struggles with port congestion continue · 2015-03-13 · medical transcription, the hims industry...

BUSINESS

Philippine ANALYST September 2014

39BUBUBUBUSISISISINENENENESSSSSSSSBUSINESS

Struggles with port congestion continue The Manila ports issue has highlighted many of the long-time problems of the Philippine ports system and presents key areas that need to be addressed in light of Southeast Asian integration in 2015.

In February a Manila City ordinance banning trucks from daytime operations congested the local ports and delayed many shipments from being delivered. The Manila port

is the country’s main seaport and regularly receives the largest share of ship calls, cargo throughput, and container and passenger traffi c. While Ordinance 8366 was lifted in September, many businesses still complain of the delays and the port operations that have yet to return to normal.

The Philippine Economic Zone Authority (PEZA) partly attributed the layoff of some 20,000 workers in economic zones to port congestion and to the continuing woes of the Manila ports system. Meanwhile, NEDA estimates that up to P70 billion in economic losses were due to the truck ban.

According to the results of the 2010 Annual Survey of Philippine Business and Industry (ASPBI), there are 2,890 establishments in the Transport and Storage sector with 78.4 % of these establishments engaged in freight forwarding services and customs brokerage (ship and aircraft). Revenue and costs vary between industry groups largely depending on the mode of transport (see chart).

“Maritime transport is the most important mode of transportation in terms of the traffi c volume in international trade,” according to the Master Plan on Association of Southeast Asian Nations (ASEAN) Connectivity, and supporting this sentiment are

the ASBPI fi gures that illustrate that water-based sea and coastal transport still offer the cheaper alternative to air, and perhaps the most viable alternative when transport via land is no longer possible.

Shipping remains an integral aspect of trade, and the Manila City ordinance has, in a short-time, disrupted many economic and business transactions. In a study conducted by Citi in March, economist Jun Trinidad noted that without an alternate route to connect the Port of Manila with key economic zones around Luzon, the economy could suffer by as much as a 1-5% reduction in

NEDA estimates that up to P70 billion in economic losses were due to the truck ban.

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Source: Annual Survey of Philippine Business and Industry 2010

102.9

76.7

48.5

14

42

84.9

38.8 35.6

9.7

35.3

0

20

40

60

80

100

120

Passenger airtransport

Support activitiesfor transportation

Sea and coastalwater transport

Transport viabuses

Other industries

REVENUE AND COST FOR TRANSPORT AND STORAGE ESTABLISHMENTS PER INDUSTRY GROUP;

PHILIPPINES 2010

Revenue Cost

WORLD ECONOMIC FORUM (WEF) RANKING

Quality of Port Infrastructure

COUNTRY RANK (OUT OF 144 COUNTRIES)Singapore 2

Malaysia 19

Thailand 54

Indonesia 77

Vietnam 88

Cambodia 97

Philippines 101

Myanmar 125

Lao PDR 129

Source: World Economic Forum Global Competitiveness Report 2014-2015

GDP. On the side of imports, the truck ban has already signifi cantly increased barriers to doing business; trucking costs have increased along with port and shipping line charges. The backlog of deliveries has also affected the price of goods, according to the Philippine Amalgamated Supermarkets Association Inc. (PASI), due to the backlog of deliveries. As it stands, consumer demand is expected to increase in time for Christmas, while the Philippines Ports Authority (PPA) estimates that operations in the Manila ports will return to normal in January 2015.

Traffi c-reduction was the rationale of former President and now Manila City Mayor Joseph Estrada in implementing the truck ban, but what was intended as a measure to alleviate one problem has illustrated the inter-connectivity of problems in different areas. The port issue has aggravated or at least emphasized related issues like port corruption and the general weak state of infrastructure in the country, and this has in effect also highlighted many of the long-term problems surrounding the Philippine ports system and the maritime trade and logistics industry.

Port infrastructure represents only one of the problems that need to be tackled in order to boost trade capacity. Moving towards a single ASEAN shipping market, high domestic shipping costs and lack of competition are other issues that can be addressed through cabotage law reform.

PH healthcare market expands as spending, investor interest rise

The Philippine healthcare market is expected to expand further due to rising consumer health spending and heightened interest from foreign investors. Particular growth areas are in the medical tourism, pharmaceutical, and health care business process outsourcing (BPO) sectors.

Consumer spending on health has been steadily increasing, growing by 11.8% in 2012 and 6.3% in 2013. It is expected to expand by 10% more by the end of 2014 to reach P241 billion. Health is among the top concerns of Filipino consumers according to Nielsen’s global consumer confi dence survey for the 2nd quarter. Medical expenses are also the 3rd highest expenditure of families of overseas Filipino workers according to the Bangko Sentral ng Pilipinas’ consumer spending survey for the 3rd quarter. The steady increase in the demand for health care services is prodded by a rising population, which already hit 100 million this year. Increasing middle income wealth and investments in healthcare facilities especially by the private sector also contribute to the country’s emerging healthcare market.

The International Trade Administration, an agency under the United States Department of Commerce, will conduct a trade mission that will bring 20 companies and groups to explore prospects in the Philippines’ healthcare and medical industry. The medical mission is expected to happen in February 2015, and will include representatives from medical/healthcare industry manufacturers (equipment/devices, laboratory equipment, emergency equipment, diagnostic, physiotherapy and orthopedic, healthcare information technology, and other allied sectors), service providers, and trade associations and organizations. The ITA said that although the Philippines is small compared to other markets, it presents good opportunities for U.S. fi rms as medical devices in the country are almost 100% imported and preferred to be American-made. U.S. manufacturers however are already facing growing competition from Germany, the Netherlands and Japan.

Among the bright spots in the Philippine healthcare market is the pharmaceutical industry. The country has the 3rd largest pharmaceutical market in the ASEAN, valued at 170 billion in 2013 and expected to increase to P340 billion in 2014.

Source: National Statistical Coordination Board.

HOUSEHOLD FINAL CONSUMPTION HOUSEHOLD FINAL CONSUMPTION EXPENDITURE ON HEALTHEXPENDITURE ON HEALTH

(in million pesos, at constant 2000 prices)(in million pesos, at constant 2000 prices)

YEAR VALUE GROWTH RATE (%)

2011 173,444 7.5

2012 199,821 11.8

2013 218,729 6.3

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Also expanding is the healthcare and information management service (HIMS) market, which grew 114% in 2013 and earned P42 billion in revenues. The HIM-Outsourcing Association of the Philippines (HIMOAP) said the Philippines is emerging as a top global destination for healthcare service contracts as service providers move to more complex work. From medical transcription, the HIMS industry has diversifi ed to medical billing, medical coding, outpatient care services, telemedicine, and pharmaceutical and healthcare application support. Employment of healthcare professionals in the HIMS sector will grow from the current 60,000 to 100,000 in 2016.

Meanwhile, earnings from the medical tourism sector are expected to reach P127 billion annually by 2015. According to the 2014 Oxford Business Group report on the Philippines’ health sector, Cebu is emerging as the leading medical tourism spot in the country due to its central location, pleasant climate and internationally accredited hospitals. Facilities in Manila are also attracting medical tourists from Guam, Japan and South Korea. The Board of Investments is offering various incentives for investors putting up medical tourism facilities, including duty-free import of medical equipment and a 4-year tax break on income earned from foreign patient services.

Health care access in the Philippines however is still ridden by poor infrastructure, public underinvestment and the migration of healthcare professionals to countries with better-paying jobs. The government, through its public-private partnership (PPP) program, aims to resolve these challenges by providing the private sector a greater role in the healthcare sector. The PPP program in particular would allow private groups to fi nance, design, build, operate and maintain a public healthcare facility for a maximum period of 25 years. The program will also be used to improve healthcare delivery and access, including funding of private sector research projects that forward health innovations. Combined with public insurance programs, the private sector is an essential partner in the government’s goal to provide quality and universal health care to all Filipinos.

PH to generate 3.1 million jobs from ASEAN integration

A study conducted by the International Labor Organization (ILO) and the Asian Development Bank (ADB) showed that the Philippines can generate 3.1 million additional jobs from 2015 to 2020 when the Association of Southeast Asian Nations’ (ASEAN) economic integration takes place.

The study entitled “ASEAN Community 2015: Managing integration for better jobs and shared prosperity” revealed that the Philippines could benefi t from the ASEAN Economic Community (AEC) as it could lead to “considerable economic and job gains” and an expansion in the gross domestic product (GDP) to 7.5% by 2025. The AEC involves the creation of a single market composed of the 10 member states (Brunei Darussalam, Cambodia, Lao

PDR, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and is characterized by “the free fl ow of goods, services and investment; a freer fl ow of fi nancial capital; enhanced connectivity; and expanded opportunities for intra-regional labor migration.” The AEC blueprint contains 17 elements and 176 priority actions based on 4 pillars:

A single market and production base; A highly competitive economic region; A region of equitable economic development; and A region fully integrated into the global economy.

ILO country director Lawrence Jeff Johnson said the Philippines would be able to have inclusive growth that creates jobs and reduces poverty “if decisive policy action is taken.” In 2013, ASEAN recorded a 1.5% growth in employment in the region and a decline in unemployment rate from 4.7% in 2010 to 4.2% in 2013. The service sector is dominant in most ASEAN countries, but overall employment is still divided between mostly agriculture and services (see chart). A major concern now lies in the so-called vulnerable employment, which is defi ned as “own-account and contributing family workings, with less formal arrangements and inadequate working conditions and social protection.” According to the ILO-ADB study, 38% of the jobs in the Philippines are in vulnerable employment. This is associated with higher poverty; low-quality employment is linked to low earnings.

Agriculture is cited by labor expert and co-author of the study Kee Beom Kim as one of the potentially most vulnerable, especially in terms of low wages and productivity. The study projected an increase in the employment in the agriculture sector through the creation of 1.1 million jobs, while the services sector is projected to have a decline in its overall employment share. The study said: “The close association between poverty and agriculture suggests that policies directed at increasing agricultural productivity and promoting off-farm agribusiness can help ensure gains in agricultural employment translate into reductions in rural poverty.” Kee Beom Kim suggests that the Philippine government should invest in higher-value crops and create stronger linkages between agriculture and manufacturing.

Although the Philippines is small compared to other healthcare markets, it presents good opportunities.

0

10

20

30

40

50

60

70

80

90

ASEAN Cambodia Indonesia Lao PDR Malaysia Philippines Singapore Thailand Vietnam

% EMPLOYMENT BY MAJOR ECONOMIC SECTOR (2013)

Agriculture Industry Services

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Medium-skilled employment is also seen to grow by 25%, highlighting the “need to improve the quality and relevance of upper secondary education and technical and vocational education and training in the Philippines”. Meanwhile, demand for low-skilled workers may increase by 60%. Other priority areas for the Philippines include the enhancement of social protection programs, better disaster preparedness and response measures, upgrading of skills to meet shifting demand, including the effective implementation of the K-12 program, more schools in remote areas, improve technical and vocational education and training, an increased enrollment rate in the secondary level; improved protection for migrant workers, and standardized employment conditions across enterprises by strengthening collective bargaining mechanisms.

Gov’t to upgrade manpower in auto industry

The government believes the local automotive industry has the potential to become one of the main economic pillars that could help the government achieve “inclusive growth*.” If it is, the local industry will have to strengthen and increase its manpower and develop the whole range of parts supplies necessary to build a car if the Philippines is to compete with its neighbors within the ASEAN economic community.

Projections show that the ASEAN cluster will become the 5th largest automotive market in the world by 2019 while the nationwide demand for autos is expected to increase with vehicle sales projected to rise to about 500,000 in 2022 from around 200,000 in 2013.

In the latest Trade & Industry Updates forum held last Oct. 17, the Department of Trade and Industry (DTI) put emphasis on the need to support human resource development in the automotive sector in preparation for the ASEAN integration and to spur job creation for technical and skilled laborers. DTI Assistant Secretary Rafaelita Aldaba said the government is drafting a document that will complement the goals and needs of manpower development in the auto industry. Once fi nalized, the document will be included as a component under the Philippine Automotive Industry Roadmap. Dr. Aldaba, however, did not specify when the roadmap will be released.

“Inclusive growth” is economic growth that benefi ts not just the high and middle income groups but also the poor. It provides livelihood and employment opportunities to millions of Filipinos. Businessmen, economists, and even government offi cials have lamented that the country’s robust macroeconomic fi gures have failed to benefi t the poor. Despite the 6%-7%+ GDP growth rates unemployment rate in the Philippines remains the highest in the ASEAN region while 12. 1 million households or 55% of total Filipino families are mired in poverty (according to the latest SWS poll).

Currently, the country ranks 4th among its ASEAN counterparts in terms of vehicle sales, next to Malaysia. But while the motor vehicle sales of the Philippines increased year-on-year (see graph), the country’s production of motor vehicles continues to lag behind its ASEAN peers (see table below). Last year, the Philippines produced only 79,169 vehicles, compared to 2.5 million produced in Thailand, 1.2 million in Indonesia and 601,407 in Malaysia. Thailand accounts for 55% of cars produced in the region followed by Indonesia (27%), Malaysia (14%), Vietnam (2%) and the Philippines (2%). Strategies aimed at improving human capital (e.g. development of more technical-vocational programs to make the less-educated more employable and to generate more jobs in the countryside) are then vital for the Philippines to reinforce its capability as a regional hub for automotive vehicle production, as well as meet rising global demand. By 2015, the Philippines will experience the so-called “third wave of high motorization in the ASEAN region.” This means the demand for mobility in the country will escalate which will then lead to an increase in motor vehicle ownership. The fi rst and second “waves of motorization” in the region respectively happened in Thailand and Indonesia. The Philippines can’t afford to pass up this great opportunity.

-

5,000

10,000

15,000

20,000

25,000

30,000

January February March April May June July August

MOTOR VEHICLE SALES

2013 2014

Source: Combined sales reports from the Chamber of Automotive Manufacturers of the Philippines Inc., Truck Manufacturers Association Inc., and Association of Vehicle Importers and Distributors

COUNTRY 2010 2011 2012 2013(JAN to AUG)

2014 (JAN to AUG)

GROWTH JAN TO AUG (2013-2014)

1.Thailand 1,645,304 1,457,795 2,453,717 1,735,485 1,244,241 -28%

2.Indonesia 702,508 837,948 1,065,557 771,718 878,546 14%

3.Malaysia 567,715 533,515 569,620 385,851 402,688 4%

4.Vietnam 106,166 100,465 73,673 55,883 74,681 34%

5.Philippines 80,477 64,906 75,413 50,223 60,685 21%

TOTAL 3,102,170 2,994,629 4,237,980 2,660,841 2,999,160 13%

Source: ASEAN Automotive Federation (AAF) Statistics (2014)

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The roadmap for the automotive sector will be the key in preparing the country for the regional integration. It will contain policy directions, and specify both fi scal and non-fi scal incentives. Dr. Aldaba said that the development of the auto industry manpower will be among the non-fi scal incentives. The roadmap aims to make the Philippines a competitive manufacturing base of motor vehicles including parts and components both locally and internationally, and to transform the industry into a global hub for automotive-related process outsourcing.

Development of the local automotive industry is crucial given the fol lowing economic benefi ts :

Huge multiplier effect as the auto supply chain in the country will support other sectors (petrochemicals, textile, chemicals, rubber, iron and steel).

Creation of 200,000 – 300, 000 jobs for skilled and highly-skilled workers (generation of more jobs which supports the government’s “inclusive growth” goal)

Automotive-related investments can serve as a foundation for broad-based industrial growth.

Stimulation of demand and effective regulation through a comprehensive mix of policies

Integration into global production networks Technology transfer and absorption of new manufacturing

capabilities Huge reduction in forex requirement due to imports of

Completely Built Units or CBUs (readily-made vehicles) Signal for manufacturing take-off

As regional integration looms, there are other issues that the country needs to address to be able to compete with its ASEAN peers. Among which include lack of economies of scale (below optimum size of production), smaller number of local parts suppliers, high cost of production and lack of sound business models and policy mix for the auto industry.

In August, DTI Undersecretary Adrian Cristobal said the department is fi nalizing the roadmap. He added that the DTI still needs to assess the fi scal and non-fi scal incentives to be offered to players. Discussions on the industry roadmap started in 2012, and was supposed to be released in the fi rst quarter of 2014. Mr. Cristobal said that there were delays because the department needed time to consult stakeholders.

Consumer confi dence weakens in 3Q2014

The central bank (Bangko Sentral ng Pilipinas) reported that consumer confi dence in the country in the third quarter of 2014 weakened to -26.3% from -17.3% in the previous quarter. This negative percentage indicates pessimists outnumber optimists in Q3 2014. The consumer confi dence index (CCI) is computed as the percentage of households that answered in the affi rmative less the percentage of households that answered in the negative with respect to their views on a given indicator.

The BSP attributed the weaker consumer sentiment during the quarter under review to the following:

rising prices of basic commodities; political concerns such as issues about the Priority

Development Assistance Fund (PDAF) and Disbursement Acceleration Program (DAP);

higher household expenses; and concerns over income, employment opportunities and the

business environment. The overall consumer confi dence index is an average of

consumer sentiment’s indices on the country’s economic condition, their family fi nancial situation and family income. Based on the results of the Consumer Expectation Survey, consumers’ outlook on the country’s economic condition for the current quarter registered the biggest decline (-46.6% in 3Q2014 from -30.2% in 2Q2014) across income groups as respondents’ sentiments were affected by higher commodity prices and the political noise.

Consumers’ outlook on family income also dropped to -8.4% from -4.9% in the previous quarter, while the outlook on fi nancial situation slid to -23.8% from -16.8%. However, overall consumer confi dence is expected to improve in the next quarter on the back of good harvests, business upturns and additional benefi ts during the Christmas season (e.g., holiday bonuses and 13th month pay). For the year ahead, consumers’ outlook on all 3 indicators continued to be positive across income groups as they expect more jobs as more businessmen are projected to invest in the country, and improvement of the peace and order situation.

The ASEAN cluster will become the 5th largest automotive market in the world by 2019.

Source: Bangko Sentral ng Pilipinas, Consumer Confi dence Survey

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Overall consumer confi dence is expected to improve in the 4th quarter of the year on the back of good harvests, business upturns and additional benefi ts during the Christmas season.

On buying sentiment, respondents’ spending outlook on basic goods and services was steady at 42.2% in Q4 2014 (from 41.6% in the previous quarter) due to positive sentiments on family fi nances and income in the next quarter. Spending on items such as food, fuel, communication, restaurants and cafés, personal care, clothing and footwear as well as on education (tuition fee) is expected to increase next year. Meanwhile, the spending outlook was steady for house rent, water, electricity, medical care, and transportation.

Families are likely to purchase big-ticket items in the 3rd quarter of the year. The percentage of respondents that said so recorded an all-time high, at 24.9%. The outlook on buying conditions for real estate was the most optimistic, posting a record high of 32.6% since Q1 2007. Meanwhile, a stable outlook was observed for buying conditions for consumer durables and motor vehicles.

The 3rd quarter Consumer Expectations Survey was conducted between July 1 and 12, 2014. The respondents consisted of 3,031 households in Metro Manila and 3,075 households in areas outside Metro Manila. The response rate was 97.4%.

BIR pushes through with tax stamp system to curb illicit trade

The Bureau of Internal Revenue has fi nally pushed through with its long-delayed cigarette stamp tax project, which aims to curb illicit trade and perk up revenue collection from cigarette excise taxes.

The BIR issued a circular containing the requirements for the affi xture of tax stamps on both imported and locally-manufactured cigarettes in September. The issuance of the circular signals the start of the Internal Revenue Stamps Integrated System (IRSIS), an idea which was conceived 2 years ago and is being implemented off only now. The IRSIS is a web-based track-and-trace system which will refl ect when the cigarette was made as well as when taxes were paid. Through the system, the BIR said it is possible to distinguish genuine from counterfeit cigarettes and verify the authenticity of the tax stamps applied on the packs by manufacturers. The BIR expects the IRSIS to help raise additional revenues for the government.

Vis-à-vis the system is the physical monitoring of companies’ cigarette inventory. The BIR will order the installation of a closed circuit television monitoring system on all production and withdrawal points in the premises of all cigarette fi rms as well as a physical inventory of all imported cigarettes held by cigarette warehouses. Importers are also required to submit a

written report of inventory of all old internal revenue stamps issued by the BIR. Each revenue stamp is sold at P0.13 and produced by government-run APO Production Unit, Inc.

All manufactured cigarettes, local and imported, are required to enroll with the IRSIS prior to the purchase of stamps. The deadlines for the affi xture of stamps were originally set on October 1 for all local cigarettes and February 1, 2015 for imported cigarettes. However, the deadlines were moved to March 1, 2015 for locally-made cigarettes and April 1, 2015 for imported ones. The grace period for the affi xture of stamps has been continually moved, with reasons ranging from the Department of Finance’s delayed signing of the implementing rules and regulations (IRR) of the IRSIS and technical problems encountered in the printing of the strip stamps. The BIR’s failure to swiftly roll out the badly-needed system casts doubts on the government’s readiness and effectivity especially on essential programs like this.

The implementation of a tax stamp system has been pressed by business groups to address the proliferation of illicit tobacco products in the local market. An earlier report by Oxford Economics and the International Tax and Investment Center (ITIC) exposed that 19.1 billion illicit cigarettes were consumed in the Philippines in 2013, a 198% increase from 6.4 billion in 2012. The rise in illicit cigarette consumption almost fully offset the 16% decrease in the consumption of legally-sold ones, which was 86.3 billion in 2013 from 102.2 billion in 2012. BIR Commissioner Kim Henares was quoted in various news reports saying there is indeed illicit trade present in the market, although she didn’t specify how big the problem is.

The implementation of tax stamp systems in other countries had a positive impact on the sale of legitimate, tax-paid cigarettes. For example, the 1997 tax stamp law in Michigan, U.S. increased the sale of legal packs by 12.5% on its fi rst year of implementation. However, the system could encourage the counterfeiting of stamps and reactionary actions from producers (such as lowered production and hoarding of tax stamps before the system takes full effect). Thus, more than the tax stamp system, it is important for the government to heighten its enforcement and monitoring of the whole tobacco supply chain (the television monitoring system is a good start). Sharp penalties for lawbreakers and addressing legitimate industry claims should also be considered by the government to effectively combat the illicit trade problem.

The BIR’s failure to swiftly rollout the IRSIS casts doubts on the government’s readiness and eff ectivity.

45BUSINESS


Emergency powers for Pres. Aquino not granted; power supply in 2015 still suffi cient

The emergency powers sought by President Aquino to address the supposed energy crisis in 2015 is unlikely to be approved by Congress following a Congressional probe revealing that there really is only a reserve defi cit that could be met in other ways. Consumer groups have urged the government to build base-load power plants and not have short-term solutions for the projected shortage in electricity supply.

Energy Secretary Jericho Petilla noted a possible power defi cit of 300 megawatts (MW) to 1,200 MW in 2015. To supply the defi cit, he recommended leasing generators from foreign suppliers at an annual cost of P6 billion for a contract period of 2 years. In September, President Aquino asked the Congress to pass a joint resolution that will allow him to establish additional generating capacity in the Luzon grid. He said: “The DOE reports and projects a critical electricity situation in the summer of 2015 arising from the expected effect of El Niño phenomenon, the 2015 Malampaya turnaround, increase and continuing outages of power plants, and anticipated delays in the commissioning of committed power projects.” Sec. Petilla

warned that failure to provide the emergency powers could lead to 1 to 3 hours of rotating brownouts in Luzon next year.

During a Congressional hearing with the House energy committee chaired by Mindoro Oriental Rep. Reynaldo Umali, Department of Energy (DOE) Assistant Director Irma Exconde admitted that there will only be a 21 MW to 31 MW thinning of reserves for the 1st 2 weeks of April next year, not a supply defi ciency. DOE said that the ideal reserves for next year is 647 MW. Based on the calculations of the National Grid Corporation of the Philippines (NGCP), the thinning of reserves could translate to 1-hour rotating brownouts during peak hours (10 a.m. to 3 p.m.) once a week. However, the DOE still insists that leasing generator sets is still an option and that they are not dropping the proposal. Presidential Communications Operations Offi ce Secretary Herminio Coloma, Jr. said that the government is “determined to ensure stable supply and reasonably priced electricity for our people” and that while the power supply situation is “not as bad as it was earlier announced”, it is still best to be prepared for the possibility of a power shortage.

The Foundation for Economic Freedom (FEF) cautions against “expensive quick fi xes with lasting cost consequences” planned by the government to address the country’s power situation (see box). The group recommended initiatives that can be done by the government and the private sector, including

QUICK FIXES PROPOSED BY THE GOVERNMENT TO ADDRESS THE POWER SITUATION

Government contracting for costly emergency power way beyond the expected 3 summer months have inadequate reserves are foreseen. Long-term solutions have yet to be implemented.

Costly take-or-pay 20 year contracts for intermittent unreliable power from solar (an additional 450 MW) and wind (an additional 300 MW) at high Feed in Tariff (FIT) rates of P9.68 per kWh and P8.53 per kWh. These are 2-year old rates; at these rates and volumes, the incremental cost to the public by way of a higher power bill amounts to almost P5 billion annually.

RECOMMENDATIONS IN ADDRESSING THE “IMMEDIATE SHORTAGES”

Use of ILP. This concept would compensate customers with self-generation facilities if they run their generator sets for their own use to reduce overall demand. This will allow the allocation of the limited supply to other customers to avert or reduce blackouts.

Lifting of the secondary price cap. This is a method of preventing extended periods of high prices if tight supply persists.

Full utilization of government generation assets especially Malaya. The Malaya plant was available – but underutilized – in 2013 when Malampaya was also under maintenance. No blackouts occurred but greater use of the plant could have reduced the price spikes.

Better scheduling of plants’ maintenance.

Demand side bidding in the Wholesale Electricity Spot Market (WESM).

Energy conservation. Demand is within the control of every consumer. Reducing consumption is the alternative to increasing supply, and can help save consumer money.

Address roadblocks. At present, 165 signatures are needed to approve the construction and operation of a power plant.

Open Access. Continue to lower the threshold for Open Access to encourage more generation as they can look to end users as a competitive market, and thus by-pass distribution utilities.

Smarter and fi rmer regulations. The DOE and Energy Regulatory Commission (ERC) have to manage the industry and market in a way that encourages supply responses from generators, the competitive segment of the market.

Thinning of reserves, not a supply shortage.

Source: FEF

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-30%-25%-20%-15%-10%

-5%0%5%

10%15%

2015 2016 2017 2018 2019 2020

PROJECTED RESERVES IN THE LUZON GRID2015-2020

Projected reserve Reserve w/o committed projects

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2015 2016 2017 2018 2019 2020

PROJECTED RESERVES IN THE VISAYAS GRID2015-2020


-80%

-60%

-40%

-20%

0%

20%

40%

2015 2016 2017 2018 2019 2020

PROJECTED RESERVES IN THE MINDANAO GRID2015-2020


the use of the Interruptible Load Program (ILP), lifting of the secondary price cap, fuller utilization of government generation assets, better scheduling of plants’ maintenance, demand side bidding in the Wholesale Electricity Spot Market (WESM), energy conservation, address government roadblocks, Open Access, and smarter and firmer government regulations.

Rep. Umali said that “the rent-or-buy option to establish additional generating capacity is already out” and that they are now focusing on the Interruptible Load Program (ILP) which encourages business establishments to use their own generators during the peak demand hours from March to June next year so that they won’t have to get their supply from the Luzon grid. This will allow households and other small users to be able to use the supply saved from the ILP. Rep. Umali said that ILP participants could free up to 847 MW to small users, which is suffi cient to cover unexpected plant shutdowns. Based on estimates of the Manila Electric Company (Meralco) the costs of electricity under the ILP is P200 million per 100 MW. Rep. Umali added that the energy committee would recommend that government absorb this cost so that the consumers won’t be burdened by an increase in electricity bill.

It is necessary for the government to provide long-term solutions, especially as shortages are expected in the next few years (see charts). This power shortage, if left unsolved, will affect businesses in the country, and hurt the economic growth that the Philippines currently enjoys. Government must address roadblocks to hasten the approval of building and operating power plants rather than spend P12 billion on rented generator sets – government must act if the country is to avoid the consequences of a power shortage.

Source: Department of Energy



Long-term solutions are needed.

47BUSINESS


MINING, OIL, & GAS

Mining revenue-sharing scheme proposed

A bill proposing the establishment of a mining fi scal regime and revenue sharing arrangement has been submitted by the Mining Industry Coordinating Council (MICC) to the Offi ce of the President. It is unacceptable.

MICC – the inter-agency body created through the Aquino administration’s mining policy or Executive Order (EO) 79 – submitted the proposal to the Offi ce of the President fi rst before submitting it to Congress. The proposal has no version at the House of Representatives, but a Senate bill (SB) had been fi led in August by Sen. Ralph Recto. SB 2362 or the “Philippine Mineral Resource Revenue Sharing Act of 2014” has been accepted on 1st reading and has been referred to the committee on Ways and Means and the committee on Environment and Natural Resources.

MICC’s scheme will apply to metallic mines put up under the Mineral Production Sharing Agreement (MPSA) and Financial or Technical Assistance Agreement (FTAA). It requires mining fi rms to remit to the government either 10% of their gross revenues or 55% of adjusted net mining revenues (ANMR) plus a percentage of incremental profi t, whichever is higher. This is higher than the existing tax regime specifi ed in the Philippine Mining Act of 1995 which only requires a 2% excise tax on the companies’ gross revenue plus 5% royalty if the mining site is considered a mineral reservation area plus normal corporate taxes. The bill also proposes an average effective tax rate (AETR) of 79%. According to Mines and Geosciences Bureau (MGB) director Leo Jasareno, the principle behind the proposed scheme is “for the government to have a higher share or stake and to implement a more simplifi ed computation”. The government expects to have an annual return of $1 billion under the proposal. Within the government share, 60% will be allocated to the national government while 40% will go to local government units (LGUs) hosting the Mining Industry Zones (MIZ). It is an unrealistic expectation as the tax levels are far higher than in other mining economies that so few, if any new mines can be expected if this recommendation passes into law.

Business groups like the Chamber of Mines have raised agreed, stating that the government’s share under the proposal is too high and it will only discourage further investments. The groups, instead, called for the retention of the Philippine Mining Act as it is already “an effective legislation if properly implemented.” The Canadian Chamber of Commerce of the Philippines (CanCham) also cautioned against the proposed bill as “this would only serve as a disincentive to many prospective investors.”

CanCham president Julian Payne said that if a country wants revenues from mining, “you will have to set the rate that the AETR [average effective tax rate] will be lower than other countries or in the same range.” The Philippines

currently has the highest AETR in the world at 60%. Other countries’ AETR are: 58% for Canada and Australia, 50-55% for Peru and South Africa, 41% for Chile, and 35% for Papua New Guinea. The AETR “incorporates all the taxes that a company has to pay during the life of a mine”, and imposing a 79% rate will “tax the local mining industry out of business.”

In the Fraser Institute’s 2013 Survey of Mining Companies, the Philippines ranked 110 out of 112 countries in the Policy Perception Index, which measures the effects of government policy on attitudes toward exploration investment. The Philippine taxation regime, one of the factors considered in the survey for a company’s decision to invest, is divided between being a deterrent (45%) and not a deterrent (48), with the remaining 7% stating that it is a specifi c reason why they won’t pursue investing in the country (see chart). This is with the existing tax system. The MGB is quoted as saying that mining taxes in the Philippines are “a problematic issue that has delayed development of the country’s vast mineral resources.” Passage of the proposed scheme could seriously affect the attractiveness of the country to investors and make it a deterrent or a reason why companies would decide not to invest anymore. Investments in the Philippines have already plummeted to $500 million following the EO signed by President Aquino in 2012 and the proposed revenue sharing scheme from some $2 billion expected before the President called for a tax review.

Of the 9 million hectares identifi ed to have high mineral potential, mining contracts/permits are only able to cover 0.93 million hectares or 10% of the total. The Philippines’ restrictive policies on mining accompanied by strong public opposition that is not adequately addressed by the government has limited the potential of the mining industry. As quoted by the Fraser Institute from a senior management of an exploration company, the Philippines is described as a country that “throws arbitrary conditions into licenses on a take-it-or-leave-it basis” and that the system “provides no security for foreign investments.” Instead of encouraging investments, the proposed scheme will further decrease what little is fl owing into the country. What the local mining industry needs is a supportive administration, good infrastructure, and political stability. It will have to wait till the next administration.

The proposed scheme requires companies to remit 10% of their gross revenues or 55% of the adjusted net mining revenues plus a percentage of incremental profi t.

48 BUSINESS


I.T. UPDATE

PH internet penetration remains low yet growing

The Philippines remains as one of the countries with low overall Internet penetration, although growth has been accelerating due to the rise and popularity of mobile broadband.

With an overall penetration rate of 37%, the Philippines ranked 106th out of 191 countries surveyed and 5th among ASEAN countries for the 2014 State of Broadband Report by the UN Broadband Commission. For other indicators, the Philippines placed 57th for household broadband penetration, 110th in fi xed broadband infrastructure, and 79th in mobile broadband penetration rate. The ASEAN as a whole also lags behind other economic groups in terms of internet penetration (see tables).

Although penetration is still low, the Philippines has one of the fastest growing internet penetration globally. A separate report from the Global Web Index saw a 36% internet penetration rate and a 531% growth in the Philippines for the last 5 years. There is a huge jump in the mobile phone internet penetration, with Filipinos who used to be reliant to text messaging are adopting new ways of communicating through phone, like social media and chat applications.

The State of Broadband Report cited the importance of mobile broadband in the Philippine economy, which is a more dynamic and popular sector compared to fi xed broadband. Mobile broadband is estimated to have contributed 0.32% annually to GDP during the past decade. The challenge relies on combining mobile with fi xed infrastructure optimally to accelerate fi xed broadband adoption (which is as equally important) and increase penetration rate. More access to broadband networks multiply the benefi cial effects of the internet in the economy.

The UN report also highlighted the Philippine government’s use of television white spaces (TVWS) in providing internet access to far-fl ung areas. Government data shows that only 47% of cities and municipalities have access to broadband internet. The technology was used to provide internet communication to areas that were affected by typhoon Haiyan and the earthquake in Bohol. The report said that the TVWS system has proved the potential of TVWS technologies as a solution to the “last-mile” problem of connecting far-fl ung communities to the internet. It also added that internet connectivity was vital to speeding up disaster relief and recovery efforts in both the Bohol and Haiyan events, enabling communication between NGOs and their home bases.

Singapore 35 73.0

Malaysia 45 67.0

Brunei Darussalam 51 64.5

Vietnam 89 43.9

Philippines 106 37.0

Thailand 116 28.9

Indonesia 138 15.8

Laos 147 12.5

Cambodia 166 6.0

Myanmar 189 1.2

Singapore 29 25.7

Malaysia 79 8.2

Thailand 82 7.4

Brunei 90 5.7

Vietnam 91 5.6

Philippines 110 2.6

Indonesia 125 1.3

Cambodia 148 0.2

Myanmar 150 0.2

Laos 153 0.1

Singapore 1 135.1

Thailand 36 52.3

Philippines 79 20.3

Malaysia 88 12.5

Brunei 90 5.7

Vietnam 91 5.6

Cambodia 95 9.6

Myanmar 123 1

Indonesia - -

Laos - -

PERCENTAGE OF INDIVIDUALS USING THE INTERNET, 2013

FIXED (WIRED)-BROADBAND SUBSCRIPTIONSPER 100 INHABITANTS, 2013

ACTIVE MOBILE-BROADBAND SUBSCRIPTIONS PER 100 INHABITANTS, 2013

The Philippines currently has the highest AETR in the world at 60%.

49BUSINESS


Singapore 3 86.0

Brunei 9 75.8

Malaysia 17 64.7

Philippines 57 22.9

Thailand 59 22.7

Vietnam 66 17.1

Indonesia 95 5.7

Cambodia 96 5.5

Laos 99 5.1

Myanmar 122 2.2

PERCENTAGE OF HOUSEHOLDS WITH INTERNET, DEVELOPING COUNTRIES, 2013

Philippines 531%

Indonesia 430%

South Africa 414%

India 230%

Russia 100%

Argentina 87%

Vietnam 82%

Saudi Arabia 79%

United Arab Emirates 74%

Mexico 71%

FASTEST GROWING INTERNET POPULATIONS IN THE LAST 5 YEARS

50 BUSINESS


PEZA APPROVED PROJECTS

2nd Quarter 2014

INDUSTRY ACTIVITY EQUITY LOCAL/FOREIGN ZONE

APPAREL AND TEXTILE MANUFACTURES

FEEDER APPAREL CORPORATION Washing of Apparels and Auto-Cutting of Fabrics and Apparels Mactan Economic Zone

HP FASHION AND APPAREL MANUFACTURING CORP. Manufacture of wearing apparel for ladies/women and men 100% - Filipino Golden Mile Business Park - SEZ

MANILA OKABE APPAREL CORPORATION Manufacture of apparel 99.99% - Japanese

Carmelray Industrial Park I - SEZ

MOON DAE CORPORATION Manufacture of Knitted and Woven Tops, and Back Pack Bags and Pouch 100% - Filipino Victoria Wave - SEZ

AUTOMOTIVE TRADE

FURUKAWA ELECTRIC AUTOPARTS PHILIPPINES, INC. Manufacture of steering roll connectors (SRC) Laguna Technopark - SEZ

TRP, INC. Manufacture of automotive switches Toyota Sta. Rosa - SEZ

CHEMICAL AND CHEMICAL PRODUCTS

VISAYAS ACTIVATED CARBON INC. Manufacture of activated carbon from coconut shells 100% - Filipino New Jubilee Agro-Industrial Economic Zone

ELECTRICITY, WATER, AND GAS

FPIP UTILITIES, INC. Establishment, operation and maintenance of a power distribution facility

First Philippine Industrial Park II - SEZ

FPIP UTILITIES, INC. Establishment, operation and maintenance of a water distribution facility

First Philippine Industrial Park II - SEZ

ELECTRONICS

GF MICRO OPTICS PHILIPPINES, INC. Production of Waterproof Passive WDM Cassette using Optical Monitoring System Technology Laguna Technopark - SEZ

IONICS EMS, INC. Manufacture of Light Cure Device using its full design process with local Research and Development inputs

Light Industry & Science Park I - SEZ

IONICS EMS, INC. RMA or importation of defective fi nished goods manufactured by IEI, i.e., Wireless Broadband Access Unit, Hi-Focus Asymmetrical Digital Subscriber Line (ADSL) Broadband Access System, etc.

Light Industry & Science Park I - SEZ and Light Industry & Science Park II - SEZ

MAXIM PHILIPPINES OPERATING CORPORATION Assembly and Test (A & T) procedures and Test and Reel (T & R) activities Gateway Business Park - SEZ

MICROSEMI SEMICONDUCTORS-MANILA (PHILIPPINES), INC. Assembly and Test of Power Modules Food Terminal Inc. - SEZ

MOATECH MANUFACTURING PHILS., INC. Manufacture of Brushless DC (BLDC) Motor, Damper Unit, Pinion-type Stepping Motor (SP Motor), and Gear-type Stepping Motor (GSP Motor)

First Philippine Industrial Park - SEZ

NISSEN PHILIPPINES, INC. Manufacture and assembly of Network Communication Cable, Electric Fuse and Network Communication Optical Fiber Cable with Connector

99.99% - Japanese

Daiichi Industrial Park - SEZ

PV TECH PTE. LTD. Manufacture of Mono Crystalline Module Cavite Economic Zone II

ROHM ELECTRONICS PHILIPPINES, INC. Manufacture of Transistor and Diode Wideline Package People's Technology Complex - SEZ

SOUHATSU PHILIPPINES, INC. Manufacture of plug part of AC adapter Greenfi eld Automotive Park - SEZ

STMICROELECTRONICS, INC. Manufacture of CB6 Light Industry & Science Park II - SEZ

SUNAUTOMOTIVE TECHNOLOGY, INC. Engage in electrical assembly (automotive security and accessory) 99.9% - Japanese Light Industry & Science Park III - SEZ

TSUKIDEN ELECTRIC INDUSTRIES PHILIPPINES, INC. Power Plant Control System Assembly; and Automotive Engine Control System Assembly

99.99% - Hong Kong Laguna Technopark - SEZ

WELGAO ELECTRONIC TECHNOLOGY (PHILIPPINES) INCORPORATED PCB Manufacturing / PCB Assembly 99.99% - Chinese First Cavite Industrial

Estate - SEZ

WARREN AND BROWN TECHNOLOGIES FIBER SYSTEMS CORPORATION

Manufacture of optical fi ber ducting raceway production system and its installation in Telecommunication System

Laguna International Industrial Park - SEZ

FOOD AND BEVERAGE MANUFACTURES

EAU DE COCO, INC. Production of stabilized coconut water and manufacture of secondary products such as frozen young coconut meat and outer shell residues

99.99% - British Virgin Islander

Lima Technology Center - SEZ

PRIMEX COCO PRODUCTS, INC. Manufacture of desiccated coconut and coconut milk powder 100% - Filipino Candelaria Agri Special Economic Zone

51BUSINESS


HOTEL, RESTAURANT, AND LEISURE SERVICES

DELUXE HOTELS AND RECREATION INC.Establishment of Hilton Manila, a 388-room tourist-oriented accommodations project, including food and beverage outlets, retail stores and recreational facilities

100% - Filipino Newport City CyberTourism Zone

IT AND IT-ENABLED SERVICES

BLACK & WHITE MIDDLE EAST (PHILIPPINES), INC. Provides engineering design services 99.99% - Emirati Zuellig Building

LOZATECH DIGITAL MARKETING INC. Digital IT services including web/graphics/social media development 93% - American 7% - Filipino Eastwood City Cyberpark

WSP ASIA PHILIPPINES, INC. Software related services including system design, confi guration, testing/QA, database design and development Hanston Square

METAL INDUSTRIES

ISHIDA SEISAKUSHO PHILS. CO. INC. Engage in quality control of precision metal parts 99.99% - Japanese Laguna Technopark - SEZ

JNE PHILS. INC. Engage in Nickel and Gold Plating of Flexible Flat Cable (FCC) 99.98% - Korean Golden Mile Business Park - SEZ

MANASTEEL INDUSTRIES Production of mould base, die plates, and machine parts, die casting, machining, and surface heat treatment 100% - Filipino Mactan Economic Zone

NEW ELECTRONICS SYSTEM CO., INC. Manufacture of Microscope Tube, Aluminum Collar, and Microphone Holder Cavite Economic Zone

S BROS. PRECISION, INC.

Manufacture and repair of mold and dies, and manufacture and assembly of electronic parts and componentS Cavite Economic Zone

SANAC PHILIPPINES, INC. Manufacture/assembly of diecasted products for automotive parts, components and other related products

99.99% - Japanese

First Cavite Industrial Estate - SEZ

MISCELLANEOUS MANUFACTURES

DAY 1 CRAFT PHILIPPINES INC. Manufacture and assembly of fi shing gears and accessories such as fi shing tackle or lure, bait log and related accessories

99.97% - Japanese Laguna Technopark - SEZ

GBPLEN CORPORATION Anti-Refl ection Coating of Optical Lens Cavite Economic Zone

GF MICRO OPTICS PHILIPPINES, INC. Production of SELFOC® Micro Lens AR Coated using Optical Monitoring System Technology with local Research and Development inputs Laguna Technopark - SEZ

JMS HEALTHCARE PHL, INC. Manufacture and assembly of medical devices and disposables, particularly Infusion Set

99.99% - Japanese

First Philippine Industrial Park - SEZ

MITSUWA CHEMICAL PHILIPPINES, INC. Production of fi lters Cavite Economic Zone

OFFSHORING AND OUTSOURCING

4th SHIFT GLOBAL INC. IT and customer support for existing infrastructure 99.98% - American Trafalgar Plaza

ACQUIRE ASIA PACIFIC, INC. BPO for information, support, lead generation and other related services including inbound and outbound calling

99.99% - Australian Cyberscape Beta

ANTHEM SOLUTIONS, INC. Knowledge/Business Process Outsourcing operations of iMedGlobal Solutions, Inc. E-Square I.T. Park

BOSSOLUTIONS INC. Business Process Outsourcing particularly rendering administrative support or paraplanning

99.99% - Australian 6750 Ayala Avenue Bldg.

BRAINHUB INC. Software Development, User support, and Data entry 99.98% - Swiss CBP-IT Park

CITY MARQUE LIMITED Book sales and/or manage customer relations via telephone and to offer back offi ce support 100% - Hong Kong Eastwood City Cyberpark

CONVERGYS PHILIPPINES SERVICES CORPORATION Call Center Operations John Hay Special Tourism Economic Zone

CONVERGYS PHILIPPINES SERVICES CORPORATION Additional 228 seats/workstations (Call Center) Eton Centris

DELTEK SYSTEMS (PHILIPPINES), LTD. Software development, IT support services, enterprise software and information solutions, training and industry-specifi c consulting services 100% - American The Enterprise Center

DKP SERVICES, INC. Software development and support 60% - Filipino 40% - Canadian Zuellig Building

ECoGlobalConsulting, Inc. Software Development and Implementing Services, IT Outsourcing and IT Solutions 100% - Filipino Zuellig Building

FREELANCER.COM PHILIPPINES, INC. Business Process Outsourcing (BPO)/Online customer and technical support

99.99% - Australian Ecotower

52 BUSINESS


GUMI ASIA PTE. LTD. (PHILIPPINES BRANCH)Provides customer and technical support, social network services management, quality assurance, and server application maintenance and development for mobile social games

50% - Japanese 50% - Singaporean One Corporate Centre

HCCA HEALTH CONNECTIONS INC. Business Process Outsourcing and Call Center operations CBP-IT Park

IBM SOLUTIONS DELIVERY, INC. IT Application Management services Eastwood City Cyberpark

IMEDGLOBAL SOLUTIONS, INC.IT-Enabled Knowledge Process Outsourcing in areas of life sciences / Provision of Clinical, Pharmacovigilance, regulatory and technology services to life science companies

96% - American 4% - Indian E-Square I.T. Park

INFOSYS BPO LIMITED - PHILIPPINE BRANCH Business Process Outsourcing (BPO) Services Northgate Cyberzone

LEARNASIA PHILS. INC. Business Process Outsourcing Services – Online Tutorial 98% - Japanese 2% - Filipino CBP-IT Park

LITTELFUSE PHILS., INC..Technical Support Services; Product Evaluation; Production Planning; Product Development; Sourcing; Global Logistics; Sales Reporting; Sales Review


LOCALPHONE LIMITED Call Center Operations 100% - British RCBC Savings Bank Corporate Center

NORTHERN LIGHTS TECHNOLOGY DEVELOPMENT (PHILIPPINES) CORPORATION

Technology services including development, consultation, service, use and transfer of software technologies, products and related information operations

Cebu I.T. Park

ORANGENOSE STUDIO PHILIPPINES INC. Mobile Games Application Development as outsourced services 99.96% - Singaporean The Enterprise Center

PANASIATIC CALL CENTERS, INC. Call Center Operations Villa Angela Techno Park

PSG GLOBAL SOLUTIONS, INC. Business Process Outsourcing (BPO) Services Multinational Bancorporation Centre

QBE GROUP SHARED SERVICES LIMITED IT-enabled Business Process Outsourcing operations W Fifth Avenue

REERACOEN BPO INC. Business Process Outsourcing activities and Call center operations 99.5% - Singaporean GAGFA IT Center

REPRISK PHILIPPINES, INC. Provides analytical and other data gathering, monitoring and processing services 99.99% - Swiss E-Square I.T. Park

RMH TELESERVICES ASIA PACIFIC, INC. Provides inbound and outbound call center services Eton Centris

RS800 GROUP INC. Online English Tutorial services 99.8% - Australian Crown 7 I.T. Center

STARTEK PHILIPPINES, INC. Call Center operations Iloilo Business Park

TATA CONSULTANCY SERVICES (PHILIPPINES) INC. Information Technology (IT), business solutions and outsourcing services operations E-Square I.T. Park

TATA CONSULTANCY SERVICES (PHILIPPINES) INC. Information Technology (IT) and Business Process Outsourcing services PANORAMA

TELETECH CUSTOMER CARE MANAGEMENT - PHILIPPINE BRANCH Offer the lease of its facility to Telstra International Philippines, Inc. Cebu I.T. Park

THOUSAND CRANE PHILIPPINES, INC. Business Process Outsourcing activities and Call center operations 70% - Japanese 30% - Singaporean GAGFA IT Center

UNITEDHEALTH GROUP GLOBAL SERVICES, INC. Collocation Space to lease and occupy six (6) rack spaces Vitro Internet Data Center Building

UNITEDHEALTH GROUP GLOBAL SERVICES, INC. Information technology services, call centre and back offi ce operations UP Science and Technology Park (North)

UNITEDHEALTH GROUP GLOBAL SERVICES, INC."Collocation Agreement" with ePLDT, Inc. for the REGISTRANT's Collocation Space to lease and occupy six (6) rack spaces in ePLDT's Vitro Internet Data Center site

Vitro Internet Data Center Building

WELLS FARGO ENTERPRISE GLOBAL SERVICES, LLC-PHILIPPINES Business Process Outsourcing activities and Call center operations 100% - American McKinley Hill Cyberpark

WELLS FARGO ENTERPRISE GLOBAL SERVICES, LLC-PHILIPPINES

Provision of administrative, back offi ce, call center, information technology, support, training and other allied services related to the foregoing services

McKinley Hill Cyberpark

PAPER AND PAPER PRODUCTS

HEAVY DUTY PACKAGING CORPORATION Manufacture of heavy duty cartons and allied/similar packaging systems Carmelray Industrial Park II - SEZ

PLASTIC PRODUCTS

D&L POLYMER & COLOURS, INC. Manufacture of New Generation, Eco-Friendly Specialty Polymer and Colour Compounds

Carmelray Industrial Park I - SEZ

53BUSINESS


NIDEC SANKYO PHILIPPINES CORPORATION Manufacture of Electronics Medical and Automotive usages 99.99% - Japanese Laguna Technopark - SEZ

REAL ESTATE AND PROPERTY DEVELOPMENT

BLOSSOMS ESTATE, INC. Maintenance of an existing building Laguna International Industrial Park - SEZ

HALSANGZ PLATING CEBU CORPORATION Authority to lease out 475 sq.m., a portion of its 5,323.35 sq.m. Annex Building to Philippine Makoto Corporation Mactan Economic Zone

J.Y. & SONS REALTY CO., INC. Registration of its newly-acquired plant facilities First Cavite Industrial Estate - SEZ

MITSUBA BATANGAS REALTY CORPORATION Construct a factory building 60% - Filipino 40% - Japanese


TEMCOLINE PHILIPPINES INC. Authority to lease out an 820 sq.m. area within its factory buildings to Keo Sung Enterprise Co. (Phils) Cavite Economic Zone

TEMCOLINE PHILIPPINES INC. Authority to lease out an 132 sq.m. area (from 194.4 sq.m.) to Youngjin GSK Inc. Cavite Economic Zone

STORAGE AND WAREHOUSING

CAN LACQUER, INC. Operate and maintain its existing warehouse building 100% - Filipino Gateway Business Park - SEZ

D & A INTERNATIONAL CORPORATION Manage and maintian a warehouse facility for lease/sale to PEZA-registered enterprises 100% - Korean Cavite Economic Zone

GLOWINGPOINT MATERIALS, INC. Engage in importation, warehousing and logistics facilitation of goods 99.99% - Korean Calamba Premiere International Park - SEZ

ILO LAND, INC. Registration of its additional 9-unit warehouse facilities Lima Technology Center - SEZ

INTERZONE PROPERTY MANAGEMENT CORP. Additional warehouse facility Cavite Economic Zone

LAGUNA AUTO-PARTS MANUFACTURING CORPORATION. Warehousing and logistics operation 100% - Japanese Laguna Technopark - SEZ

LOGIPACKAGE SERVICES CORP.Warehousing services such as storage, deposit, delivery and transfer of goods; importation, procurement, packaging, cutting and assembly/kitting of goods

60% - Filipino 40% - Japanese

Light Industry & Science Park III - SEZ

PRIMESTAR TRANSLOGISTICS CORP. Construct a factory/warehouse building 100% - Filipino Cavite Economic Zone

SAKAMOTO PHILIPPINES CORPORATION Establish a second warehouse facility Laguna Technopark - SEZ

SOJITZ PHILIPPINES TRADING, INC. Engage in importation, warehousing and logistics facilitation of goods 99.99% - Singaporean

Calamba Premiere International Park - SEZ

SOJITZ PHILIPPINES TRADING, INC. Engage in importation, warehousing and logistics facilitation of goods Laguna Technopark - SEZ

WOOD AND CORK PRODUCTS

JTC PALLET PACKAGING SYSTEM INC. Manufacture/fabrication of wooden boxes/pallets Asahi - SEZ

54 BUSINESS


LIST OF BOI REGISTERED PROJECTS

JULY 2014

INDUSTRY ACTIVITY PROJECT COST (IN PHP MILLION)

EQUITY LOCAL/FOREIGN

AUTOMOTIVE TRADE

QSJ Motors Phils., Inc. Producer of Commercial Vehicles 408.47 60% Filipino 40% Chinese

ELECTRICITY, WATER, AND GAS

Balayan Distillery Inc. Renewable Energy Developer of Biomass Resources (Manufacturer of Bio-Ethanol) 125.84 100% Filipino

Green Innovations for Tomorrow Corporation Renewable Energy Developer of 12 MW Biomass Power Plant under RA 9513 (Renewable Energy Act of 2008) 1,134.07 100% Filipino

DMCI Power Corporation Operator of 15MW Bunker-Fired Power Plant 1,001 100% Filipino

Solar Philippines Commercial Rooftop Projects, Inc.

Renewable Energy Developer of 0.7 MW Solar Power Plant under RA 9513 (Renewable Energy Act of 2008) 42.23 100% Filipino

Panay Energy Development Corporation Operator of 150MW CFB Coal-Fired Power Plant 15,577.72 100% Filipino

ELECTRONICS

Grand Asia Electrical Light Corp. Producer of Decorative LED Light 7.82 100% Taiwanese

MISCELLANEOUS MANUFACTURE

CosmoMedical Inc. Producer of Disposable Medical Devices such Syringes 36.93 100% Korean

OFFSHORING AND OUTSOURCING

Martom Enterprises Non-Voice Business Processing Operations 2.64 100%Filipino

PAPER AND PAPER PRODUCTS

Duraboard Packaging Corporation Producer of Multilayer Kraft Paper Bags 20.37 100% Filipino

REAL ESTATE AND PROPERTY DEVELOPMENT

8990 Housing Development Corporation Developer of Low Cost Mass Housing Project (Deca Homes Resort Residences Phase 9 Subdivision) 521.73 100% Filipino

City and Land Developers, Incorporated Developer of Low-Cost Mass Housing Project (North Residences) 561.26 99.64% Filipino 0.36% Foreign

City and Land Developers, Incorporated Developer of Low-Cost Mass Housing Project (One Taft Residences) 1,082.81 99.64% Filipino 0.36% Foreign

Johndorf Ventures Corporation Developer of Low-Cost Mass Housing Project (Astana Subdivision) 448.25 100% Filipino

HLC Construction and Development Corporation Developer of Low-Cost Mass Housing Project (Oakwood Residences) 116.21 100% Filipino

HLC Construction and Development Corporation Developer of Low-Cost Mass Housing Project (Excellent Living Residences) 200.31 100% Filipino

TRANSPORT SERVICES

NMC Container Lines, Inc. Domestic/Inter-island Shipping Operator (One General Cargo Vessel - MV Knock, 4,450 GT) 225 100% Filipino

Lorenzo Shipping Corporation Domestic/Inter-island Shipping Operator under Infrastructure – Water Transport (One Container Cargo Vessel - MV Greetsiel) 225 99.88% Filipino

TOTAL 21,737.65

55BUSINESS


DATA YEAR-AGOLEVEL

GROWTH RATE (%)

MOTOR VEHICLE SALES 69,737 57,128 22

PASSENGER CAR SALES 24,824 18,702 327

COMMERCIAL VEHICLE SALES 44,913 38,426 16.8

BUSINESS CLIMATE INDEX

UNIVERSAL AND COMMERCIAL BANK’S LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn)MARCH 2014

MAR-14 % TO TOTALRE: LOAN DEC-2012 % TO TOTAL

RE: LOAN

RESIDENTIAL 196.28 28.5 173.46 30.5

COMMERCIAL 492.28 71.5 394.95 69.9

MOTOR VEHICLE SALESJULY 2014

000

500

0

500

000

500

000

500

000

FDI:BOP CONCEPT US$ Million

INDUSTRIAL PERFORMANCE (2000=100) JULY 2014

FOREIGN DIRECT INVESTMENTBalance of Payments Concept*; JANUARY- APRIL 2014

LEVEL (US$ million)

SOURCE CURRENT YEAR AGO YEAR-ON-YEAR% CHANGE

TOTAL FDI 1,377 1,829 -24.74

Equity Capital 357.26 791.33 -54.85

Reivested Earnings 131.42 146.33 -10.19

Debt Instruments 887.99 891.64 -0.41

* The BSP adopted the Balance of Payment, 6th edition (BPM6) compilation framework effective 22 March 2013 with the release of the full-year 2012 and revised 2011 BOP statistics. In BPM6, net FDI fl ows refer to non-residents’ equity capital (i.e., placements less withdrawals) + reinvestment of earnings + debt instruments, net (i.e.,net intercompany borrowings).

DATA INDEX

YEAR-ON-YEAR

GROWTH

YEAR-TO-DATE

GROWTH

(2000=100)

Volume of Production Index (VoPI) (2000=100) 126.3 13.3 0.0

a. Food 141.9 13.1 3.2

b. Beverage 129.7 12.9 22.0

c. Tobacco 5.6 -9.7 -23.4

d. Textile 38.0 15.5 13.2

e. Footwear and Wearing Apparel 29.3 -14.3 -12.5

f. Wood and Wood Products 69.8 6.7 2.6

g. Furniture & Fixtures 902.7 26.7 14.4

h. Basic Metals 149.0 24.5 -2.7

i. Iron and Steel 114.4 18.4 13.2

j. Non-ferrous Metals 231.5 30.3 -23.9

k. Fabricated Metal Products 292.1 39.8 40.7

l. Machinery Excluding Electrical 44.1 26.7 29.4

m. Electrical Machinery 92.3 4.3 0.5

n. Transport Equipment 110.6 19.8 -1.0

o. Other Mfg Industries 99.2 -6.3 -2.0

p. Paper & Paper Products 67.7 -3.6 -5.0

q. Publishing & Printing 126.4 153.8 112.4

r. Leather Products 4.2 40.0 6.2

s. Rubber Products 266.4 7.6 11.0

t. Chemical Products 248.3 2.3 -31.4

u. Petroleum Products 57.3 7.7 3.5

v. Non-Metallic Mineral Products 119.5 -21.2 -10.5

w. Glass & Glass Products 124.6 -2.6 3.9

x. Cement 156.2 4.3 -0.6

y. Misc. Non-Metalic Mineral Products 41.8 -74.6 -55.2

56 BUSINESS


BUSINESS CLIMATE INDEX

SURVEY ON THE MONTHLY OCCUPANCY RATES & LENGTH OF STAY

67.2% HOTEL OCCUPANCY RATE IN 2013

The comparative average occupancy rates of hotels in Metro Manila hit 67.2% in 2013. The occupancy rate for accredited hotels hit 67.4% while non-accredited hotels posted a 54.85% occupancy rate. Deluxe hotels were the most popular with 70.82% occupancy. The guest’s length of stay averaged at 2.49 nights in 2013. On the average, guests preferred to stay longer on non-accredited hotels at 4.31 nights.

1 STRIKE IN JUNE 2013

A strike was recorded in June 2013 which involved 400 workers equivalent to 1,200 man-days lost. Meanwhile, there is a total of 83 notices of strike/lockouts since January 2014. In 2012, 3 strikes were recorded involving 209 workers, which is equivalent to 797 man-days lost. Meanwhile, 184 notices of strike were fi led that year.

LABOR STRIKES

STRIKES DECLARED WORKERS INVOLVED MAN-DAYS LOST (000)

2014 2013 2014 2013 2014 2013

JAN 0 0 - - - -

FEB - - - - - -

MAR - - - - - -

APR - - - - - -

MAY - - - - - -

JUN - 1.00 - 400 - 1,200

JUL - - - - - -

AUG - - - - - -

SEP - - - - - -

OCT - - - - - -

NOV - - - - - -

DEC - - - - - -

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MAN-DAYS LOST

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STRIKES DECLARED

VISITOR ARRIVALS SLIGHTLY UP IN JUNE

Total visitor arrivals registered in June is 372,293, up by only 0.87% from 369,073 in the same month in 2013. Of this, 4.15% or 15,642 visitors were Filipinos residing abroad.

Korea remained the top source market followed by the U.S. and China. From January to June, visitors coming from Korea amounted to 585,282 (22.52% share of the 2.38 million total visitors for 2014). The U.S. market tallied 389,432 visitors (16%) while the Chinese market recorded 226,163 visitors (9.29%).

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TOURISM ARRIVALS

VISITOR ARRIVALSJANUARY-JUNE 2014

COUNTRY 2014 2013 % CHANGE RANK

KOREA 547,971 585,282 -6.37 1

USA 389,432 364,506 6.84 2

CHINA 226,163 199,157 13.56 3

JAPAN 220,366 209,812 5.03 4

AUSTRALIA 111,687 103,286 8.13 5

SINGAPORE 91,692 86,290 6.26 6

CANADA 75,677 68,430 10.59 7

UNITED KINGDOM 68,593 60,234 13.88 8

TAIWAN 67,213 86,076 -21.91 9

MALAYSIA 66,796 54,154 23.34 10

HONGKONG 57,470 65,696 -12.52 11

GERMANY 38,642 37,025 4.37 12

OVERSEAS FILIPINO 106,088 109,029 -2.70

OTHERS 365,638 351,616 3.99

TOTAL 2,435,442 2,382,606 2.22

JANUARY - DECEMBER 2014 2012 2011 2012/2011

JAN TO DEC JAN TO DEC GROWTH RATE

De Luxe Hotels

Occupancy Rates 70.82 71.49 -0.94

Length of Stay 2.87 2.92 -1.71

First Class Hotels

Occupancy Rates 60.14 58.05 3.59

Length of Stay 2.20 2.30 -4.17

Standard Hotels

Occupancy Rates 65.34 64.82 0.80

Length of Stay 2.46 2.38 3.47

Economy Hotels

Occupancy Rates 52.15 53.44 -2.41

Length of Stay 1.87 2.13 -12.44

Overall Average 67.20 67.25 -0.07

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