Tuesday, 6 July 2010

What global economic crisis?

Written by John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=27300:what-global-economic-crisis&catid=28:opinion&Itemid=64

The news that the Bangko Sentral ng Pilipinas (BSP) expects second-quarter economic growth to be better than the 7.35 percent experienced in the first quarter of 2010 is significant. The BSP, unlike economic departments of the government such as Finance or Neda, tends to be more conservative and realistic.

The article carried in the BusinessMirror attributed the outlook to increased consumer spending, which, according to BSP estimates, accounts for some 70 percent of gross domestic product. The conclusion was that this increase in spending was due to increasing overseas remittances and outsourcing industry income.

While it was nice to see outsourcing mentioned in the same sentence as remittances for a change, the depth of spending that would generate over 7-percent economic growth is much greater than simply inflow of foreign funds from whatever sources.

There will be those who discount government numbers and immediately talk about mass poverty, if the Philippines can come near a 7-percent growth, it is very significant. Granted that the numbers are based off a miserable economic performance in 2009, still, something is happening here in the Philippines.

Critical to the growth of an economy is investment. Without capital investment, jobs are not created and individual wealth cannot grow. Both the Philippine Economic Zone Authority (Peza) and the Board of Investments (BOI) saw investments jump in 2010. Peza-approved investments for the first half went up by 59 percent to P61.3 billion, and the BOI said its approvals jumped by 318 percent to P170 billion.

Even as the BSP tended to dismiss a little of the impact of these investments, saying that it was partly due to the need to rebuild from the natural disasters of 2009, companies do not spend unless they think they can profit from their expenditures.

Further, the consumer who ultimately is the financial beneficiary of all this investment is not hesitating at all to buy and increase personal spending.

Although a good portion of the rest of the world is in financial panic mode, here in the Philippines there is a confidence and optimism that is surprising, as if business and consumers understand that the Philippines is in an entirely different place. The general mood seems to be one of “What global economic crisis?”

Look at the exploding activity in the residential real-estate sector. Every major property developer, Ayala, Century, Robinsons, Megaworld, Shoemart, and the rest, is building thousands of new units across the Metro area. Multiple tens of billions of pesos are being put into these projects almost nonstop.

The old conventional wisdom that these are being sold just to foreigners and balikbayan does not hold any more. Overseas remittances cannot be the only driver behind the profitability of this real estate. This is housing for local buyers.

More important, this is sustainable economic activity with the positive results reaching far into the future. People do not just buy condos; they must also buy the furniture, appliances, and the rest to live in these condos. And next to these condos rise shopping centers, creating more employment and more wealth. The multiplier effect for a development that eventually holds several thousand residents is far-reaching, from local transportation like jeepneys and tricycles to the banks that provide the financing to buy the units.

In addition, the desire to invest is reaching deep into the structure of the economy. While the government cautions that the country faces the serious potential of a power deficiency, companies are turning to this sector also as a profitable venture. Phinma group is planning to put up a 270-megawatt (MW) coal-fired power plant in Batangas.

The range of investments is large. Metro Pacific Investments (MPI) has been systematically and aggressively buying hospitals all over the country. MPI sees P10 billion in annual revenues when it eventually secures 3,000 beds within five years. Currently MPI owns Riverside Medical Center in Bacolod, Makati Medical Center and Cardinal Santos Medical Center in Metro Manila, and Davao Doctors Hospital in Mindanao. MPI is also looking at smaller hospitals in the provinces.

The significance of this kind of an investment cannot be ignored. A company of MPI’s size and stature venturing into rural health care improves health-care delivery in those areas with, again, a great multiplier economic effect.

I particularly like this statement: “Nestlé Philippines Inc., Friday announced an initial investment of P4.3 billion over two years for a new factory in Tanauan, Batangas, to expand production capacities of coffee creamer and milk products to cope with a strong domestic market.” From the Nestlé CEO John Miller, “This is an investment in the future.” Notice the words “strong domestic market.”

While the exporters are worried about an appreciating peso, in truth, business looks good for that sector also. “Semiconductor and Electronics Industry of the Philippines Inc. chairman Arthur Young said in an interview with Philexport News and Features that the industry has scaled up its export projection for the whole year to a range between 25 percent and 30 percent.” And coconut oil replaced garments as the country’s second-largest export for the month of April with a 372-percent growth.

Those in the media and too many of those in the Philippine stock market still believe that the Philippines is some sort of branch office or subsidiary of the West. It is just not true anymore. The Philippine economy has matured to the point where it is beginning to stand on its own. Sure, remittances from all sources are still critical and vital. But with every quarter that passes, the country becomes more self-reliant and confident of that self-reliance.

There is a long way to go. Agriculture, power generation, less dependence on imported energy sources are all top priorities. But the Philippines is not the basket case of the 1990s anymore. And the more people that realize that and get on board with pushing and demanding government policies and personal behavior to achieve economic prosperity, the sooner that prosperity will become a reality.



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