopark Annex - SEZ

SILGAN WHITE CAP SOUTH EAST ASIA, INC. - GREENFIELD AUTOMOTIVE PARK Manufacture of metal vacuum twist-off closures Greenfi eld Automotive Park

- SEZ

SHI MANUFACTURING & SERVICES (PHILIPPINES), INC. Production of vacuum chamber First Philippine Industrial Park - SEZ

NUVALI STEEL PROCESSING CENTER INC. Steel pipe processing, steel sheet in coil processing and cutting, stamping & welding fabrication 100% - Filipino Laguna Technopark Annex - SEZ

MD AEROSPACE FABRICATION SERVICES INCORPORATED Engage in aerospace parts fabrication 60% - Filipino 40% - Chinese Laguna Technopark - SEZ

J & J PHILIPPINES CORPORATION Manufacture and assembly of industrial machinery used for wire harness production

First Philippine Industrial Park - SEZ

INFINITYTOOLS MFG. CORPORATION

Manufacture of customized EDM Electrode for aerospace, precision customized round cutting tools (coated & uncoated) for aerospace medical electronics & industrial application & precision fabrication

100% - Filipino Laguna Technopark - SEZ

HOUSE TECHNOLOGY INDUSTRIES PTE. LTD. Manufacture of Damper Cavite Economic Zone II

FUJITSU DIE-TECH CORPORATION OF THE PHILIPPINESRepair services for manufactured goods, i.e., defective components/mechanical units of Automated Teller Machine (ATM)


DYNA-MAC KEPPEL PHILIPPINES INC.

Integration works, assembly, pre-assembly works, fabrication, machining, modeling, repair, purchase, sell, export, or lease of process modules for off -shore, land-based or industrial applications

99.99% - Singaporean Subic Shipyard - SEZ

DIC SEIMITSU PHILIPPINES, INC. Manufacture of custom-made tool and die, pinch punch and timber-cut punched die plate Cavite Economic Zone

MINING AND QUARRYING

UNICHAMP MINERAL PHILIPPINES INC. Milk of Lime for Coral Bay Nickel Corporation (nickel smelting plant)

60% - Filipino 40% - Malaysian

Rio Tuba Export Processing Zone

MISCELLANEOUS MANUFACTURES

KREXIM INC. Manufacture, assembly and packaging of recreational fi shing products (hooks/lures) 100% - Filipino PDC Information Techno Park

46 BUSINESS


KREXIM INC.Increase in production capacity of REGISTRANT's manufacture, assembly and packaging of recreational fi shing products (hooks/lures)

PDC Information Techno Park

GLORY (PHILIPPINES), INC. Manufacture of RBW-100 Cavite Economic Zone

GLORY (PHILIPPINES), INC. Manufacture of Cash Bills Storage and Dispenser Cassette MBL Cavite Economic Zone

FUNAI ELECTRIC PHILIPPINES INC. Manufacture/assembly of inkjet printer 99.8% - Japanese 0.2% - Filipino Lima Technology Center - SEZ

OFFSHORING AND OUTSOURCING

XSPLATFORMS PHILIPPINES INC. Business Process Outsourcing 100% - Dutch King’s Court IT Center

XBORDER OUTSOURCING ENTERPRISES INC. Language Translation Services and Business Process Outsourcing – Accounting and Payroll Services 99.94% - Japanese 6788 Ayala Avenue Bldg.

WCP SUPPLIES ASIA PACIFIC CORP. Provide knowledge-based and computer-enabled services 99.99% - Australian Hanston Square

VIRTELA SERVICES PHILIPPINES INCORPORATED Business Process Outsourcing 99.92% - American 0.08% - Filipino King’s Court IT Center

VFP BUSINESS SUPPORT SERVICES, INC. Business Process Outsourcing – Accounting and Payroll Services 99.99% - American One Corporate Centre

UNITEDHEALTH GROUP GLOBAL SERVICES, INC.Setting up of additional facility for its information technology services, call centre and back offi ce operations

McKinley Hill Cyberpark

ZANETT COMMERCIAL SOLUTIONS PHILIPPINES, INC. Software development implementation and integration services GT Tower International

Transcosmos philippines, inc.Setting up of additional facility for its information technology services, call centre and back offi ce operations

Ecotower

TELEPHILIPPINES INCORPORATED Call Center Operation SMMS IT Center

TELEPHILIPPINES INCORPORATED Call Center Operation The Annex-SM City Davao IT Center

TELEPHILIPPINES INCORPORATED Call Center Operation CBP-IT Park

TELEPHILIPPINES INCORPORATED Call Center Operation Alphaland Southgate Towers

TECHNOGLOBAL TEAM, INC. IT-enabled, Business Process Outsourcing and Contact Center Services

75% - Hong Kong 25% - British E-Square I.T. Park

SYNACY INC. Business Process Outsourcing, Software Development and other related services

99.8% - British Virgin Islander Crown 7 I.T. Center

SYKES ASIA INC. Transfer a portion of it's call center operations at the Burgundy Corporate Tower Glorietta 1 BPO

SUTHERLAND GLOBAL SERVICES PHILIPPINES, INC.Process consulting services, account management services, technical support/help desk, customer care services and back-offi ce processing

Philplans Corporate Center

SOLARWINDS SOFTWARE ASIA PTE. LTD. PHILIPPINE BRANCH

Shared Services in IT Management and Monitoring Software for SolarWinds Inc. 100% - Singaporean E-Square I.T. Park

ROSSKING PTY. LTD.

All web and mobile related software development and application, along with IT-enabled services that include web content writing, online moderation, and customer support services

100% - Dutch Baguio City Economic Zone

RESULTS MANILA, INC. Call Center Operation The Mactan Newtown

REAL ESTATE STUDIO INC. Graphic and web-based services 99.99% - Australian Multinational Bancorporation Centre

PUZZLEBOX BPO, INC. Business Process Outsourcing 100% - Filipino McKinley Hill Cyberpark

PTO MEDIA SERVICES Graphic production services 100% - Australian Eastwood City Cyberpark

OUTBURST INC.Business process outsourcing, search engine optimization, website design & development, and software development

99.36% - Australian Cebu I.T. Park

ODUSEE PHILIPPINES INC. Development and design, implementation, maintenance of software development

97% - Australian 3% - Filipino CBP-IT Park

OAMPI INC. Call Center Operation 6780 Ayala Avenue Bldg.

NUMERIC EIGHT PHILIPPINES INC. Provide accounting and bookkeeping services 99.96% - Australian Eastwood City Cyberpark

NOMURA RESEARCH INSTITUTE ASIA PACIFIC PTE. LTD. MANILA BRANCH

Knowledge and IT enabled research and consulting services on business strategy, organizational reforms, and global supply chain management (GSCM), as well as related software development and maintenance

100% - Singaporean RCBC Plaza

MOBADZ, INC.Technical and online staff support to its foreign partners and affi liates in servicing their client’s needs in mobile ad campaign set-up and management

99.7% - British One Corporate Centre

MICROSOURCING PHILIPPINES INC.Site Hosting for Collection House International BPO, Inc. Operations including Provision of IT Support, Recruitment, HR and Payroll Services

Eastwood City Cyberpark

47BUSINESS


MICROSOURCING PHILIPPINES INC.Site Hosting for Outcomes Health Philippines, Inc. including Provision of IT Support, Recruitment, HR and Payroll Services

E-Square I.T. Park

MICROSOURCING PHILIPPINES INC.Site Hosting for Numeric Eight Philippine, Inc., including Provision of IT Support, Recruitment, HR and Payroll/Accounting Services

Eastwood City Cyberpark

MICROSOURCING PHILIPPINES INC. Business Process Outsourcing SM iCITY 2

KLOUD NINE SYSTEMS INC. Software design and graphic design 99.5% - Japanese King’s Court IT Center

INNERWORKS INTERNATIONAL INC. Software development and other computer related activities 100% - Filipino The Discovery Centre

INITIAL EFFORT OUTSOURCE CORPORATION

Search engine optimization (SEO) services, fulfi llment options to other SEO fi rms, helpdesk and similar services

99.95% - American Iloilo Technohub

ICONNECT GLOBAL COMMUNICATIONS INC. Business Process Outsourcing – inbound customer service and outbound sales 100% - Filipino Eastwood City Cyberpark

GLOBAL STAFF CONNECTIONS INC.BPO operations including accounting and payroll, IT related activities, application management and development

75% - Filipino 25% - Australian Orient Square I.T. Bldg.

GFI SOFTWARE PHILIPPINES INC. Customer Technical Support McKinley Hill Cyberpark

FRONTIER SOFTWARE ASIA PHILIPPINES, INC. Software testing and development and internet technology-related services 99.99% - British Ecotower

FreCre Inc.

Production and management of application of website for mobile (facebook, android, IOS, windows and browser and PC (windows, mac, linus and browser) and email newsletter system; b) production and management of content (video, comic, animation, illustration, design, sound, songs, etc.); and c) other IT-enabled services

99.88% - Japanese Keppel Center

EXXPERT COMMUNICATIONS, INC. Call Center Operations, IT Outsourcing, and Telemarketing 99.68% - German Cebu I.T. Tower

EOPTIMIZEMEDIA, INC.

Comprehensive digital marketing service that involves the design, development and/or maintenance of a rich user experience website, integrated with a natural search engine optimization (SEO) program, social media content/campaign management and performance analytics

100% - Filipino E-Square I.T. Park

ENFRAUSA SOLUTIONS, INC. Business Process Outsourcing Services The Mactan Newtown

e4e Global Services Philippines, Inc.

Comprehensive revenue cycle management services through suite of Coding, Billing, Collection, Denial Management services, Claims adjudication and reimbursements

99.99% - American E-Square I.T. Park

DREAMSCAPE NETWORKS INC. Web hosting and domain registration 60% - Filipino 40% - Australian CBP-IT Park

DIVERSIFIED PRIME GROUP OF THE PHILIPPINES INC. Website development 99.6% - Japanese The Enterprise Center

DESIRED RANKING SOLUTIONS, INC. IT and IT-enabled services related to internet marketing includes search engine optimization 99.93% - Chinese Keppel Center

DAWNPURPLE INC. Business Outsourcing of Computer Graphics Design for all Kinds of Digital Contents and Electronic Medium 100% - Japanese One Corporate Centre

CONVERGYS PHILIPPINES SERVICES CORPORATION Call Center Operations Cebu I.T. Park

CBE CUSTOMER SOLUTIONS PH, INC. Business Process Outsourcing 99.99% - American E-Square I.T. Park

BLUESTONE SERVICING Customer service activities primarily on behalf of the Asset Management subsidiary of the Bluestone Group 100% - Australian Zuellig Building

BAYER BUSINESS SERVICES PHILIPPINES, INC. Establishment of a Shared Service Center McKinley Hill Cyberpark

AXIEM CORPORATION Business Process Outsourcing 99.99% - Australian Summit One Offi ce Tower

ANTHEM SOLUTIONS, INC. Off er the lease of its facility to CBE Customer Solutions PH, Inc. E-Square I.T. Park

ANTHEM SOLUTIONS, INC. Off er the lease of its facility to PuzzleBox BPO Inc. McKinley Hill Cyberpark

ANTHEM SOLUTIONS, INC. Off er the lease of its facility to HCL Technologies Philippines, Inc. McKinley Hill Cyberpark

ANTHEM SOLUTIONS, INC. Fully managed services facility for call center services and BPO of Transcom Worldwide (Philippines), Inc. Amigo Mall

ANTHEM SOLUTIONS, INC. Equipment and support services for the IT/BPO operations of MPhasis Philippines, Inc. McKinley Hill Cyberpark

ACS OF THE PHILIPPINES, INC.Additional/expansion of information technology outsourcing services and business process outsourcing (BPO) operations

SM iCITY 2

OTHER BUSINESS SERVICES

BIO-NORMALIZER NUTRACEUTICAL CORP.Research and Development (R&D) and laboratory services for the quality assurance of BNNC's Head Offi ce in Japan

First Philippine Industrial Park - SEZ


48 BUSINESS


TAIHANLAND (PHILIPPINES) INC.Construct one (1) unit (3-storey) and three (3) units (1-storey) factory/warehouse buildings for lease/sale to PEZA-registered enterprises

60% - Filipino 40% - Seychellois Lima Technology Center - SEZ

PROPHILE SOUND INDUSTRIES, INC.

Authority to lease out a portion of the REGISTRANT's factoty building to VAC1 Inc. Cavite Economic Zone

PRIMARY PROPERTIES CORPORATION Additional project, particularly to construct and operate an Information Technology building CBP-IT Park

PANORAMA PROPERTY VENTURES, INC. Three (3) existing factory/warehouse buildings Cavite Economic Zone

ORIENT GOLDCREST REALTY, INC. Additional 3-unit warehouse buildings Laguna Technopark - SEZ

MAPLEHAUS, INC. Construction of 2 units warehouse buildings as MAPLEHAUS IV

Light Industry & Science Park III - SEZ

LPTC REALTY & DEVELOPMENT CORPORATION Construct eight (8) Ready-Built Factory (RBF A and B) Buildings 100% - Filipino Cebu Light Industrial Park - SEZ

INTERZONE PROPERTY MANAGEMENT CORP. Additional project of its Standard Factory Building No. 11 Cavite Economic Zone

FPIP PROPERTY DEVELOPERS AND MANAGEMENT CORPORATION Construct a factory building First Philippine Industrial Park

- SEZ

AJUL ECOZONE PROPERTIES CORP. Construct two (2) standard factory buildings 65% - Filipino 35% - Chinese

Light Industry & Science Park III - SEZ

RECYCLING AND WASTE MANAGEMENT

SAITO KIDO KINZOKU INC. Processing and recycling of used fl uorescent bulb to extract rare earth materials 99.99% - Malaysian Victoria Wave - SEZ

MOBILECYCLE TECHNOLOGIES INC. Repair and refurbishing of mobile phone handsets 100% - Filipino Laguna Technopark - SEZ

RUBBER PRODUCTS

SANKO GOSEI PHILIPPINES, INC. Manufacture of synthetic resin materials (molding plastic products and plastic molding tools) 99.99% - Japanese First Philippine Industrial Park

- SEZ

MACEN WRAPPING AND PACKAGING CORP.Manufacture of Plastic bag, manual secondary processing and inspection, selling of packaging materials for consumer and industrial use

67% - Filipino 33% - Japanese Cavite Economic Zone

GT JIGS AND CHECKERS MANUFACTURING INC. Manufacture of jigs and checker fi xtures 95% - Japanese 5% - Filipino


STORAGE AND WAREHOUSING

TAIYO NIPPON SANSO IWATANI PHILIPPINES, INC.

Selling and Distribution of Industrial Gas: Nitrogen, Oxygen Argon, LPG, Hydrogen Gas and other Imported produced Specialty Gases as needed, and Supply of Imported Parts, Supplies and Equipment for Gas Facilities

100% - Japanese First Philippine Industrial Park - SEZ

REEL SERVICE (PHILIPPINES), INC. - WAREHOUSING DIVISION Direct export of cover tapes and plastic reels" Light Industry & Science Park

I - SEZ

P. IMES CORP.Importation and export of electronics and semiconductor parts; warehousing and storage of goods for sale or consignment

99.99% - Japanese Cavite Economic Zone

NEXUS INDUSTRIAL GLOBAL SOLUTIONS CORP.

Supply all kinds of raw materials and fi nished goods or products, such as pneumatics products and components, mechanical and electrical parts and equipment, wires, cable and components, and all other similar products essential for processing and production for machineries and equipment for ecozone export manufacturing enterprises

100% - Filipino Laguna Technopark - SEZ

INOUEKI PHILIPPINES, INC.Engage in importation, exportation, local procurement and the latest technology in warehousing/storage and logistics services

99.99% - Singaporean Laguna Technopark - SEZ

ELEMATEC PHILIPPINES, INC. Warehouse facility Pampanga Economic Zone

49BUSINESS



FOREIGN DIRECT INVESTMENTBalance of Payments Concept; JANUARY-JUNE 2013

LEVEL (US$ million)

SOURCE CURRENT YEAR AGO YEAR-ON-YEAR% CHANGE

TOTAL FDI 2,188 1,973 10.92

Equity Capital 638.06 1,086.0 -41.25

Reivested Earnings 385 592 -34.81

Debt Instruments 1164.51 295 294.72

UNIVERSAL AND COMMERCIAL BANK’S LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn)DECEMBER 2012

DEC 2012 % TO TOTALRE: LOAN DEC 2011 % TO TOTAL

RE: LOAN

RESIDENTIAL 164.39 30.1 123.85 32.2

COMMERCIAL 382.12 69.9 260.99 67.8

DATA YEAR-AGOLEVEL

GROWTH RATE (%)

MOTOR VEHICLE SALES 13,700 11,351 21

PASSENGER CAR SALES 5,122 3,501 46.3

COMMERCIAL VEHICLE SALES 8,578 7,850 9.3

MOTOR VEHICLE SALESAUGUST 2013

000

500

0

500

000

500

000

500

000

FDI:BOP CONCEPT US$ Million

DATA INDEX

YEAR-ON-YEARGROWTH

YEAR-TO-DATE

GROWTH

Volume of Production Index (VoPI) 113.0 12.0 5.8

a. Food 129.9 2.1 1.1

b. Beverage 109.4 7.5 -2.8

c. Tobacco 6.9 7.8 -18.8

d. Textile 33.4 -28.0 -34.9

e. Footwear and Wearing Apparel 29.2 -29.8 -16.3

f. Wood and Wood Products 64.3 18.4 -1.6

g. Furniture & Fixtures 813.3 135.9 62.9

h. Basic Metals 118.9 78.5 37.9

i. Iron and Steel 95.6 19.5 10.1

j. Non-ferrous Metals 179.2 243.3 73.9

k. Fabricated Metal Products 214.8 -20.7 -11.5

l. Machinery Excluding Electrical 25.9 0.4 3.4

m. Electrical Machinery 87.1 -8.5 -0.1

n. Transport Equipment 106.0 -32.9 -21.4

o. Other Mfg Industries 104.9 -38.3 -39.3

p. Paper & Paper Products 69.9 -12.0 -11.6

q. Publishing & Printing 37.1 -29.2 -19.2

r. Leather Products 2.9 7.4 4.4

s. Rubber Products 248.3 -5.9 -4.7

t. Chemical Products 244.5 115.8 63.5

u. Petroleum Products 55.7 -5.4 -14.0

v. Non-Metallic Mineral Products 156.9 10.0 1.7

w. Glass & Glass Products 144.2 -12.3 8.2

x. Cement 164.5 3.0 -2.2

y. Misc. Non-Metalic Mineral Products 149.5 45.7 4.1

VALUE OF PRODUCTION INDEX (VAPI) (2000=100) 171.6 5.2 -1.8

AVERAGE CAPACITY UTILIZATION 83.3 -17.0 83.0

INDUSTRIAL PERFORMANCE (2000=100) JULY 2013

50 BUSINESS



LABOR STRIKES

VISITOR ARRIVALSJANUARY-JULY 2013

SURVEY ON THE MONTHLY OCCUPANCY RATES & LENGTH OF STAY

VISITOR ARRIVALS STILL UP BY 11% AS OF JULY 2013

As of July 2013, the infl ow of visitor arrivals in the Philippines is steadily growing at 11.05% growth rate from the 11.06% growth recorded in the 1st half of the year. Total visitor arrivals registered in the period is 2,798,881. Of this total, 4.66% or 130,413 visitors are Filipinos residing abroad.

Korea remains the top source market followed by the U.S. and China. Visitors coming from Korea amounted to 706,998 (25.26% share), which grew by 22.30% as of July. The U.S. market placed 2nd with 417,904 visitors (14.93%) while the Chinese market ranked 3rd with 246,967 visitors (8.82%)..

HOTEL OCCUPANCY DECREASES TO 67% IN 2012

In 2012, average occupancy rate of hotels decreased to 67.25% from 69.26% in 2011. De Luxe hotels posted the highest occupancy rate with 71.49%, down by 0.93 percentage point from 2011. Standard hotels registered the 2nd highest occupancy rate at 64.82%, which also slipped by 3.48 percentage points. Meanwhile, First Class hotels outranked economy hotels with an average occupancy rate of 58.04%, lower by 4.1 percentage points. Economy hotels had the least occupancy at an average rate of 53.44%, down by 5.14 percentage points in 2011.

1 STRIKE IN JUNE

A strike was recorded in June 2013 involving 400 workers, which is equivalent to 1,200 man-days lost. There were 14 notices of strike/lockouts fi led during the month, which makes a total of 82 notices of strike/lockouts since January. In 2012, 3 strikes were recorded involving 209 workers, which is equivalent to 797 man-days lost. Meanwhile, 184 notices of strike were fi led that year.

0

500

1000

1500

2000

2500

3000

3500

4000

MAN-DAYS LOST

0

2

4

6

8

10

12

STRIKES DECLARED

0

100

200

300

400

500

TOURISM ARRIVALS

COUNTRY 2013 2012 % CHANGE RANK

KOREA 706,998 578,062 22.30 1

USA 417,904 406,822 2.72 2

JAPAN 245,817 231,439 6.21 3

CHINA 246,967 166,219 48.58 4

AUSTRALIA 118,186 106,069 11.42 5

SINGAPORE 100,334 84,960 18.10 7

TAIWAN 95,545 136,663 -30.09 6

CANADA 77,656 74,824 3.78 8

HONGKONG 76,555 67,844 12.84 9

UNITED KINGDOM 71,088 66,592 6.75 10

MALAYSIA 62,893 59,988 4.84 11

GERMANY 41,990 39,936 5.14 12

OVERSEAS FILIPINO 130,413 133,885 -2.59

OTHERS 406,535 367,639 10.58

TOTAL 2,800,894 2,522,954 11.02

2012 2011 2012/2011

JAN-DEC JAN-DEC GROWTH RATE

De Luxe Hotels

Occupancy Rates 71.49 72.36 -1.20

Length of Stay 2.92 3.02 -3.28

First Class Hotels


Length of Stay 2.30 2.46 -6.70

Standard Hotels


Length of Stay 2.38 2.35 1.06

Economy Hotels


Length of Stay 2.13 1.92 11.18

STRIKES DECLARED WORKERS INVOLVED MAN-DAYS LOST (000)

2013 2012 2013 2012 2013 2013

JAN 0 0 - - - -

FEB - - - - - -

MAR - - - - - -

APR - - - - - -

MAY - - - - - -

JUN 1.00 - 400 - 1,200 -

JUL - 1.00 - 20 - 160

AUG - - - - - -

SEP - - - - - -

OCT - 2.00 - 189 - 637

NOV - - - - - -

DEC - - - - - -

TOTAL 1 3 400 209 1,200 797

CORPORATE BRIEFS

Philippine ANALYST

CORPORATE BRIEFS51

September 2013

BANKING AND FINANCE

BPI considers takeovers, expansion

The Bank of the Philippine Islands (BPI) is considering domestic takeovers and expanding its investment banking service to im-prove its position in Southeast Asia. BPI president Cezar Consing said the bank expects the country’s economic improvements to spur retail credit demand and borrowing by small and medium-sized businesses. The BPI failed to clinch a merger with Philippine National Bank in December, which would have created the nation’s largest lender of assets.

China Bank buys majority stake in Plantersbank

China Banking Corp. (China Bank) will be taking over the Planters Development Bank, acquiring as much as 2/3 of its shares. China Bank aims to strengthen its small and medium-enterprise (SME) lending business with the acquisition. Plantersbank has total assets of P52.7 billion as of May 2013, total loan portfolio of P33 billion, deposits of P43.6 billion and nationwide network of 78 branches. China Bank is in the midst of the most rapid expansion in its history, with 2 strategic areas focused on middle market/SME portfolio and network expansion program.

ELECTRICITY, WATER, AND GAS

Ayala unit starts wind farm construction

Northern Luzon UPC Asia Corp., a unit of Ayala Corp., will be constructing an 81-megawatt wind power project in Ilocos Norte. The wind project received a declaration of commerciality on June 17, allowing UPC to proceed with construction. Ayala’s wholly-owned unit AC Energy signed an agreement with UPC and Philippine Investment Alliance for Infrastructure to construct the wind project. Commercial operations will start late 2014 or early 2015. The Renewable Energy Management Bureau said that $220 million wind project will support government’s eff orts toward energy security.

San Miguel, K-Water take over hydro plant

San Miguel Corp. and Korea Water Resources Corp. (K-Water) tied up to operate the 218-megawatt Angat hydropower plant in Bulacan. San Miguel will get 60% of the plant’s equity and K-Water will get the remaining 40%, according to the Korean company. San Miguel will be handling management while K-Water will operate and maintain the Angat plant. K-Water won the bidding for the $440.88-million facility last 2010 but was unable to take over because of issues of foreign ownership of power assets.

FOOD & BEVERAGE MANUFACTURES

Pepsi local unit expands its facilities

Pepsi-Cola Products Philippines Inc. (PCPPI) is expanding its facilities due to the strong consumer demand for its products. The company will spend P1 billion for the expansion of its production capacity and logistics system. PCPPI plans to add 4 new manu-facturing lines in 4 diff erent plant in the Philippines, which will employ additional 1,500 employees. Each line will be opened in its existing plants in Muntinlupa City, Cebu and Davao. The company will also open its 12th manufacturing facility this year in Santo Tomas, Batangas. The company is targeting to expand its distribution network by 12% this year. It recently serves more than 500,000 outlets.

MINING AND QUARRYING

Philex Mining off ers P13.81-Bn stock in October

Philex Mining Corp. will off er rights for a P13.81 billion stock on Oct. 16 as a means to pay off debts and fund exploration projects. The amount is 12.3% more than the P12.3 billion approved by the miner’s board last March. The mining group will be off ering 2.47 billion shares at P5.60 apiece, which has a 40 to 45% discount from the average price of the company’s common shares. The off er period will run from Oct. 21 to Nov. 4, which is also the deadline of applications to subscribe and other requirements.

CORPORATE BRIEFS52


PETROLEUM PRODUCTS

Otto Energy earns petroleum service contract

Otto Energy Ltd., an oil and gas exploration fi rm, garnered a petroleum service contract (SC) covering an area located in waters south of Mindoro and west of Panay. Otto said the Department of Energy awarded the SC which allows it to start exploration in the area. Otto added that the company plans to spend at least $500,000 on a seismic study upon receiving the SC. The country’s SC allow companies 7 years for exploration, which is renewable for another 3 years.


AboitizLand acquires 60% stake in Batangas tech park

Aboitiz Equity Ventures, Inc. acquired a majority stake in the LIMA technology center, a 485-hectare industrial park in Batangas. AboitizLand signed a share purchase agreement with Alsons Land Corporation (ALC) to acquire the 60% interest in Lima Land Inc. (LLI) for P1.36 billion. This includes LLI’s interest in wholly-owned subsidiaries, Lima Utilities Corporation and Lima Water Corporation. The remaining 40% equity share in LLI is owned by Marubeni Corp. Locators at the industrial park comprise of manufacturers of automobile components, motorcycles, printers, plastic moldings and LCD projectors.

Alphaland opens leisure club in Makati

Alphaland Corp. has opened the newest private entertainment hub, The City Club, in Makati City located along Ayala Avenue Extension. The City Club occupies the top 3 fl oors of The Makati Place’s 6-storey podium with an area of 20, 000 square meters. The new club has 750 members as of the opening date. The City Club is an integral component of Alphaland Makati Place, which all residential unit owners are automatically members of the club.

Ayala sells P10-Bn preferred shares

Ayala Corp. is selling its 20 million preferred Class B shares at P10 billion, P500 per share. The shares will have a fi xed quarterly dividend rate based on a 10-year PDST-R2 benchmark plus spread. The company said that the shares are continuous, which will have a call option on the 10th and 15th year. Payment of the current dividends will be cumulative, while the preferred shares are non-convertible that have no voting and pre-emptive rights. Proceeds of the preferred share listing will be used to fund new investments, particularly infrastructure projects. Meanwhile, BPI Capital Corp. will be the issue manager and lead underwriter of the off ering.

Century Properties builds 1st Forbes-branded tower

Century Properties Group, in partnership with Forbes Media, is building the Forbes Media Tower in Makati City. The project will be the world’s 1st Forbes-branded commercial building, which will be located in Century City, a mixed-use development of Century Properties. It is estimated to have 60,000 square meters of premium offi ce space, which will be sold or leased to business owners, entrepreneurs and companies by the 1st quarter of 2014. The tower will provide meeting and event space. It is designed to host a fi ne-dining restaurant, fi tness center and exhibition facilities. The company said that Philippines was chosen due to its rapid growing market and strong relations with U.S. Forbes Media said that it is just the start of its grand plan to expand real-estate development projects around the world.

SMDC launched 3rd residential tower in Taguig

SM Development Corp. (SMDC) has launched the 3rd tower of its residential condominium, Grace Residences, in Taguig City. The company said the 3rd tower’s 1-bedroom unit will be sold at P1.97 million for the typical 22 square meters (sqm) unit. SMDC has received warm reception on the 1st 2 towers of its residential project from buyers. The 4-tower development is located on a 2.5 hectare lot along Cayetano Boulevard in Taguig City. It will have 3,500 units spread over a gross fl oor area of approximately 160,000 sqm which will be constructed over 3 to 5 years. In November 2012, Grace Residences’ 12-storey Tower A and 20-storey Tower B, were launched, while Tower D, the 4th tower of the project is expected to be launched in 2014. SMDC currently has 15 residential condominium projects in Metro Manila.

53CORPORATE BRIEFS


Vista Land spends P40Bn for expansion

Vista Land & Lifescapes, Inc. is spending P40 billion to expand its 60-hectare Lakefront community project in Sucat, Parañaque. The company has built 8 mid-rise buildings (MRB) in the 27 hectares of the property. The expansion will build an additional of 42 MRBs in the remaining 33 hectares. The buildings will be 5 to 6 storeys high, which will cost P300 million to P500 million per building. Vista Land has assigned 10 hectares of the lakefront property for commercial development. The company is expecting P80 billion revenues from the completion of Lakefront project. The development is line in the company’s target to attain 15% growth in 2013.

TRANSPORT SERVICES

AirAsia invests $30 million in ZestAir

AirAsia Philippines Inc. (AirAsia) has infused another $30 million in fi nancial assistance to Zest Airways Inc. (ZestAir) to help recover from losses resulting from fl ight suspension. On May 10, 2013, AirAsia acquired 85% stake in ZestAir and 100% of Asiawide Airways Inc. for $16 million. ZestAir incurred at least P280 million in losses during a 4-day suspension by the Civil Aviation Authority of the Philippines (CAAP) in late August for violation of safety standards. Chief executive Marianne Hontiveros also said that ZesAtir will carry the AirAsia brand once it was approved by the CAAP. AirAsia is currently doing fl eet and route planning for ZestAir.

CebuPac partners with DOT to promote Davao

On September 26, 2013, Cebu Pacifi c Air (CebuPac) entered into a partnership with the Department of Tourism to promote travel to Davao City. CebuPac said that apart from Davao’s wonderful tourist spots, it is a strategic location when doing business with other booming countries in the region such as Brunei, Indonesia and Malaysia. Also, CebuPac promotes Davao to tourists looking for new destinations to discover such as Samal Island which was included in the airline’s “Choose Your Island” campaign. CebuPac operates the most extensive route network in the Philippines and off ers fl ights to 22 international destinations.

Harbor Star cuts initial IPO to P1.88 per share

Harbor Star Shipping Services Inc. is posting an initial public off ering (IPO) from October 16-23, 2013. Its listing date is scheduled on October 30. Harbor Star president and chairman Geronimo Bella Jr. said that the fi nal off er price of their initial public off ering is P1.88 per share, amounting to a total of P341 million. Harbor Star plans to use the proceeds to acquire tugboats for domestic and international expansion and refl eeting. Currently, the company operates a fl eet of 27 tugboats, which are used at the major ports of Bataan, Batangas, Quezon, Cebu, Dipolog, Iloilo, Cagayan de Oro, Bohol, Leyte and Davao.

PAL acquires its 1st A330-300 Airbus plane

Philippine Airlines (PAL) has acquired its 1st A330-300 Airbus plane out of the 44 single-aisle A321s and 20 wide-body A330-300s it ordered. It expects to complete acquisition of the planes in 2019 as part of the airline’s refl eeting program worth nearly $10 billion. The planes will be used for the Middle East route. The new plane already served PAL’s Manila-Abu Dhabi route last October 1. It will also be deployed on some European routes starting November 4.

PAL seeks fuel surcharge for Europe fl ights

Philippine Airlines (PAL) sought permission from the Civil Aeronautics Board (CAB) to impose $170 in fuel surcharge for Europe. The fl ag carrier is set to mount fl ights to London on November 4. For other European destinations, PAL plans to fl y to Rome, Amsterdam and Frankfurt, among others, possibly next year. The applications were heard last September 24 and PAL is currently awaiting CAB’s decision.


54 INFRASTRUCTURE

Pres. Aquino gives green light to Skyway Stage 3 projectThe Metro Manila Skyway Stage 3 project is 1 of the 2 connector road projects of the North Luzon and South Luzon Expressway eyed to shorten travel time and decongest roads in Metro Manila.

Aside from the MMS Stage 3 project, another NLEX-SLEX Connector Road project – an unsolicited proposal from the Metro Pacifi c Tollways Development Corporation (MPTDC) – is expected to be approved and started during the Aquino administration. It was approved by the National Economic Development Authority (NEDA) on January 18 to proceed with a Swiss Challenge. But DOTC has called to drop the Swiss Challenge mandated for the proposal and instead require

President Benigno Aquino has approved (September 25) the construction of the Metro Manila Skyway (MMS) Stage 3 project, which will connect South Luzon

Expressway (SLEX) to the North Luzon Expressway (NLEX). The P26.5-billion project will be funded by the Citra Central Expressway Corporation. The Department of Transportation and Communications (DOTC) along with the Toll Regulatory Board (TRB) will oversee the construction of the project, which is now scheduled to begin early in the 2nd quarter of 2014. The project is undergoing preparatory works until end-2013.

The 1st section – from Buendia to Nagtahan – is expected to open in early 2016, just before President Aquino steps down. DOTC said it will coordinate with the Department of Public Works and Highways (DPWH), the Metro Manila Development Authority (MMDA), and local government units of Makati, Manila, and Quezon City to minimize traffi c inconvenience in the route of the project. Once the project is connected to NLEX-Balintawak, it is expected to reduce travel time from Buendia to Balintawak from 2 hours to 15 minutes. The new road is also expected to decongest EDSA and other major roads, such as Quezon Avenue, Araneta Avenue, Nagtahan Avenue, and Quirino Avenue.

The 1st section – from Buendia to Nagtahan – is expected to open in early 2016, just before Pres. Aquino steps down.


555INFRASTRUCTURE

NLEX-SLEX Connector Road Metro Manila Skyway Stage 3 (MMS Stage 3)

IMPLEMENTING AGENCYDPWH DOTC-TRB

PROJECT DESCRIPTION

It will be a 4-lane elevated expressway that is 13.4 km long from Buendia to the Manila Port District in Tondo, using the alignment of the Philippine National Railway (PNR). A separate P10-billion, 8-km NLEX-Harbor Link project will connect the road to NLEX.

It will mostly be elevated with 6 lanes and run 14.2 km from Skyway-Buendia to NLEX-Balintawak.

CONSTRUCTION TIMEFRAME2 years 2014-2017

PROJECT COSTP22.95 billion P26.5 billion

MPTDC to form a joint-venture with the Philippine National Construction Corporation, which holds the franchise for NLEX and SLEX. The government has decided to extend the existing joint-venture between MPTDC and PNCC in NLEX to expedite the implementation of the project and possibly lower toll rates. MPTDC said that it is now waiting for the President’s approval of the project structure to proceed with construction.

The MMS Stage 3 project is expected to take 3 years (2017) to connect to NLEX. Meanwhile, the NLEX-SLEX connector road is expected to take 2 years to complete construction from Skyway-Buendia to the Manila Port District in Tondo. Another 8-km road project, NLEX-Harbor Link, will connect the road to NLEX-Balintawak. Segment 9 – from NLEX to McArthur Highway – started construction in February 2013 and is expected to be completed next year, while Segment 10 is expected to be completed in 2 years.


56 INFRASTRUCTURE

DOTC on PPP after 3 deferred projects: ‘It is really just a sophisticated process’

Business leaders urged the government to review the PPP process after the bidding for 3 PPP projects under the DOTC were deferred. But for the Transportation department, ‘it’s just the nature of PPP.’

The European Chamber of Commerce of the Philippines (ECCP) urged the Department of Transportation and Communications (DOTC) to review their Public-Private Partnership (PPP) procedure after 3 problematic auctions. The PPP projects that had failed or were deferred recently were the Light Rail Transit 1 (LRT-1) extension project, Mactan-Cebu International Airport (MCIA) rehabilitation, and the Automated Fare Collection System (AFCS) for Metro Manila light rails. Rebidding of LRT-1 is scheduled in the 1st quarter of 2014, while the bidding for MCIA and AFCS are rescheduled for November 2013.

The bidding for the P60-billion LRT-1 extension – supposedly the biggest PPP to date – failed on August 15 after 4 pre-qualifi ed groups backed out while the only participant made a conditional offer, which DOTC refused. The conditions in the agreement concerning real property taxes and guaranteed fare increases were said to be the primary reasons. DOTC is now in the process of getting clearance from the National Economic and Development Authority for revising the concession agreement.

Meanwhile, the P17.2-billion MCIA rehabilitation project and the P1.72-billion AFCS for Metro Manila were also deferred days before the scheduled auctions on August 28 and 30 (respectively) as bidders requested officials to review the contracts.

DOTC claimed that the delays are both theirs and the private sector’s fault. The bidders in the LRT-1 extension project requested to postpone the bidding so they could further study and adjust their offers after some changes were made in the contract as a result of discussions held with the bidders. Meanwhile, bidders for the MCIA and AFCS also requested for a longer period of time to prepare. “Why will they feel bad when they are the ones requesting postponement or more time? They should feel bad if we don’t listen and just push through with the bid,” the DOTC said. It added that “nothing went wrong (in the process)… It’s just the nature of the PPP. It is really a sophisticated negotiation process ending in a competitive bid.”

Out of the 10 priority projects lined-up in 2010, 8 were under DOTC. More than 3 years later, only the LRT-1 extension contract bundled with the privatization and O&M contract made it to bidding – but failed. Of the 6 other projects, 2 (New Bohol Airport Development and Enhanced O&M, and Laguindingan Airport O&M) are still being reviewed for implementation under the PPP scheme, 2 projects (Puerto Princesa Airport O&M and LRT Line 2 O&M) are still in the feasibility study stage, and 2 (MRT 3 Privatization and O&M and New Daraga Airport Development) were removed from the PPP line-up. The government decided not to sell MRT-3 but fi nance its O&M through the Offi cial Development Assistance (ODA) fund. While the New Daraga Airport was implemented through national government funding.

In July 2013, former Budget and Social Security System chief Romulo Neri said that the slow progress in PPP implementation is caused by DOTC’s economic team that lacks the technical expertise to pursue PPP projects. He added that these people are not aggressive in implementing PPP projects as they are scared they will be charged criminally for presumed mistakes. The PPP Center, however, said that the implementation of the projects really just takes time.

The Philippines still managed to be faster in implementing projects than other countries with a PPP program and investors see that it is becoming more competitive. However, the quality of infrastructure and competitiveness index remained low in the past 4 years (see table).

Business groups want the government to implement projects faster to support aggressive economic growth. The ECCP has suggested that the thrust of DOTC on PPP be reviewed and new policies be applied that can speed up the process of PPP implementation, but no specifi c details on suggested policies on how to do that were given. The Management Association of the Philippines (MAP) has been trying to set a meeting with the DOTC to identify the reasons for the delays so the private sector can participate in resolving the issues. But the DOTC has not yet responded. Meanwhile, the PPP Center said it will be conducting a full review of the policies in the PPP program.

But it is faster than other countries.

PPP PROJECT CONTRACT STRUCTURE

PERIOD FROM ISSUANCE OF ITPB TO PRESENT

NUMBER OF PRE-QUALIFIED

BIDDERSCAUSE OF DELAY

P60-billion LRT-1 extension BOT 1 year and 2 ½ months 4 (but only 1 bidder)

Clarifi cations on real property taxes and guaranteed fare increases.

P17.5-billion MCIA rehabilitation project BROT 9 months 7 Revisiting the agreement on real property taxes.

P1.7-billion AFCS in Metro Manila Rails Supplier 9 months 5 Delineation of roles and obligations.

Note: ITPB = Invitation to Pre-Qualify to Bid; BOT = Build-Operate-Transfer; BROT = Build-Rehabilitate-Operate-TransferSource: PPP Center, various press releases.

DETAILS ON SOME DELAYED DOTC PPP PROJECTS

None of the 8 PPP projects of DOTC have been awarded.


575INFRASTRUCTURE

COUNTRIES PPP PROCUREMENT(IN MONTHS)

WEF INFRASTRUCTURE COMPETITIVENESS INDEX (SCORE AND RANK)

2010-2011 2011-2012 2012-2013 2013-2014 AVERAGE GROWTH IN SCORE

Philippines 14-18 2.92104th

3.09105th

3.1998th

3.4096th 5.2%

United Kingdom 22-35 5.888th

6.096th

6.226th

6.128th 1.4%

Canada 16-18 5.809th

5.8811th

5.8413th

5.8012th 0

Australia 14-18 5.4422nd

5.4324th

5.7018th

5.6018th 1%

India 24 3.4986th

3.6089th

3.6084th

3.6585th 1.5%

South Africa 35 3.9863rd

4.0262nd

4.1363rd

4.1366th 1.2%

The private sector has been off ering assistance to DOTC, but the government has not yet responded.

PPP Center said it will be conducting a full review of PPP policies.

The PPP program was initiated to implement infrastructure that the economy needs to become more functional and effi cient. But if the country wants to sustain and go beyond the 6-7% GDP growth ceiling in the future, it will have to be faster in implementing the projects. Three years ago, Britain offered to help the Aquino administration in drafting the PPP program, but this was not taken up. Britain can provide expertise to the Philippines in drafting rules for the implementation of the program since they started the scheme. In September, it again offered to lend its expertise on the PPP. There has been no response to date.

Only 2 of 5 contracts awarded for PSIP Phase 2

The Public-Private Partnership (PPP) Center awarded 2 of the 5 contracts for the PPP for School Infrastructure Project (PSIP) Phase 2, this accounts for less than half of the total number of classrooms to be built. PISP 2 is the 4th PPP project to exhibit diffi culties following the deferred projects under the Transportation department.

Megawide Construction Corp. and the consortium BSP & Co.-Vicente T. Lao Construction were the only bidders who qualifi ed for the fi nancial bids. The 2 other fi rms who prequalifi ed for the project were: D.M. Wenceslao and Associates, Inc.-DATEM, and Bright Future Educational Facilities Inc.-Riverbanks Development Corp. However, D.M. Wenceslao-DATEM withdrew their application and Bright Future-Riverbanks Development did not pass because of technical issues that were not resolved.

COMPARATIVE TABLE IN PPP PROCUREMENT AND INFRASTRUCTURE COMPETITIVENESS

Note: PPP Procurement starts from the Issuance of Invitation to Pre-Qualify to Bid and ends at the Issuance of Notice to Proceed.Sources: PPP Center, World Economic Forum (WEF) Global Competitiveness Reports.

Megawide Construction won Contract A, which will construct 2,440 classrooms in 982 schools in the Ilocos, Cagayan Valley, Central Luzon, and Cordillera regions. Meanwhile, BSP & Co.-Vicente T. Lao Construction consortium won Contract E, which will construct 1,930 classrooms in 750 schools at the Northern Mindanao and Caraga regions. Both fi rms offered less than the ceiling amount set by the government: Megawide offered P2.255 billion for Contract A (ceiling amount is P2.258 billion) and BSP & Co.-Vicente T. Lao offered P1.603 billion (ceiling amount is P1.604 billion).

PSIP 2 is an P8.8-billion project with a build-transfer arrangement where the contractors will be paid after the facilities are built. The project aims to construct 10,679 classrooms in over 4,000 schools in the country. Contracts B, C, and D account for 6,309 classrooms in 2,925 schools. Contract B will cover the MIMAROPA and Bicol regions; contract C on Western, Central, and Eastern Visayas; and contract D on the Zamboanga Peninsula, Davao, and SOCCSKSARGEN regions.

The lack of bids for PSIP 2 is the latest blow in the auction of PPP projects after 3 projects under the Department of Transportation and Communications (DOTC) were deferred. The lack of qualifi ed bidders and several technical issues were, again, identifi ed as the main reason why only 2 contracts were awarded for PSIP 2. Megawide Construction and BSP & Co.-Vicente T. Lao are given 20 days upon receipt of the notice of award to submit the post-award requirements under the Build-Operate-Transfer (BOT) Law before the contract signing. The PPP Bids and Awards Committee is still awaiting the approval of the National Economic and Development Authority (NEDA) for the rebidding of the remaining contracts for PSIP 2, and a schedule is yet to be announced.


58 INFRASTRUCTURE

PROJECT DETAILS OF THE PPP FOR SCHOOL INFRASTRUCTURE PROJECT PHASE 2

Project Description/Rationale: The project involves the designing, fi nancing, and constructing of 10,679 one-storey and two-storey classrooms. This includes furniture, fi xtures, and toilets in 5,033 public schools in 14 regions nationwide.

Implementing Agency: Department of Education (DepEd)

Estimated Project Cost: P8.8-billion (US$215-million)

Implementation Timeframe: 2013-2014

Procurement Mode: Solicited

PPP Structure: Build-Transfer (BT)

Project Timeline:

April 17, 2013: released the list of prequalifi ed bidders

July 18, 2013: bidding

September 30, 2013: notice of award

The lack of qualifi ed bidders and several technical issues were identifi ed as the main reason why only 2 contracts were awarded for PSIP 2.


595INFRASTRUCTURE

PROJECT TITLE IMPLEMENTING AGENCY

FUNDING SOURCE

CIVIL WORKS TIMEFRAME PROJECT COST STATUS / ISSUES

ROADS

Cavite-Laguna Expressway DPWH PPP 2015-2017 P35.4 billion

Deadline for submission of pre-qualifi cation documents was extended by 1 month to Oct. 23 after bidders requested DPWH to review the real property tax (RPT) component, which was set to be shouldered by the concessionaire. Bidding is expected to commence early in 1H2014.

Skyway Stage 3 DOTC-TRB PPP 2014-2017 P26.5 billionPres. Aquino approved the construction of the project. Preparatory works are underway and seen to be completed by end-2013. Construction will begin early in 2Q2014.

NLEX-SLEX Connector Road Project DPWH PPP 2013-2016 P22.95 billion

Awaiting Pres. Aquino’s approval after DOTC, DPWH, and DOJ agreed to expand the terms of the STOA of the joint venture between the MPIC and the Philippine National Construction Corp. (PNCC) to expedite implementation.

Ninoy Aquino International Airport (NAIA) Expressway Phase 2

DPWH PPP 2014-2015 P15.52 billion Detailed engineering design and right-of-way settlement is ongoing.

NLEX-Harbor Link (Segment 9 and 10) DPWH PPP 2013-2015 P9.7 billion

Segment 9 is expected to be completed in 1H2014 but a portion is still acquiring the right-of-way, while segment 10 just started settling the right-of-way with the Philippine National Railways and other private individuals, which is expected to take a year. Segment 10 is scheduled for completion in 2 years.

Star Toll way Upgrading DPWH PS 2013-2015 P2.3 billion

Sub-structure works on 3 of 7 bridges along the tollway are nearing completion. Star Infrastructure Development Corp. is trying to work ahead of schedule in preparation for future weather disturbances that could delay construction.

Daang Hari-SLEX Link Road Project DPWH PPP 2012-2014 P1.96 billion

Ayala (private proponent) and DPWH approved a memorandum of agreement expected to resolve the traffi c and environmental issues on the new design proposed for the linkage. The South Luzon Tollroad Corp. is still reviewing the drafted MOA. Construction is 30.24% complete.

RAILWAYS

LRT-1 South Extension – Construction/O&M DOTC/LRTA ODA/PPP 2014-2018 P59.2 billion Rebidding will commence in the 1Q2014. Awaiting NEDA approval for

revising the concession agreement.

MRT-3 Rehabilitation DOTC NG 2014-2016 P10 billion For post-qualifi cation of bidders.

AIRPORTS

Mactan-Cebu International Airport Expansion DOTC-MCIAA PPP 2014-2016 P17.5 billion

A new concession agreement was released and is currently awaiting NEDA approval. There are currently 7 pre-qualifi ed bidders. Bidding will begin on Nov. 15.

Puerto Princesa International Airport Expansion

DOTC ODA 2013-2015 P3.3 billionBid submission is due on Oct. 15. Korean companies Hanjin Heavy Industries Construction Co. Ltd. and Kumho Industrial Corp. have expressed interest in the project.

Caticlan Airport Development Project DOTC LGU 2010-2016 P2.51 billion Accomplished 78.72% of construction.

OTHER TRANSPORTATION PROJECTS

Cebu Bus Rapid Transit System DOTC PPP 2013-2015 P17.52 billion Under evaluation of World Bank.

Metro Manila Integrated Transport System DOTC-LTFRB PPP 2013-2016 P5.06 billion

Awaiting NEDA Board approval. Meanwhile, commuters fi led a complaint at the Supreme Court to issue a restraining order against policies on its implementation and declare it unconstitutional.

Automated Fare Collection System DOTC-LRTA PPP 2013-2014 P1.72 billion Bidding was postponed to November 2013. DOTC is still fi nalizing the

concession agreement and technical specifi cations.

IT/MODERNIZATION

Modernization of Philippine Orthopedic Center DOH PPP 2013-2016 P5.69 billion For NEDA ICC approval.

EDUCATION

PPP for School Infrastructure Project (PSIP) Phase 1

DEPED PPP 2013-2014 P16.28 billion100 sub-projects (342 classrooms) have been completed. Construction of 922 sub-projects (2,930 classrooms) is ongoing. Notices to Proceed for 1,581 sub-projects (5,493 classrooms) have been issued.

PSIP Phase 2 DEPED PPP 2013-2014 P8.8 billion2 contracts were awarded in Sept. 30. Megawide Construction Corp. won contract A, while BSP and Company Inc.-Vicente T. Lao Construction won contract E. 3 other contracts are still subject to bidding.

STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS AS OF SEPTEMBER 2013

Notes: Agencies - DEPED = Department of Education; DOH = Department of Health; DOTC = Department of Transportation and Communications; DPWH = Department of Public Works and Highways; LRTA = Light Rail Transit Authority; LTFRB = Land Transportation and Franchising Regulatory Board; LTO = Land Transportation Offi ce; MWSS = Metropolitan Waterworks and Sewerage System; NIA = National Irrigation Authority; TRB = Toll Regulatory Board;Funding – LGU = Local Government Unit; ODA = Offi cial Development Assistance; PPP = Public-Private Partnership; PS = Private Sector;

60 CONGRESSWATCH

Philippine ANALYST Septebmer 2013

Bill reorganizing PH statistical system signed into lawPres. Benigno Aquino III signed into law on 12 September Republic Act No. 10625 or the Philippine Statistical Act on 2013. RA 10625 which will consolidate the functions of the National Statistics Offi ce (NSO), National Statistical Coordination Board (NSCB), Bureau of Agricultural Statistics (BAS), and Bureau of Labor and Employment Statistics (BLES) into a single entity called the Philippine Statistics Authority (PSA).

The PSA will assume the functions and operations of the 4 agencies, summarized to include the following: Conduct of all national censuses and surveys, and

development of sectoral statisticsConsolidation of selected administrative recording

systems, including civil registrationsCompilation of national accountsDevelopment of statistical frameworks and standards,

and formulation of the country’s statistical development programThe PSA will be attached to the National Economic and

Development Authority (NEDA), and will be constituted from among the existing personnel of NSO, NSCB, BAS and BLES. According to an NSO offi cial, this may not necessarily result in lay-offs of employees but might call for changes in functions of some. In fact, PSA might even need to add more employees as existing personnel are deemed inadequate to meet the needs for statistical services in the country. R.A. 10625 also provides that as the 4 offi ces are abolished, their budgets, records, assets and personnel will be transferred to PSA.

The law also prescribes that the PSA Board will be the highest policy-making body on statistical matters. It will be chaired by the NEDA Director General, with the Department of Budget and Management (DBM) secretary as the vice chair. The Board will have representatives from each government department, the central bank, the Philippine Statistical Research and Training Institute (which replaces the Statistical Research and Training Center),

the Philippine Statistical Association, government corporations, the local government association and the private sector.

It will also have 5 sections – agriculture, industry, trade and services, environment and natural resources, prices and national accounts; labor and employment, population, women and gender, health and welfare, education, science and technology, and other socioeconomic sectors; census and survey design; theoretical statistics and statistical modelling; statistical information system and information technology – with 7 members each.

The PSA will be headed by the National Statistician, to be appointed by the President from a list of candidates drawn up by the Philippine Statistical Association, UP Los Banos Institute of Statistics, UP School of Statistics, Bangko Sentral

616CONGRESSWATCH


ng Pilipinas (BSP) Department of Economic Statistics and NEDA. The National Statistician will have a 5-year term.

The Palace said “the newly-signed law aims to promote the orderly development of a statistical system capable of promoting timely, accurate and useful data for the government and the public, and support decentralization through the establishment of a statistical infrastructure necessary to service the statistical needs of local development planning.”

NEDA also views the consolidation would lead to a one-stop shop for all statistical requirements of the government and the private sector, with the exception of the data produced by the BSP, such as monetary and banking statistics, foreign debt and balance of payments, which aren’t covered by the new law. Nonetheless, one of the signifi cant by-products of the consolidation could be the development of a centralized website for all government data (data.gov.ph), which the Department of Budget and Management mentioned in one of the recent forums held at the AIM Conference Center.

IMF pushes legislative reforms highlighted in SONA

The International Monetary Fund (IMF) is pushing for the passage of legislations on Fiscal Incentives, Cabotage and Mining that are expected to boost the country’s competitiveness and infl ow of Foreign Direct Investments (FDI).

The International Monetary Fund (IMF) is urging the

Congress to prioritize 3 legislations outlined in President Benigno Aquino III’s State of the Nation Address (SONA): Fiscal incentives rationalization, Cabotage liberalization, Mining fi scal reform. The legislations according to IMF must be passed as soon as possible to help foster sustainable growth by attracting more Foreign Direct Investments (FDI). The Congress is accelerating its efforts to pass these laws.

On top of IMF’s list is the fi scal incentives rationalization, which was fi nally passed in Congress on its 3rd and fi nal reading on August 15. The law has simplifi ed the procedures (see table) and has given the Board of Investments (BOI) sole authority over granting incentives to companies. With this, the

government is expected to generate up to P19 billion additional revenues annually while attracting more FDIs. Senate estimates that the level of FDI rises by 2% for every 1 percentage point reduction in the corporate income tax (CIT) rate. Fiscal incentives has long been used as a way of making the country’s investment climate more favourable but still the Philippines continue to lag behind its neighbouring countries (see table). IMF resident representative Shanaka Peiris said that with the rationalization of incentives, there will be a level playing fi eld for big companies and small and medium enterprises (SME).

The 2nd measure is the amendment to the Cabotage law. The Cabotage law currently gives domestic vessels exclusive right to ply Philippine waters. President Aquino stressed the need to let foreign vessels freely engage in trade in the country’s waters and lower the cost of transporting agricultural goods. At present, an international shipping line that carries 1 twenty-foot equivalent unit (TEU) cargo from Hong Kong to Cebu only charges P4,300, while a domestic shipping line charges P15,000 for a ridiculously shorter trip from Cebu to Cagayan de Oro for the same volume. In July, Cagayan de Oro Representative Rufus Rodriguez fi led House Bill 1789 which seeks to repeal the Cabotage law. This measure has been opposed by domestic players. But, just like the Sin Tax reform, Senate President Franklin Drilon said that Pres. Aquino will utilize his massive popularity to get the bill through Congress. The government must fi rst be able to weigh the interests of industry players particularly for the protection of the domestic shipping industry. The Department of Trade and Industry (DTI) is currently evaluating the pros and cons of passing the bill. DTI said it will present the results to Congress for consideration but have not yet announced when.

Another important yet contentious measure is the mining fi scal reform. On September 22, the Mines and Geosciences Bureau (MGB) submitted a draft of the proposed changes to the revenue-sharing scheme to the Offi ce of the President for approval. MGB director Leo Jasareno said it could soon be approved but did not disclose any information about the proposal. The country’s largest miners urged a single tax rate regime warning the government that any increase in current taxes will only result to an even less attractive mining industry. But, MGB made an assurance that whatever comes out will be competitive. At fi rst, the government intended to increase the government’s share with a 10% excise tax rate in lieu of the existing 2% excise tax and a 3% windfall tax. But, due to the sentiments of miners, the

TYPE OF INCENTIVE AVAILMENT PROCEDURES

1. Income Tax-Based Incentives

Submission of (a) Certifi cate of Eligibility and (b) Income Tax Return (ITR)/Annual Information Return (AIR) to be validated by the Investments Promotion Agency (IPA); IPA will endorse result of validation to the Bureau of Internal Revenue (BIR) after 1 year of fi lling of claim for Income Tax Holiday (ITH)

2. 50% Reduction from Corporate Income Taxa. Double Deduction for Training Expensesb. Double Deduction for Research and Development

Secure corresponding certifi cate of entitlement upon fi lling application for incentives from IPA

3. Value Added Tax (VAT) and Customs Duties Exemption on Capital Equipment Secure approval of IPA before any sale, transfer or disposition of capital equipment

4. VAT Refund Mechanism on Importation of Capital Equipment and/or raw materials

File a claim for VAT within 1 year from the date of actual importation; Shall be processed and acted upon within 30 days

PROCEDURE IN GRANTING INCENTIVES (CHAPTER 3, HB 4395 (INVESTMENTS AND INCENTIVES CODE)

Source:House of Representatives (2013)

62 CONGRESSWATCH


government have been more inclined to maintain the current tax regime. Instead, it will remove all incentives and impose a 5% royalty whether the site is on a reserved land or not.

IMF said that the SONA was comprehensive in a sense that it dealt with the strong stature of the economy and how it could be sustained – through the enactment of these laws. While the Philippine government is fostering stronger and more inclusive growth, it needs to speed up the legislation and take advantage of the situation given the country’s investment grade status and improved rankings.

Source:United Nations Conference on Trade and Delopment (2013) — Global Invvestment Trends Monitor

COUNTRIES 1970 - 1989 1990 – 20092010 – 2012

FDI % SHARE Indonesia 0.4 2.5 17.3 17.0

Malaysia 0.6 4.5 10.4 10.2

Philippines 0.2 1.4 1.4 1.3

Singapore 1.1 15.4 55.7 54.7

Thailand 0.3 4.8 9.1 9.0

Vietnam 0.0 2.4 7.9 7.8

Total 2.6 31.1 101.8 100

ASEAN-6 FDI ANNUAL AVERAGE BY 20-YEAR INTERVAL (IN $ BILLION)

63

CONTENTS Overviews Global Outlook

Regional Outlook

North Asia Japan

China

Hong Kong

Taiwan

South Korea

Southeast Asia Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam

South Asia India

Australasia Australia

New Zealand

ww

w.im

aasi

a.co

m

CONFIDENTIAL

Asia Pacific Executive Brief September 2013 © IMA Asia

Editor: Richard Martin ([email protected]) Regional economist: Andrew Hordern ([email protected]) Consulting economist: Kostas Panagiotou ([email protected])

Asia Pacific Executive Brief

September 2013 www.imaasia.com

64

Global outlook A mild recovery builds in 2H’13 … with a new global growth phase from 2014

A mild global recovery has consolidated in Q3 and shows every sign of unfolding into a steady expansion in 2014. Purchasing managers’ indices (PMIs) in the US, EU, and China point to better demand and rising new orders, while the shipping industry is at last reporting a rise in orders and prices after five years of massive over-capacity. Brokers are forecasting a 13% lift in coal shipments next year, a 9% rise in iron ore cargoes, and a 3.8% rise in grain and soybean shipments. Commodity prices are rising in tandem with a recovery in demand from China. Yet the global market still suffers from overcapacity, looking for US$4-6tr of additional global demand (typical of the 2000 decade), and only finding $1.5tr last year and $2.5tr this year. This has capped prices and limited employment growth. We don’t expect global oversupply to clear until late 2014 or 2015.

Key issues

… QE tapering & the US budget

… new reforms in China

Developments in three areas could have a big impact on the outlook. The first is the uncertain path for reducing quantitative easing (QE) in the US. The four months from May, when Fed Chairman Bernanke said he was considering QE tapering, showed how uncertain the way forward is and the potential of QE tapering to destabilise markets. A second issue to watch is another budget battle in Washington, which could derail US growth and trigger currency volatility. Finally, China seems close to announcing a new wave of domestic reforms that will likely spill over into global markets, hopefully in a positive way.

A strong US recovery … based on better balance sheets

The US like Europe suffered a balance sheet-driven recession, but has done a much better job of recovering, which can be measured by falling debt levels (as a % of GDP) and stronger balance sheets for households, corporates, and banks. Two risks lie ahead. The first is a reduction in QE with the 10-year bond already rising from 2% towards 3% on the rumour. A normalisation of interest rate should be cause for celebration as it means the US has entered a normal expansion with the potential for 3-4% growth in 2014 and 2015. Yet the equity market rally – up 25%ytd – appears well ahead of reality and QE tapering may be the trigger for a downward correction in the next 3-6 months. This shouldn’t stop the recovery, but it will unnerve households, corporates and investors. Gridlock on the US budget is a second risk, but we’ll wait to see if it occurs before changing our forecasts. On the upside, fracking lifts US growth by boosting consumers (who pay less for energy), supporting major capex, manufacturing and jobs growth, and reducing the trade deficit.

The Euro area … less risk … but little growth

While the Euro area is barely growing, its move from recession in 2012 (when it subtracted US$0.9tr from global demand growth) to recovery in 2013 (when it should add $0.5tr) is the biggest swing factor towards stronger global growth in 2013. The good news in Q3 is that it’s not just German growth lifting the Euro area. The PMIs for peripheral members of the 17-country zone have started to recover and in September ratings agency Moody’s handed out the first post-GFC upgrade in Europe by moving Ireland to a Stable outlook from Negative. Greece and Portugal will need another bailout, but the risk of a crisis is receding. Yet the Euro area has still done too little to assist private sector deleveraging and that ensures weak trend growth to the end of this decade. Mrs Merkel’s election victory in September means there will be no change in Euro zone policy in the foreseeable future.

Emerging markets

The mild shock wave from Bernanke’s thoughts about QE tapering triggered 12-20% falls for some emerging market (EM) currencies (they’ve since partly recovered on the September pause). QE tapering doesn’t mean an EM crisis, but it will encourage better policies.

IMA Asia’s forecasts 2010 2011 2012 2013 2014

World – Real GDP growth, % 5.2 3.9 3.1 3.1 3.8 - US 2.5 1.8 2.8 2.1 3.1 - Euro area 2.0 1.5 -0.6 -0.6 0.9 - Asia/Pacific (14) 7.3 4.4 4.5 4.2 4.6 - NICs (4) 7.5 3.9 1.8 2.4 3.2 - Developing Asia (7) 9.9 8.2 6.8 6.5 6.6 - ASEAN (5) 7.0 4.5 6.2 5.1 5.4

World goods & services trade volume, % growth 12.5 6.0 2.5 3.1 5.4 shInterest rates, US Fed target rate, year end, % 0.10 0.10 0.10 0.10 1.00 Inflation, CPI, US, year avg., % 1.6 3.1 2.1 1.5 1.7 Inflation, CPI, Euro area, % 1.6 2.7 1.9 1.1 1.7 Crude oil, avg of 3 spot crudes, US$ 79 104 105 99 95 US$ / Euro 1, year average rate 1.33 1.39 1.29 1.26 1.24 Yen / US$1, year average rate 88 80 80 97 103

The Asia/Pacific 14 = the countries on the forecast summary page. NICs are the newly industrialised countries = Korea, Taiwan, HK, Singapore. The ASEAN 5 = Indonesia, Thailand, Malaysia, Philippines and Vietnam. Developing Asia = ASEAN 5 + China and India. IMA Asia forecasts.

Richard Martin, IMA Asia Email: [email protected]



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Regional outlook Summary of forecasts in this month’s Asia Brief GDP (Expenditure), real growth, % 2010 2011 2012 2013 2014

Japan 4.7 -0.6 1.9 1.5 1.5 China 10.3 9.2 7.8 7.5 7.4 Hong Kong 6.8 4.9 1.5 2.6 3.3

Taiwan 10.8 4.1 1.3 2.4 3.4 South Korea 6.3 3.7 2.0 2.3 3.0 Indonesia 6.2 6.5 6.2 5.6 5.4

Malaysia 7.4 5.1 5.6 4.3 4.8 Philippines 7.6 3.6 6.8 7.0 6.8 Singapore 14.8 5.2 1.3 2.6 5.6

Thailand 7.8 0.1 6.5 3.6 4.5 Vietnam 6.4 6.2 5.2 5.2 6.0 India (CY) 11.2 7.7 3.8 3.9 4.7

Australia 2.6 2.4 3.7 2.3 2.7 New Zealand 0.9 1.3 3.2 2.0 3.6 Inflation, CPI year average, % 2010 2011 2012 2013 2014

Japan -0.7 -0.3 0.0 -0.1 1.3 China 3.3 5.4 2.7 2.6 3.0 Hong Kong (composite CPI) 2.3 5.3 4.1 4.0 3.8

Taiwan 1.0 1.4 1.9 0.9 0.9 South Korea 2.9 4.0 2.2 1.3 1.7 Indonesia 5.1 5.4 4.3 7.1 7.7


Thailand 3.3 3.8 3.0 2.6 3.8 Vietnam 9.2 18.7 9.1 6.8 5.8 India (CY CPI urban non-manual workers) 12.0 8.9 9.8 9.3 7.2

Australia 2.9 3.3 1.8 2.3 2.6 New Zealand 2.3 4.0 1.1 1.3 2.9 Exchange rate to US$1, year avg. 2010 2011 2012 2013 2014

Japan 88 80 80 97 103 China 6.77 6.46 6.31 6.20 6.12 Hong Kong 7.77 7.78 7.76 7.76 7.76

Taiwan 31.6 29.5 29.6 29.7 29.4 South Korea 1,159 1,108 1,125 1,114 1,125 Indonesia 9,086 8,776 9,384 10,421 11,650


Thailand 31.7 30.5 31.1 30.7 32.5 Vietnam 19,151 20,681 20,847 21,100 21,300 India (FY) 45.8 46.6 53.4 60.0 63.5

Australia 1.09 0.96 0.96 1.06 1.20 New Zealand 1.39 1.26 1.23 1.23 1.27 Sources: CEIC, central banks, and national statistics offices. Forecasts are by IMA Asia.



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Regional outlook Political & policy issues to watch Big changes loom in Asia

As the end of 2013 approaches there’s a sense of imminent change in Asia. In the two biggest markets – China and Japan – we are waiting to hear about new reforms that could well change the way these markets work and grow. In India and Indonesia we are waiting for elections that look set to be crucial to the long-term attractiveness of these large emerging markets, which have claimed priority in corporate planning in the last decade.

China is set to launch a new reform wave … while Japan might at last deregulate

In the last few months, Xi Jinping in China and PM Abe in Japan have both emerged as unusually strong leaders. Both promote a rise in nationalism, yet that is thankfully muted with the main focus for now on domestic reforms to lower risk and boost growth. If both are modestly successful they will produce stable growth that will play a critical role in the next global expansion. In China, attention is focused on the 3rd Plenum meeting, which is due in November and is expected to see a return to a wide ranging reform program after a decade of minimal reform. This should set the stage for a transition to more mature growth for China’s increasingly wealthy households. The policies will also affect the space allowed for foreign companies in China over the rest of this decade. In Japan, PM Abe should clarify in the next few months the extent of his “third arrow”, which focuses on reforms to reinvigorate domestic demand growth. He is not a natural reformer, but a reform bandwagon is building and it may well encourage him to do more than he first intended.

Modi moves up in India’s 2014 race … as does Jokowi in Indonesia’s

The leadership changes looming in the 2014 elections for India and Indonesia will be crucial to both markets. The last month has seen outsiders who could be good leaders move forward in both contests. In India, the controversial Narendra Modi has been nominated as the PM if his party, the BJP, wins sufficient votes and support from other parties to form government. He has proved a competent leader of the state of Gujarat and he now has eight months to convince Indian voters and minor parties that his Hindu nationalist leanings are less important that his capacity to return India to a strong growth path. In Indonesia, Jokowi, the new mayor of Jakarta, has yet to enter the race, but is gaining widespread support from voters who want good government with less corruption.

Outlook for the market Asia will gain from better exports in 2014

Our latest calculations show a mild rise in growth for 2014, with the pace for the region as a whole lifting to 4.6% in 2014 from 4.2% this year (see the table on the Global Outlook page). As a result, Asia should continue to take global market share from every other region. We expect better global demand to have a bigger (positive) impact on the region than the negative impact of QE tapering in the US, even though India and Indonesia have been adversely affected this year by the latter.

A realignment of growth in Asia … favouring ASEAN

The standout development in our forecast is the realignment of growth within Asia. China drops from 11%+ annual growth in the 2005-10 period to 7.5% for 2013-14 and 6% for the 2015-20 period. India, which achieved 8%+ over 2005-10 and hoped for 9%pa over 2010-20 will have to settle for 6%pa for the rest of this decade. Meanwhile, ASEAN will see its growth tick up from 5.5%pa for the 2000 decade to 6% for the decade to 2020, which reasserts the macro case for a better return from ASEAN than India this decade.

Catch-up in the Philippines & Vietnam

The Philippines and Vietnam stand out as the two “catch-up” opportunities in Asia this decade after 40+ years of appalling government and wars in both countries. Indeed the Philippines in Q2 was neck and neck with China at the top of Asia’s growth table. While the economic base is small in both cases both have 80-90m people.

Big challenges for India … and for Australia

India and Australia face the biggest challenges. In India’s case they are readily apparent as growth has plunged to 4-5%, half the rate the country hoped for. Moreover, the economic and political outlook is poor and foreign companies will reconsider their strategies for India unless the next government can bring stability and higher growth. In Australia, the big challenge is not yet clear in the data nor the political debate. It lies in a major reduction in fixed investment in the resources sector over the rest of the decade that is unlikely to be offset by rising resources exports or capex in other sectors. This looks certain to lower Australia’s growth rate and the A$.

Richard Martin, IMA Asia Email: [email protected]



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Japan Political & policy issues to watch

Next April’s sales tax hike … watch for a surge & then a slump in demand

Japan’s outlook has improved this year, but continued optimism will depend on how PM Abe navigates three tricky policy areas. His immediate challenge is an October decision on whether to lift the sales tax from 5% to 8% next April 1 and then to 10% in FY2015. Some say this will tumble Japan back into a recession while others argue that if it is not done Japan faces a fiscal crisis as public debt is over 200% of GDP. It is likely he will lift the tax and aim to offset its negative impact with a stimulus package for households (another option would be to phase it in at one percentage point a year). Consumers are already pulling forward big ticket purchases from next year to avoid the higher tax so companies should prepare for a sales surge and then a slump. The October 1 Tankan (business confidence) survey will be an important guide to PM Abe’s decision.

TPP trade talks … could open up the market

If Japan is to lift its trend growth rate to the end of this decade above 1%pa then PM Abe will also have to deliver on his promise to deregulate the domestic economy. One tool for doing this is Japan’s recent entry into the Trans Pacific Partnership (TPP) trade talks led by the US. A basic agreement on tariff cuts is sought by the end of October, with Japanese negotiators now heading to the US. Japan may open up everything but its food markets and even there some ground may have to be given.

Japan is now nuclear free … with rising power prices & a trade deficit

Japan is also grappling with higher energy costs as its last operating nuclear reactor has closed for maintenance and the government will find it hard to restart it along with a dozen others that now meet more stringent safety standards. Continuing bad news out of Fukushima has swung public opinion against nuclear power even though electricity prices have jumped. Extra imports of oil, coal and gas have pushed the trade account into deficit and slashed the current account surplus by two-thirds. The next step in this crisis is a major deregulation of electricity generation and transmission.

Outlook for the market

Rising optimism lifts the outlook

Japan’s outlook is improving thanks to a weaker Yen, a gradual reflation of the property market after a 22-year decline, and rising business and consumer optimism. Key developments include the election of a government championing growth through reform last December, control over the upper house passing to the government in July, a new central bank head implementing super quantitative easing (QE), and winning the 2020 Olympic Games. While it is unclear if PM Abe will deliver the structural reforms that will lift trend growth above 1%pa, he has been quick to encourage the positive momentum. Our forecast for this year is now 1.5% (previously 1.4%) with the same in 2014 (previously 1.2%) while our trend forecast for 2015-20 has risen from 0.6%pa to 0.9%pa.

A lift in property and stock prices is underway

Harking back to the 1964 Tokyo Olympics the 2020 Tokyo Games should be a useful tool to build momentum for a recovery in property prices and a rebuilding effort in Tokyo that will spread from Games facilities to commercial, industrial, and residential properties. Even before winning the games the trend was up, with property firm JLL reporting that sales of offices, warehouses, and retail space rose 85% to Yen 2tr in 1H’13, on track for the biggest increase in five years. Feeding into the property recovery is a 42%ytd rise in the Nikkei.

But consumers have yet to spend more … & exports are falling

While consumer optimism is up, consumer spending has yet to lift with retail sales to July down 0.2%ytd and car sales to August down 8%ytd. The looming April 1 sales tax hike will boost property and durable sales through to Q1’13, but after that demand could contract for three or more quarters. Real growth in consumer spending could drop to 0.4% next year from 1.9% this year and 2.3% in 2012. Nor is there any sign of a lift in manufacturing, with industrial production down 4.4%ytd by August and exports down 12.8%ytd by July (US$ basis) as Japan’s firms suffer from a boycott in China. Industrial output will likely fall 3.3% this year, with a weak 1.8% rise next year from 0.6% in 2012.

A steady Yen at 100 to US$1

At around 100=US$1 the Yen is weak enough to restore export competitiveness and to have a big impact on remitted income for exporters and households. It should eventually help the trade balance recover and we expect this level to be maintained through 2014.

2010 2011 2012 2013 2014GDP, real growth (2005p), % 4.7 -0.6 1.9 1.5 1.5 CPI, year average, % -0.7 -0.3 0.0 -0.1 1.3 Overnight call rate, year end, % 0.10 0.10 0.10 0.10 0.10 Yen to US$1, year average 88 80 80 97 103

Sources: 2010-2012 data from the BOJ and government sources; 2013-2014 forecasts by IMA Asia



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China Political & policy issues to watch Waiting for the 3rd plenum in November … & a new wave of reform

After a decade of rapid growth but little reform, China’s new leader, Xi Jinping, appears set to launch a new round of reform in November. Expectations of the 3rd Plenum, a key policy meeting held every five years, are sky high, yet it’s likely that the changes will be presented as an evolution of existing programs. The main goal with be de-risking growth, as the investment-led model of the last decade led to a jump in financial sector risk and a sharp fall in return on capital. Better capex decisions likely mean more market-based rules and slower capex growth, which will mean slower GDP growth. This will have fundamental implications for the construction, property, and financial sectors, and for the role of state-owned enterprises. Major decisions are also likely for the consumer sector, touching on areas like urbanisation and the household registration system.

A crackdown on everything … as China has a strong leader

China has been awash with political campaigns this year, ranging from suppression of mooncakes to arresting the head of the holding company for state owned enterprises. Foreign firms have not been spared, with some caught up in price fixing allegations and a fierce examination of practices in the pharmaceutical sector. In part, the campaigns address rising public concern over corruption, high prices, and sharp practices. However, they also underscore the power of Xi Jinping, which suggests a shift away from the consensus leadership of the last decade, and that may be a plus for reform.

Outlook for the market A mild lift in growth in 2H’13 … watch for the impact of the 3rd Plenum

China is recovering from a mid-year slump caused by a brief credit crunch and soft exports. Export growth has since lifted, reaching 6%yoy in the first two months of Q3’13, up from a 3.7%yoy in Q2’13, while industrial production has lifted to 10%yoy from 9%yoy in Q2’13. This recovery will likely support 7.5% GDP growth in 2013, down from 7.8% in 2012. Stronger exports should ensure GDP growth close to that rate in 2014. What we don’t know are the policies to be announced at the 3rd Plenum. Urbanisation policies have the potential to provide a lift to consumer and overall GDP growth.

Manufacturing lifts

China’s manufacturing sector is improving on easier credit conditions, an acceleration in some major infrastructure projects, and a lift in exports. The official PMI, which captures heavy industry, climbed to 51 in August (above 50 means expansion) from 50.3 in July. The HSBC PMI, which reflects smaller firms, also rose above 50 in August (to 50.1) for the first time since April and the flash estimate for September reached 51.2. Industrial growth of 9-9.5%yoy in 1H’13 has given way to 10%yoy growth in 2H’13, and that pace should be maintained in 2014.

Construction slowed in 2013 … with 2014 dependent on new policy settings

Construction GDP growth is estimated to have eased to 7.5% in 2013 from 9.3% in 2012 due to steps to curb some questionable local government projects, a halt to some big infrastructure projects (since eased), and measures to prevent rapid growth in prices and construction of high-end properties. A drive to lift construction of social housing appears to have got into gear, but did not fully offset slower growth elsewhere. Policies in all these areas could well shift at the 3rd Plenum when China should release details of the next phase of its massive urbanisation program. An issue to watch is whether the authorities places more focus on replacing substandard urban housing and allows existing home owners to use their fast rising incomes and savings for investment in residential upgrading.

Steady demand from consumers

While retail sales growth slowed to 12.8%ytd by August from 14.3% in 2012, the slowdown appears centred on those sectors hit by the campaign against official extravagance (alcoholic beverages and those mooncakes). Most other consumer sectors report solid growth, which looks set to continue through 2014.

Mild inflation & a slow rise for the Yuan

Inflation in 2014 may edge above the 2-3% band of this year, as demand improves but there’s little reason for significant tightening. The consensus view is for a 1-2%pa rise for the Yuan over 2013 and 2014. Yet after several years of appreciation combined with big pay rises, China may slow or halt appreciation to maintain competitiveness in 2014.

2010 2011 2012 2013 2014 GDP, real growth, % 10.3 9.2 7.8 7.5 7.4 CPI, year average, % 3.3 5.4 2.7 2.6 3.0 PBOC 1-year loan, at Dec., % 5.81 6.56 6.00 5.75 5.25 Yuan to US$1, year average 6.77 6.46 6.31 6.20 6.12 Sources: 2010-12 data from CEIC and government agencies; 2013-14 forecasts by IMA Asia.



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Hong Kong Political & policy issues to watch High housing targets … may create problems … but a surge in housing is still expected

Chief Executive CY Leung is trying to lift his popularity with the HK people by improving housing affordability. On top of recent measures to discourage mainlanders buying property, his government has announced plans to boost the housing supply. Leung wants to build an annual average of 28,200 public flats and 18,800 private flats for the next 10 years, up from under 20,000 total flats pa over the past five years. This new supply could improve housing affordability. However, finding room for an extra half a million flats will require land to be taken from farming or nature reserves, a difficult task due to strong vested interests. In addition, the public housing authority currently lacks the resources to triple construction. While these struggles will likely stop Leung from reaching his targets, it will not prevent a rise in housing construction.

Democracy calls lead to rising tensions

Tensions between pro-Democracy and pro-Beijing forces have risen and may well ramp up when the government releases a consultation paper in the next few months. Democracy advocates are demanding “genuine universal suffrage” for the Chief Executive election in 2017, and plan to stage a large-scale CBD protest next year if this condition is not met. Verbal support for a smooth transition to democracy from US and UK government officials has drawn rebukes from both CY Leung and Chinese officials. And pro-Beijing forces are pushing back, taking out advertisements against the protest and encouraging the HK police to stand up to any demonstration.

Expanded services pact

China expanded its Closer Economic Partnership Arrangement (CEPA) with HK in August, further opening the services trade and opportunities for HK-based firms, including MNCs.

Outlook for the market GDP to soften in 2H’13 … rise in 2014

The HK economy strengthened in 1H’13, as an influx of Chinese tourists and public construction lifted GDP growth to 3.1%yoy from 1.5% in 2012. Growth is expected to ease in 2H’13. Soft global demand has pushed the HSBC PMI below the 50-contraction level since April, while tourism and consumer spending are expected to slow. Stronger global demand and a flattening out of private building will help spur the economy in 2014.

Mixed 1H’13 for construction … new housing plan to filter through from 2015

Construction had a mixed 1H’13. Private construction investment fell by 6%yoy, as government measures to slow the property sector caused developers to delay building. But work on infrastructure projects, including the HK-Macau-Zhuhai bridge and MTR extensions, pushed up public construction by 5%yoy. The slowdown in the private sector is expected to continue in 2H’13, driving total construction investment down 2% in 2013 from a 13% rise in 2012. Construction investment is forecast to rise a mild 1% in 2014. The government’s new public housing plan will likely boost construction from 2015.

Consumer growth to ease in 2H’13 … mild lift in 2014

Consumer spending grew a strong 5.3%yoy in 1H’13, but will likely ease in 2H’13. Softer tourist arrivals and a rise in white collar unemployment pushed down retail sales growth to 9.5%yoy in July from 14%yoy in 1H’13. Soft demand for electronics caused durable sales to fall 9%yoy. Overall, consumption growth is expected to slow to 4.1% in 2013. Better consumer sentiment due to a stronger job market will likely raise growth to 4.5% in 2014.

Service sectors: mixed results

HK’s service sectors have had mixed results in mid-2013. Sea cargo has recovered following the dock workers’ strike, growing 9%yoy in July from a 4% rise in 1H’13. But air cargo fell 10%yoy in the first two months of Q3’13 on softer Chinese demand. The expected tapering US quantitative easing has affected the stock market, pushing down equity raised by 69%yoy in the first two months of Q3’13.

Inflation blip

Inflation was up 6.9%yoy in July from 4.1%yoy in June, thanks to base effects from 2012’s property measures. Moderate demand will temper prices to 2014. The HK$-US$ link will remain through the forecast period, forcing HK interest rates to rise when US rates do.

2010 2011 2012 2013 2014 GDP, real growth, % 6.8 4.9 1.5 2.6 3.3 Composite CPI (04/05), year average, % 2.3 5.3 4.1 4.0 3.8 Discount window base rate, % year end 0.50 0.50 0.50 0.50 1.40 HK$ to US$1, year average 7.77 7.78 7.76 7.76 7.76 Sources: 2010-2012 from Censtat, HKMA, and CEIC; 2013-2014 by IMA Asia.

Dr Mark Michelson, Chairman, Asia CEO Forum (Hong Kong) Tel: (852) 2530-1115 Fax: (852) 2530-1125 Email: [email protected]



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Taiwan

Political & policy issues to watch President Ma’s battle with the Speaker … may backfire

President Ma Ying-Jeou of the KMT made a power play in early September, revoking the party membership of Wang Jyn-Ping, the long-standing Speaker of the Legislative Yuan (parliament) and a KMT heavyweight. The move, which could force Wang to give up the speakership, was triggered by his apparent support for the opposition DPP (he allegedly pressured prosecutors to drop an appeal against the acquittal of the DPP’s caucus leader on corruption charges). The popular Wang has appealed to the courts against his removal, and the issue could backfire on an unpopular president.

The high price of legislative grid-lock … for trade deals & power supply

President Ma’s low popularity rating (about 10%) and perceived ineffectiveness has left him unable to discipline rogue KMT legislators. This has created gridlock in the parliament, with the opposition able to block key legislation, including ratification of the services agreement with China signed in June and the enabling bill for the referendum on finishing the fourth nuclear power plant (of which construction is 96% complete). Delays in both areas raise uncertainties about growth in the next few years as well as Taiwan’s prospects for signing further trade deals. Other key legislation that may be at risk includes the budget for FY2014 and pension reforms. While President Ma has begun reforms to cut back generous pension schemes, further cuts are needed to ensure long-term budget stability.

Outlook for the market A mild upturn lies ahead … on a rise in electronics exports

Taiwan’s export-driven economy is highly sensitive to global demand growth, particularly for electronics goods. With weak global IT demand this year, Taiwan’s exports grew just 2.5%ytd (US$ basis) by August, while industrial production rose 0.4%yoy for the seven months to July. With a mild global recovery ahead we expect export growth to lift to 6-8% next year while industrial production rises to 3% from an estimated 1% this year (with most of the growth coming in Q4’13). That should help lift GDP growth from 2.1%yoy for 1H’13 to 2.4% for full 2013 and 3.4% in 2014.

But little growth in manufacturing so far

Manufacturing is showing hints of recovery in Q3’13. Better electronics demand lifted manufacturing production growth to 2%yoy in July from a 1%yoy fall in Q2’13. But other industries, including machine tools and consumer goods, remain weak. Moreover there’s little sign yet of inventory building or a lift in manufacturing employment (up 0.3%yoy by August), while airfreight, which usually hints at better demand, continues to contract.

… and cautious consumers

Taiwanese consumers remain unconvinced about the island’s outlook. Concerns over employment, a utility price lift in Q4’13, and political upheaval are causing them to delay purchases of durables and luxury items. This pushed retail sales down by 1%yoy in July following a 0.4%yoy decline in 1H’13. The manufacturing recovery is expected to lift sentiment in 2014, boosting consumer growth to 2.5% from an expected 1.2% in 2013.

Factory capex anticipates a lift in demand

Fixed investment grew a strong 5%yoy in 1H’13, but is expected to ease to 3%yoy growth in 2H’13, with possible revisions to the luxury house tax and a drop in transport equipment spending from a high base last year. Plant & equipment capex jumped 11%yoy in 1H’13, as factories prepared for the upturn in demand, but it is still at just 80% of pre-GFC levels.

Little inflation and flat interest rates

Prices fell 0.8%yoy in August (due to a high base from last year’s monsoon), but an 8-12% lift in electricity prices should produce a weak price lift in Q4’13. With a mild recovery ahead inflation will remain very low, with little reason for a lift in interest rates.

A steady NT$ The NT$ has been remarkably steady despite the threat of tapering in US quantitative easing. Some weak appreciation pressure may emerge over the next year, as the export side of the economy recovers and foreign capital flows in looking for opportunities.

2010 2011 2012 2013 2014 GDP, real growth, % 10.8 4.1 1.3 2.4 3.4 CPI, year average, % 1.0 1.4 1.9 0.9 0.9 Official discount rate, year end, % 1.63 1.88 1.88 1.88 1.88 NT$ to US$1, year average 31.6 29.5 29.6 29.7 29.4

Sources: 2010-2012 government data and CEIC; 2013-2014 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact:

Michael Boyden, Managing Director, Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978 Fax: (886 2) 8789 0877 Email: [email protected]



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South Korea Political & policy issues to watch President Park brings stable government

President Park Geun-hye is building political momentum after a difficult start to her single 5-year term. She has addressed scandals in her administration by replacing offenders with respected officials, including the choice of former justice minister Kim Ki-choon (who helped draft the 1972 constitution) as her new chief of staff. She has also improved North Korea relations, with carrot and stick pragmatism leading to the reopening of the Kaesong industrial complex in mid-September. A more settled political environment should improve policymaking, although occasional political setbacks must be expected.

… but she’ll have to drop big spending plans

President Park must now address – and likely scale back - two key election promises. The first was to lift welfare, defence, and cultural spending by Won 135tr (10% of GDP) to 2017. Her plan to fund the extra spending with a broad tax lift has failed, with a public backlash limiting her to small measures, such as removing deductions on medical and education expenses. Limited new tax sources plus slower revenue growth due to an ageing population will force Park onto a more conservative fiscal course.

… and court the chaebol

Park’s second promise was to change Korea’s pro-chaebol business environment to help SMEs. A ban on chaebols’ growth in some sectors, restrictions on large supermarket trading hours, and rules preventing firms favouring subsidiaries for business contracts have been implemented. However, Park is starting to move away from other anti-chaebol policies, in an attempt to use these economically important firms to drive the recovery.

Outlook for the market Growth slows after a 1H’13 stimulus … watch for a mild Q4 export lift

The Korean economy appeared to lift in the first two months of Q3’13, with US$ exports up 5%yoy from a 1%yoy rise in 1H’13. However, this lift was due to low base effects from last year’s car strikes, rather than a recovery in demand. GDP growth is expected to gradually lift in Q4’13, as manufacturing strengthens, but the upturn will be softened by reduced construction and public spending (as the government frontloaded the budget). Stronger global demand is expected to lift growth to 3% in 2014 from 2.3% in 2013. Government authorities expect a larger pick-up in demand in 2014, forecasting 4% GDP growth.

… with a rise in manufacturing

Korean manufacturers have struggled in 2013. A soft global economy and a rising Japanese competitiveness (on a weaker Yen) pushed industrial production down 1%ytd by July from a 1% lift in 2012. Manufacturing remained soft in August, with the HSBC purchasing managers’ index below the 50 expansion-contraction level for the third straight month. A mild export-led recovery is expected from Q4’13.

Construction eases as stimulus measures fade

Korea’s construction and real estate sectors have cooled as stimulus measures earlier this year have receded. Housing transactions, which jumped 58%yoy in Q2’13, were up just 2%yoy in the first two months of Q3’13. Building completions, which grew by 20%yoy in Q2’13, eased to 11%yoy in July and will likely slow further over 2H’13. While construction should grow by 2% over 2013, a housing oversupply, high household debt, and an ageing population will likely cause the sector to decline in 2014.

A mixed retail picture that should lift in 2014

Retail spending has been weak in the first seven months of 2013, growing just 1%ytd, down from a 4% rise in 2012. However, some sectors have done better. Strong housing completions have lifted appliance sales growth to 10%ytd, while a 57%ytd increase in Chinese arrivals has boosted tourism. A 7% minimum wage rise in 2014, plus more overtime pay are expected to lift consumer growth to 2.3% from 1.7% in 2013.

Little inflation, low rates, & a weak Won

Modest consumer demand over the next 18 months is expected to keep inflation within the 1-2%pa band, allowing the central bank to keep interest rates low. The Korean Won surged in September, but could slip next year as the US$ rises.

2010 2011 2012 2013 2014 GDP growth, % 6.3 3.7 2.0 2.3 3.0 CPI, year average, % 2.9 4.0 2.2 1.3 1.7 BOK Overnight call rate, year end, % 2.50 3.25 2.75 2.50 2.50 Won to US$1, year average 1,159 1,108 1,125 1,114 1,125 Sources: 2010-2012 government data (NSO, BOK) and CEIC; 2013-2014 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact:

Tony Michell, Managing Director, Korea Associates Business Consultancy Ltd Tel: (82 2) 335 7854/2614 Fax: (82 2) 323 4262 Email: [email protected]



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Indonesia Political & policy issues to watch The 2014 polls dominate the outlook

Politics and economics are increasingly being shaped by the 2014 elections (legislative in April and presidential in July), which will see a contest covering 560 members of parliament, 2,137 representatives in 34 regional parliaments, and 17,560 representatives in 510 district assemblies. While the diversity of this 250m strong nation suggests a risk of many small parties and fragile coalitions, this isn’t the case due to a tightening of the rules on participation in national elections. Next year we expect 12 parties to contest, down from 49 in 1999. The rules governing nomination of presidential contenders have also tightened, with a candidate needing support from a party or coalition that won 20% of the vote or 25% of the seats in the parliamentary poll. While not a guarantee of strong government, it favours a stable outcome with scope for modest legislative efficiency. However, companies may be worried by rising economic nationalism during the campaign.

The race remains wide open … hints that Jokowi may run

The race for who leads the next government is wide open. Prabowo Subianto (Gerindra, with 5% support) and Aburizal Bakrie (Golkar with sub 10% support) are already running. Meanwhile PDIP, a leading party, edged towards nominating Jakarta governor Joko Widodo (Jokowi) at a meeting in early September, with the final decision resting in the hands of party head Megawati Sukarnoputri. If Jokowi runs he could win as he is popular due to a track record of efficient and anti-corrupt government at the city level. The president’s Democracy Party (PD) has started a six-month long selection process with two key ministers joining the fray, Trade Minister Gita Wirjawan and State-Owned Enterprises Minister Dahlan Iskan. Both will come under pressure to resign their portfolios to avoid a conflict of interest if they start to openly campaign, but that might not be until Q2’14.

Outlook for the market Growth is cooling … as inflation & interest rate rise … with a mild recovery in 2014

Indonesia’s overheated economy is slowing, as the central bank is forced to hike interest rates to curb inflation and protect the currency, and investors have become wary of macro risks that range from a plunging currency to growing resource nationalism. GDP growth slowed to 5.8%yoy in Q2 after 10 quarters above 6%. The country now faces two to three quarters of 5% or less growth, as fixed investment growth drops from 9.8% growth last year to 3-4% this year, while consumer growth eases from 5.6% last year to around 4.5% this year. A recovery should emerge during 2014, with the help of election related spending and stronger export demand. Inflation and a weak currency are the main threats to the outlook, with unions pushing for a 50% minimum pay rise in 2014, and a 44% hike in the fuel price in late July feeding into the economy.

The rupiah’s fall … will cut the current account deficit but boost inflation

A 20% slide in the Rupiah since May to 11,440 on the US$ will have three impacts on the economy. On the plus side it will force down imports, help lift exports and thereby cut the current account deficit. Manufacturers, who struggled with a 30%+ jump in the minimum wage in early 2013, will regain some export competitiveness. However the devaluation will also push up inflation, which reached 8.8%yoy in August and will likely be 9-10% for the next three to four quarters. Hints that the government may limit the minimum wage hike at the provincial level in 2014 may not translate into policy given the looming elections.

Consumer growth cools

With interest rates rising and July’s fuel price hike, consumer demand is cooling. Vehicle sales, which rose 11%ytd by August, will likely finish the year up just 5%. Retail sales plunged to 1.1%yoy growth in August, after 11%yoy growth over the first seven months.

A bit more down-side risk for the rupiah

An assessment of real exchange rate competitiveness (taking inflation into account as well as the exchange rate movement) suggests a level of 12,000 for the Rupiah. A smaller current account deficit, a lift in the central bank’s policy rate by 150 basis points since June (with two more 25bp increases possible) and intervention to buy the currency should prevent 12,000 being breached and bring stability at around 11,500 through 2014.

2010 2011 2012 2013 2014 GDP, real growth, % 6.2 6.5 6.2 5.6 5.4 CPI, year average, (2007=100), % 5.1 5.4 4.3 7.1 7.7 Central bank policy rate (O/N rate) at Dec % 6.50 6.00 5.75 7.50 7.75 Rupiah to US$1, year average 9,086 8,776 9,384 10,421 11,650 Sources: 2010-2012 government data (BPS, BI) and CEIC; 2013-2014 forecasts by IMA Asia

The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact:

James Castle, Chairman, CastleAsia Tel: (62 21) 2902 1641 Fax: (62 21) 2902 1648 Email: [email protected]



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Malaysia Political & policy issues to watch PM Najib strives to keep his job … by reversing his mild reform program … & seeking support from Malay nationalists

After the poor showing of the ruling coalition in the May 2013 elections, PM Najib Razak has fallen hostage to the Malay nationalists of his UMNO party, who are led by ex-PM Mahathir. Faced with internal UMNO elections in early-October, Najib announced US$9.4bn in new spending to help indigenous groups (61% of the population and known as Bumpituras, with most being ethnic Malays). This group already gets preferential treatment in housing, public sector jobs, government contracts, bank financing, and university education. A small group of politically well-connected Malays have done particularly well from the program, which has been widely condemned for contributing to a rise in corruption and a brain drain as students and graduates from the minority Chinese and Indian ethnic groups have gone overseas for education and work. Najib’s latest concession, which represents a major retreat from his mild reforms towards a more ethnically inclusive Malaysia, may help him keep his job as UMNO head and PM.

October budget … spending growth must slow …. & watch for a GST

The government’s massive spending spree ahead of the May elections prompted ratings agency Fitch to cut Malaysia’s sovereign bond outlook to Negative from Stable in late-July. The government has responded by cutting fuel subsidies and postponing some (still unspecified) state-funded projects with high import content. This should also preserve the country’s fast shrinking current account surplus (2.4% of GDP in 1H’13 from 11.6% in 2011). The October 25 budget speech is likely to include additional austerity measures, including the long-delayed introduction of a goods & services tax, which will help reduce the budget’s heavy reliance on volatile oil & gas revenues.

But rail projects should go ahead

Projects that should still go ahead include the 156km Mass Rapid Transit project around Kuala Lumpur and the 330km high speed train linking KL with Singapore. An estimated US$53bn will be spent on rail projects, which form part of the government’s US$444bn multi-project investment program that runs into 2020.

Outlook for the market GDP will slow … as consumers & government pull back … and exports are weak

Malaysia’s economy will run slower over 2013 and 2014 compared to the previous three years, as a surge in domestic spending wanes and the recovery on the export side is modest. Growth eased to 4.2%yoy in 1H’13 mostly due to a 39%yoy fall in net exports. Domestic demand growth slowed to 7.7%yoy from 10.6% in full 2012, as fixed investment growth dropped to 9.3%yoy in 1H’13 from 19.9% in 2012. Private consumption remained strong, up 7.4%yoy in 1H’13 in line with 7.7% in full 2012, while government consumption ticked up to 5.8%yoy from 5.1%. Yet all three of these domestic demand areas are expected to slow over the next 18 months. Meanwhile, exports are likely to fall 2.3% this year (US$ terms) after zero growth in 2012. A rise of about 2-5% expected in 2014.

Malaysia faces private & public debt limits

Private consumption growth averaged a world-beating 7.1%pa in 2010-12, fuelled by a fast rise in household debt to 83% of GDP in 2013 from 60% in 2008, and generous government transfers. This is unsustainable and we expect consumer growth to slow to 6.2% in 2013 and 5.1% in 2014. Meanwhile the government will aim to keep public debt below a self- imposed ceiling of 55% of GDP (after exceeding it in 2012). Investment growth should ease to 8.2% in 2013 and 6.5% in 2014 after a 19.9% surge in 2012, as growth in housing approvals slow and the government trims its infrastructure plans.

A bit more inflation and a weaker M$

Inflation will rise into a 3-4% range next year due to a cut in fuel price subsidies and a lift in low-end wages following a clamp down on illegal migrant workers. The central bank policy rate will edge up accordingly. The M$ has been weak since the US Fed thought about QE tapering in May. We expect the central bank to defend the currency in the 3.3-3.4 to the US$ range.

2010 2011 2012 2013 2014 GDP, real growth, % 7.4 5.1 5.6 4.3 4.8 CPI, year average (2010=100), % 1.7 3.2 1.6 2.0 3.6 Central bank overnight policy rate, Dec, % 2.75 3.00 3.00 3.00 3.75 Ringgit to US$1, year average 3.22 3.06 3.09 3.17 3.32

Sources: 2010-2012 government, Bank Negara, & CEIC; 2013-2014 forecasts by IMA Asia.


Datuk Paddy Bowie, Managing Director, Paddy Schubert Sdn. Bhd. Tel: (60 3) 2078 4031 Fax: (60 3) 2078 7034 Email: [email protected]



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Philippines

Political & policy issues to watch Trend growth lifts to 6%+ … but solutions are needed … for Mindanao … & corruption in Congress

The Philippines has become one of Asia’s fastest growing economies, despite serious problems ranging from separatist violence in Mindanao to a corruption scandal sweeping the legislature. Both problems need to be fixed if trend growth above 6% is to be maintained. Last year, President Aquino signed a peace treaty with Islamic separatists in Mindanao, hoping to unlock the southern island’s mineral resources, estimated to be worth US$312bn. However, the treaty, which provides for limited regional autonomy and wealth sharing, is under threat, as violence has erupted between the army and an Islamic group that was excluded from the deal. The government is trying to diffuse the situation with a combination of military force and negotiations. Meanwhile, President Aquino has blocked the Priority Development Assistance Program (also known as the pork barrel program) after several politicians were found to have pocketed millions of dollars rather than spending the funds in their districts. Five high-profile opposition legislators have been charged, but more will be uncovered and may include some from Aquino’s Liberal Party.

The political opportunity for growth … if Aquino takes up legislative reform

The government’s anti-corruption drive, along with better fiscal and macro-economic management, has helped lift growth and win a credit rating upgrade. However, a crucial lift in investment that could raise trend growth into the 7-8% range is unlikely until constitutional restrictions of foreign investment in some sectors are eased, uncertainty over mining legislation is resolved, and progress is made on the public- private partnership (PPP) infrastructure program. President Aquino says some PPP projects are held up by legislative barriers enacted by previous administrations to favour their cronies. Despite holding a parliamentary majority after the 2013 mid-term elections, his administration finds it hard to reverse these legislative road blocks.

Outlook for the market GDP lifts on a surge in local demand … with a boom in construction

GDP rose 7.6%yoy in 1H’13 from 6.8% in full 2012, as fast rising domestic demand offset weak export demand. While private consumption growth eased to 5.3%yoy from 6.6% in 2012, government consumption jumped by 15.3%yoy and fixed investment grew 12.8%yoy. Investment activity was driven by construction, which soared 22%yoy. However, growth in the 12-month rolling sum of construction permits has eased since January, suggesting more moderate growth in the year ahead. We expect construction growth to ease to a still enviable 14% in 2014 from 18.6% in 2013. This would be consistent with GDP growing 7.0% in 2013 and 6.8% in 2014.

Measuring the gap to its ASEAN peers … the goal is catching up … the question is how fast

The good news on the Philippines has a short life span unless the government can fix decades on underinvestment and weak growth in manufacturing. Despite a population of 96m, the country’s manufacturing sector is smaller than that of Singapore’s (with a population of 5.3m) while fixed investment is less than 75% that of Singapore’s in 2012. As a result, consumer demand and residential construction are largely supported by remittances from offshore Filipino workers and per capita sales for most durable goods are a fraction of those of its ASEAN peers. Fixed investment per capita is one third that of Thailand and half that of Indonesia while foreign direct investment (FDI) since 2005 has been barely more than US$2bn a year. FDI approvals jumped 127%yoy in 1H’13 to P93bn (US$2.2bn) so the trend is up even though the scale is small.

Watch for more inflation & higher interest rates … with a firm Peso

Inflation fell to a 4-year low of 2.1%yoy in August, despite the booming economy. This allowed the central bank policy rate to stay at a record low 3.5%. However, with the economy now operating close to capacity, higher inflation and interest rates are expected in 2014. The Peso hit a multi-year high of 40.5 to the US$ in Q1’13 before suffering from emerging market turbulence from May. But with a favourable outlook for the local economy and capital inflows, we expect the Peso to return to an upward bias in 2014.

2010 2011 2012 2013 2014 GDP growth, % 7.6 3.6 6.8 7.0 6.8 CPI, annual average, % 3.8 4.7 3.2 2.7 3.9 Central bank reverse rep. rate, year end 4.00 4.50 3.50 3.50 4.50 Peso to US$1, annual average 45.1 43.3 42.2 42.0 40.5

Sources: 2010-2012 BSP data and CEIC; 2013-2014 forecasts by IMA Asia.


Peter Wallace, Managing Director, The Wallace Business Forum Tel: (63 2) 810 9606 Fax 810 9610 Email: [email protected]



75

Singapore Political & policy issues to watch The unwanted side effects of fast rising migration and wealth

In recent years, Singapore has managed to both quickly lift its population through rapid immigration (up 20% from 2006 to 5.3m in 2012), and become Asia’s leading financial centre. It is rivalling Switzerland in wealth management, and has overtaken Japan as the world’s third largest foreign exchange hub, behind New York and London. In the process, it increased its population of US$ millionaires and billionaires, who are expected to reach 133,000 by 2015, roughly double the 2010 level. However, these successes coincided with a runaway housing boom, rising income inequality, congested roads, and overburdened social services. These side effects reduced the governing PAP’s share of the vote to a still sizeable 60.1% in the 2011 elections.

…prompted large public spending on infrastructure and social services, but …house prices still untamed

The authorities responded by curbing the inflow of low-skilled migrants, and increasing transport infrastructure and social spending. They plan to spend US$48bn on new subway lines, and another US$9.6bn on buses and highways. Moreover, new public housing rules will make it easier for middle income families and singles to buy their first apartment, and low income families to upgrade to better accommodation. The new rules will also delay new permanent residents’ access to public housing. However, successive government measures to curb the relentless rise of house prices have yet to show results. Home prices hit a record high in Q2’13 at 61% above its GFC-induced low in Q2’09. The latest round of measures tightened loan-to-value limits for those seeking a second mortgage, by lifting the cash down-payment to 25% of the property’s value from 10% previously.

Landmark FTA with the EU

Singapore and the EU have worked out a landmark free trade agreement (FTA), which, if approved by the European Parliament and the EU member states, could act as a stepping stone for a wider trade deal between ASEAN and the EU. With a population of only 5.3m out of ASEAN’s 600m, Singapore accounts for about 33% of all ASEAN-EU trade, and 60% of all investment between the two regions. Singapore has zero tariffs on EU imports, but its oil refineries and pharmaceutical companies are set to benefit greatly from an elimination of EU tariffs on their products, if the new FTA goes ahead as expected in early-2015. Singapore was the first Asian country to sign an FTA with the US in 2003.

Outlook for the market Government spending and net exports lifted growth in 1H’13, but

GDP growth edged up to 2.0%yoy in 1H’13, following a steep slowdown to 0.7%yoy in 2H’12. It was boosted by increased government consumption (up 13.5%yoy, after a 3.6% decline in full 2012), and improving net exports (they fell 5.5%yoy, much less than the 16.4% decline of 2012). Private consumption eased somewhat to 2.0%yoy from 2.2% in 2012, while fixed investment fell 4.9%yoy, after rising 6.6% in 2012. Investment was brought down by a steep 36.3%yoy fall in transport equipment, which more than offset a 6.3%yoy rise in construction & works. A sustained recovery of Singapore’s highly trade-dependent economy would require noticeably stronger global demand that will lift exports. This has yet to happen. US$-based non-oil domestic exports fell 5.2%yoy in the first two months of Q3’13, after a 4%yoy decline in Q2’13.

… sustained recovery highly dependent on faster global growth

However, other high frequency indicators suggest that the rising momentum of Q2’13 has been extended into 2H’13. Industrial production was up 2.7%yoy in July from 1.2%yoy in Q2’13, and new export orders of the Purchasing Managers Index hit a 39-month high of 53.4 in August. Sea cargo handled at the Singapore port was up 11.2%yoy in the first two months of Q3’13 from 5.2%yoy growth in Q2’13, while tourist arrivals hit a new record high of 1.39m in July. With the global economy gradually moving into a higher gear, we expect Singapore’s GDP to grow 5.6% in 2014 from an estimated 2.6% in 2013.

Lower CPI leaves scope for October monetary easing

The MAS may decide to relax its moderately tight monetary policy in the upcoming October policy review. This is because inflation has eased below 2.0%yoy since April from 4.6% in 2012 and 5.2% in 2011. In the context of Singapore’s monetary regime, a switch away from the current tight policy stance would involve keeping the S$ steady, or guiding it lower against an undisclosed basket of currencies. Longer-term, the S$ is likely to maintain its rising bias against the US$.

2010 2011 2012 2013 2014 GDP, real growth, % 14.8 5.2 1.3 2.6 5.6 CPI, year average, % 2.8 5.2 4.6 2.5 3.0 3 month interbank interest rate, Dec, % 0.44 0.38 0.38 0.40 0.55 S$ to US$1, year average 1.36 1.26 1.25 1.26 1.23 Sources: 2010-2012 government data and CEIC; forecasts for 2013-2014 by IMA Asia.



76

Thailand Political & policy issues to watch Political battles and bad policies are hurting Thailand

Growing political strife, policy mismanagement, and a slowing economy darken Thailand’s short-term outlook. The effectiveness of PM Yingluck’s government has been hurt by its push to amend the constitution, out-of-control populist spending policies, and falling popularity. The constitutional amendment is widely seen as a ruse to allow ex-PM Thaksin (Yingluck’s brother) to return to Thailand without being jailed for corruption. Currently he directs Yingluck’s government from offshore and once back in Thailand he would clearly run it whether or not he was PM. The escalating conflict between Thaksin and the Thai elite dominates parliament and has already derailed approval for a Baht 2tr (US$64bn) infrastructure program. The fact that the government wants the funding to be “off budget”, and hence less open to public scrutiny, makes its approval even more difficult while also highlighting a rise in fiscal risk and the damage being done by massive subsidies.

A rise in fiscal risk … as subsidies gut the budget

Of all the government’s populist policies (including the now lapsed first house and car buyers’ subsidies, which boosted 2012 growth) the rice price support scheme is the most damaging. Paying well above market prices, the state has accumulated 17m tonnes of rice (170% more than 2011 exports) at a cost of US$20bn. However, selling its stockpile in an oversupplied world rice market without incurring massive losses is an impossible task. While the government is under intense fiscal pressure to drastically scale down the program such action could see its rural support base collapse compounding its political problems. Rubber producers are now demanding subsidies similar to rice growers.

Outlook for the market A slide into recession in 1H’13 … as the 2012 stimulus stops … while public works slow & exports stall

Thailand unexpectedly slipped into recession in 1H’13, with the seasonally adjusted measure for GDP growth on the prior quarter contracting for two straight quarters. By our normal year-on-year measure, growth slowed to 4.1%yoy in 1H’13 from 6.5% for full 2012. Three factors drove the slowdown. First, the post-2011 flood stimulus that drove up consumer spending in 2012 (aimed at first-time car and home buyers) stopped at year-end. Second, the launch of major infrastructure works has been delayed by political battles in parliament (see above). Finally, export demand has stalled, with US$ exports growing just 1%yoy in 1H’13, down from a 3% lift in 2012. In short, a policy gamble failed, as stimulus measures pulled 2013 consumer demand forward into 2012 and plans to fill the 2013 consumer gap with a lift in infrastructure work and exports failed. Our 2013 GDP forecast has been cut to 3.6% (previously 4%) while 2014 has been cut to 4.5% (5.6% previously) due to a cut in fixed investment growth to 7.3% (12% previously), as infrastructure spending is delayed.

Watch Thai consumers … carrying more debt … plus a slide in sentiment

One consequence of the 2012 stimulus focused on car and house sales is that household debt has jumped and this is now compressing consumer demand as consumer confidence ebbs. Consumer confidence peaked in March and has slid since then, with a burst of political unrest in Bangkok not helping. Household debt surged to 78% of GDP by the end of last year from 63% at the end of 2010 according to the Bank of Thailand. Retail sales for 1H’13 eased to 6.7%yoy after surging 18.4% in 2012. The GDP measure for personal consumption grew 3.4% in 1H’13 from 6.7% for full 2012, and there’s little reason to expect growth above this slower pace in 2H’13. Provided PM Yingluck’s government can avoid a political or fiscal crisis, real consumer growth should lift to 4.9% next year, as a mild export sector recovery lifts factory pay and construction employment improves.

Little inflation … & rising risk for the Baht

With inflation hitting a 46-month low of 1.6%yoy in August, the Bank of Thailand has plenty of scope to keep interest rates near record lows. A bigger issue is concern in forex markets about Thai risk with the Baht sliding by 10% on the US$ since April. We’ve shifted our forecast from stability on the US$ into 2014 to a 5% year average fall in 2014 with further downside risk depending on political and fiscal challenges.

2010 2011 2012 2013 2014 GDP, real growth, % 7.8 0.1 6.5 3.6 4.5 CPI (2002 index), year average, % 3.3 3.8 3.0 2.6 3.8 Central bank, policy rate, year end, % 2.00 3.25 2.75 2.75 4.00 Baht to US$1, year average 31.7 30.5 31.1 30.7 32.5 Source: 2010-2012 data from the IMF and CEIC; 2013-2014 forecasts by IMA Asia.


Christopher Bruton, Consultant, Dataconsult Ltd Tel: (66 2) 233 5606/7 Fax: (66 2) 236 8143 Email: [email protected]



77

Vietnam Political & policy issues to watch Slowly closing the gap on a 2-speed economy … with better policies but slow implementation

Vietnam’s economy has split into two parts. An export manufacturing sector is quickly expanding on a surge in foreign direct investment (FDI) in electronics, electrical goods, and mobile phones. This is a plus for the long-term outlook, as it will strengthen the economy and raise household incomes. By contrast, the domestic market is barely crawling out of recession with an outlook clouded by weak property and bank sectors, and poorly run state owned enterprises (SOEs, which provide just 17% of employment but account for 60% of bank lending and the great majority of bank’s bad debts). A high-level steering committee has been set up to guide SOE restructuring, but progress has been slow and the goal of forcing 93 SOEs to sell non-core business by 2015 will be missed. Further action is also needed to deal with bank bad debts, as a new asset management company tasked with taking over the debts is too thinly capitalised to have much impact. The IMF has just released an excellent country report covering such issues at www.imf.org.

Steps to win global capital … by raising FDI caps

It would help if Vietnam had a strong stock market. While the benchmark VN Index is up 24% this year it is still just one third of its 2007 peak and the recent capital flight from emerging markets hasn’t helped. In an effort to rekindle foreign investor interest the government may merge the HCM and Hanoi exchanges and lift FDI caps to 60% from 49% of voting shares in “non-conditional” industries and to 59% of non-voting shares from 49% in “restricted” companies. Vingroup, Vietnam’s largest shopping mall owner, just postponed plans to list on the Singapore exchange due to global jitters.

Outlook for the market Better balanced growth in 2013

2013 has been all about stabilising the economy after a wild ride through 2011, when inflation hit 23%yoy, and 2012, when local demand slumped as the central bank used high interest rates to cool the economy. GDP growth slowed to 4.9%yoy in 1H’13 from 5.2% for full 2012 mainly due to a 19%yoy rise in imports (US$ trade basis) while exports rose a bit slower at 17%yoy (still one of the fastest export rises in Asia as new factories came on stream). The resulting swing from a small trade surplus to a small trade deficit cut GDP growth. Strong import growth suggests local demand is recovering and alongside strong export growth that should boost GDP by 5.2% this year and 6% next year.

… rapid growth in manufacturing for export … driven by Asian investors

After two years in which FDI growth slowed this year has seen a renewed surge with FDI pledges up 20%ytd to US$12.6bn by August and actual FDI disbursements up 4%ytd to $7.6bn. Some 85% of the FDI is in manufacturing led by investors from Japan, Korea, Singapore, and increasingly Thailand. LG Electronics has just announced a $1.5bn plant near Haiphong creating 20,000 jobs, while Samsung will lift its total investment by $1bn to $5bn. Lower labour costs, an acceptable operating environment in the industrial estates, and the promise of a 10% corporate tax rate for the first 15 years of operation has helped win FDI. Industrial production grew 7%yoy in Q2 from 2% for full 2012 and we expect it to stay at 6-7%yoy through 2014, as new factories come on stream.

A weak upturn in local demand

The recovery in consumer demand is mild at best this year. After peaking at an annual rate of 131,000 units in June 2010 vehicle sales slid to 87,000 in February this year before a gradual lift to 96,000 by August. Motorcycle production, which jumped 20% in 2011 and then grew just 0.4% in 2012, was down 2.2%ytd by August this year. Cement production, which rose 19% in 2010 on the building boom slowed to 4% growth in 2011, followed by a 3% fall last year and a 2%ytd gain by this August.

Firm interest rates to curb inflation … help keep the Dong steady

With local demand improving inflation is moving up again, reaching 7.5%yoy in August from 5% a year ago. As a result the central bank’s policy rate has stayed at 7% (down from a 2012 peak of 15%) and together with improving growth and current account trends this surprisingly made the Dong one of Southeast Asia’s more stable currencies since May. With higher inflation than its neighbours we’ll likely see mild Dong weakness through to 2014 with an average yearly decline of about 1% on the US$.

2010 2011 2012 2013 2014 GDP, real growth, % 6.4 6.2 5.2 5.2 6.0 CPI, yoy, % (2005=100 from 2007) 9.2 18.7 9.1 6.8 5.8 Central bank refinancing rate, year end, % 9.00 15.00 9.00 7.00 6.00 Dong to US$1, year average 19,151 20,681 20,847 21,100 21,300 Source: 2010-2012 data from the IMF and CEIC; 2013-2014 forecasts by IMA Asia.



78

India Political & policy issues to watch Can India lift reform & return to 7% growth? … watch the 2014 election

India faces a crucial election in 2014. At issue is whether the next government will be capable of pushing badly needed reforms through a recalcitrant parliament. India’s two national parties, Congress and the BJP, are capable of reform but neither is likely to be in a strong position. While minority governments are common in India, the balance of power looks set to swing to smaller regional parties who have little interest in reform. The latest opinion poll suggests that the Congress-led coalition would win 136 seats in the 545 seat lower house (25% of seats), with Congress alone dropping to 119 seats (down by 87 seats from the 2009 elections). The BJP-led coalition would likely win 156 seats (29% of the total), with the BJP alone up 15 seats from 2009 to 131.

Modi has eight months to show he is acceptable

The BJP has just declared that Narendra Modi will be their PM if they win. By moving early they’ll force voters, coalition partners, and minor parties to make up their minds on Modi. He has been an effective head of Gujarat state, drawing in investors, delivering infrastructure, and achieving 10% annual growth. Yet he is also accused of being a Hindu nationalist, complicit in racial riots and deaths. Modi has strong support from businesses and the urban middle class, but many ordinary Indians and regional parties mistrust him.

Congress goes for populist policies … raising costs for companies … while delaying reforms

Congress managed to push some populist bills through the monsoon session of parliament covering food subsidies, land acquisition (passed by one house), and the Companies Bill. The Food Security Bill will undermine fiscal stability while doing little to alleviate poverty. The Land Acquisitions Bill raises the cost of land purchases and will likely delay transactions. The Companies Bill, while incorporating some useful measures, introduces mandatory CSR spending by companies: up to 2% a year of the average net profits in the prior three years. A Pensions Bill also passed (allowing up to 26% foreign investment in local pension businesses) but the Insurance Bill (which raises the cap from 26% to 49% and has been pending since 2008) was put back to the winter session.

Outlook for the market A mild balance sheet recession … with a slow recovery

India faces a slow recovery as three of the four balance sheets that make up its economy are in bad shape. Large industrial firms are overleveraged, and their CFOs are slashing inventory and projects. Fixed investment in the June quarter fell 1.2%yoy, with another 2-3 quarters of falls likely. Bank balance sheets are also stressed, with non-performing loans (NPLs) at state banks jumping towards 5% of total loans. Finally, the government’s fiscal deficit for the four months to July was 63% of the FY2013-14 target. Balance sheets for households appear sound as home prices continue to rise. But consumer sentiment is weak with car sales down 13%ytd for the eight months to August and motorcycle sales flat.

Stuck at 5% GDP growth … with 3% for manufacturing

GDP growth has been under 5%yoy for the three quarters to June and we don’t see much of a lift for the next six quarters. A strong monsoon should lift agricultural GDP by 4-5%yoy for the final two quarters of 2013, and election related spending should provide a boost in 1H’14. But real consumer growth is down from 7.7% in 2011 to 3.8% in 2012, and about the same is likely in 2013 and 2014. Manufacturing output grew just 0.6% last year (from 5.2% in 2011) and rose 1% in 1H’13, with a lift to 3.5% expected in 2014.

The rupee’s slide halts for now

… inflation remains high

The Rupee hit a low of 68 in late August and has since climbed back to 61 as the US Fed paused on QE tapering and the RBI lifted its repo rate to 7.50% from 7.25%. While India’s real exchange rate is now weak enough to narrow the trade and current account deficits, the currency will have downside risk for another year as inflation remains high (a CPI of 9.5%yoy in August) and the political outlook is uncertain.

Calendar year starting January 2010 2011 2012 2013 2014 GDP (FC, Production), real growth, % 9.8 7.3 5.1 5.0 5.0 GDP (MP, Expenditure), real growth, % 11.2 7.7 3.8 3.9 4.7 Inflation - WPI, year average, % 9.5 9.5 7.5 5.9 5.9 Inflation - CPI, (Ind Workers pre-2012), % 12.0 8.9 9.8 9.3 7.2 RBI repo rate, December, % 6.25 8.50 8.00 7.50 7.25 Rupee to US$1, year average 45.8 46.6 53.4 60.0 63.5 Sources: 2010-2012 data from the government (NCI, RBI) and CEIC. 2013-2014 forecasts by IMA Asia with guidance from IMA India.


Adit Jain, Chairman, IMA India Tel: (91 124) 459 1200 Fax: (91 124) 459 1250 Email: [email protected]



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Australia Political & policy issues to watch Abbott wins … but faces a tricky Senate

Australia went to the polls on September 7, electing Tony Abbott of the Liberal/National Coalition as the new PM. The opposition Labor and Greens parties will continue to control the senate until next July, when newly elected senators take their seats. Power will then lie with a number of independents. Both before and after next July this will make passage of contentious legislation, such as ending Labor’s mining and carbon taxes, difficult. PM Abbott may seek a double dissolution election (a full election for both houses) next year in an effort to achieve some of his policy goals.

PM Abbott must improve public finances … to prevent a ratings cut

Meanwhile the new government has a full agenda of fiscal reforms. The overriding goal is to pull back from a surge in spending under Labor by returning to a budget surplus. This may be hard to do given promises to scrap the mining tax, lower corporate tax (from 30% to 28.5% from July 2015), and expand paid parental leave. Communications Minister Malcolm Turnbull will launch an immediate review of the National Broadband Network, Australia’s largest infrastructure program, as one step to cutting spending. However other cuts will be needed to ensure Australia retains its AAA rating.

Outlook for the market Trend growth will slow … as mining capex retreats … + watch for a weaker A$ over the long-term

Australia faces a difficult and volatile period as the capex side of the resources boom eases and the US looks for a way out of quantitative easing (QE). Both developments will affect the two giant forces that have shaped the economy over the last decade: a surge in mostly mining related capex from 10% of GDP in 2000 to 18% in 2012, and a rise in the A$ from 51 US cents in 2001 to 104 US cents in 2011 and 2012. The result was a two-speed economy, with the mining states growing at 10% (keeping pace with China’s capex-fuelled growth) and the high population states on the east coast stuck at 1-2% growth. Mining related capex will drop sharply over the next five years, which will lower the national growth trend and remove one area of support for the A$ (as the capex was funded off shore creating an underlying A$ demand). QE tapering in the US will also lower the A$ by narrowing the interest rate differential. The export side of the resources boom lies ahead but higher volume shipments are likely to be accompanied by softer prices.

A lift in housing construction … and in manufacturing in 2014

The slowdown over the next 18 months will be cushioned by expanding export volumes and a recovery in housing construction. GDP growth slowed to around 2.5%yoy in 1H’13 from 3.7% last year and about 2-2.2%yoy is expected for 2H’13, before a lift to 2.7% in 2014 on stronger global and domestic demand. Housing construction, which is at a 20-year low of 4.7% of GDP, grew 4%yoy in Q2’13, and will likely rise by about 3%pa over 2013 and 2014. Road projects will support infrastructure. The manufacturing sector will likely contract 0.6% this year, after a 1.5% fall in 2012 but a weaker A$ in 2014 combined with a modest lift in local demand should see growth of 1.2% next year.

Weak consumer spending until 2014

Consumer spending rose a mild 2.0%yoy in 1H’13, down from a 3.2% lift in 2012. Job cuts due to the global slowdown and the easing of the mining investment boom have led consumers to delay spending, overriding the positive impact of 225bp of interest rate cuts over the past two years. Weaker jobs eased retail sales growth to 1.9%yoy in July from 2.8%yoy in 1H’13. A stronger global economy in 2014 should lift consumer spending growth to 2.6% from an expected 1.8% in 2013. While consumer growth will remain below 2012 levels, retail stores may benefit from an easing in high rental costs.

Low interest rates … & a volatile A$

With little sign of inflation pushing much above 2.5% the central bank’s policy rate will likely remain at its record low of 2.50% well into 2014 to support a consumer recovery. The long-term trend for the A$ is down but it is also hostage to short-term gyrations in US policy on QE, which triggered a climb from 89 to 95 US cents in September, underscoring the currency’s volatile outlook for the next few years.

Year ending December 31 2010 2011 2012 2013 2014 GDP, real growth, % 2.6 2.4 3.7 2.3 2.7 CPI, year average, % 2.9 3.3 1.8 2.3 2.6 RBA cash rate, year end, % 4.75 4.25 3.00 2.50 2.75 A$1 = US$, year average 0.92 1.04 1.04 0.95 0.84 US$1 = A$, year average 1.09 0.96 0.96 1.06 1.20 Source: 2010-2012 data from the ABS; 2013-2014 forecasts by IMA Asia.

Andrew Hordern, Regional Economist, IMA Asia Tel: +61-2-9252 4336 Email: [email protected]



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New Zealand Political & policy issues to watch PM Key pushes ahead on asset sales … while funding extra civil works

PM John Key of the National Party aims to return the budget to surplus in 2014/15 from a deficit of 4.9% of GDP in 2010/11 while at the same time launching a major infrastructure program. These goals can only be achieved if NZ$5bn (US$4.2bn) in extra funds is raised by the partial privatisation of three power companies, a coal miner, and Air NZ. One power company has already been partially privatised and a second IPO is underway for Meridian Energy, which is set to become the most valuable company on the local stock market. A popular petition has forced the government to hold a non-binding postal referendum on the issue within a year, but most of the sales will be completed before the referendum is held.

Dairy production and exports are set to recover

NZ has excelled at creating global scale primary industries with a reputation for quality and reliability. The latest contamination scare for its dairy industry, which accounts for 25% of exports and 2.8% of GDP, is a reminder of the inherent risks in this business and NZ’s reliance on the sector. The recent scare has ebbed after tests showing no contamination and export demand should quickly recover. Milk production is also set to rebound by 4.5% in the year to next May following the ending of a drought.

RISK: watch for a property bubble

With household debt over 90% of GDP, the consumer sector is highly exposed to any property price collapse. At present construction is booming and prices are heading up but curbing a property bubble will remain a major government and central bank goal.

Outlook for the market Growth is accelerating

The NZ economy is expected to grow 2% in 2013. A surging construction sector will drive the economy, while strengthening consumer spending will also lift demand. Manufacturing, which is linked into the dairy sector, should recover through 2H’13, as milk production rises following good rains and this should boost growth to 3.6% in 2014.

With a boom in construction

Construction is expected to surge 10% in 2013 and 7% in 2014. While earthquake reconstruction in Canterbury will drive building, construction will also be strong in other urban centres. Population growth has tightened urban housing markets, pushing up prices by 10%yoy in Auckland and 7%yoy in Wellington. The government plans to curb price growth by encouraging the construction of 13,000 homes a year in Auckland over the next 3 years (up from 5,500 consents in the past year).

… and rising consumer demand

NZ’s consumer sector is in a healthy state, with consumer electronic transactions up 5.3%ytd by August from a 4.5% rise in 2012. A booming property sector is boosting the job market and increasing demand for household durables. Tourism spending has also been strong, with a 6.6%ytd lift in arrivals by July. NZ’s job market will likely tighten further as the construction surge lifts demand for labour. This is expected to push up consumption growth to 2.6% in 2013 and 3.0% in 2014 from 2.4% in 2012.

Manufacturing will lift

The NZ manufacturing sector had a tough 1H’13 as drought and a contamination scare pushed down dairy production. A better economy, improved weather conditions, and decreased concerns over NZ food safety are expected to boost manufacturing volumes by 3.0% in 2014 from an expected 0.3% drop in 2013.

Interest rates will rise + a stable NZ$

Inflation was a low 0.8%yoy in 1H’13, but will likely rise from 2H’13 on a tight labour market, rising construction costs, and greater consumer demand. Around 3% price growth in 2014 will lead the central bank to raise interest rates. Solid economic conditions and rising interest rates are expected to keep the NZ$ at around 80 US cents.

Calendar years 2010 2011 2012 2013 2014 GDP(Expenditure), real growth, % 0.9 1.3 3.2 2.0 3.6 GDP(Production), real growth, % 1.9 1.4 2.7 1.8 3.7 CPI, year average, % 2.3 4.0 1.1 1.3 2.9 Official cash rate, year end, % 3.00 2.50 2.50 2.50 3.25 NZ$1 = US$, year average 0.72 0.79 0.81 0.81 0.79 US$1 = NZ$, year average 1.39 1.26 1.23 1.23 1.27 NZ$1 = A$. year average 1.28 1.32 1.28 1.17 1.06

Source: 2010-2012 data from Statistics NZ; 2013-2014 forecasts by IMA Asia.

Andrew Hordern, Regional Economist, IMA Asia Tel: +61-2-9252 4336 Email: [email protected]



81

Asia Brief contributors The Asia Pacific Executive Brief is produced by a unique network of in-country experts who run briefing and advisory programs that are designed to help senior executives monitor and anticipate critical business developments through timely insights and analysis. Further information on the markets and the peer group briefing programs is available from the Country Directors listed below. Asia & Global

Singapore: Richard Martin, Managing Director, IMA Asia Web: www.imaasia.com Mob: (65) 9023 9642 Email: [email protected]

Australia

Sydney: Katie Tucker, Client Support Manager, IMA Asia Web: www.imaasia.com Tel: (61 2) 9252 4336 Fax: (61 2) 9252 4339 Email: [email protected]

China

Shanghai: James Loudon, China Representative, IMA Asia Tel: (86) 186 2153 7602 Email: [email protected]

Hong Kong Hong Kong: Mark Michelson, Chairman, Asia CEO Forum, Hong Kong Tel: (852) 2530 1115 Fax: (852) 2530 1125 Email: [email protected]

India New Delhi: Adit Jain, Chairman, IMA India Web: www.ima-india.com Tel: (91124) 459 1251 Fax: (91124) 459 1250 Email: [email protected]

Indonesia Jakarta: James Castle, Chairman, CastleAsia Web: www.castleasia.com Tel: (62 21) 2902 1641 Fax: (62 21) 2902 1648 Email: [email protected]

Japan Canberra: Chris Nailer, Associate Director, IMA Asia & Director MBA program, ANU Tel: (61 2) 9252 4336 Fax: (61 2) 9252 4339 Email: [email protected]

Malaysia Kuala Lumpur: Datuk Paddy Bowie, Managing Director, Paddy Schubert Sdn. Bhd. Tel: (60 3) 2078 4031 Fax: (60 3) 2078 7034 Email: [email protected]

Pakistan Karachi: Babar Ayaz, Managing Director, Mediators (Pvt) Ltd Tel: (92 21) 565 6113 Fax: (92 21) 565 6112 Email: [email protected]

Philippines Manila: Peter Wallace, President, The Wallace Business Forum Web: www.dataphil.com Tel: (63 2) 810 9606 Fax 810 9610 Email: [email protected]

South Korea

Seoul: Tony Michell, Managing Director, Korea Associates Business Consultancy Tel: (82 2) 335 2614 Fax: (82 2) 323 4262 Web: www.kabcltd.com Email: [email protected]

Singapore Singapore: Richard Martin, Managing Director, IMA Asia Web: www.imaasia.com Tel: (65) 6332 0166 Fax: (65) 6332 0170 Email: [email protected]

Taiwan Taipei: Michael Boyden, Managing Director, TASC Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978 Email: [email protected] Web: www.tasc-taiwanasia.com

Thailand

Bangkok: Christopher Bruton, Managing Director, Dataconsult Ltd Tel: (66 2) 233 5606/7 Fax: (66 2) 236 8143 Email: [email protected]

Vietnam

Bangkok: Christopher Bruton, Managing Director, Dataconsult Ltd Tel: (66 2) 233 5606/7 Fax: (66 2) 236 8143 Email: [email protected]

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