MONEY sent home by overseas Filipino workers (OFWs) grew by its fastest clip in six months in October, according to data the Bangko Sentral ng Pilipinas (BSP) released on Monday, prompting analysts to expect household spending that fuels overall economic growth but whose growth has slowed lately to have picked up this quarter. Read the full story.
BW FILE PHOTOBy Elijah Joseph C. TubayanReporter
MONEY sent home by overseas Filipino workers (OFWs) grew by its fastest clip in six months in October, according to data the Bangko Sentral ng Pilipinas (BSP) released on Monday, prompting analysts to expect household spending that fuels overall economic growth but whose growth has slowed lately to have picked up this quarter.
OFW cash remittances increased by 8.7% to $2.474 billion in October from $2.275 billion a year ago. The latest inflows were also 10.59% more than the $2.237 billion logged in September.
“The top countries that contributed to the increase were the United States (US), Canada, and Taiwan,” the BSP said in a statement accompanying the data.
“Cash remittances from… land-based ($18.7 billion) and sea-based ($5 billion) workers grew by 2.8% and 4.2% year-on-year, respectively.”
October inflows brought year-to-date cash remittances to $23.768 billion, 3.1% more than the $23.06 billion recorded in last year’s comparable 10 months.
The 10 months to October saw the US, Saudi Arabia, United Arab Emirates, Singapore, Japan, United Kingdom, Qatar, Canada, Germany and Hong Kong accounting for 79% of cash remittances.
For Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), OFWs sent more cash to help their families cope with fast increases in prices of widely used goods and at the same time to take advantage of the peso’s weakness.
“Higher prices of goods and services may have required greater amount of OFW remittances needed to be sent back home and converted to pesos, assuming all other factors are the same,” Mr. Ricafort said in an e-mail when sought for comment.
October saw the second straight month of nine-year-high 6.7% inflation, before the pace eased to six percent in November.
Mr. Ricafort also recalled that global oil prices hovered around four-year highs in October, “thereby could have increased the demand for OFWs at that time for host countries that heavily depend on oil revenues (such as for large infrastructure projects), especially host countries in the Middle East, where there is a large concentration/demand for OFWs.”
The peso was trading at the P54-per dollar level from the start of October until the middle of that month, before it tapered to P53.535 at the end of the month. Mr. Ricafort said that made it “attractive to… convert more OFW remittances to get more peso proceeds after waiting for the US dollar/peso exchange rate to top out/reach the peak.”
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. (UnionBank), said in a separate e-mail that the increase in OFW cash remittances was to be expected as Christmas approached.
“The 8.7% growth level is a good sign for end-year cumulative remittances. The usual seasonal push is driving this growth. OFWs are sending for Christmas spending of households… This definitely bodes well for year-end remittance growth numbers. I expect a stronger inflow in the coming months driven by Christmas season OFW household spending,” he said.
The third quarter saw household spending growth slowing to 5.2% from 5.4% in the same three months last year, and from 5.9% in the second quarter, which was blamed on high inflation.
State economic managers have said that they were “concerned” about the slowdown. Household consumption contributed about 67.18% to gross domestic product (GDP) in 2018’s first three quarters, according to Philippine Statistics Authority data.
At the same time, economic planners have expressed satisfaction that growth is increasingly fueled by investments. Among others, fixed capital formation grew 16.5% last quarter, slower than the preceding three months’ 21.2% increment but still bigger than the year-ago 7.8%.PSA data also showed government spending growth picking up to 13.1% in the first three quarters from 5.5% a year ago.
Hence, both economists expect that household spending could help push up GDP growth this quarter.
“It definitely can be a catalyst,” UnionBank’s Mr. Asuncion said.
“As almost always, household consumption has helped buoy economic growth. It is expected that there will be an uptick in household spending in Q4 because of inflation easing and Christmas spending.”
For RCBC’s Mr. Ricafort, “[r]elatively stronger growth in OFW remittances could continue to sustain up to the following month (November 2018), partly due to lower base/denominator effects and the growth could taper by December 2018 partly due to higher base/denominator by then.”
The economy grew by 6.1% in the third quarter, averaging 6.3% year to date against the government’s current 6.4-6.9% GDP growth target for whole-year 2018 that was revised down from a 7-8% initial projection.
DPWHA BILL establishing a one-stop shop for priority infrastructure projects has been filed at the House of Representatives.
House Bill No. 8755, authored by Quirino Rep. Dakila Carlo E. Cua, intends to fast-track infrastructure project planning and construction. “The one-stop shop facility shall facilitate all necessary procedures and communications with all relevant implementing agencies, government agencies, and contractors,” Mr. Cua said in an explanatory note.
The office, to be led by a project manager who will be appointed by the President with the rank of undersecretary, will prepare timetables for priority infrastructure projects, monitor and ensure related activities follow their respective timetables, facilitate processes and securing of requirements from all relevant state agencies, acquire right of way including through exercise of power of eminent domain, serve as contractors’ contact when dealing with state offices, and recommend actions to the President to resolve bottlenecks and other issues hindering project progress.
Sought for comment, Philippine Chamber of Commerce and Industry Chairman George T. Barcelon said in a telephone interview: “I think we need an agency to prioritize what are the infrastructure projects that would be most beneficial.”
“It’s very important that there are regional developments, such as farm-to-market roads, irrigation projects and maybe with an agency like that, they can be more responsive to some of the needs of the other regions.”
The government has embarked on an infrastructure program that will see some P8 trillion spent till 2022, when President Rodrigo R. Duterte ends his six-year term. — C. A. Tadalan
THE DEPARTMENT OF FINANCE (DoF) remains hopeful that an impending tax amnesty program that has been ratified by Congress — but without two provisions initially designed to help verify claims made by delinquents in their applications — will grow the ranks of taxpayers in the country.
Congress ratified the tax amnesty measure last week which provides relief for those with unpaid national taxes for years up to 2017. It is now up for signature by President Rodrigo R. Duterte.
The final ratified version did not contain provisions to relax bank secrecy restrictions that would have helped verify whether participating individuals and business would be truthful about asset and other declarations that would be the basis for amnesty payment, as well as for automatic exchange of information (AEoI) with foreign tax authorities to help detect cross-border tax evasion and money laundering.
“We hope relevant taxpayers, and those who are currently non-taxpayers, will come out of the woodwork and avail of the generous amnesty provisions,” Finance Assistant Secretary Antonio G. Lambino II said in a mobile phone message on Saturday, even as he added: “… [w]e regret not having the provisions on the lifting of absolute bank secrecy and AEOI in the bill.”
“While the bill was supposed to allow taxpayers a fresh start via amnesty, it was also meant to signal a more aggressive fight against tax evasion. Those two missing provisions would have been formidable tools to detect and go after tax evasion.”
Legislators and tax experts said that inclusion of the said measures would have violated the Constitutional provision that a law must have only one subject matter.
The DoF has argued that the deleted provisions were integral parts of the program.
The House of Representatives Ways and Means committee leadership has said that it is open to filing another bill containing the deleted provisions and will wait for DoF to propose a draft.
Only the first of up to five planned tax reform packages has been enacted so far which cuts personal income tax rates and either increases or adds levies on various items.
President Rodrigo R. Duterte had asked for legislative approval of all the other packages by yearend, since lawmakers are expected to be increasingly distracted by campaigning for the May 13, 2019 mid-term elections.
Congress is currently on a Dec. 15, 2018-Jan. 13, 2019 break and its resumed session on Jan. 14-Feb. 8 is not expected to be as productive due to election campaigning, while the May 20-June 7 session is expected to see poor attendance in the aftermath of the polls.
The remaining tax reform packages involve corporate income cuts and removal of redundant fiscal incentives; higher taxes on minerals, tobacco and alcohol; a universal property valuation system as well as rationalization of taxes on financial instruments.
Although the main objective of tax amnesty is to grow the tax base, the DoF had expected the program in its original version to generate P41 billion in additional revenue, and only P26 billion without the easing of bank secrecy and the AEoI.
The last amnesty program was in 2008 from which the government raised P4.91 billion. Prior to that, there were 17 offers since 1972.
The latest planned program imposes an amnesty charge equivalent to a portion of taxpayers’ outstanding unpaid taxes in exchange for immunity from civil, criminal and administrative penalties. It will cover unpaid estate tax, other national taxes as well as delinquency in specific circumstances. Taxpayers will be given a year from issuance of implementing rules to avail of amnesty, except in the case of estate tax amnesty for which interested parties will be given two years to avail. — Elijah J. C. Tubayan
MANILA — China banned induction furnaces last year in a crackdown on polluting producers of low-quality steel, but these machines have made their way to parts of Southeast Asia, hitting domestic steelmakers and fueling safety and environmental concerns.
The Philippines and Indonesia have seen an influx of these furnaces since China prohibited their use for steelmaking in June 2017, eliminating 140 million tons of capacity — or just over the combined output of the United States and Germany.
The two Southeast Asian nations — big steel importers with fast-growing economies — are ideal markets for these induction furnaces (IFs) that produce cheaper steel.
But some big Indonesian and Philippines steelmakers claim that IF-produced steel does not meet national quality standards and poses a major risk in these countries that are prone to earthquakes and typhoons. They have urged their governments to ban IFs.
Unlike electric arc furnaces, IFs have limited or no capacity to remove impurities in the process of producing steel, resulting in inconsistent product quality. Since most IFs in the two countries produce rebar, which is used in construction, rival steelmakers say that poses safety hazards.
In the Philippines, “the rebar market is under attack from IF producers” which sell the product 20% cheaper than those from electric arc furnaces, said Roberto M. Cola, president of the Philippine Iron and Steel Institute.
In Indonesia, after China banned IFs, the furnaces were imported by factories to reduce steelmaking costs at the expense of safety, said Silmy Karim, chief executive of top Indonesian steelmaker Krakatau Steel.
“Imagine, Indonesia is an epicenter for earthquakes, so we must be vigilant. They must be prohibited,” said Mr. Karim, who is also chairman of the Indonesian Iron and Steel Association.
‘WHOEVER WANTS TO BUY’
In banning IFs, China was also addressing the overcapacity that has dogged its steel sector for years. It hasn’t stopped the sale of these machines to buyers outside China, mostly sold as second-hand equipment.
A trader based in top Chinese steel-producing city Tangshan buys and sells IFs with capacity of between 0.25 to 60 tons to, he says, “whoever wants to buy.”
“I can also send it to overseas buyers as long as their country is okay with importing second-hand equipment,” said the trader who spoke on condition of anonymity, adding there are container companies that process the shipping.
Another Tangshan-based trader said many of these machines are shipped to Southeast Asian nations such as Indonesia and Cambodia, most of them exported as parts and then assembled at the final destination.
The Association of Southeast Asian Nations (ASEAN) Iron and Steel Council urged member governments in January to prohibit the imports of Chinese IFs for use in steelmaking, saying the region has become a preferred destination for the “obsolete and unwanted equipment from China.”
“If it’s an ASEAN directive, all governments are inclined to comply,” said Trade Undersecretary Ruth B. Castelo from the Philippines, whose government has launched an investigation of IFs that is currently underway and is expected be completed in the first quarter of 2019.
The total capacity of IFs in the Philippines has surged to 400,000-500,000 tons from 150,000-200,000 tons two years ago, said Mr. Cola, who is also vice-president of leading Philippine steelmaker Steel Asia Manufacturing Corp. In Indonesia, 30-40% of domestic rebar producers use IFs, said Karim of Krakatau Steel.
Elsewhere in the region, Vietnam has not seen any movement of IFs from China since the latter banned the furnaces in 2017, said Chu Duc Khai, vice-chairman of the Vietnam Steel Association, adding that the government is not allowing new investment in IFs.
There are also no new IF investments in Thailand with the rebar market there facing overcapacity, making it unattractive for new entrants, said Wikrom Vajragupta, chairman of the Thailand Iron and Steel Industry Club.
Mr. Karim, in Indonesia, said he wrote to Jakarta’s environment ministry last month to draw attention to companies using IFs, but has yet to receive a response. Indonesia’s environment and industry ministries did not respond to repeated requests for comment by Reuters.
Authorities had to shut some plants using IFs in the Philippines for violating environmental laws, but allowed them to resume operations after they complied, Environment Undersecretary Benny D. Antiporda said.
Castelo, the Philippine trade official, said she visited three steel plants using IFs and found them either lacking or without anti-pollution devices.
“It’s not safe even for the workers and for the neighbouring areas,” said Castelo.
“(But) we cannot just ban it without justification so we have to go through due process,” she said, referring to the investigation into IFs. — Reuters
IMPROVED BILATERAL relations between the Philippines and China will boost the construction industry, according to the Fitch Group’s research arm, as it raised its forecast for that sector.
Fitch Solutions said in a Dec. 14 note that the Philippines’ construction industry could grow by an average of nine percent in 2019-2027, faster than its initial estimate of 8.8%.
“Growth of the construction industry in the Philippines will be boosted by improving bilateral ties with China. In light of the positive developments between the two nations, we have made an upward revision on our forecast to the long-term growth rate for the Philippine construction industry from an average growth of 8.8% to 9.0% between 2019 and 2027,” Fitch Solutions said in its note.
Philippine Statistics Authority data show public and private construction growing by 13.3% as of September from 5.3% in 2017’s counterpart nine months.
“We expect increased Chinese involvement in the road and railway sectors in particular, given China’s expertise in the construction of such projects, which will help to drive growth,” Fitch Solutions added.
“However, we don’t rule out downside risks to this outlook given the history of geopolitical tensions between the two countries, which could resurface and hinder infrastructure cooperation,” it added, referring to both country’s contesting claims to an area in the South China Sea.
Chinese President Xi Jinping made a state visit to the Philippines on Nov. 20-21 that yielded 29 general agreements covering infrastructure, agriculture, trade, finance and humanitarian assistance. “We believe that the Philippine construction industry in particular is in pole position to benefit from agreements signed between the two leaders,” the note read.
China has so far agreed to provide some $9 billion worth of official development assistance (ODA) to the Philippines as part of some $24 billion in investment pledges made during President Rodrigo R. Duterte’s state visit to Beijing in October 2016 where he dramatically announced his “separation” from the United States.
“China’s willingness to invest and swift execution of agreements are welcoming signs for the infrastructure industry, where projects often progress slowly due to the existence of complex issues such as financing, land acquisition, lack of technical expertise and weak political will. Chinese involvement in Filipino projects is expected to expedite the progress of infrastructure projects, boosting the growth of the construction industry in the next decade,” Fitch Solutions said.
“We expect the construction of Chinese-backed Filipino projects to gather pace in the following years…”
About a third of the Duterte administration’s 75 flagship infrastructure projects are proposed to be funded by China.
The Duterte administration has so far inked two loan agreements with China, which include one worth $62.09 million for the Chico River Pump Irrigation Project and another worth $232.5 million for the New Centennial Water Source Kaliwa Dam Project. These are on top of grants for bridge projects, drug rehabilitation facilities and agricultural facilities, among others.
The Philippine National Railways’ South Long Haul Project and the Safe Philippines Project Phase I to be undertaken with Beijing’s help are inching towards a loan agreement.
Other projects lined up for China funding include: the Ambal-Simuay River and Rio Grande de Mindanao River Flood Control Projects, the Davao-Samal Bridge Construction Project, Pasig-Marikina River and Manggahan Floodway Bridges Construction Project, Subic-Clark Railway Project and the Rehabilitation of the Agus-Pulangi Hydroelectric Power Plants Project.
Fitch Solutions also said that while China has not been keen on rail projects in the Philippines so far, “riding on the positive momentum of improving ties between the Philippines and China, we anticipate Chinese companies to play a greater role in rail and road projects.”
“We note that the largest foreign investors in the road and rail sector currently are the United States and Japan, and China has little involvement in these sectors,” the note read.
“This competitive landscape is expected to change, however, with the two countries identifying transport as one of the key areas of cooperation under the ‘Infrastructure Cooperation Program between the Government of the Republic of the Philippines and the Government of the People’s Republic of China (ICP)’ agreement. Under this agreement, the Philippine government is able to tap into China’s extensive experience in road and railway construction to plug the country’s infrastructure gap.”
At the same time, both countries’ dispute over an area in the South China Sea will always be a Damocles sword over improving relations.
“As identified by our Country Risk Team, segments of the Philippine population have expressed discontent at the government’s welcoming stance towards China. The South China Sea dispute will continue to pose a downside risk as projects can potentially be suspended or cancelled if tension between the two nations escalate. Such a risk will be amplified once the leadership transition takes place during the 2022 Philippine Presidential Election, where the current President Rodrigo Duterte is expected to step down,” the note read.
The Duterte administration has chosen to stay mum in its dealings with China when it comes to enforcement of a 2016 international arbitral ruling that struck down Beijing’s vague basis for claiming much of the South China Sea. Instead, the government has been working on a joint exploration agreement with China for the resources in the disputed waters. — Elijah Joseph C. Tubayan
THE DEPARTMENT of Energy (DoE) plans to issue by next week a missionary electrification policy for off-grid areas that will lead to detailed circulars, including one that will end the collection from consumers of funds for rural power development.
“This month we will come out with the missionary electrification policy that will do away with the UCME (universal charge for missionary electrification),” DoE Undersecretary Felix William B. Fuentebella told reporters last week.
He said the DoE has decided that the cost of future electrification programs will not be charged to consumers, but will be shouldered by the government, he said.
“So we are basically answering that question of why are we charging inefficiencies to the consumers. It should be government. So we are addressing that,” he said.
He did not disclose the funding required by the government to cover rural energization without the UCME, but said it would be part of the state’s total electrification program and aligned with the plans of the National Power Corp. (Napocor) and the National Electrification Administration (NEA).
“Part two is the detailing of the phase out of the UCME,” Mr. Fuentebella said when asked whether the omnibus policy will already spell out the abolition of the universal charge.
Napocor is mandated by law to provide power in areas that are not connected to the transmission grid. The UCME is collected from all on-grid electricity end users as determined by the Energy Regulatory Commission (ERC) and called for under Republic Act No. 9136 or the Electric Power Industry Reform Act of 2011, or EPIRA.
In a regulatory filing with the ERC in July, Napocor sought provisional approval to collect P17.8 billion from electricity users next year, through a P0.1948 per kilowatt-hour (/kWh) charge in their power bills, to cover electrification of “far-flung areas” of the country. Napocor said the UCME in consumers’ monthly electricity bill will reflect an increase of P0.0768/kWh from the current amount.
The government-owned and -controlled corporation said the proposed basic UCME “is necessary in order to cover the required subsidy requirements and at the same time, maintain a reliable and stable funding source for its operating costs requirements.” It said the amount includes subsidy for payment to new power providers, renewable energy developers and qualified third-parties that have taken over in full or in part the power generation function of Napocor in certain areas.
Mr. Fuentebella said the department would be bidding out areas for electrification, but would be made clear to prospective bidders that bringing electricity to these areas would no longer be subsidized by the UCME.
He said new technology should enable bidders to bring down the cost of electricity. He said the resulting price per kilowatt-hour would be the “true cost” and not the subsidized cost of power in these areas.
“We have to make them aware that this is the true cost. It should be your behavior in accordance with the true cost and then we will introduce the new technologies,” he said.
Distribution utilities in off-grid areas will be given a transition period of two to five years without the UCME, he said.
Mr. Fuentebella said “rich major islands” like Palawan or Mindoro would lose the UCME in two years, involving a reduction by 50% per each year.
“For the poorer ones, five years, 20% [each year],” he said. — V. V. Saulon
BW FILE PHOTOMORE foreign portfolio investments — also known as “hot money” for the ease by which these funds enter and leave financial markets — came into the Philippines in November, according to data the Bangko Sentral ng Pilipinas released on Friday that bared a reversal from two straight months of net outflows.
November saw $832.07-million net inflows that were more than seven times the year-ago $107.71 million and which constituted a turnaround from net outflows of $67.83 million in October and $440.3 million in September.
November’s net inflows were also the biggest in eight months, or since March’s $1.132 billion.
Gross inflows increased by 80.78% to $2.041 billion last month from $1.129 billion a year ago, outpacing an 18% growth in total outflows to $1.208 billion from $1.021 billion in the same months. November’s total inflows were similarly the biggest since March’s $2.469 billion.
Year-to-date transactions yielded $925.95-million net inflows, turning around from the year-ago $634.53-million net outflows. Year-to-date net inflows exceeded the BSP’s $900-million projection for 2018.
Last year saw $205.03-million net outflows.
“This may be attributed to investors’ positive reaction to… decreasing global oil prices, BSP’s decision to raise its policy rate and progress on the rice tariffication bill — all of which are expected to temper inflation — as well as Chinese President Xi Jinping’s visit to the country, which was expected to further deepen ties with China in terms of diplomacy and business development,” the BSP said in a statement on November’s turnaround.
Sought for comment, Rizal Commercial Banking Corp. economist Michael L. Ricafort said: “The lower global oil prices that led to lower inflation helped in improving consumer spending and increase corporate profits, thereby leading to gains and more foreign portfolio investments in the local… financial markets.”
November saw headline inflation ease to six percent from September’s and October’s nine-year-high 6.7%, and the BSP’s Monetary Board firing off a 25-basis-point hike in benchmark policy rates as a “pre-emptive” move against any worsening in inflation expectations in the market. That brought the cumulative rate hike to 175 bp since May to 4.25-5.25%, as the benchmarks were maintained at prevailing levels last Dec. 13.
About 66.8% of November hot money inflows went to securities listed on the Philippine Stock Exchange (PSE) — mainly to food, beverage and tobacco companies, holding firms, property companies, banks and utilities companies — while the 33.2% balance went to peso-denominated government securities (GS). Transactions in peso GS and PSE-listed securities yielded net inflows of $510 million and $322 million, respectively.
The United Kingdom, Singapore, the United States, British Virgin Islands and Cayman Islands were the biggest sources of funds last month. — Karl A. N. Vidal
Ayala Land, Inc. is developing Habini Bay estate in Misamis Oriental province.By Carmelito Q. FranciscoCorrespondent
DAVAO CITY — Ayala Land, Inc. (ALI) is spending about P18 billion for its 526-hectare Habini Bay estate located in the towns of Alubijid and Laguindingan in Misamis Oriental province.
Enrique B. Manuel, Jr., ALI assistant vice-president and estate head, said of this amount, about P4 billion will be spent for the first phase of the mixed-use complex, including the construction of an industrial park that will be managed by another Ayala company, Laguna Technopark, Inc. (LTI).
“Expected to be completed in 2022, the fund for the first phase would be spent on land development, the launch of the LTI (-managed park) as well as some concessions for the partner locators,” Mr. Manuel said in an e-mail interview with BusinessWorld.
The industrial park component is intended to attract manufacturers of electronics, automotive, pharmaceuticals and consumer products.
“The total budget for the project will exclude the capital expenditures of locators,” he added.
The company sees the project generating about 2,000 jobs in the initial phase, mostly in construction, and about 4,000 jobs upon full operations.
“We are hopeful that we will bring in inclusive growth by providing jobs and opportunities for the Mindanaoans in the area, and that we will do starting very soon,” said Mr. Manuel in an earlier message.
The project, a joint venture of ALI and its mother company Ayala Corp., is expected to become a trade and commerce center in the Northern Mindanao Region, the company said in a statement last month.
The estate will also have residential and commercial components, and will be home to the new local government center of Laguindingan town.
It will also have a bus terminal, a sea port and a school.
The company said Habini Bay is also designed with “pedestrian and bike-friendly roads to encourage a healthy modern lifestyle in an integrated and sustainable estate.”