Boom-bust cycle likely, government warned

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Published on Tuesday, 22 January 2013 21:46

Written by Max V. de Leon / Reporter

Private think tank Stratbase Research Institute (SRI) warned that the country could enter into another economic boom-and-bust cycle if perennial problems of poor infrastructure and bad government are not fully addressed.

SRI, in its recently released 16-page report titled “Ready to Compete? An Assessment of Philippine Competitiveness, Trade and Foreign Direct Investment Regimes,” said that a combination of constitutional amendments and improvement in infrastructure should do the trick of sustaining economic expansions of 7 percent or more in the coming years.

 “If one takes a longer view, the country [is] yet to establish a sustained growth record.  The pattern is more boom-and-bust and growth has never exceeded double digits.  Taking population growth into account will reduce the country’s per capita growth rate even further,” Prof. Victor Andres C. Manhit, president of SRI, said.

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Manhit added that while the Philippines’s gross domestic product grew by 7.1 percent in the third quarter of 2012, which is second to China’s 7.7 percent for the period, the country needs to improve its competitiveness against other Asian economies, if it is to sustain such high-growth level. The report of the advisory and research consultancy group analyzed the progress made and challenges faced by the Philippine economy under the Aquino administration and offered insights on the importance of amending economic constitutional provisions and free-trade agreements as they affect the competitiveness of the Philippine economy.

Manhit said structural flaws that could jeopardize the economy’s continued strong growth are still evident in the eyes of the international investment community.

For instance, while the Global Competitiveness Report 2012-2013 of the World Economic Forum ranked the Philippines 65th among 144 countries, a jump from 75th place in 2011, it noted that the country is still in a transition phase between a factor-driven economic stage and an efficiency-driven economic stage. 

“Overall, the most problematic factors for doing business in the Philippines are corruption, inefficient government bureaucracy and inadequate supply of infrastructure,” Manhit said.

With this, foreign direct investments in the Philippines, although up 40 percent to $1.1 billion in the first three quarters of 2012, remained miniscule compared to FDI going to other Asian countries.

While the Philippines, Manhit said, seems to be mired in transition between stages of economic development so it has a sophisticated financial market, stable macroeconomic environment, capacity to absorb new technology and a sizable market, the country is stymied by weak institutions, an inefficient bureaucracy and inadequate infrastructure that together raise the cost of doing business and make the country an unattractive destination.

“Arguably, the bold steps that must be taken include amending the 1987 Constitution in the less controversial manner possible.  Changing the basic law of the land will help improve climate for foreign investments and enhance competitiveness.  Artificial market restrictions will either be removed or reduced on a phased basis to ameliorate local sentiment,” he added.

Manhit said, “Providing adequate physical infrastructure must be a continuing concern given the regular damage wrought by natural disasters.  If these tasks are met, high growth and economic prosperity for Filipinos will result as a matter of course.”

Also, the Doing Business 2013 of the World Bank placed the country third from the bottom among Asian countries in ease of doing business by local small- and medium-sized firms. While the country’s overall rank in ease of doing business is 138th among 169 countries, it is in the area of resolving insolvencies (165th) and starting a business (161st) where it fares the worst.  Other areas of concern include paying taxes (143rd), getting credit (129th), protection of investors (128th) and registering property (122nd).

“Unless the Philippines remedies its infrastructure inadequacies and broad governance problems, among others, the country will be unable to capture enough investments needed to fuel its economic growth,” Manhit said.

HSBC sees PHL ‘robust’ growth

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Published on Tuesday, 22 January 2013 21:48

Written by Miguel R. Camus | Reporter

HSBC Corp. (HSBC) sees the Philippine economy posting “robust” growth this year, but notes that more needs to be done by the Aquino administration in stemming effects of capital inflows on the peso and boosting investment growth. 

In a January 22 research report, HSBC economist Trinh Nguyen said Philippine gross domestic product (GDP) is expected to grow by 4.9 percent in 2013, slower than the expected 6.2 percent in 2012. She added that rates would likely stay low at 3.5 percent this year, assuming inflation remains tame. 

Nguyen echoed earlier concerns expressed by Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. on challenges posed by the strengthening of the peso against the US dollar. The strong peso has been blamed for hurting the country’s export and business-process outsourcing (BPO) sectors and devaluing money sent home by Filipino workers abroad. 

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The HSBC economist said “policy fiddling” is in the cards, but not the BSP resorting to drastic measures such as turning to monetary policy to stem inflows. 

“Thus, the job to resolve the [peso] problem will ultimately fall on the Aquino administration, as an economic structural issue. A significant investment boost would shrink the current account surplus, and provide much-needed infrastructure improvements to support sustainable growth,” Nguyen said in the report. 

“The BSP has already pulled its weight by stabilizing the macro environment. It’s time for politicians to roll out other policies to improve the business environment and support investment,” she added. 

Nguyen called for further reforms, citing weak investment growth and slow pace of the administration’s
Public-Private Partnership Program as the main issues that need the most attention.

“While the government made good progress on improving the country’s fiscal position, not enough was done to improve the overall business environment, something that contributed to the Philippines’s two-notch decline in the 2013 World Bank Doing Business ranking,” she said in the HSBC report. 

The BSP Monetary Board is holding its monthly policy meeting on Wednesday. Nguyen said she expects no policy change, meaning rates are likely to remain the same. 

IMF upgrades growth forecast from 4.8% to 6%

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Published on Wednesday, 23 January 2013 22:01

Written by Miguel R. Camus / Reporter

The International Monetary Fund (IMF) sees the Philippines growing faster than initially forecast, with sustained economic fundamentals likely helping position the country into a “higher” growth path.  

Visiting IMF officials on Wednesday said the Philippines’s gross domestic product (GDP) could grow by 6 percent this year, compared to its 4.8-percent forecast released in October last year. The IMF sees GDP, which likely grew by 6.5 percent last year, to grow by 5.5 percent in 2014.

“We were surprised by the resilience and strength of domestic demand, and the external sector as well showed strong pockets of growth with BPOs [the business-process outsourcing sector]  in particular doing extremely well,” Rachel Van Elkan, IMF mission chief, said in a  news briefing.

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“We see there have been some improvement in policy frameworks and structural reforms that should make for more continuous, less halting [growth] than in the past. That will also tend to put the Philippines on a somewhat higher trajectory,” she added.

In its statement, the IMF said growth last year was bolstered by accelerating consumption and investment, fueled by money sent home by Filipinos abroad, government spending and record-low interest rates.

“We are expecting that 2013 will look quite similar in terms of the underlying momentum,” Van Elkan said. She noted that the slower growth in 2013 was partly due to a so-called base effect from strong growth last year.

The IMF said risks remain, namely, the fiscal situation in the US and possible “hiccups” from the euro zone. The IMF is also worried about capital inflows and the respective near-term asset-price gains, which it says will make growth “more volatile down the road.”

In its statement, the IMF lauded local monetary authorities and their response to “difficult” global conditions.

“We commend the BSP [Bangko Sentral ng Pilipnas] for utilizing a variety of instruments to help insulate domestic monetary conditions from the abundant liquidity abroad,” IMF said in the statement.

It also noted the passage of the “sin” tax bill and the recent tightening of macroprudential measures and the implementation of the Basel 3 capital requirement next year will help prevent the emergence of financial- sector risk.

Foreigners invest $25M in Boracay hotel

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Published on Thursday, 24 January 2013 20:58

Written by lecruz

A group of Russian and Italian businessmen are investing $25 million for the construction of the first branded five-star resort residence in Boracay.

The project, called the Aqua Boracay by yoo, is due for completion in December 2015, although some rental operations can begin as early as June 2014, according to Aqua Boracay Chairman Marco Biggiogero.

In just a month after its pre-selling phase opened, the project already sold about 50 percent of the 134 luxury apartments that are set to be constructed at a 16,000-square-meter lush tropical rain forest at Boracay’s Bulabog Beach.

“We have a mixed profile of buyers, and only 20 percent of them are Filipinos, which is a good sign of international interest for the project. The price range is P11 million to P15 million for one-bedroom units, and P11 million to P15 million for the two-bedroom apartments,” Biggiogero told the  BusinessMirror at the sidelines of the CBRE Philippines briefing on the country’s real-estate market at the Shangri-La Makati Hotel.

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CBRE is helping in the marketing of the Aqua Boracay by yoo.

Biggiogero said this is already the fourth project of the group in Boracay after the Paradise Garden Hotel, 7Stones Boracay Suites and a private villa built for a Russian client.

He said Boracay is a logical place to invest in because it does not have an off-season yearlong, which in other countries, beach resorts only enjoy peak seasons of three months.

“This is the first world-class residential project in Boracay that is also backed up by a five-star operator,” he said.

Aqua Boracay by yoo is also the first resort-residence designed by the London-based yoo Design Studio, co-founded by designer Philippe Starck and international property developer John Hitchcox, in the Philippines.

Biggiogero said owners of the units can opt to have their residences rented when they are not using them. The team of Biggiogero, who now lives in Boracay, will manage the rental operation in behalf of the owners.

Liz Silvestre, CBRE Philippines associate director for investments and capital markets, said Boracay is the Philippines best bet for the “resorts luxury barefoot” trend that is now becoming the niche that is being exploited by several tourist destinations.

This, she said, is because aside from its natural beauty, Boracay is also easily accessed as it has its own airports for regional and domestic flights, which is a top consideration for tourists that are looking for destinations to visit.

Biggiogero said the $25-million investment covers both the cost of the land and development.

Max V. de Leon

Strong rupee alarms local BPO industry

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Published on Thursday, 24 January 2013 21:10

Written by Bloomberg News

For the Philippines’s $13-billion business-process outsourcing (BPO) industry, the peso’s surge has been compounded by a slide in larger rival India’s rupee.

The peso’s 6.5-percent gain to 40.618 per dollar in 12 months makes it Asia’s best performer, according to data compiled by Bloomberg, while the rupee’s 6.7-percent slump to 53.67 is the region’s third-worst decline. Both currencies traded around 44 to 45 versus the greenback two years ago.

“The peso appreciation has become a significant cause for concern,” Benedict Hernandez, president of the Business Processing Association of the Philippines (BPAP), said in a January 15 telephone interview from Manila. “While our costs have always been higher than India, the disparity has widened simply because of the currency.”

The Bangko Sentral ng Pilipinas (BSP) has sought to curb the peso’s gains as Southeast Asia’s fastest-growing economy lures investors seeking higher returns than in developed markets, where interest rates are near zero. In a December survey by BPAP, members of the group cited the currency’s strength as a bigger business risk than corruption, natural calamities and poor infrastructure.

“The competitiveness of outsourcing companies may be affected because their revenues are in dollars and costs in pesos,” Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said in a January 17 telephone interview. “India’s rupee has been going in the other direction,” affecting Philippine outsourcing companies even more, he added.

Paracuelles said the rupee has “stabilized a bit.” The Indian currency has rebounded from a record low of 57.3275 per dollar reached on June 22, data compiled by Bloomberg showed. It will strengthen to 50 this year as the central bank cuts interest rates to jump-start the slowest growth in a decade, according to Commerzbank AG, which had the closest estimates in the last six quarters as measured by Bloomberg Rankings.

The peso touched 40.55 per dollar on January 14, its strongest level since March 2008, according to data from Tullett Prebon Plc. The Philippine currency will probably strengthen to 40.5 this quarter, according to the median estimate of 26 analysts in a Bloomberg survey.

“We’d rather have a stable currency because it would make it easier for us to sign long-term contracts,” Som Mittal, president of Nasscom, the industry lobby group for Indian software and technology companies, said in a January 17 interview.

“We’d rather the exchange rate not be a source of profit or loss for our companies.”

Convergys Corp., Aegis PeopleSupport Inc. and Teleperformance are among global companies operating in the Philippines that develop software, run call centers and back offices providing services such as medical transcripts, finance and accounting. The BPO sector generated about $13 billion in revenue last year, according to BPAP, which predicts that sales will almost double to $25 billion in three years.

The industry employed 772,000 people in the Philippines last year and made up about 5.9 percent of gross domestic product (GDP), making it the country’s third-largest net dollar earner after tourism and remittances, according to Hernandez, also the local BPO operations chief at Accenture Plc., the world’s second-largest technology-consulting company.

BPAP estimates that the industry will employ 1.3 million people in 2016 and account for 10 percent of GDP, matching the share of remittances by overseas workers.

While India’s annual outsourcing revenue of $100 billion to $105 billion is eight times the size of the Philippines, the Southeast Asian nation’s pool of English speakers gives it an advantage in offering voice services to customers in the US, according to an October 31 report by industry adviser Everest Group.

Voice services accounted for 69 percent of 2011 BPO revenue in the Philippines, and the industry is starting to diversify beyond call centers, the Everest Group said in a separate report dated May 14, 2012. The Philippines has overtaken India as the largest provider of voice services, according to BPAP’s Hernandez.

“Our English-speaking work force can do it at a lower cost, with better quality,” Hernandez said. Even so, “we can’t sustain our growth and attractiveness if the peso continues to strengthen,” he added. According to him, BPAP has sought a meeting with the BSP to express concern about the appreciation.

In last month’s survey by the outsourcing group, 47 percent of respondents said that meeting sales targets has become tougher, while 40 percent said that they lost some business to foreign rivals.

BSP joined South Korean authorities last month in clamping down on exchange-rate volatility.

2012 good year for BPOs

By Katlene O. Cacho

Wednesday, January 2, 2013

THE 56 business inquiries received by the Cebu Investment and Promotions Center (CIPC) in 2012 resulted in 17 companies that have set up shop in Cebu.

At least five companies are still preparing documents and are expected to set up operations early this year.

CIPC managing director Joel Mari Yu said the continued interest of foreign companies to relocate and set up operations in Cebu is a manifestation of their confidence on the city’s economy, talent pool and governance.

Yu said 2012 was “much livelier” compared with 2011 because most of the new entrants are knowledge process outsourcing (KPO) players. But “2013 is projected to be as good or even better,” he said.

Yu anchored his projections on what he described as the country’s sound macro-economic fundamentals, which restored foreign investors’ confidence to do business in the Philippines.

He said the Aquino Government’s policy reforms and the President’s serious fight against graft and corruption along with favorable market conditions like the US election results and decision to defer the anti-outsourcing bill in the US have increased the confidence of investors.

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Jobs

The new investments generated 11,000 more jobs in 2012, adding to the 75,000 generated with the entry of 81 Philippine Economic Zone Authourity (Peza)-registered companies in 2011.This does not include the job opportunities created by companies that are already here.

The five companies set to start operations early this year are expected to generate 4,000 to 5,000 jobs. CIPC only keeps track of Peza-registered companies.

Yu said most of the new entrants are foreign non-voice companies, which strengthens Cebu Cebu’s leadership in Business Process Outsourcing (BPO) and, more importantly, in the high-value KPO industry.

Yu said the entry of non-voice companies in Cebu makes the IT-BPO/KPO industry more stable because it expands Cebu’s market, which was previously limited to the US, into other countries.

The presence of KPO companies in the country also helps slow the migration of skilled Filipino professionals abroad.

“This proves that Cebu is not limited in delivering the usual BPO services but (is also capable) in carrying out high value services,” Yu said.

Various industries like tourism, real estate, food and retail have attributed their growth to the country’s booming IT-BPO/KPO industry.

Businessmen said the strong domestic consumption is driven by young professionals, mostly working in IT-BPO/KPO companies, with high disposable income. They said these young professionals have helped companies achieve sales target.

Exist chief executive officer Jerry Rapes said the IT-BPO ecosystem in Cebu is growing.

“I believe that other markets of the US are starting to see opportunities to outsource IT projects to the Philippines and Cebu is one of the prominent locations that can deliver this service,” Rapes said.

He said the recovery in the US will open more opportunities for IT projects for Filipinos.

Silicon Valley

Exist was among the eight Filipino companies that became part of the US-Philippines Business Support and Information Technology Delivery Council that seeks to explore business opportunities and partnerships in Silicon Valley.

He said they are working to capture a larger chunk of the $1 trillion Silicon Valley business.

The country’s outsourcing industry, however, faced some challenges last year.

In early 2012 the industry was threatened when a bill was filed in the US Congress that sought to bring outsourced jobs back to the US. Industry stakeholders in the country predicted the bill will fail to muster votes, saying outsourcing will stay as this makes companies competitive in. The bill wasn’t passed.

The appreciation of the peso against the US dollar also affected the growth of the industry.

The Business Processing Association of the Philippines (BPAP) said the strengthening peso is “eroding the cost competitiveness” of the country’s IT-BPO industry.

Stronger peso

Citing analysis by Everest Group and Outsource2Philippines, BPAP president and CEO Benedict Hernandez said the combination of an appreciating peso and a depreciating Indian rupee provided India cost advantage.

“With the 30 percent difference in peso and Indian rupee exchange rate with the US dollar, the cost differential has substantially widened,” Hernandez said. “And that is much more difficult to manage.”

BPAP conducted a survey last December on the impact of the strengthening peso. In the survey, 46.7 percent of respondent executives said “it has been difficult for them to hit revenue targets;” 40 percent of the respondents said they have “lost some business to other destinations;” and 40 percent “cancelled expansion plans.”

The peso ended at P41.05 to the dollar on the last trading in 2012, stronger than the P43.92 on the first trading on Jan. 2 last year.

“The foreign exchange has negatively affected gains in volume of business,” said Rapes.

But BPAP is confident of hitting the $13 billion revenue target in 2012 despite the appreciation of the peso.

For 2013, the association hopes to achieve $16 billion in revenues with a target of 926,000 employees. Under the roadmap, the BPO industry is expected to hit $25 billion in revenues and 1.3 million jobs in 2016.

Growth

Rapes is optimistic the industry will continue to grow and “win more strategic deals.”

He said the overall positive outlook of the Philippine economy is being recognized globally and the aversion to Philippines, as an outsourcing destination is reducing.

“The world is starting to believe that the risk of doing business here is going down,” he said.

But aside from exporting services, Rapes believe the Philippines can also do well in exporting products. “It will be a process that is neither easy nor fast but this is something that we need to do,” he said.