Monday, 15 June 2009

Pump-priming the economy

The Entrepreneur
Manny Villar
Business Mirror
http://www.businessmirror.com.ph/home/opinion/11707-pump-priming-the-economy.html

THE economic growth of 0.4 percent in terms of gross domestic product (GDP) during the first quarter of 2009 was indeed an unpleasant surprise for business.

From the perspective of business, it was really unpleasant. Many companies were reporting good results, including double-digit growth rates.

From the perspective of the government, the decade-low GDP growth rate was not surprising at all. The passage of the P1.4-trillion budget for this year was delayed; the so-called P330-billion Economic Resiliency Plan, which was to be the Philippine version of stimulus programs in other countries, did not get off the planning board.

Luckily for us, while the government is expected to be the source of huge investments to drive the economy or pump-prime it in response to the global crisis, the private sector is still the primary driver of growth. Private companies are not bound by bureaucratic procedures when they make investments, although their operations are often restrained by government red tape.

Our country, in spite of the very slow growth in the first quarter, is still expected to fare better than most of its closest neighbors this year. Merrill Lynch has lowered its growth forecast for the Philippines from 3.1 percent to 1.4 percent this year after the release of the first-quarter report.

In contrast, the US-based investment bank predicts Singapore’s economy to contract by 6.5 percent this year, Hong Kong by 3.1 percent, Malaysia by 4 percent, Taiwan by 5.5 percent and Korea by 3 percent.

Other than the Philippines, China, India and Indonesia are forecast to grow this year, too. That is, China by 8 percent, India by 5.1 percent and Indonesia by 3.6 percent.

Merrill Lynch expects the Philippine economy to grow by 2.5 percent next year. It is more optimistic than our own economists, who have warned that we are teetering into recession.

Given the delay in the government’s pump-priming activities, our economy will still show some growth this year, but whatever growth we achieve will be because of the private sector.

Based on the disclosures submitted by listed companies to government regulators, as well as public announcements, it is still “all systems go” on expansion, at least for the major players.

Let me cite a few examples. SM Investments Corp. (SMIC) recently announced that it was raising its capital expenditure or capex budget to P31 billion for this year, compared with P24 billion last year. About P25 billion will be used to expand SMIC’s businesses in the Philippines, the rest for its malls in China.

SMIC’s expansion activities range from malls to hotels, office buildings, residential condominiums, to banks and retail establishments.

Philippine Long Distance Telephone Co. (PLDT) is allotting P27 billion for capital outlays this year: P15.8 billion for the continuing expansion of its wireless business, P10.2 billion for the fixed-line business and P1 billion for the information and communications technology business.

The P27 billion is separate from the P20 billion PLDT is paying for a 20-percent stake in the Manila Electric Co. (Meralco). That’s why nobody wonders that PLDT is firmly entrenched in its leadership position in the telecommunications industry.

Another corporate giant, San Miguel Corp. (SMC), is using proceeds from the sale of its businesses overseas to diversify into industries outside its traditional food, beverage and packaging businesses. It already had a cash hoard of over P150 billion as of end-2008, and it is generating more funds from spinning off business units like San Miguel Brewery.

SMC has acquired a 27-percent Government Service Insurance System stake in Meralco and has reportedly raised its share to 43 percent. It is participating in the auction of the generating assets of the National Power Corp. And it has submitted a proposal to develop the Laiban Dam in Rizal, estimated to cost P47 billion, as a new source of water for Metro Manila. It is expected to exercise next year an option to acquire 50.1 percent of Petron Corp.

My own company, Vista Land & Lifescapes, is also on an expansion mode, although at a smaller scale than SMIC, PLDT or SMC. We’re spending P7.74 billion this year, about 7 percent lower than our 2008 capex budget of P8.33 billion.

We launched 32 new projects in 2008, valued at about P25 billion. Given the guarded market sentiment, we are anticipating some weakness in sales this year, but we are still upbeat with respect to growth prospects for 2009. That’s why we have 28 projects on the pipeline for this year, from which we expect to generate about P23 billion in revenues.

Most industry players are expected to continue investing for expansion this year. Very seldom do we hear of companies setting aside expansion plans, except for those in export-oriented industries.

All these business-expansion activities are happening in spite of the country’s low rating in international competitiveness, and despite reports showing how hard and costly it is to do business here than in other countries.

The least the government—from national agencies to local government units—could do is to encourage private companies to continue with their investments, and to help them get through the bureaucratic maze so they can implement their expansion programs quickly.

That might be a better way to pump-prime the economy, instead of waiting for the implementation of the much-publicized government stimulus plan!



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