Local business, then and now – final part

As the new year finds us buckled down to serious work, here’s the third and last part of our year end series on the Philippine business climate for 2015 and 2016.          

The first of this series last Dec. 26, 2015 covered the automotive industry, the IT-Business Process Outsource and the insurance industry, while the second instalment on Jan. 2 covered the semiconductors and electronics industry as well as the franchising sector.

For the manufacturing industry, B&L talked to the president of the Federation of Philippine Industries (FPI), Jesus Arranza who noted a general slowdown in the sector compared to the previous year. The year 2014 was considered a banner year for Philippine industries, but with the Development Acceleration Plan (DAP) declared unconstitutional by no less than the Supreme Court, there was considerably less public spending. Also, the slowdown in the economies of two of our biggest trading partners – China and the United States contributed significantly to this.

The sectors of transportation and communication survived the year unscathed, but the real life saver was the area of construction, as can be expected. There was no slowdown of activities as tall buildings continue to rise in business districts, although the glut of steel bars in China has had an effect on locally-produced construction materials.  The biggest challenge to manufacturing is still the high cost of power, and the FPI president continues to harp on the fact the Philippines’ commitment to a 70 percent reduction in CO2 emission pales to other countries’ 30-40 percent commitment and to the two global giants’ commitment of a 10 percent reduction.  He is talking of course about China and the United States, citing these two countries as having the highest CO2 emission.

FPI continues to bat for the cheapest source of power, which is coal if our manufacturing industry is to survive, maintaining that renewable energy is costly, and cites the figures to show the Philippines has the lowest number of coal plants: currently, China has 1,400 coal plants, the US has 1,600 plants, and the Philippines has 16 coal plants.

The FPI chair also cites smuggling as a serious challenge to the industry although this has somehow abated because the current Customs bureau chief has a good knowledge of how “business” is conducted in this government agency. Speaking of business in the Philippines, he also credits Secretary Rene Almendras for simplifying business procedures for importers, effectively reducing the steps from 122 to 11 steps and thereby also lessening the bureaucracy of corruption.

We are facing an election year, and the FPI chair hopes the  next president will continue to focus on cleaning up and modernizing the Bureau of Customs, improving the efficiency of the Food and Drugs Administration, adopting stricter and stronger consumer laws, and bringing back the death penalty.

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How was 2016 for the country’s travel agencies? Ma. Michelle Victoria, president of the Philippine Travel Agencies Association (PTAA), says the sector continues to hurt from stiffer competition with the online booking system which makes travel more affordable for more Filipinos.  The budget fares are here to stay as indeed more Filipinos, especially those who could only dream about travelling before, can now backpack their way to nearby destinations without hurting their wallets. Still, many others, myself included, prefer the personalized service offered by competent travel agents and the more comfortable regular flights that are more flexible compared to budget flights where passengers are herded like cattle.

As per records from the Department of Tourism, there were less inbound travellers, according to Ms. Victoria, than the previous year, but these visitors stayed longer to enjoy the Philippines, which augurs well for the hospitality industry.

Topping the list of visitors is South Korea, followed by the United States and Japan.  Domestic destinations that now top the list include Batanes, Baler and Coron.  For outbound travel, Japan seems to be the most favored destination, followed by Korea.  The PTAA president downplays the effect of the “laglag-bala” on inbound tourism as there is still a significant number of balikbayans pouring into the country.

PTAA is now gearing up for the 23rd Travel Tour Expo where they have invited international sellers to focus on the Philippine market. This will happen from Feb. 5 – 7 at the SMX Convention Center.

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The housing sector, meanwhile, reports an over-all healthy and robust growth for 2016. Chamber of Real Estate Builders Association (CREBA) president Noel Carino said growth is particularly significant in the higher end market, especially in central business district areas while the housing backlog in the low and middle markets continues to deepen. 

The country has a housing backlog of 5.5 million and still counting, with areas like Metro Manila, where there are livelihood or centers of business and development, attracting bigger hordes of people to settle. We clearly need to develop more residential communities, but there are serious issues to resolve before we can get there. Almost 48 percent of Philippine land are devoted to agricultural use, according to the CREBA president,  so while we have the land, the process of converting a portion of this to residential communities will take too long as we contend with the bureaucracy, zoning, etc. With a long   and tedious process comes the extra and hefty cost which are passed on to consumers, so owning a house and lot becomes even more impossible to many.

Affordability continues to be a top problem. Even if developers adjust the prices accordingly, the quality of life of the ordinary Filipino suffers. Consider this: a more affordable housing unit comprises 22 sq. meters on the average.  How can a family of four to five live decently in such a space? Socialized housing is an answer, but private developers shun away from this, preferring the bigger margins offered by the other markets.  Mr. Carino says government intervention is clearly imperative. With the current socialized housing regulations and the ceiling imposed for the cost of the building, no developer will venture into socialized housing.

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As for the export sector, Sergio Ortiz-Luis, president of Philexport, hopes the negative growth of the industry will be in the low number – in the level of 5 percent – as final figures are not in yet. The economies of China, US and Europe have weakened and impacted directly in the export industry.  The biggest loser is still the electronics industry, but agriculture has also suffered, along with the handicrafts sector.  The services sector, as well as furniture and wood-based products, continue to do well in the market.

Ortiz-Luis is still batting for MSMEs which continue to face financing challenges. If the country was also to allocate P65 billion for the Conditional Cash Transfer (CCT) program for the under-privileged, which does not require repayment, why can’t gov’t have an honest-to-goodness program for the MSMES which have the capacity to pay, but whose main problem is access to financing?  If traditional banks expect collection of 95-97 percent, our MSMEs may not be able to meet this, but the Philexport president says that a 70-75 percent collection rate from MSMES can be reasonably expected. Non-traditional financing sources may be the only answer, but we need a concerted effort to bring both camps to the table.

Mabuhay!!! Be proud to be a Filipino.

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