Hedging against inflation

C&C VIEWS By Ed F. Limtingco Updated December 17, 2008 12:00 AM

My former boss, Dr. Cayetano W. Paderanga Jr., has forwarded me this timely piece of write up that is not only relevant but is also informative. This piece was taken from IDEA’s latest Economic Trends.

According to IDEA, “inflation hedges can be defined as investment instruments designed to protect against inflation risks. During periods of high inflation, ordinary investment instruments yield lower returns as high inflation inevitably leads to an erosion of their earnings’ value. On the other hand, the underlying value of such inflation hedges typically increase during times of high inflation. Commonly cited inflation hedges are shareholder stocks of companies engaged in the natural resources industry, such as the mining of precious metals like gold or silver. Following developments in the financial sector, newer investment assets have become popular as inflation hedges. For example, money market funds that pay higher yields as inflation rises are now believed to be good inflation hedges. In times of hyperinflation, however, hard assets like precious metals and real estate are considered to be the safest inflation hedges available. Paper-based assets like stocks and bonds have been found to be poor hedges during times of hyperinflation.”

Furthermore, it was reported that “since inflation inevitably leads to lower purchasing power, investors look for ways in securing their portfolio value while yielding decent returns in the short run. This is where investments in precious metals—gold, in particular—come in. For risk adverse investors, especially those whose life cycle prevents them from absorbing more risks, safer investment assets are now available in the market. For one, index-linked financial instruments offer annuities that are tied to a basket of consumer goods or the consumer price index (CPI). This type of inflation hedge is commonly used for pensioners whose retirement annuities promise a certain level of returns. Because of this, index-linked financial instruments are justifiably the near-perfect inflation hedge. Though these bonds are effective cover against inflation, their long-run returns are expected to be lower relative to nominal bonds since holders of the latter would demand higher interest in exchange for bearing more risks.”

Lastly, it was said that “though rates have been fairly stable since 2003, there was a drop in the yield curve rates in early 2008. This happened as investors quickly shifted their funds to safer US government securities as the extent of the damage suffered by Wall Street stemming from the mortgage crisis unfolds. Investors are willing to receive yields below 0.5% in exchange for the guarantee of safe investment return. A note of caution, though. Since these bonds are tied to the domestic currency, it would make sense for foreign investors to invest in these instruments if the respective foreign currencies maintain purchasing power parity. Since adjustments for these bonds depend on a six-month lag, investors are still not spared from losses no matter how small it may appear to be,” according to IDEA.

According to IDEA, “since common stocks often offer higher returns than fixed-income instruments do, some analysts believe that it is a good inflation hedge. Based on historical performance, however, equities and fixed-income assets often yield lower returns during high inflationary periods. Since common stocks represent ownership of real physical capital, their rate of return is higher than inflation in the long run.

By staking a claim on real capital, owners of common stocks find refuge from high inflation. In a 1976 Zvi Bodie study, stock returns in the United States were found to be negatively correlated to a small degree with historical inflation.

Because of this, doubts remain whether common stocks can really be an effective inflation hedge, most especially in the short run. Its main strength is the likelihood that it yields higher returns in the long run compared to commercial paper. This potential for bigger earnings, however, also comes with the possibility of higher loses in instances when a crisis hits the financial sector, as now seen in the US.”

Furthermore, according to the same report, “except during the first and second oil price shocks, the S&P 500 generally generated higher returns, way above actual inflation. Because of the stock market’s historical performance, some investors continue to believe that this particular asset is a good inflation hedge. Like other commodities, the verdict on whether real estate offers better options for investors remains to be seen.

Unlike gold, however, real estate assets suffer from poor liquidity, making it problematic for investors to leave the property market once volatility sets in. Based on a 10-year average, the returns of the NCREIF index reached 12.7%, way above the S&P 500’s 8.4% and the 91-day treasury’s 3.6% yield.

Like in all other assets, historical performance is no guarantee of future performance. In the case of real estate, the mode of acquisition of the property becomes a crucial factor. Unless paid in full, real estate depends on mortgage financing which often have adjustable mortgage rates (AMRs).

This becomes problematic since investors face interest rate risks, possibly wiping out their returns and putting them deep into debt. This is one hard lesson property owners now face in the face of the ongoing mortgage crisis that has put the US economy in a likely recession.”

Overall it was reported that “to become effective inflation hedges, assets need to be able to maintain their value in the face of high inflation. Decades before the introduction of the index-linked bonds, gold was considered to be the best inflation hedge.

This belief largely explains gold price movements during the 1970s and 1980s. The onset of the US Treasury’s TIPS and other similar index linked bonds have reduced the place of gold as an important inflation hedge. Given other issues such as tax obligations and asset allocation, investors will have to be more careful in making decisions especially now in a highly uncertain environment” according to IDEA.

For credit & collection (C&C) questions, comments and rejoinders you want to share or inquire, you can reach him at 0917-7220521 or at elimtingco@cibi.net.ph

RP medical tourism to rise on pricey US med services

Updated February 20, 2009 12:00 AM

CEBU, Philippines - Although the world economic turbulence brought jitters in the medical tourism sector in the Philippines, Cebu insists to see a dynamic performance in attracting an increasing number of tourists seeking for medical help.

"As long as the United States will still charge expensive medical services, we are seeing steady growth of medical tourists in Cebu," said Cebu Health and Wellness Council (CHWC) president Oscar Tuason.

Tuason who is also the administrative vice president for Cebu Doctors Hospital (CDH) the largest chain of hospital in Cebu, said for his hospital alone, they are seeing an upward number of tourists availing of different hospital services, such as out-patient procedures, laboratory works, gastro procedures, and even traumatic cases of heart procedures, among others.

Since last year, foreign patients availing several medical services with CDH, increased by six times, or from an average of 10 foreign patients a month to 60 patients a month.

Department of Trade and Industry Cebu Provincial Office (DTI-CPO) provincial director Nelia F. Navarro said that there are negative and positive effects that the global economic crisis will bring to the medical tourism sector in the Philippines.

Because of the crisis, America's medical services will get more expensive, that will push some Americans to avail of these services in least expensive countries, like the Philippines.

However, although there are some Americans who can afford to travel from the U.S, to the Philippines, to avail of medical services, at the same time take their vacation, the crisis may hamper this potential, as some or majority may not be able to afford it, Navarro said.

Navarro, who is one of the founding members of CHWC, and sits as secretary for the organization, said that because of these problems, Cebu medical tourism sector is prioritizing its marketing blitz to invite the Overseas Filipino Workers (OFWs) to try the world-class medical services here, as well as the Balikbayan community.

Filipinos working or residing abroad are the best ambassador to tell their foreigner friends of the outstanding medical services in Cebu, of which package will not only offer the required services, but also leisure itinerary, among others.

One of the industry boosters this year, will be the hosting of the Philippines to the World Health Tourism Congress, this coming March 26-28 (2009), the first time to be held in the Philippines.

According to Navarro, the Department of Tourism (DOT) led by Cebuano secretary Joseph Ace Durano spent P10 million to host this prestigious event that will be one of the important instruments for the Philippines, to take off as the preferred medical tourism destination in the world.

CHWC recently organized an event to drum up support from the industry stakeholders to pledge for support for Cebu to send representatives to this event.

CHWC is now raising money to send 12 representatives to the event with a registration fee pegged at 15 thousand Euro.

"Now is the opportunity for us to promote our medical tourism sector.

We don't like to slip this opportunity out of our fingers," Navarro said.

In Asia, medical tourism has raked US$120 billion in revenues for 2006, a big improvement from US$40 billion it earned in 2000. India, is now the number one destination for medical tourists around the world.

Total package for one medical tourist is pegged at US$28,000, depending on medical procedure, this already include accommodation, vacation package among others.

Every medical tourist can save at least US$77,000 for this amount, if they were to have their medical services done in other countries like Europe or United States.

Most services that are availed of by medical travelers are cardiac surgery, executive check up, MRI, CT Scan, among others.— Ehda M. Dagooc

Bagging new BPO deals a challenge

ALTHOUGH the business process outsourcing (BPO) industry may benefit from the economic crisis as more companies seek to cut costs, the sector will nevertheless take a hit as it strives to bag new business contracts.

In a study released yesterday, titled "Contact center outsourcing trends in the Asia-Pacific Market, 2008-2011," research firm Frost & Sullivan said it projects the region’s contact center outsourcing market to grow 14% annually from 2008-2011. It estimated the market last year at $13.7 billion.

The study classified the region’s markets into emerging, growth and mature segments.

Emerging markets include Indonesia, Thailand and Vietnam; growth markets include India, the Philippines, Malaysia and China; while the mature markets are Australia, New Zealand, Japan, South Korea, Hong Kong, Taiwan and Singapore.

It noted that growth markets like the Philippines accounted for about 54% of total sales last year.

Clear preference also a risk

The US continues to be the leading source of offshore work in Asia and the Pacific, accounting for nearly 70% of the total.

The study noted US firms’ clear preference for Philippine-based outsourcing service providers, which could hurt growth in the Philippine market this year.

However, it added, while a slight slowdown is expected from the US "in the near term, the US will continue to be the top market for outsourcing players to target for growth opportunities."

"The restructuring of the American financial services industry and the accompanying economic downturn is sure to have far-reaching effects on off-shoring industry activity worldwide. As unemployment rates rise and industrial production declines, the first rumblings of a full-blown recession are already being felt across the industry," the paper read.

"Since there will be continued pressure on financial institutions to cut costs, it is likely that existing contracts will not be scaled back," the paper read.

"However, new deals will be few and far between."

Still, the study noted, "well-established destinations" India and the Philippines should be able to attract new contracts since they pose less of a risk when compared to emerging markets like Vietnam and Indonesia.

New contracts, however, can be expected to start trickling in only in the second half, the paper read.

The recession will also likely trigger consolidation among outsourcers, it added.

Rather than compete, some Indian and Philippine outsourcing firms, for instance, work together to offer a complete solution to foreign clients. "A typical arrangement would involve an outsourcer from the Philippines being responsible for voice services, while its India counterpart oversees data services," the study noted.

Business Processing Association of the Philippines (BPA/P)Chief Executive Officer Oscar R. Sañez, however, said business should remain strong because of the growing need of companies to cut cost in a time of crisis. "The business continues to be strong and we are still looking at 20%-30% growth revenue target for the industry this year," he said.

Mergers will likewise also be brought about as businesses seek better efficiency to cut cost. "Mergers are a global trend, more so in a fast growing industry like the BPO sector, where companies are looking for more ways to leverage their industry by reducing costs. It will be a normal part of the industry," Mr. Sañez said.

Last year, Aegis BPO, part of India’s $50-billion Essar Group conglomerate, bought California-based PeopleSupport, Inc, which has 7,000 seats in Makati and Cebu, in a $250-million deal. — J. B. F. Santos

GMA signs Cooperative Code into law

By Paolo Romero Updated February 18, 2009 12:00 AM

MANILA, Philippines - President Arroyo signed into law yesterday Republic Act No. 9520 or the Philippine Cooperative Code of 2008 that would strengthen thousands of cooperatives in the country and enable the system to contribute to economic growth.

Among those who witnessed the signing in simple ceremonies at the Ceremonial Hall of Malacañang were Senate President Juan Ponce Enrile, Speaker Prospero Nograles, COOP-NATCCO partylist Rep. Ernesto Pablo, Executive Secretary Eduardo Ermita, Finance Secretary Margarito Teves, and Energy Secretary Angelo Reyes.

The new law amends R.A. 6938 or the Cooperative Code of 1990 “to meet the challenges of the global economic situation and the advent of technology.”

It also affords “more opportunities to our cooperatives to offer more services for their members not only on financial needs, but also the ability to undertake more productive activities geared towards the upliftment of our countrymen,” a Palace statement said.

“With this, it is hoped that cooperatives will continue to play an important role in easing the burdens brought about by the present global financial crisis,” it said.

Through the cooperative movement, “livelihood opportunities for the affected workers are opened up, while the cooperatives may make use of the skills acquired by these laborers for other more production purposes that do not entail much foreign investments,” the statement said.

Among the salient features of the law are: It prohibits a newly-organized cooperative from being registered and operated as a multi-purpose cooperative except after two years of operation; it increases the required minimum paid-up share capital from P2,000 to P15,000 to be registered as a cooperative; and it increases the number of members’ votes from two-thirds to three-fourths all members with voting rights on certain matters.

The law also prohibits members of the board of directors of co-ops to hold any other position

directly involved in the day-to-day operations and management of the cooperative, and prohibits any person engaged in a business similar to that of the cooperative or who in any other manner has interests in conflict with the cooperative to serve as elective or appointive officer in the cooperative.

Annual reports are to be provided the co-op members and the Cooperative Development Authority within 120 days from the end of the calendar year and failure to file shall subject accountable co-op officers to fines and sanctions, and may cause the revocation of the authority of the cooperative to operate, the law mandated.

Depressions and credit

Corporate Watch
By Amelia H.C. Ylagan

Between a stretch and a yawn, a world just rising from the hunger-induced lethargy of the Great Depression of the 1930s tripped into the Second World War (WWII) when it caught megalomaniac Adolf Hitler stretching to grab Poland for Germany in September 1939. While a rudely roused Europe and Greater Asia scampered to the trenches to align with either the Allies or the Axis, the US preferred to be a neutral arms maker-supplier to its nation-friends, until December 1941, when its own Pearl Harbor was bombed by Japan.

The say the wars eased the Great Depression, levelling the troughs of economic deprivation almost literally as filling the trenches with 40 million soldiers killed in action and 20 million civilians massacred, caught in the crossfire or killed by hunger and disease in WWII. Industries lying dormant were shaken awake to hastily provide food, shelter, and clothing in great volumes for soldiers first and civilians next. Steel companies lorded over the skyrocketed demand for arms, war vehicles, and equipment. Indeed, manufacturing for the war brought many jobs and income for supplier-nations like America. But wars cannot arbitrarily be called upon for a repeat performance of what it had once done for a depression, at least not by a human-hearted nation-leader with a conscience for the human costs of a war.

Perhaps by accident of Fate, and certainly not by shrewd design, the US was in the unique situation of having options to provide options for the other countries involved in WWII. The US legislature had voted for the US not to join the League of Nations (forerunner of the United Nations), composed of countries opposing the aggressive German-Italian-Japanese (later the Axis powers) territorial wars in Europe and Asia. However, in support of the British-led opposition (later the Allied Forces), the American Neutrality Act, which banned US involvement in the brewing WWII, was amended in late 1939 to allow the sale of arms and equipment to the British side of the growing war in Europe.

The US was rebounding from the 1930s Depression at this time, and the industrial manufacturing jobs welcomed the demand for war material from Europe. Buyers had to send their ships to US ports to claim supplies, to protect US delivery ships from being attacked. Payments were originally on "cash and carry" basis, in cash currency or gold, but this badly depleted the coffers of European allies, who themselves were still recovering from the Depression. Soon credit was allowed by the US on the "Lend-Lease" program of 1941, which included loans to Britain, the USSR, China, and other Allied countries, said to have totalled $50.1 billion ($700 billion in 2007 prices). Payments were over 50 years at 2% p.a. interest.

WWII was thus mainly supported by the credit given by the US to the Allies. The loans, as is the nature of loans, expanded the capability to buy beyond the constraints of cash — and that defined positions of advantage in a war that doubled the struggle to recover from the Great Depression. The US had struck on a brilliant economic scheme to benefit both themselves and the world, and to settle the giant political problem of WWII.

Sad to say, a working philosophy of Credit may now be an idea carried too far. In the 60-some years after WWII, Credit has practically replaced Cash in transactions big and small. Let us not talk of big-time credit, loans, discounting or other uses of credit in the ordinary operations of business, because these are usually examined and processed in detail by lenders and investors. Barring an unscrupulous few who would take money from business loans for their personal use, businessmen would ordinarily nurture their credit lines to smooth irregular cash flow from operations or to invest in property and equipment that will earn returns to positively impact owner’s equity in the balance sheet.

It was, again, the Americans who created the first version of the credit card, called "Charg-it," in 1949, where a customer would effectively sign a mini-promissory note at the merchant’s, to be paid by the customer’s bank from the customer’s credit line. Credit-card companies soon emerged as intermediaries between the bank, the merchant, and the buyer, like global companies Visa, MasterCard, and JCB among others. The credit-card business has been growing fearfully fast, with worldwide purchases and cash advances on major credit cards reaching $2.2 trillion in 2008, according to CNN.

There is the specter of possibly yet another Great Depression in the tail of the current world recession caused by the US subprime mortgage meltdown. Nations are frenetically thinking of bail-outs for failed businesses, subsidies, and stimulus packages to pump-prime their economies. Eagle eyes are on the inflation figure, which is considered to be the thermometer of how the economy is coping with decreased demand due to high prices that decrease production and discourage investment. Are they too busy to watch the default rate on credit-card purchases, which tell of a coping mechanism gone awry for spoiled postwar consumers reared in the luxuries of super-capitalism?

In the US, credit-card balances have risen 75% since 1999, yet families’ real wages rose by only 4% in the same period. The savings rate has also declined relative to credit-card balances. Yet the credit-card default rate has shot up to 30% of total balances. In the $1.5-trillion US credit-card market, almost half of this is securitized and sold further to banks and intuitional investors, like the failed US subprime mortgage program was.

The Philippines has a P117.5-billion credit-card industry, with a past-due level of 14%. To see the malls, groceries, and restaurants teeming with people (despite the "crisis") would tell us that much of this is funded by the credit card, which has doubled in membership in five years. A local credit card company bewails the lack of credit discipline of young people in the call centers, close to 40% of whom have run away from their debt. Is it the fault of these young people, or the credit-card companies?

If the ready credit that the US gave to its allies in WWII had saved the world from the ravages of the Great Depression, the irony is that this enchantment with credit in all its forms and in all conceivable human activity has created this current world recession and possibly another Great Depression, if it goes unbridled. The irresponsible awarding of housing loans to subprime borrowers, and now the credit cards profligately given to many subprime accounts are clear mistakes that must be addressed by regulators and the creditors themselves.

Weird, how this recession calls to mind WWII and its trenches, and how, somehow, it feels like the world is in a deep trench it has dug for itself. Time it is for deep introspection and a resolution for more responsible credit giving and taking. The credit-led recession is one big World War that must be won.

Making a bet in a free-fall market

BY IKKA C. DE GUZMAN

The whole world may be standing at the foot of what could be the deepest global financial downturn since the Great Depression of the 1930s, but this does not stop some courageous investors from literally taking a gamble.

Among investment instruments available, the stock market comes as a natural option for investors, albeit with strong caution involve, as numbers continue to falter in most markets.

"The Philippine Stock Exchange has dropped incredibly, reflecting the dip in stock markets worldwide," said Fernando Jose Sison, president of the Bank of the Philippine Islands (BPI) Investment Management, Inc.

Particularly, the country has been hit by the turmoil in the form of capital outflows as offshore investors caught in the credit crisis dumped even their profitable holdings in the local bourse in order to raise cash to offset their losses abroad.

The steep decline in the value of prized stocks has stoked fears among local investors that the worst is yet to come, prompting them to dump equity shares and head for safer havens.

"There has been massive loss of confidence because the ones who invest in stock markets are also well-read, and they are very aware of what’s been happening around the world," said Mr. Sison.

Despite the widespread exodus, Teresa Javier, senior vice-president of the Asset Management Group at BPI, believes the local investors have yet to join the global anxiety attack. Stock investors comprise a meager 15 percent of the country’s population.

"Investors are not immune to the general�risk aversion�prevailing in the market, but we have not seen [the] panic," said Ms. Javier.

What industry experts have been witnessing is a more instinctive flight to less volatile products like fixed-income funds.

"There has been a shift to more conservative vehicles such as special deposit accounts, while some took advantage of higher yielding government bonds to lock in long-term investments," Ms. Javier added, noting that most asset classes have performed poorly with the exception of high-grade government bonds.

Fight or flight

Expectedly, financial institutions are asking investors to reconsider retreat. The Fund Managers Association of the Philippines (FMAP) expects the impact of the crisis on the local market to be minimal, and suggests that investors should stay put as financial cycles dictate that conditions will stabilize at some point.

"If you go in and out of the market, that’s trading, not investing," said Francisco Colayco, chairman of the Colayco Foundation for Education, commenting on the likely widespread fight or flight response from investors.

At the 11^th annual Wharton Investment Management Conference held last month in Philadelphia, top financial experts agreed that the current bear market offers great opportunity to buy distressed stocks at base prices.

"Now is a good time to start investing because the market has practically been reset to 2004 [values]," agreed Emmanuel Soller, a trader at Equitiworld Securities.

The drastic drop in global equity prices, said PJ Garcia, president of the FMAP, is the perfect opportunity for young investors, or those who can afford greater risks, to make an entrance in the stock market.

"Once the market recovers, it will be a lifetime or two before the world sees it this low again," said Doby Atilano, a registered financial planner and founder of the Global Investors Center.

Daniel Miller, vice-president of New York-based Gamco Asset Management Inc., agrees. "We are seeing opportunities to buy into companies at prices that you have only dreamed of," he said in a previous interview.

Marcelo Ayes, Rizal Commercial Banking Corporation senior vice-president for financial markets, said local stocks have shown signs of being oversold, making it a good time for investors to acquire shares of large corporations. These bargains have been made more appealing by incentives from the Bangko Sentral ng Pilipinas (BSP), which extended its postponement of the documentary stamp tax, an added cost to investors in the local bourse.

Supporting the cheery atmosphere is the analysts’ insistence that despite the net selling in the market, pockets of appreciation still exist. The fact that people are still able to sell, said Mr. Colayco, means that other people are still buying.

"Stock market still has the higher yield. It can go up to 10 percent in a day if there’s recovery: no other investment vehicle can provide that," Mr. Colayco said.

Mr. Soller, for his part, said that the current undervaluation of stocks is due largely to the pessimism of investors; "but value for value, if you look at the fundamentals, the upside potential is still greater than the downside, so this is a good chance for long term investors to gradually accumulate."

DBP-Daiwa Securities advised investors to focus on stocks with recurring incomes, strong cash flows, a dividend history, meaning those that can give consistent returns — and those with the ability to scale up. "Remain defensive while looking out for opportunities; look for stocks that have strong growth potential," it said.

Indeed, in such volatile investment conditions, exercising caution is key. Even industry insiders admit that the worst may not be over yet, and advise bargain buyers to use cost averaging — putting in money in small amounts in regular intervals — instead of investing in lump sum, and to remain prudent when selecting stock options.

Mr. Atilano suggests exposing 10 percent of one’s savings each year over a period of 10 years to speculative investments, regardless of the market’s condition.

Safety first

Meanwhile, risk-averse investors concerned with capital preservation can opt to park their cash in fixed-income instruments or interest-bearing products like money market funds — mutual funds that invest in short-term debt instruments — treasury bills, and high-yielding special deposit accounts (SDAs) which have lower risks because of their short-term maturity but can still provide a steady income stream.

"In these times, it’s best to invest in something that can be liquefied when the need for cash arises," said Mr. Colayco.

Should the tides turn bleaker, investors with more than P250,000 — the maximum deposit amount guaranteed by the Philippine Deposit Insurance Corporation (PDIC) — could start exploring and investing in other jurisdictions through the Internet, said Mr. Atilano, referring to tax-free havens abroad like the Isle of Man, which guarantee up to 90 percent deposit insurance.

Those willing to take a peak out of their safety nooks can have a bit of both worlds. Long-term thinkers can start building up a portfolio of bonds and equities, with the former moderating the effects of market fluctuation and the latter enhancing portfolio returns, at least once market conditions begin to normalize.

But some financial voices are in dissent.

Mr. Colayco, for one, stressed the need for liquidity in weathering tough times, suggesting that investors keep their cash or put them in simple, tangible investments like property, over which they can have more control.

Indeed, many investors who sold their stakes are opting to stay liquid, a smart move, said some analysts, even if one is on the lookout for possible opportunities that may surface in the market. "Given the current condition, I’d say you need at least three years’ worth of liquidity just to fund your personal requirements," added Mr. Atilano.

Back to basics

Investors who do choose to take the plunge are advised to stick to firms that are registered in different jurisdictions and have global operations — hence are not dependent on the domestic market — and to sectors that stay in demand regardless of the state the economy is in.

Among the industries expected to weather the current financial catastrophe are infrastructure, food, services, and resource businesses. Canned goods, and lifestyle vices like cigarettes and alcohol — commodities which thrive in times of economic depression — are also good bets.

"Consumers have shifted their priorities back to their basic needs, so now’s the time to invest in sectors that are resilient and companies, like telcos and utilities," said Ms. Javier. Despite the 200-percent drop in the prices of oil, governments and private enterprises continue to pour millions in developing green technologies, and some experts say alternative power sources could be a safe investment sanctuary.

"Pawnshops are bound to see a lot of clients if the situation gets any worse," added Mr. Atilano. Another investment alternative that has been getting a lot of attention especially from returning overseas Filipino workers (OFWs) is franchising, an emerging sector which, according to data from the Association of Filipino Franchisers, Inc. (AFFI), raked in P13.8 billion in sales last year.

"The Philippines has huge potential [for franchise businesses] because certain areas are not developed yet. [And in business] the earlier you are in the game, the better," said Rommel Juan, president of AFFI.

In Asia, international finance experts have their eyes glued on health care, tourism and real estate, which still hold a lot of potential as emerging economies continue to expand, albeit at a much slower rate.

But local analysts warn against investing in the property stocks as mass layoffs abroad could prompt overseas Filipino workers, which comprise more than half the residential segment’s market, to default on their home loans. "The coming year could be a hard year for condominiums," said Mr. Atilano.

The country’s real estate sector, which up until the first half of the year enjoyed unprecedented growth, is in danger of coming to a standstill as major developers pare down their budgets and postpone acquisition of raw lands and the launch of new projects until the market stabilizes.

Condo builder Vista Land and Lifescapes reports that buyers have already begun availing themselves of smaller home packages, averaging P2.9 million each as of September from P3.5 in the same period last year.

Road to recovery

While industry insiders refuse to peg a definite date for total recuperation, many agree that rescue steps being implemented by big economies, like the US and China bailouts, should help restore investors’ confidence in the global financial system.

But for now, local industries are bracing themselves for darker days ahead. "The crisis will hover around �til next year, and we may get more affected through our businesses: exports will remain low as long as foreign markets are down, and layoffs of OFWs abroad will definitely affect our consumer spending here," said Mr. Atilano.

Already, demand for electronics, the country’s top export earner, has already declined as demand for high-tech products fell in the US and Japan, the Philippines’ two biggest trading partners which cumulatively receive over 31 percent of the country’s exports. Reduced consumer spending has also prompted foreign retailers to reduce their volumes.

"Big US department stores like Nieman Marcus have already cancelled orders for Christmas goods from the Philippines," said Mr. Colayco. On the other hand, the slower increase in commodity prices could bring down local manufacturing costs, making local industries more competitive than their foreign counterparts.

The country may have something to gain in the business processing outsourcing (BPO) arena, as cost-cutting measures could prompt US and European firms to ship more jobs to low salary hubs like the Philippines. Data from the Business Processing Association of the Philippines show that the sector is currently earning $4 billion a year in revenue, and the organization claims there’s room for as much as 40 percent growth next year.

Optimists predict that markets should bounce back by the second half of next year, with the downturn in consumer demand being offset by more efficient inventories.

"In 1930s and in 1997, businesses were burdened by their stockpiles when consumers stopped buying, which kept them from recuperating fast after the crisis; but now, just-in-time technology have allowed firms to manufacture products only as needed," said Mr. Atilano. Still, widespread price drops due to overproduction across all categories in the US show that many producers have yet to adopt these cost-saving measures.

The extent of the damage caused by the�credit crunch�and the strain on companies’ balance sheets have led some experts to believe that it is going to be a very long journey to recovery. "We do not expect stability to happen immediately as there are too many things to fix: financial institutions, market regulations,�risk management practices," said Ms. Javier.

This sentiment is shared by majority of investors, who stand at the sidelines waiting to enter at better market levels. "If we follow history, stock markets normally recover within eight months following a crisis, but this is a credit crunch and today we are facing uncharted territory," added Mr. Colayco. The backlash is made more stark by the continued dependence of many developed and emergent markets on trade with the US, an entanglement that was virtually nonexistent in the 1930s.

At the moment, the few souls who are braving the stock market blizzard, according to Mr. Soller, either just got into the markets early this year, or got out of it before the big global crash and are unharmed enough to bite on the bargain prices.

But at some point, said Michael Roth, a founding principal of Wisconsin-based Stark Investments, people are bound to get bored with being afraid and markets will start to have an upside-only scenario.

Despite grim predictions by the country’s business sector, the Asian Development Bank argues that the country will not enter into a recession, but stated that the pullout of investments could result in higher unemployment and sluggish domestic demand in 2009.

There is more good news from foreign financial institutions like JP Morgan, which said that the Philippines is capable of surmounting the global slump, thanks to adequate foreign exchange reserves, a sustained current account surplus, and a strong economic position driven by private consumption and services. Deutsche Bank recently declared the Philippines as the only country in Southeast Asia that had so far eluded the harsh impact of the global turmoil.

Safety nets set up to counter the rice crisis earlier this year, such as fertilizer coupons, cash for the poorest and rice subsidies are also proving themselves useful in the present predicament. Finance Secretary Margarito Teves has said that the government is positioning more funds for infrastructure, education and food security — activities that would pump-prime the economy — to help keep recession at bay.

It remains to be seen whether the country will rebound faster than its neighbors, but in the long run, industry experts maintain that the crisis’ lasting impact is a long term gain.

"We can’t get any lower than where we are now, and those who decide to invest today can always take comfort in the fact that markets emerge more stable after a crash, because banks and companies learn to regulate better," said Mr. Atilano, adding that the current conundrum, whose highlights are broadcasted daily in the media, is also the perfect time for amateurs to learn the ropes of global investing.

Predictably, analysts say financial institutions will be more conservative in dealing with complicated transactions. But this will not be a one-way street. Mr. Sison predicts the hard lessons learned from the present crisis will also push investors to be more picky in choosing their investment chests. "There will be a shift from excessive risk taking to high risk aversion, particularly in local stocks," said Ms. Javier.

Leading in tough times

THE BIG QUESTIONS doing the rounds now are: How does recession affect companies? Did organizations foresee the slowdown? Can they cope with the slump? What should the strategies of organizations be for them to come out successful?

We are currently seeing the world organizations strategizing, making alternative plans as nobody knows for sure how long the recession is going to last. There are speculations about the duration of the recession; hence organizations are faced with tough questions on how to go about this whole process of surviving the recession, coming out of it a winner and taking on the opportunities that would arise later.

I was happy to have recently attended a talk by a Harvard Business School Strategy unit Professor who said,"A crisis is a terrible thing to waste." The talk was of course very timely and relevant. This statement kept me wondering for some time.How many of us would actually look at the current global slowdown as an opportunity for ourselves? I see most of us including myself panicking at the prospects ahead and the longevity of this recession.

I was told that in reality, there are very few companies which were able to meet their revenue and profit goals in good times. Some of these statistics startled me:

• About 27% of the companies in the world meet the revenue criterion.
• About 16% of the companies in the world meet both the revenue and income criterion.
• And only 13% of the companies in the world meet all the value creation criterion.

The professor went on to say that, during tough times, companies compete hard for the existing customers and make themselves competitive due to change in consumer priorities. The company’s primary goal becomes surviving the tough times, with very little significance given towards being ready for the better times which would inevitably follow after the tough times.

The leaders of companies, should focus on the core dimensions of leadership, which are the three pillars of organizations:

Vision - which is to establish direction, provide common purpose, motivate and inspire the human capital of the organization;

Strategy - to grow and deliver customer value through innovation; and

Change - dealing with new realities

The professor emphasized that, a company’s vision is a clear and compelling theme about the organization and its units and is also the reflection of the values and direction of the organization.

It is important for organizations to align strategy and vision in tough times. According to him, the four key success factors of organizations are:

• Strategic Thinking,
• Managing Key Linkages,
• Performance Management and
• Innovation and Change

1) Strategy is defined as the "the choices (implicit or explicit) that an organization makes to achieve competitive advantage in a specific marketplace". It is to maximize the value of the capabilities of the organization that distinguishes it from its competitors. A strategy answers the question: "How are we going to win?" i.e., achieve above-average returns. Strategy is the use of tangible and intangible assets of a company. It deems necessary to have clarity about the dynamics in customer value, current and emerging, to create a sustainable strategic position in the marketplace. This can be achieved by a competitive advantage which offers value proposition that customers prefer and which competitors cannot easily match.

The professor spoke about the results of a research, which said that, leaders in organizations do not spend more time developing and building organizations for long term. More time typically is spent on looking outward and planning for short term (3-5 years into the future). On an average only about 3% of the leaders devote time building an enterprise view about the future.

2) An organization generates long term customer value through the performance of its human Capital, which is dependent on the availability of the right talent with key capabilities to perform their functions optimally. This leads to operating performance, which are the key activities of the organization and its ability to remain unaffected even during tough times. Effective operating performance leads to an outstanding market performance by the organization, which attracts and retains customers for today and tomorrow, thus ultimately generating financial results for the company. Financial Performance, which is about making money by providing value to the customers today and tomorrow.

It is important for leaders of organizations to understand and manage these key linkages and work forward and backwards to implement changes during tough times.

3) Performance Management is the process of ensuring that the organizations strategy or plan is first understood and is then embodied and reflected in its activities, behaviours, capabilities and allocation of resources. It is different from just measurement. For leaders, it is answering questions like, Have we clearly articulated the capabilities we need, to get the results expected? Is there agreement about which capabilities are crucial? Are these attributes regularly communicated and developed? Are we managing the entire performance cycle?

4) Tough times require "doing more with less". This requires Innovating externally with customers and internally with processes and employees. The professor said that innovations in organizations have to overcome the many obstacles which primarily revolve around the very need to change.

The professor ended his talk by saying that innovative organizations emphasize on process oriented innovation. Idea generation, setting the culture for innovation, alignment and implementation of the innovative idea are areas leaders of Innovative organizations focus on.

Innovative companies like GE, IDEO, Google, Apple and Nike are known for not only surviving the tough times but also coming out winners.

The reasons for the current crises is different and more complicated from that of the previous ones like Asian Financial crisis of 1997, or recessions faced by the world before. There would be restructuring in the financial industry and change in attitude towards investments.

Getting ready for the inevitable good times is what the organizations should focus on.

For more information on leadership and management, please contact Gi Sicat at gie.sicat@johnclements.com and Carol Dominguez at cvdominguez@johnclements.com.

High-end property prices may ease amid downturn

PRICES of high-end residential property units in the country’s capital may go down this year with demand expected to soften due to the economic slump, industry analysts said.

Prince Christian R. Cruz, senior economist at Global Property Guide, said prices of luxury units in Manila could be affected, with fewer people expected to make purchases even as supply rises due to project completions.

"Demand from foreigners and expatriates, who are among the main markets for these products, may go down since they may be called back to their countries with the ongoing job cutbacks," Mr. Cruz said in a telephone interview.

Colliers International research manager Ramon Jose E. Aguirre agreed there was pressure to adjust luxury unit prices downward.

"So far, prices are still flat. Developers are still holding on to current high prices. But when demand dries up during the latter part of the year because of the slowing economy, they would have to lower," he said in another interview.

But Claro G. Cordero, Jr., head of research and consultancy at Jones Lang LaSalle Leechiu Philippines, said prices would likely remain stable since developers had anticipated weaker demand.

"As early as the third quarter, developers realized that they could not count on buyers from overseas so what they did was concentrate on the local market," he said.

"[Local buyers] can carry the market [for the meantime]."

Messrs. Cordero and Aguirre also pointed out that high-end properties could benefit from the volatility of other investment products.

"People with the money to spare are not investing in financial instruments right now because those are too volatile. They are going back to basics such as property," Mr. Aguirre said.

Eton Properties Philippines, Inc. President and Chief Operating Officer Danilo E. Ignacio said the firm was not planning to lower prices.

"We even had a price increase in some of our luxury projects, where demand continues to be strong," he said in a text message.

Global Property Guide, in a survey released last week, ranked prices of high-end residential properties in Manila — estimated at $1,914 per square meter (sq.m.) — as the 87^th most expensive out of 112 capitals monitored. Manila was ranked 36^th last year, but that survey only involved 46 capitals.

The group ranked Manila’s high-end apartments fourth best in terms of yield, with properties offering a 10.9% return.

"Luxury units here were really marketed for ownership. With the dearth of supply of units for rent and no, yields will remain high," Mr. Cruz said.

The group based its report on the 2008 average price of a 120 sq.m. high-end used apartment located in a country’s economic center where foreigners are most likely to buy. Global Property Guide used exchange rates as of January 27, 2009.

Monte Carlo ($47,578 per sq.m.), which was not included last year, replaced London ($20,756 per sq.m.) as the city where property is most expensive.

Among the six Southeast Asian capitals included, Manila was third most expensive, with Singapore the priciest ($9,701 per sq.m.) and Jakarta the cheapest ($1,102 per sq.m.).

Mr. Cruz noted that while local prices remained cheap relative to the region, constitutional restrictions on foreign ownership made neighboring countries more attractive.

Mr. Cordero said investors may also choose to invest in other Southeast Asian countries because they have advanced real estate investment trusts, which makes the markets there more transparent.

Mr. Aguirre, however, said foreigners may still prefer Manila due to the relative low cost of living and political stability.

City living made easy

By Willie J. Uy, President & CEO, PHINMA Properties Updated February 09, 2009 12:00 AM

I have been with the Phinma Group straight out of college for almost 30 years now. The Phinma Group was born out of a philosophy of nation-building. There is a very nationalistic thrust in the business model of each of its subsidiaries and Phinma Properties fits this role to a T.

It is every Filipinos dream to own a home. With developers churning out mostly mid to high end condos in Metro Manila, city dwellers unfortunately find themselves unable to afford a decent home or to acquire a house outside the city and contend with high transportation costs and long commute times. Our mission is to provide community-oriented, master-planned, affordable housing within major urban centers, especially Metropolitan Manila.

Our slogan “City Living made Easy” is where our edge is. Our projects embody several distinctions. The first is manifested in high quality, speedy construction. The second, selling quickly, is made possible by the conscious limiting of profit margins and the resulting value-for-money residential units available to prospective buyers. Finally, there exists in the company an underlying drive towards social relevance and contribution by building not just residential homes, but wholesome communities where family life is fostered, and new, lasting friendships are made in a conducive environment, tailor-made for the mentioned purposes.

Although we are in the affordable segment of the housing market, one of the things a buyer would initially remark on when he visits a project by Phinma Properties is that it doesn’t look “low-cost” at all. Another aspect immediately noticed is the quality of finish and standards.

To date, we have built more than 6,000 condo units in Metro Manila. We pride ourselves in establishing communities and are fully committed to its responsibility as a community builder. We have the capability and experience to change people’s lives and upgrade their living standards and are delighted by the fact that our housing projects evolve into communities whose residents live together harmoniously.

The challenge as CEO is to make sure that we don’t just offer value-for-money homes but that the company should always be a step ahead of its competitors. To this end, we have endeavored to serve the public through the implementation of programs and goals that benefits not only the company but our buyers directly:

Quality, safety & environmental concern: Despite being in the affordable segment, we have aligned ourselves with international standards. We are the first and only developer in the country with triple ISO certification for the Quality, Environmental and Occupational Safety & Health Management System.

Green architecture: This year, we will be further enhancing our developments by introducing features that will increase the efficiency in the use of water, energy and materials in our designs while reducing impact on the environment through reduction of waste and pollution.

Community building: To ensure that the residents’ investments and the project’s value do not depreciate, we have established its Post Project Management Group (PPMG).

Social responsibility: We believe that our slogan “city living made easy” should be experienced by both our homeowners and the larger Filipino community. In fact, our business of providing decent and affordable homes to Filipinos is in itself social responsibility in action.

Our present initiatives are under the umbrella of our “Bagong Buhay” program. Under this effort, we give new life to excess scrap materials by reusing and recycling them to build basic community facilities such as classrooms, chapels or public toilets. We also adopt parks in our host communities, giving new life to these public spaces and the beneficiaries as well.

Finally, as CEO it is important not to lose sight of two other important factors in a service oriented business — customer service and organization. It is important to make sure that our employees are well-trained, empowered and motivated to deliver on our promise to our buyers. I personally make it a point to lead quarterly general employee meetings to keep them updated on what’s happening in the company and to motivate them to meet our goals.

'Banking system remains strong'

By Paolo Romero Updated February 09, 2009 12:00 AM

Despite the global economic crisis, the Philippine banking system remains relatively strong compared to its foreign counterparts, banking and Monetary Board (MB) officials said yesterday.

The banking industry profits also grew nearly 20 percent last year, they said.

MB member Ignacio Bunye said reforms in the industry helped shield banks from the global economic crisis.

“These reforms include the early adoption of Basel 2, which aimed to create an international standard that banking regulators can use when conceiving regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face; tight control of derivatives and structured products; and constant reminders on risk management and corporate governance to ensure that the banks practice safe and sound banking,” he said.

He cited the comments of Bank of Philippine Islands (BPI) president Aurelio Montinola that 2008 was “a Black Swan year for the banking industry (that was) full of unexpected twists and turns that ultimately led to the global financial crisis.”

BPI chairman Jaime Augusto Zobel de Ayala described it as among “the most turbulent years in the history of global financial markets.”

“Who would have thought that household names like Lehman Brothers, AIG, Citibank, Bank of America cum Merrill Lynch, General Motors, Royal Bank of Scotland, and ING would be critically wounded, partially nationalized, or in the intensive care unit?” Bunye, quoting Montinola, said during a recent meeting.

“Who could have predicted that the price of oil would go from $60/barrel to over $140, and back to below $40, or that three major governments would be dropping interest rates to almost zero?” he said.

“However, not everything should be doom and gloom this year. As the BPI president and CEO also pointed out, the Philippines has survived the crisis so far.”

Bunye said that while major foreign banks were estimated to have close to $1 trillion in potential write downs and have reported massive losses in 2008, the Philippine banks have been reporting relatively minimal write downs and would still report profits—although significantly reduced last year.

“Whereas foreign governments have had to pledge or infuse almost $500 billion in capital or aid programs to help their banking systems, Philippine banks have remained relatively insulated,” he said.

“The only direct hit, according to the top BPI official, is possibly P15 billion or $300 million in new capital for Philippine Deposit Insurance Corp. to fund the payout of deposits of the closed Legacy Group of Rural Banks,” Bunye said, referring to the bank that collapsed and subjected to congressional investigations due to alleged malpractices.

He said Montinola also noted that Philippine banking growth was close to 20 percent as of November 2008, while foreign governments have been criticizing key banking recipients of their aid for refusing to lend.

BPI officials credited the Bangko Sentral ng Pilipinas (BSP) for its continuous implementation of banking reforms that helped the industry.

“Under these circumstances, we get a better appreciation of the active role that the BSP has taken over the years in keeping our financial system relatively more immune and insulated from the adversities that advanced and sophisticated markets are now going through,” Bunye quoted Zobel de Ayala as saying.

With these reforms firmly in place, BPI reported good business volume growth in key priority areas, saying that the bank’s lending even increased by 17 percent, he said.

“(BSP) Governor (Amando) Tetangco was right in saying that the establishment of a sound governance regime cannot be overemphasized. It provides a stronger and more effective financial intermediation that would enable the country’s banking system to weather more challenges ahead,” Bunye said.

SEC blames lack of independence for pre-need’s impending collapse

THE SECURITIES and Exchange Commission (SEC) is seeking fiscal and administrative autonomy so it can address its supposed inadequacies and help prevent another pre-need industry crisis.

SEC Chairman Fe B. Barin told Palace reporters giving more powers to the corporate regulator would allow it to hire more people and allocate enough funds to make the agency more efficient.

"We will make that recommendation to Malacañang as soon as possible. If we can be given financial and administrative autonomy, we can have the right number of people with the right expertise, pay the right salaries... The efficiency of office will be improved," she claimed.

But Ms. Barin said she was not aiming for fiscal powers as broad as those of the central bank, adding that she only wanted more financial flexibility.

"But as it is, our budget gets smaller every year. Last year, we were down to P241 million. This year it’s around P240 million," she pointed out.

The Executive, for its part, will ask economic managers to study the proposal, Executive Secretary Eduardo R. Ermita said.

"If officially presented by the SEC, we will push this to the economic team. We will await the proposal," he said.

In a separate interview, lawyer Reynaldo G. Geronimo, a partner at the Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, said the Securities and Regulation Code would have to be amended if the regulator was to be given fiscal autonomy.

"I am all for fiscal autonomy of the SEC since it’s a regulator. If this happens, it will also be given protection from litigation. Since they are regulators, they can hire the best lawyers and fees will be shouldered by the government. They can be fiscally autonomous," he said.

A fiscally autonomous agency is supposed to have freedom from outside control. Examples include the Judiciary, constitutional commissions and the Office of the Ombudsman, which all must independently discharge their duties before and after their yearly budgets are released.

Ms. Barin denied lawmakers’ charges that they had been remiss in their duties. "Up to this time, I can’t accept that we have been negligent. We have exerted all efforts to perform the duties of our office but inadequacies, technical and financial, have affected our ability to exercise those duties as people expected us to do," she said.

The pre-need industry was reported to have incurred a deficit of P47 billion as of June, while end-2008 figures were expected to have worsened further as a result of the US financial crisis. The value of the sector’s trust fund holdings plummeted after its securities and bond investments plunged following the turmoil unleashed by the US subprime crisis.

Senate Majority Floor leader Juan Miguel Zubiri earlier proposed to allocate a tenth of the P10-billion economic stimulus package for livelihood programs to bail out pre-need plan holders, warning that hundreds of thousands will be affected if the industry collapses.

But Federation of Pre-need Companies of the Philippines President Jose Miguel Vazquez earlier said his group did not plan to seek a government bailout, but would not refuse one if offered.

He said the group had asked the SEC to relax rules on booking losses and building up capital, which the regulator approved in December, as their trust funds posted losses due to volatile markets. — Bernardette S. Sto. Domingo

Another dim growth forecast

Standard & Poor’s estimate: 2.2-2.7% for 2009

INTERNATIONAL DEBT watcher Standard & Poor’s yesterday added to below target growth projections for the Philippines, citing a hit to the country’s exports as the main drag.

In a report, S&P projected gross domestic product (GDP) growth of 2.2-2.7% this year, below the government’s forecast of 3.7-4.5%. It compares with last year’s 4.6% result and 2007’s three-decade high of 7.2%.

Earlier this week, fellow credit ratings firm Fitch Ratings said the Philippines could grow by just 2%, while the International Monetary Fund put forward a 2.25% estimate.

"[Declining inflation] will fail to fully offset the impact of slowing external demand and declining remittances," S&P said in its first-quarter Asia-Pacific macroeconomic outlook.

The government yesterday reported that inflation fell to 7.1% in January.

"As expected, the fourth quarter of 2008 witnessed slightly weaker growth of 4.5% (compared with the nine-month average of 4.7%) because of lower domestic consumption and exports," the ratings firm said.

The Philippines, however, is expected to fare better than neighboring economies such as Japan, Hong Kong, and South Korea.

S&P Asia Pacific Chief Economist Suvir B. Gokarn said the country’s slowing electronic export sector — hit by weak demand from developed markets such as the US and Europe — coupled with slower growth in remittances would be the main growth damper.

"Trade linkages will be critical," he said in a teleconference.

The country’s semiconductor manufacturing sector, which contributed more than 60% of total exports in 2007, expects to slow by as much as a tenth this year. Industry leaders have also warned of layoffs and plant closures due to slower demand abroad.

"Exports of both electronic and commodity goods will bear the brunt of the weak global environment," the S&P report states.

"Boosts from remittances and investment inflows will lessen, leading to a weaker 2009," it adds.

But Mr. Gokarn said a recovery as early as this year could be expected, due to monetary policy measures implemented since August that will help boost domestic consumption.

The Bangko Sentral ng Pilipinas late last month cut policy rates by half a percentage point, following a similar rate cut as 2008 ended.

"We expect more of these in the coming months ... helping financial systems gain confidence to start lending money again," Mr. Gokarn said.

Demand for electronic exports will also return next year, the S&P report said.

Mr. Gokarn downplayed the importance of fiscal stimulus packages in "relatively small" economies like the Philippines, saying that fiscal policy would make a more significant difference.

The government has announced that it would be spending around P330 billion this year to bolster the economy.

Aside from making sure that stimulus packages are implemented efficiently and as soon as possible, he said governments must see to it that construction activities for infrastructure are not halted as funds run the risk of being diverted to other projects. — Paolo Luis G. Montecillo

Business booming for Asia’s debt collectors

SINGAPORE — With his close-cropped salt-and-pepper hair and stern, weathered face, Simon Lim looks like a Triad gang leader straight out of a Hong Kong movie.

Simon Lim, operations manager of Asian Debts Collection Services, leaves his office in Singapore on January 29. With his close-cropped salt-and-pepper hair and stern, weathered face, he looks like a triad leader. Accompanied by a band of tough-looking men, he hunts down his targets with precision.

But Mr. Lim is no underworld kingpin — he is the operations manager of Asian Debts Collection Services, a Singapore government-registered firm whose employees use tact rather than violence to persuade debtors to pay up.

Mr. Lim and other debt collectors in Asia say the pickings are good in these bleak economic times.

His company pursues corporate and personal debts and gets a cut of the money it successfully recovers.

Debt collectors across the region said they have seen a spike in business compared with a year ago — and the global economic slowdown is a major factor boosting business.

Most of the debtors had companies which were in dire straits, Mr. Lim said.

"(They) lost what they invest, and they cannot pay," he said, gesturing to a long row of files which spanned two tabletops and contained debtors’ details.

Mr. Lim said his customer base has increased 30-40% from 2007, while the average monthly amount he needs to collect has jumped significantly from the previous range of 200,000-300,000 dollars ($133,000-200,000).

"Now, we have to collect 500,000 (Singapore dollars)," he said.

Another local debt collection agency, Kimberly Masters and Partners, said it had seen a 25% rise in the size of debts needing collection.

"This has been an increasing trend ever since late 2008 when the economic crisis actually struck," said Mark Tilakadaf, operations manager of the company.

The situation is similar in Australia, where the nation’s largest debt collection agency Dun and Bradstreet said it had experienced a significant rise in the number of debts referred to it, particularly in the last eight months.

"Not only have we seen an increase in the number (of referrals), we have also seen (clients) referring their debts to us a lot earlier than they used to," said Christine Christian, the agency’s chief executive officer.

In Japan, the global financial crisis has transformed the type of people struggling to repay loans. While loan sharks once pursued lower-income consumers, nowadays debt collectors are looking at business owners who borrowed from banks.

"Compared with a year ago, I have received only about half the number of people who struggle with repaying high-interest consumer loans," said Hirofumi Yoshikawa, a finance management consultant in Tokyo.

"Instead, I have seen 50% more people, mostly business owners or employees of companies once considered to be solidly financed, come to me because they cannot repay loans taken out of banks," Mr. Yoshikawa said.

Trying to collect the debts can be a challenge.

Ms. Christian, in Australia, said collection of the owed monies had "definitely" become more difficult.

Mr. Lim said he faces debtors who "play hide-and-seek" by constantly changing their phone numbers and addresses, while others call the police and accuse him of assault and harassment. Some take him to court, he said.

"In debt collection, we are being accused of a lot of things, people use all ways and means to evade debts," the Singaporean says.

He is unruffled, and even encourages the debtors to take legal action against him, saying: "When the judge finds out we have not done anything wrong, he will ask them to pay us the debts too, which is good for us."

As for the stubborn cases who "are obviously filthy rich" yet who refuse to pay even after repeated visits to their offices, Mr. Lim resorts to unorthodox measures.

These include wearing his "uniform," a T-shirt emblazoned with the words "BAD debts... collection," and stationing his staff outside their offices in full view of the public.

For the Lunar New Year, which this year passed on January 26, he has a special trick.

"If they don’t pay up, I will visit their house on New Year’s Day, and wish them a happy new year in front of their family."

Mr. Lim stresses that these measures are only for recalcitrants.

For those genuinely facing financial difficulty, the company is flexible with debt payment, he says.

Credit Counselling Singapore, a non-profit society, saw a 39% increase in people seeking counselling in the second half of 2008 when the economic crisis intensified, compared with the first half, said the organisation’s assistant director, Tan Huey Min.

"I suppose the economic crisis is one potential reason. Things have not been going well (for the debtors)," said Mr. Tan, whose charity was formed to advise debtors and help them develop a repayment plan.

But Mr. Lim says creditors are victims too, because many are cheated by debtors who make off with their profits and who bully them "because of our clients’ kindness."

P53:$1 seen by end-’09

THE PESO is expected to weaken further against the dollar by yearend as difficult economic conditions in countries hosting Filipino workers translate to less remittances this year, HSBC said.

HSBC Senior Asia Economist Frederic Neumann said the peso is likely to depreciate to around P53 per dollar by yearend, with remittances likely declining by 20% this year.

This means that if the central bank expects around $17 billion in remittances last year, inflows for this year could dip to around $14 billion, the lowest since October 2006.

This would put pressure on the peso, whose strength in the past few months came mainly from remittances, Mr. Neumann said.

"The recent stability [of the peso] came from strong remittance inflows (December being the seasonal peak in remittance) and the end-year improvement in risk appetite. However, we think the inflection point has arrived," he said in a research note dated Feb. 4.

He added that capital flows would not be able to provide support to the peso given the gloomy outlook on both foreign direct and portfolio investments.

Central bank officials expect foreign direct investments to post a flat growth, to total $2.6 billion this year.

Portfolio or "hot money" investments — foreign funds parked in local stocks, bonds, bank deposits and money market instruments — would not be worse than the $1.39 billion in net outflows last year.

Yesterday, the peso edged up against the dollar on the news that inflation continued to ease in January.

It closed at P47.42 per dollar, 10 centavos higher than the previous day’s P47.52 finish. It opened at the day’s low of P47.65 and went to a high of P47.38 before it settled at the day’s close.

Volume of transacted dollars reached $847.92 million, lower than the previous day’s $894 million.

"The inflation data pushed up the peso," a currency trader said.

Inflation last month declined to 7.1%, which was within the central bank’s forecast range of 7-7.9% for January.

The trader also said the local currency reacted positively to the rally in local stocks.

She also said prospects of a half-percentage point interest rate cut by the Bank of England (BoE) also gave boost to emerging Asian currencies such as the peso.

"The BoE might cut and the European Central Bank might keep its rates steady. This strengthened currencies across the board," the trader said.

The peso is expected to trade for P47.30-P47.70 per dollar today ahead of the release of the US non-farm payrolls data tonight. — Gerard S. dela Peña

Condotels as econ zone

Monday, February 2, 2009

THE DEPARTMENT of Tourism is grateful that the Philippine Economic Zone Authority (Peza) has expanded the categories for the type of enterprises that can be accredited as a tourism economic zone.

Tourism Secretary Joseph Ace Durano said Peza also registers condo-hotels (condotels) as tourism economic zones to enable property owners or developers to raise funds for the project.

"Before, (the accreditation) was purely for hotels," Tourism Secretary Joseph Ace Durano said last Friday when he signed the memorandum of agreement after the Imperial Palace Waterpark Resort and Spa was declared a tourism economic zone.
Aside from Imperial Palace, Durano revealed that four other companies in Cebu, three in Boracay and five in Manila have applied for the same accreditation.

Developed by the Philippine BXT Corp (PhilBXT), the Imperial Palace is the first operational tourism economic zone in
Cebu, Durano said.

Investment

As a tourism economic zone, Imperial Palace offers investors-those who will buy rooms in the resort as an investment-a scheme where they (investors) are "guaranteed" to earn eight percent of the unit cost every year for the first three years of the establishment's operation.

Together with the fully-furnished hotel room that he or she buys, the investors also gets a golf share.

After three years, Imperial Palace will offer an option to buy back the unit at the original purchase price.

At present, Imperial Palace is offering 70 one-bedroom suites with prices ranging from P9 million to more than P11 million.

As a tourism ecozone, the Imperial Palace will enjoy the same benefits as any other Peza-registered companies, including income tax holidays for four years and duty free importations of capital equipment.

Imperial Palace is expected to be completed within the year. By then, it will have a total of 556 hotel rooms. Its amenities include a water park, restaurants and a golf course within a 7.5-hectare property in Maribago, Lapu-Lapu City.

Durano described Imperial Palace as a "welcome addition" to DOT's Trabaho sa Turismo Fair next month.

"By April, Imperial Palace will open 1,100 (slots) for direct employment," he said. He added that new hotels that will open up in the next three years will continue to provide job opportunities, especially to those recently laid off from work.

Meanwhile, Durano said the DOT will settle for a P600-million budget, more or less the same amount as last year's, to fund promotions and campaigns.

"The big bulk of the government's budget will (be spent on social services) for laid-off employees of manufacturing firms," Durano said, adding that there is also no budget cut for the DOT.

This year, DOT plans to spend P90 million for promotions in the United States, P100 million for China, another P100 million for Korea, P90 million for Europe and P150 million for Asia Pacific countries. (DME)

Osmeña: Forces influencing real estate demand

Tuesday, February 3, 2009

Antonio V. OsmeñaEstatements

THE real estate market is sensitive to changes in the balance of economic, political and social forces that influences the supply and demand for real estate.

As an investment, real estate requires large capital outlays. Capital outlay is made in anticipation of future returns from which the purchaser expects to recoup his peso investments. The large expenditures required to put real estate into productive use calls for careful analysis of the nature of real estate as an investment.

To be productive, land must be combined with units of labor and capital. Generally, the improvements placed on land far exceed the value in peso or market price of a vacant land.

Amazingly, would-be investor-developers are excited to venture into Cebu’s real estate market.

The Visayan archipelago with its pristine environment, specifically Cebu, has become a paradise destination similar to Phuket in Thailand and Bali in Indonesia. With Cebu gaining ground in tourism (local and international) the real estate market demand continues to grow.

But critics are worried about the possibility of an over-supply of the commodity traded. Attempts to centralize or organize real estate activities on a large scale have failed because of the nature of the commodity traded.

Fixity in location and lack of standardization of real estate as a commodity account for the fluctuations in value and number of transactions that characterize the real estate market. Such fluctuations are notable not only in different regions
throughout the country, but also within a province or single community. The market price for residential condo in Manila, for instance, is cheaper than those sold in Cebu.

However, dissimilarity of real estate as a commodity and the legal right to specific performance discourage speculation and prevent the market operation known as “short selling.”

There are important influences that must be considered in an analysis of the real estate market such as: a) changes in population size and fa-mily composition; (b) wage levels, employment opportunities, and stability of income; (c) personal savings, supply of mortgage funds and interest rates; (d) rent levels, vacancies and rent controls; (e) taxation and land use control; (f) supply of land, cost of land, labor and building materials; (g) changes in the arts and building obsolescence.

It is interesting to note that the forces influencing real estate supply and demand as a basis to foretell the future formally known as “economic forecasting” to meet the anticipated demand for tomorrow undoubtedly has short cyclical swings in our country due to frequent political instability, the Asian economic crisis and now the world economic meltdown.

Most of the frequent purchaser of newly developed residential subdivision projects are investor-speculators. The bandwagon promo gimmick that enable speedy sale of their subdivided lots continues, and often prospective buyers are told there are only a few lots left—a trick meant to encourage sale of the property.

It is only in condo projects where foreigners are legally allowed to own real estate.

Will Cebu now reveal a rhythmic change from major booms to major business depressions interspersed by minor periods of prosperity and minor business recessions due to the global economic meltdown?

In retrospect, the pendulum movements of business activity, from optimism, to over-optimism, to caution, to pessimism, and then to panic appear as a logical sequence and are traceable to violations of economic laws of supply and demand and to lack of central business control.

What barometric measures has the government undertaken to prevent an over-supply of housing or hotel rooms that saturates the real estate market in Cebu?

Saturation in the real estate market creates abnormal vacancy ratios and competitive pricing conditions upon which real estate depressions have fed in the past. Cebu is getting to be over-crowded with realty players. Many housing developments have been developed hastily without much consideration for location (major factors to consider in real estate: location, location and location), creating a sales problem.

Other than the importance of location, improvements erected are not favorable to market conditions. Unfortunately, many realty players—because of greed—have failed to define the highest and best use of his land to ascertain the future production capacity of the land.

Backpackers’ inn opens in Cebu

Wednesday, February 4, 2009

Debra Magallon-EsteroSun.Star Staff Reporter

AT THE heart of the city is a “hideaway” that awaits budget travelers.

Since it opened last October, the Aysha Lily Guesthouse has become a home-away-from-home to foreign and local travelers, especially backpackers.

Jo-Ann Badana, who manages the guesthouse while the owners are out of the country, told Sun.Star Cebu in an interview that the Australian owner got the concept after staying in a similar accommodation in Manila.

Carol Ann McDonald, the owner of the inn, married Badana’s cousin who used to work in a travel and tours company. In Australia, McDonald worked in a real estate company.

Badana said McDonald noticed there were no accommodations for backpackers or those who travel on a budget in Cebu City. Seeing the need for a backpackers’ inn, McDonald checked out about 100 houses around the city before picking a Spanish-style house located along Gen. Maxilom Ave.

Although 70 percent of the original house structure was preserved, it now has eight fan rooms, four air-con rooms and two dormitory-type rooms that can accommodate eight to 10 people.

Room rates start at P450 a night while bed space in a dormitory-type room is at P290 a night.

All rooms are furnished with bamboo beds. The inn’s interiors feature Filipino and Asian designs.

The guesthouse offers laundry service and cooking implements to guests who want to cook their food.

Badana said most of Aysha Lily guests are short-staying travelers who come to the city after a dive in Moalboal or a daytrip in Bohol.

After the Sinulog, McDonald has decided to open four more rooms within the year. The guest-house was fully booked during the Sinulog, said Badana.

McDonald, she said, is also planning to open another guesthouse in Bohol but a date has yet to be set.

DOT eyes LGU councilors

Wednesday, February 4, 2009

THE Department of Tourism (DOT) is planning to involve members of local legislative councils in the country in identifying and developing more tourist destinations.

Tourism Undersecretary Eduardo Jarque said the DOT will implement a program that will involve educating town and city councilors how their respective areas of jurisdiction can be developed for tourism.

In an interview last week, Jarque said the program will enlighten the councilors on what they can do within their areas of responsibility for the tourism industry.

“It is also aimed to create an appreciation for tourism,” Jarque said, adding that the program is set to start within the month.

Within this year, the DOT targets to hold 10 conventions in 10 different venues nationwide. The department also targets at
least 100 attendees for each gathering. Travel, accommodation and food expenses will be shouldered by the DOT.

Cebu, said Jarque, is one of the chosen destinations for the convention but the final list is yet to be finalized.

The two-day program will tackle three main topics pertaining to the trends and issues of the industry. The first topic will talk about what makes a particular destination attract local and foreign tourists.

“Not every attraction is a destination,” Jarque told members of the media.

The DOT will also discuss how to market tourist attractions and teach councilors about market-matching.

The last topic will be on the trainings and standards of the DOT.

On the second day, the DOT will showcase a compilation of the best tourism practices by some players in the industry.

After the discussions, the participants will be allowed to shop for pasalubong (souvenir) so that they can get ideas how important product presentation is in the industry.

Jarque said the DOT hopes to attract many local government councilors, adding that 100 participants per destination would mean 100 success stories.

At present, there are 16,000 councilors who are members of the Philippine Councilors League. (DME)

Hotel to open more rooms in May ’09

Thursday, February 5, 2009

ADMITTING that its occupancy rate has been declining since the last quarter of 2008, a hotel in Cebu City expects its revenues to contract further this year.

But the management of Sarrosa International Hotel and Residential Suites remains positive about the industry’s prospects and will continue to pursue its plan to construct an additional building that is set to be completed within the year.

Sarrosa general manager Alex Artes told Sun.Star Cebu last Wednesday that the hotel will be adding 151 rooms to its existing inventory of 173 to be able to get a bigger market once tourist arrivals stabilize.

Aside from the new rooms, the new 12-story building that will rise next to Sarrosa’s first building will house six function rooms and a larger lobby leading to a grand staircase. Artes said the hotel will also have new amenities like a spa and a gym that will also be set up this year.

The expansion building, which occupy 1,300 square meters, used to be the hotel’s parking area. Artes said the hotel will use the building’s basement and one upper floor as parking area.

Ground works for the structure started in February last year. The hotel hopes to open half of the expansion building’s rooms this May.

Once the building is completed, Sarrosa will undertake the renovation of rooms on the first building.

Although hotel bookings have decreased in the past months, Artes said revenues from the hotel’s “hassle-free” wedding and debut packages have helped the hotel cope.

The company has also envisioned opening a Sarrosa hotel in other key cities in Luzon once the market stabilizes. (DME)

Spa pursues expansion

Friday, February 6, 2009

BELIEVING the country’s potential in medical tourism has yet to be fully tapped, the Spa at Cebu continues to pursue its expansion plans despite the global economic crisis.

Spa at Cebu will soon open a two-level facility at The Terraces in Ayala Center Cebu while work on a six-level spa-hotel in Banilad, Cebu City continues.

The family corporation behind the Spa at Cebu will also open in the middle of this year another facility at the Medical City in Metro Manila.

Early this week, it started operating an exclusive spa at the City Sports Club, Cebu Business Park. The spa is open to City Sports Club members and their guests.

“The timing may not be right (to do all these), but we are passionate in everything we do and we believe that even in a crisis, there are opportunities,” said Johnny Siao, one of the owners of Spa at Cebu.

Long-time plans

Besides, plans for the spa-hotel have been made long before the financial crisis spread worldwide, he said.

The future hotel building will also house restaurants and a coffee shop on the lower floors. Hotel rooms will be situated on the top floors to afford guests a view of the surrounding area. The building will also house basement parking.

The Spa at Cebu has set the building’s completion at the end of the year. At the moment, the spa owners are on the lookout for the right company that will manage the hotel.

Aside from its other projects, the Spa at Cebu has also enhanced its facilities at the first branch in Banilad, Cebu City. It now has two suites for clients who want to stay overnight or longer while enjoying the usual services of the spa.

It also opened a function room where groups and companies can hold meetings or conferences. The room can be used free of charge if a group avails itself of a certain number of services at the spa.

Growth

Siao is confident that the tourism industry, in general, will continue to grow, particularly in medical tourism and in Cebu. To pave the way for further growth in the industry, he said, the Philippines should be more accessible to foreign travelers.

“There should be more direct flights to the Philippines from Europe,” he said, citing Thailand. “Government and the private sector have to work together, to improve infrastructure—like airports and roads—and services.”

When the country attracts more tourists, more investments in the tourism sector will come in as well, he said.

“Tourism will continue to grow because we have an edge that other Asian countries don’t have,” he said, citing scenic sites in the Philippines. “For now, it may have slowed down but it will not stop. It will recover as soon as the crisis ends.”

Although the popularity of Spa at Cebu ebbed before and during the construction of the flyover in Banilad because of traffic congestion, the volume of clients going to the establishment has started to increase. The spa hopes more clients will come in when the roads on both sides of the flyover will be repaired.

To prepare for this projected rise in customer traffic, the Spa at Cebu expanded its parking lot.

Siao remains confident about the Spa at Cebu despite stiff competition amid the financial turmoil. He said Spa at Cebu offers the “real spa experience” because it is located in a quiet area surrounded by trees and offers all necessary facilities—whirlpools, sauna and steam rooms.

“We are not just a massage center. Here, you can really relax,” he said. (LAP)

Korean firm to invest P1 billion on RP's largest golf course

By Ehda M. Dagooc Updated February 06, 2009 12:00 AM

Despite the volatile economic condition, the Korean-led firm Philippine BXT Corporation is poised to start off its P1 billion investment project in Cordova, to build the largest Golf Academy, RhiLanguage and Retirement Village facility in the Philippines.

In an interview with BXT vice president Bruce Chiongbian, he said that the company will start the horizontal works of the 36-hectare golf course and retirement facility in the first quarter next year.

At present, the company is still working on the documentations for the huge investment, while Chiongbian said the municipality of Cordova, has also invited the company to extend its project towards the reclamation area.

Once completed, BXT's 18-hole Golf Academy will be the first championship and world-class golf course in the Cebu that will also pull up Cebu's attractiveness for sports tourism enthusiasts around the world, especially the Japanese, and also Koreans.

The Phase 1 of the project, which will start in the first quarter of 2010 will build the first Golf Academy in Cebu, the second phase will work on the 18-hole golf facility, and the third phase will establish the pockets of retirement village facilities within the sprawling 36-hectare property, Chiongbian said.

The company, whose local counterpart firm called Joil UBF Corporation, is planning to develop a total of 100-hectares in Cordova for its long term plan.

Aside from the Golf Academy, the company will also include a language school within the facility that will attract mostly Korean nationals whose top interest right now is to learn English outside of their country.

In a separate interview with the company's chairman Yong Jun Park, he said that there is a huge market in Korea whose interest is to study Golf and Language in tropical countries like the Philippines.

Approximately, there are about 7,000 to 8,000 Koreans that are studying language (English) in Cebu, significant part of these students are also interested to study Golf, he said.

The integrated leisure, educational, and retirement village facility development in Cordova will be the second project of the company, after the P4.5 billion Imperial Palace WaterPark Resort and Spa on Mactan Island, of BXT Busan Express Terminal Corporation, the Korean-based counterpart of the Philippine BXT Corporation.

According to Park, the initial development, which is the Academy, is expected to draw more Koreans to come to Cebu. The Golf and Language Academy on the other hand will not only accept Korean students, but also Filipinos, and other nationalities.

Korean trainors for Golf Academy will be brought in to Cebu, as soon as the school starts, while the Language school facility will give opportunity for Cebuanos to get employment in teaching English language to Koreans.

The Cordova project of BXT will automatically avail of the government incentives following the proclamation of the Imperial Palace and WaterPark Resort and Spa, as the first tourism economic zone (TEZ) in the Visayas.