Gross domestic product

Bracing for Tougher Times Ahead

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By Al Labita

AFTER nearly a decade of a benign uptick, the country’s inflation rate – the cost of buying goods and services — is threatening to disrupt the economy’s growth trajectory. Currently pegged at a year-to-date 3.5 percent, the rate is poised to dangerously breach the central bank’s five percent band limit as prices of basic commodities showed signs of an upward trend. Blame the inflation’s looming downsides on the wave of disastrous events unleashing cost-push pressures on an economy susceptible to price distortions.

By and large, the Moro separatist attacks in Zamboanga city, the destructive 7.2 quake in Bohol and the mind-boggling storm surge in Eastern Visayas had conspired and dented the economy. Admittedly, the fortuitous incidents triggered waves of price elasticity with a seemingly upward bias. Most likely, inflation will soar to five percent by end this year as monetary authorities had earlier projected.

BSP Under Pressure

That forecast, however, was anchored on pre-crisis scenarios or at a time the economy was robust. But with the economy under siege by inflationary pressures, monetary authorities are likely to clamp down on money supply – technically referred to as M3 – to rein in any sudden gyration of inflation. This ensues once inflation rate breaks through the five percent threshold level which is very likely, taking into account the new challenges on the ground.

Intervention measures, which can be damaging to the economy in the long run, can range from a hike in interest rates to tightening of overnight lending and borrowing policies. For those in the corporate sector, an economy’s downward spiral could hurt profits and limit stock price appreciation. A regime of high Inflation rate also robs companies of market value since they are forced to raise prices of the goods they sell to recoup investment costs. While they can pass on the costs to the consumers, the goods they sell are in the final reckoning become worthless each day.

Poverty and Prosperity

Given the economy’s new twists and turns, Bangko Sentral is likely feeling the pressures to revise upward its inflation expectation to factor in a creeping surge in prices. A single percentage rise in inflation can spell a difference between poverty and prosperity.
Lately, inflation – the bane of any economy – was acting up anew as supply bottlenecks erupted in calamity-stricken areas, creating an artificial shortage of basic commodities.

What exacerbated the situation was the massive destruction of farm-to-market roads constricting the extent of the delivery system to where the commodities are critically needed. Based on Department of Agriculture (DA) data, food production areas bore  the brunt of super typhoon Yolanda with damages piling up to nearly P7 billion. Rice fields and fisheries stocks accounted for the biggest losses at P2.23 billion and P1.16 billion, respectively.

Toll on Aggie

Yolanda also took its toll on high-value crops such as coconut, mangoes, cassava, bananas and vegetables. Overall, the DA estimated that the calamity dislocated 214,522 metric tons of goods from 134,085 hectares of farmland. The figures exclude devastated agricultural infrastructure, facilities and equipment for irrigation systems in Eastern Visayas, a key food production basket. Leyte province alone chalked up P2.22 billion in losses, about half of which represents ruined palay.

Amid a grim picture in the agriculture sector, the government’s think tank, the National Economic Development Authority (Neda), is less upbeat about the economy’s growth prospects. In a statement, it predicted that growth of local output – or Gross Domestic Product (GDP) – in this year’s last quarter could be trimmed by 0.3 to 0.8 of a percentage point to 4.1 percent.

Hardly significant, the reduction would nonetheless bring down the government’s GDP target of attaining 6-7 percent GDP growth target by end this year, quite ambitious for an economy weakened by a string of disasters, both man-made and natural. Such bleak outlook, Neda says, could linger through 2014 because of the reduced production capacity in typhoon-affected areas.

Opportunity and Risk

What bears watching is the extent of the government’s fiscal spending to mount a multi-billion peso rehabilitation program which can be potentially inflationary. Officials boast that with improved tax revenues, the government has more than enough fiscal space to go on a splurge. Initial estimates placed the rehab cost at P10 billion to defray the costs of repair of infrastructure and other facilities.

In effect, the government has no choice but to part with its revenues which otherwise could have been wasted in the pockets of the notoriously corrupt and the inept. The choice is simple: reconstruct and resuscitate a disaster-ravaged economy or risk prevalence of abject poverty.

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LIES AND DECEIT

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By Al Labita

NOTHING to crow about the Aquino government’s self-serving claim that under its watch, the economy has expanded at a rate faster than what its officials could imagine.

Reckoned with realities, however, the growth only perpetuated the perennial rich-poor gap, one of the world’s worst, despite Aquino’s much-ballyhooed reform agenda.

While statistics only tell half a story, they nonetheless betray the painful truths lurking behind a façade of lies and deceit.
The inclusive growth Aquino has been harping on has been largely inclusive only among the few moneyed elite to the exclusion of the vast majority – the poor.

As the economy grows, it also exponentially drives up the wealth of those in command and control of the lives of Filipinos.
The figures are grim — only 40 families such as the Ayalas, Sys and Tans account for nearly 80 percent of the economy as measured by gross domestic product (GDP), an OpinYon’s research shows.

In stark contrast, some Asian neighbors had managed to whittle down the rich-poor ratio as they gained headway in democratizing their economy over the past decades.

In Thailand, the same number of families account for only 33.7 per cent of the economy and in Malaysia, 5.6 per cent, indicating how the Philippines has lagged behind in addressing the urgency to spread out the nation’s wealth.

Ironically, the glaring disparity vis-à-vis sharing a nation’s wealth explains why the Philippines has more billionaires (in US dollar) than in more prosperous Thailand and Malaysia.

GDP and PPP

They are the same people who take advantage of lucrative contracts, including profit guarantees and tariff increases, under the government’s Public-Private Partnership program (PPP), Aquino’s centerpiece in pushing infrastructure projects.
“The regime has consistently favored the few billionaires while further marginalizing the poor. Aquino now wants to enrich them even more by giving them various perks for the PPP projects,” says the militant Bayan Muna in a statement.
Based on the account of US-based magazine Forbes, the combined net worth of the Philippines’ 50 richest totaled US$65.8 billion in 2012, more than a quarter of the nation’s GDP.

Mostly of Chinese origin, these families own companies which have grown—aided largely by generous government incentives—to become conglomerates with shares traded on the Philippine Stock Exchange and in some cases offshore, notably in cash-rich Hong Kong and Singapore.

Millionaires to Billionaires

Their vast and diverse corporate tentacles extend far and wide, catering to the lives of Filipinos, literally from womb to tomb, leaving them with no choice but to enslave themselves under the weight of an oppressive western-style economic system.
As shown in the list of Singapore-based UBS Billionaires Census 2013, the Philippines ranked 9th in Asia, with 13 billionaires with a combined net worth of US$35 billion.

In 10th place was Malaysia with 10 billionaires worth a combined US$37 billion, while Thailand ranked 11th with 10 billionaires worth US$25 billion.

As usual, ethnic Chinese taipans Henry Sy and Lucio Tan topped the list of the Philippines’ mega rich whose ranks had swelled as more of their kind continued to amass wealth at the expense of those marginalized by the government’s pro-rich, anti-poor economic policies.

Sy, who operates shopping malls, saw his assets surge 44 percent to US$7.2 billion in 2012 alone and remains the Philippines’ richest man.

Doubtful Data

According to the Forbes 2012 annual rich list, Sy and Tan whose businesses range from retail to property and other related ventures were worth a combined US$13.6 billion, equivalent to six per cent of the Philippine economy.
While GDP has undoubtedly risen over the past years, every Filipino’s share of it is unfortunately the lowest among Asean countries.

Based on the latest data of the National Statistical Coordination Board (NSCB), the Philippines’ per capita GDP) stood at only US$4,339 in 2012 compared with Singapore, $61,461; – Malaysia, $16,976; Thailand, $9,609; and – Indonesia. $4,971.
GDP is the amount of goods and services produced, while per capita is derived from dividing the population in relation to GDP.
While seemingly doubtful, the NSCB data hardly reconcile with Aquino government’s oft-repeated claims that GDP last year expanded by 6.8 percent and even bragged that it outpaced Singapore’s 1.3 percent, Malaysia’s 5.6 percent, Thailand’s 6.5 percent and Indonesia’s 6.2 percent.

Yet, the Philippines’ per capital GDP has been the lowest–and slowest—among its peer group since 2005 despite official claims that it is Asia’s fastest-growing economy.

Poverty Level

In what could be an indicator of the country’s ever-widening rich-poor gap, NSCB data also showed that high-income households accounted for more than half, or 60 percent, of the GDP.

The balance of 40 percent of the economy’s income was shared by the bulk, or about 84 percent, of the country’s population.
To be poor meant earning less than 16,800 pesos a year or P1, 400 a month or P47 pesos a day which covers 26.5 per cent of the nearly 100 million Filipinos.

As gleaned from the official poverty data of NSCB, the proportion of poor Filipinos to the total population has been surging from 24.9 per cent in 2003 to 26.4 per cent in 2006, and 26.5 per cent in 2009, an issue Aquino promised to address under his “Daang Matuwid” program of government.

Inclusive Growth?

The Philippines has one of the highest poverty rates among emerging Asian economies. The poverty incidence stood at 27.9 percent as of the first semester of 2012, almost unchanged from the 28.6 percent in 2009.

Aware of the magnitude of the problem, the government wants to bring down poverty incidence to 16.6 percent by 2015, an ambitious target difficult to achieve as the rich get richer and the poor poorer, given the economy’s bias for the affluent and the powerful.

In more ways than one, the economy is basically lopsided in structure allowing the oligarchs to gain too much control of the country’s resources and creating one of the worst income inequalities in Asia.

One wonders whatever happened to Aquino’s oft-repeated term “inclusive growth” which seeks to create jobs and reduce poverty by spreading the economy’s gains to trickle down to lower-income segments of society.

More importantly, the rich-poor disparity also draws attention to Aquino’s anti-poverty conditional cash transfer program which has a budget of more than P40 billion this year.

Capitalist vs. Socialist System

The program seeks to see 15 million of the nation’s poorest people receive money directly in exchange for their kids going to school and mothers and children getting proper healthcare.

In releasing its data, NSCB risked incurring anew the ire of Aquino who once bawled out the agency’s officials for portraying the economy in bad light contrary to his government’s rosy picture.

Sign of compassion for the disadvantaged sector of society may be gleaned from how the tycoons responded to the clamor for aid of the hapless typhoon victims in the Eastern Visayas region.

While some, particularly Sy and Tan, handed out P100 million each, others were hardly in the news, apparently opting to work behind the scene with less fanfare.

Billionaire port king Enrique Razon  deployed heavy equipment to repair the damaged piers in Tacloban city and Leyte, while the Ayalas and banker George Ty chipped in P10 million and P50 million, respectively, worth of relief supplies.

The cost of putting the typhoon-ravaged Eastern Visayas region back on its feet amounts to a whopping P250 billion, a window of opportunity for the tycoons to share their wealth with those they derived their profits from.

Overall, while there is evidence of progress in addressing the yawning rich-poor gap, it is too slow. One study says it would take dozens of decade for the bottom millions of the nation’s population to achieve 10 per cent of the national income under the current rate of change.

Similarly, it raises questions about the Philippines’ pro-capitalist economic model vis-à-vis the egalitarian-oriented socialist type.

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Localizing Development Measures

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by Ike Señeres

THE Human Development Index (HDI) is a composite statistic to rank countries into four tiers of human development, namely low, medium, high and very high. The countries are ranked based on three measures, namely the life expectancy index, the education index and the income index. The life expectancy is measured from birth. The education index is measured by the adult literacy rate and the combined primary, secondary and tertiary gross enrolment ratio. The income index is measured through the standard of living, as indicated by the natural logarithm of gross domestic product (GDP) per capita at purchasing power parity.

Simply put the HDI measures life expectancy in relation to the mortality rate. It measures the literacy rate in relation to the illiteracy rate. In a manner of speaking, it measures the prosperity rate in relation to the poverty rate. In usual practice, the illiteracy rate is usually not measured, being just the opposite of the literacy rate. In the same manner, the prosperity rate is also not usually measured, being just the opposite of the poverty rate. It stands to reason however that the prosperity rate actually reflects the statistic of all those who are above the poverty line.

As I understand it, the Philippine government is not ranking the provinces in terms of their human development indices, either using the HDI method or any other measure. As I also understand it, there is no such thing as a Gross Provincial Product (GPP) in relation to the Gross National Product (GNP). But since the HDI method measures only the GDP, perhaps it would also be a good idea to also measure the Gross Provincial Domestic Product (GPDP). On a similar note, it may also be a good idea to measure the Provincial Per Capita Income (PPCI).

In my previous columns, I wrote about JEWEL, short for a development framework that would organize and coordinate the delivery of five basic services at the local level, namely Justice, Education, Wellness, Employment and Livelihood. Among these five basic services, only the last four are directly relevant to the HDI method. However, it could be said that justice is actually indirectly relevant to the HDI method, because the lack of it could be a way to deny access to the last four.

Although it is really not that simple as it seems, employment and livelihood are the obvious means to increase the incomes of our people, thus also elevating their standards of living. I am using “employment” here in a loose sense, because it could also mean “self-employment”, a concept that could also mean having a small business. I am also using “livelihood” here in a loose sense, because it could also mean having a small business or perhaps it could also mean practicing one’s craft or profession.

Very recently, several police directors got into hot water when it was discovered that they were tampering with local crime rate statistics, obviously to make it appear that the crime rate is low in their jurisdictions, meaning to say that they are doing their job well. I wrote about this problem many years back, and I argued that the Philippine National Police (PNP) should not be the source of crime rate reports, because that would put them in a conflict of interest situation. Naturally, they would tend to make it appear that everything is good; otherwise it would make them look bad. Having said that, who could possibly report the provincial HDI data without a possible conflict of interest?

In the case of the PNP anomaly, it would seem that the problem is in the consolidation of the data, and not in the gathering of the data. Since there was apparently no problem in the crime rate reports of the other police directors, it would be fair to say that the honest ones did not tamper with the data that was submitted by the lower levels that could also be presumed to be honest. For lack of any other practical choice, could we possibly rely on the local mayors to be honest in reporting their local HDI data?

On the upside, I would say that the statistical methods that are used in computing the HDI data are purely transparent and technical, meaning that these could not possibly be corrupted by political interventions. Moreover, the resulting computations could be subjected to the review of local accountants and auditors, who could all be presumed to be politically neutral. The key to this however is the accuracy of the input data, because otherwise, it would just be a “Garbage In, Garbage Out” situation.

I believe that once the controversies over the recent scams are over, the focus will shift to genuine local development projects that will be implemented by the local government units (LGUs) on their own, or in cooperation with Non-Government Units (NGOs). I could only hope that the LGUs would give priority to projects that would increase their HDI performance. I am also hoping that they would plan and implement their projects in line with the JEWEL framework.

On my part, I am now working on a project that would provide an alternative information superhighway for national development and emergency response purposes, as a way of helping LGUs and NGOs alike. I have no doubt in my mind that one way or the other, information and communications technology (ICT) holds the key to the attainment of national development, but first, the LGUs must do their part in local development.
***
For feedback, email iseneres@yahoo.com or text +639083159262

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The Travails of MSMEs (part 1)

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by Miriam Tan-Fabian

MSME’s relevant contributions to the economy

MSMEs or micro, small, and medium enterprises often have it hard even if these enterprises are considered the “backbone and the lifeblood of the economy” within ASEAN countries. These enterprises, depending on which ASEAN country you are looking at are firms are generally categorized either by number of employees, asset size, or revenue. In Cambodia, micro enterprises are defined as having less than 11 employees and less than 50,000 riel (Cambodia’s currency) in revenue. In the Philippines, micro enterprises have less than 20 employees and have assets of less than Php 3M versus Indonesia’s 500M and lower and revenues of 300M or lower in rupiah, Indonesia’s local currency.

These MSMEs account for a significant bulk of the GDP. For Indonesia, for example, the contribution of MSMEs lie anywhere from 56.53% to 60% of the country’s total GDP. Gross Domestic Product or GDP is the monetary value of all the finished goods and services produced within a country’s borders in a given time period, and is used as a common metric to measure the health of a country’s economy. Generally, the higher the country’s GDP, the better the economy and the lower the GDP, the weaker the economy.

Aside from a significant share of a country’s GDP, MSMEs also account for majority of the total number of establishments in a country. In Myanmar, a developing country, MSMEs account for 90 percent of the industrial sector and 99 percent of the manufacturing sector. Similarly, in Japan, a developed country and economic powerhouse, 99.4% of manufacturing firms are small and medium-sized firms, which employ three quarters (75.1%) of the manufacturing industry’s employees. Comparably, in the Philippines, the MSME sector accounted for 99.6% of total establishments and contributed 61.2% of the country’s total employment.
Thus, MSMEs contributes significantly to the country’s well-being, and anything to do with MSMEs will be significant.

It isn’t easy being an MSME

Imagine that you wanted to formally put up a small eatery, one example of an MSME. From the get go, you will already be facing many challenges, issues, and concerns just to jumpstart the eatery. There is the paperwork, certifications, and permits; a steady stream of predictable funds, the staff, and the location, among others. It should therefore come to no surprise why, despite the big numbers of MSMEs in all of the ASEAN countries, they die out naturally within the first year they are established, succumbing to these difficulties.

Moreover, despite all the contributions that MSMEs provide the local economy and the presence of government agencies and policies for MSMEs, across the ASEAN, MSMEs continue to be vulnerable to a list of challenges, issues, and concerns that read like a bad case of symptoms of someone really sick, many of these symptoms are repeatedly mentioned across the countries of the ASEAN region.

Several obstacles to hurdle

Financial support
One of the major concerns is the financial support. More often than not, if you want to put up your own business, you will need to raise the initial capital on your own. Most big banks won’t touch you with a ten-foot pole because of a whole slew of reasons. The banks know little about funding MSMEs, MSMEs are considered too risky to provide loans for especially if the bank requires credit information, and the bank’s products are mismatched with the needs and conditions of MSMEs.

On the other hand, on your part, you might not also like dealing with banks because they require some collateral or a good track record, and unfortunately, you have neither of both. I find the track record condition unreasonable. If it is your first time to put up a business, you would naturally have no track record, so this condition alone is discouraging for anyone who’d consider loaning from a bank. Worse, commercial banks charge high interest rates of 10 to 18% per year for top banks. This means that for every Php 100,000 pesos you loan, that’s already Php 10,000 to Php 18,000 for the bank for every year until you finish off paying the bank.

Discrimination and preference by size or sector
There is also some discrimination on the part of banks, they prefer larger enterprises who are given more favorable interest rates, and certain sectors like agriculture (farming) and hospitality enjoy the highest loans. Consequently, if you are a micro or small enterprise that is neither into the agriculture or hospitality sector, while your size already makes you vulnerable compared to larger enterprises, your lower access to funds exacerbates your financial concerns.

Poor capability, skills, and lack of trainings
Another issue was the capabilities of micro and small enterprises. Many micro and small enterprises do not have sufficient know how, technical, and management skills. Thus, MSMEs are hard pressed to produce good business or marketing plans for financing. Most of these enterprises also have poor and sub-standard accounting systems because of self-operated accounting practices, the lack of historical accounting records, and weak financial reporting. While most skills remain poor, the lack of trainings and professional development opportunities further weakens the capabilities of MSMEs, thus lowering competitiveness and productivity.

With limited management and financial capabilities, many MSMEs are unable to quickly respond to both the local and foreign markets. MSMEs have a low ability to meet the threats of local and global competition because of their ignorance of information on market access and business environment; failure to attain scale economies needed to produce quality goods and services; and the sector’s laid-back approach to seeking new markets and responding to market needs.

Poor infrastructure and logistics
Yet another issue which MSMEs have little control over is poor infrastructure. This was one key issue identified by potential investors as a turn off when investing in the Philippines. They specifically identified the dilapidated roads and the horrible traffic in the CALABARZON area where some of the country’s economic zones are located.

Added to these woes is the poor logistics such as the lack of charter flights needed for cargo shipments, lack of direct shipping and air routes or linkages to export processing zones, inadequate cargo hub operations, and the high cost of freight and cargo handling services. These signs of inadequate or poor logistics lead to increased production costs.

The Philippines though is not alone in this issue. Laos, a land-locked country of a mere 6M people have to contend with the country’s largely mountainous terrain, a poor network of market access roads, together with cross-border trade impediments with neighboring countries, has meant high transport costs and fragmented markets. The generally poor condition of the road network results in high rates of damage to both trucks and cargo. (to be continued)

For feedback: miamfabian@gmail.com

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