It’s time to be successful

The weaknesses of the Philippines could prove to be a strength as the crises in Europe and the US escalate.

Exports as a percentage of GDP have already fallen from 51 percent in 2000 to just 35 percent last year. And only 50 percent of that is susceptible to a global downturn so what happens to the world doesn’t have a big impact on us. Susceptible products are: electronics (51 percent of exports); garments (4.3 percent); car parts or wirings (2.6 percent); and coconut oil (2.4 percent).

Possibly affected, but much less so are food products, which account for 4 percent of exports. But these may even be an area of opportunity—if prices can be kept down. That means improving efficiencies in both production and post-harvest, and logistics (getting the product to the port). Food exports for the first seven months of the year actually grew by 26.5 percent compared to the same period last year.

Mineral products (exports are around 5 percent of total) may see some slippage, but not much as demand greatly exceeds supply. The problem here would be domestically created—the New People’s Army, or even non-government organizations and the Church, even some local governments forcing mine closures. Government needs to act forthrightly, and fast to counteract this.

Unaffected would be construction and property development. Exports of construction materials (about 0.2 percent of total) grew by 14 percent in the 1st half of 2011 year-on-year. While domestically, where construction really is, the industry saw increasing demand for residential and commercial buildings, and this is likely to be sustained. Plus most services will be little affected. The business process outsourcing industry is unlikely to see any decline. In fact, it will be an opportunity as companies in struggling economies look even more aggressively for cost-cutting measures and improved efficiency. An area the Philippines has proven to be adept at

Overseas Filipino workers also are unlikely to lose their jobs, as their skills will remain in need. The loss here will be in foreign exchange conversion if the dollar and euro fall more. The soundness of the monetary and fiscal position of the Philippines will attract capital looking for safer havens and better returns. Buying government bonds will remain in high demand. Purchase of the shares of better companies will accelerate.

Moreover, the Philippine credit rating upgrade bucks the trend elsewhere. Famously the US fell for the first time ever. Then Italy, Spain, and New Zealand followed—countries you’d never expect. It will make financial investors look seriously elsewhere. And if the country gets raised to investment level, as is expected sometime next year, that will make it even more attractive.

What the government should now do is offer large amounts of bonds and use the funds to pay for a massive infrastructure program. At a very minimum spending should go to the Asian average of 6 percent of GDP—that would be around P570 billion versus the grossly insufficient P242 billion now budgeted. They should even spend more. Sadly they won’t.

Even when they do release money the P72 billion announced to “stimulate the economy” won’t stimulate it (see my October 21 column). It comes far too late (October) in the year, is far too little (underspending year-to-date is P200 billion) and much of it won’t stimulate anything. Resettlement of squatters, some spending by LGU’s, equity infusions, tax subsidies and the like can hardly be considered stimulatory. We estimate no more that half this can be considered stimulatory.

What is truly sad is that by our estimate had spending been to budget GDP growth would have been 6.3 percent, not the 4 percent it was in the first half.

Maybe the underspending is a price worth paying if it is the shock treatment necessary to clean up a corrupt system. It will be a year or two before we’ll know if it was a smart decision, or a wasted one.

Whatever, what it all means is that the Philippines is less connected to the world, is fiscally sound and could be seen as an attractive investment haven if, and it’s big “if”, it can show a consistency of policy and a stable business environment in this sea of unrest.

The President makes some strange decisions. But then, don’t we all? However we aren’t the chief executive of a country, just mere mortals.

You’ve all caught a plane and no doubt have been greatly inconvenienced by the mess that is called “roads” around the airport. Well there’s an expressway that would link the Skyway and Manila-Cavite coastal expressway that is high on the PPP list, and ready to go. Incredibly the President doesn’t like it, and won’t prioritize it. I could find no reason. At this point it could still happen despite his reluctance—but, I ask again, what’s going on in his mind?

The other is a battle I’ve fought for a decade, a Department of Information and Communication Technology. This is the fastest growing sector of the Philippine economy with revenues amounting to $9 billion last year from practically zero 11 years ago. Direct employment rose from negligible numbers to 525,000 last year. Revenues are projected to hit $25 billion in 2016 while employment is seen to reach 1.3 million. Given its enormous potential for investment and job generation the sector rightly deserves the attention and dedication a full department can provide.

The president has done the opposite, he’s effectively downgraded what was a commission (The CICT) into a mere ICT office under the Department of Science and Technology. Where it doesn’t belong, this is a commercial endeavor, not a scientific undertaking.

Fortunately, Congress recognizes the importance and the House has passed a bill on second reading that would create a DICT while the Senate has sponsored a measure that is up for approval on second reading. But it needs the president’s imprimatur if it is to get the necessary priority attention. It doesn’t have it, he’d rather prioritize additional benefits and protection to “kasambahay” (household helpers) and amendments to the charter of the People’s Television Network .

An idea he hasn’t knocked on the head, but certainly should is a revived idea to build a government-owned broadband network. This was one of the great (US$ 329 million) scandals of the past administration. The objections to it remain, even if this time it were honestly done.

The major objection is that a government just can’t effectively operate a high tech, fast changing business. You need technically talented people, government can’t pay the salaries to attract them. You need expert maintenance, the technicians and concept of regular maintenance aren’t there. You need to update equipment frequently, and quickly. You can’t, given the bureaucratic processes of a government. And it duplicates what is already there, why waste the money. Build schools and health clinics instead.

The telcos already have in place all the necessary systems. All government needs do is tap into it and develop policies to encourage those private players to increase broadband capacity and reach out into the remotest areas (it’s pretty good already with 99 percent of all islands covered by the private providers’ network). As well as make sure the industry is fully competitive so prices go down. If government enters the picture prices will go up. That same DOST (that captured the CICT) is looking into it. Wide public objection may be effective in getting a cancellation of this idea.

Some things work, some don’t.

So wouldn’t you think you’d fully protect and support the few working systems that there are? Computerizing all government processes is essential in today’s modern world, but the Philippine government has too few of them, and in 3 of the few successful ones they have 2 that are in trouble.

The Land Transportation Office’s system came under fire and significant dislocation when the operators had an ownership fight that the LTO head got controversially involved in. It put the project in jeopardy.

While over at the NBI (National Bureau of Investigation) the contract they’d had for 32 years and operating quite successfully came to an end because the NBI couldn’t get its act together and negotiate a renewal. The operator, Mega Data Corp, had no option but to pull out its hardware and software system leaving the NBI systems in chaos. Most approvals, clearances, etc. reverted back to manual, with huge delays. There’s been no resolution of the mess.

That leaves, only one BOT (PPP) —IT project still running successfully, and that’s the Unisys contract with the National Statistics Office (NSO). The civil registry system has been in place for a decade and just works. It’s up for renewal early next year, and with both parties happy with performance, the customers too, renewal seems inevitable as the decision comes under NEDA where careful thought and wise decision-making are part of its culture.

It’s time to have a few more successes like this.–Peter Wallace, Manila Standard Today