That is a reaction to this piece: “Powering the Philippine recovery: The Duterte Administration’s COVID-19 Recovery Plan; Action For Economic Reform,” Yellow Pad, BusinessWorld, 7th Jun 2020.
In fairness, it is an excellent analysis. It recognizes the uncertainties surrounding COVID-19 and prioritizes “sectors capable of producing medical supplies (e.g., Physical Protective Equipment, N95 masks, testing kits) that may need additional support to streamline their supply chains and expand their operations.”
Therefore, “large-scale infrastructure projects whose viability may be severely affected by physical distancing may have to be put on hold for a more extended period. They include airports, tourism infrastructure, commuter railways, mega-bridge projects.”
Let’s leave it up there for now as we go through the rest of the article.
“Fiscal stimulus is necessary to boost the economy in this crisis, but fiscal discipline should be maintained.”
That is a remarkable statement, although pretty motherhood. For example, the recommended recovery package – covering both supply-side and demand-side – is not very clear. Given our debt to GDP ratio is very healthy, how much should we invest to power this recovery?
If the Philippine economy will contract between 2%-3.5% and want to keep to a 6% growth, a scenario to consider – and economists can run the numbers – is an investment north of 6%. Or up to 9.5%. And even more. The key is to visualize several scenarios. It’s a good exercise in lateral and creative thinking – and overpower the absolutist trap.
Let’s pause right there: If we again fall into the trap of insanity – of the same old, same old – we can kiss “tomorrow” goodbye. It is not about writing a policy or legislating a solution that is preconceived in our heads. There is no simple answer to the challenge we face.
If we have not tried forward-thinking before, we better do it now. We want to fight this fire and win.
But it is beyond the war on poverty – or the war on drugs. And why are we troubled by terrorism? Because ours is a culture of impunity! When a Marcos or an Estrada or Arroyo can be above the law, why not Juan de la Cruz?
The following caveat is on point. “It is wasteful and inefficient to allocate tens or hundreds of billions of pesos for specific projects that Congress dictates, some of which are redundant, some of which are questionable, and commercial interests drive some.”
Here’s another noteworthy recommendation: “While we see the proposed CIT reduction as an immediate fiscal stimulus to firms during the COVID-19 pandemic, we also take note that the literature on corporate income tax cuts is ambivalent on their effect on business investment and employment.
“Firms can choose to spend the windfall from tax reduction in various ways, including those that do not trickle down to the rest of society (e.g., distributing dividends, replacing workers with automated technologies).
“We urge making CREATE’s CIT cut conditional on job preservation or job creation by individual firms.
There are the MSMEs, too; and so, “In conjunction with job preservation and creation, we emphasize propping up MSMEs (micro, small and medium enterprises) to ensure that not only formally registered corporations but also those in the informal economy benefit from the fiscal stimulus.”
And the recommendations move on to the regions.
“PH-Progreso must be made more responsive to region-by-region differences – to overcome the country’s economic dependence on infection-prone Metro Manila, Metro Cebu, and Metro Davao.
“At present, the Balik Probinsya, Bagong Pag-Asa (BP) program, as established by Executive Order 114 on 6th May, falls short of the Government’s recovery program’s localization.
“There is little indication that this approach will work given persistent barriers, e.g., governance issues, supply chain gaps, access to markets.
“If past experiences with such initiatives in the Philippines (e.g., SEZ development drives) are any indication, the BP program would likely not deliver upon its intended outcomes.
“Indeed, Rosario Manasan (2013) and the Philippine Human Development Network (2013) have emphasized that SEZs outside of Metro Manila, Central Luzon, and Calabarzon have typically underperformed for the reasons mentioned above.
And agriculture is covered too: “Beyond recovery, we must build a more resilient, sustainable, and pandemic-proof agro-industry.
“Government should beef up its support for sustainable investments in agriculture and agro-industry, particularly for R&D towards stronger agro-industry linkages in the rural areas.
“These will be investments in agro-industries and resource-based industries with potential for producing and health/medical supplies and for sustainable construction materials (e.g., abaca masks, and coconets for infrastructure projects).
“The agro-industry investments will promote domestic food supply, absorb displaced workers, and provide raw materials for key industry sectors.”
The bottom line: How do we move beyond the same old, same old?
Let’s assume for the moment that we have established the magnitude of the “recovery” investment. And it is $35 billion, for example. How do we then allocate it and ensure that we get the biggest bang for the buck?
It cannot be the same old, same old. Think Pareto. And not to forget, the force-field analysis: Fix the restraining forces and exploit the helping ones – where we get the biggest bang for the buck.
And so, we can start with the largest enterprises in the country. Take the eight top listed companies in the Forbes list. The country’s top corporations are less than one percent of total registered enterprises yet have a more significant impact on the economy than MSMEs.
And we can then follow through with the exercise: For example, how many do they employ and what is the average wage per employee? How much taxes do they pay? We can go deeper, say, what is the compounded growth rate over the last ten years? How much is the capital expenditure over the same period? How competitive are they; can they sustain their growth rate?
If they have overseas businesses, we can ask the same questions.
And we must probe deeper: How has the lockdown affected them? What are their plans and budgets for the balance of the year and the next three years? How do they expect to recover? How much access do they have to outside financing? What can they do differently from what they do now that will make them a far greater competitive enterprise, whether locally or overseas?
Do they have any financial obligations to any government or government-owned entities?
In other words, are these eight top listed companies worth supporting, and if they are, what options must the Government explore? That at the end of the day, they must be beneficiaries of the Government’s COVID-19 “recovery” package?
Then the Government can go through a similar assessment for the next tiers of large enterprises.
And after them, we will come to the MSMEs; but then again, the question must be: Where will we get the biggest bang for the buck among the MSMEs?
And then the regions, starting with Metro Manila, Metro Cebu, and Metro Davao. And then the next-tier towns.
In other words, we Filipinos must stand up against the crab mentality. It’s insanity! It is not about giving fish but teaching people how to fish. It is the universal law of cause and effect.
What about those enterprises and cities and towns that will not qualify because of the above vetting process? And they will include those in the informal economy and smaller LGUs like the barangays. What can we do?
Here is where the demand side of the equation steps in. Because the supply side will take its course before the economy gets the ship, we call the Philippines on an even keel.
That is why the blog said we must throw in money to fight this fire in the last posting.
And so, the marginalized sectors must be provided life support.
They will be recipients of direct subsidies to keep them above water. Many of them may not be profit-generating enterprises. But that is why we need a humungous recovery package, north of 6% of GDP – or even beyond 9.5%.
And that is why our economic managers will have to run several scenarios to visualize how each one will play out. For example, how will a $35 billion “recovery” package play out? Will it be impactful? What about inflation or debt service? Will it still leave our debt to GDP healthy?
That is why we must accelerate the efforts to drive revenues. And very aggressively.
For example, we must replicate the magic of Samsung Vietnam and AirPods Vietnam because that is how to leapfrog economic growth, beyond the annual 6%-6.5% that we have been celebrating.
And that will mean, depending on the requirements of the foreign enterprise that will partner with us, rapidly completing the requisite infrastructure initiative that must come with the partnership.
“‘Tailor-fit’ perks eyed to lure investments, Julito G. Rada, manilastandard.net, 24th May 2020. Finance Secretary Carlos Dominguez III said he was pushing for a more proactive, targeted investment promotion strategy in a briefing. Of directly approaching the kind of foreign investors that the Government wants to relocate here and offering them a set of tax and non-tax incentives tailor-fit to their needs, as part of the efforts to reenergize the economy and create more jobs.
“Dominguez said the government should discard its old ‘one-size-fits-all’ incentives program, and shift to a demand-driven approach. That means it identifies the types of industries that the economy needs to flourish, so incentives can be granted based on the industry players’ specific requirements that it wants to set up shop in the country.
“These industries include those that are labor-intensive and, thus, create stable, decent-paying jobs, provide excellent technology transfers that improve the country’s workforce skills, and have stable markets, Dominguez said.
‘We must identify these industries and then go to each of the companies, i.e., the leading companies in those industries around the world—and asking them: what do you need for you to come to the Philippines? Instead of waiting for them to apply, we should be going to them and offering them a package,’ Dominguez said.
“Dominguez said the obsolete ‘one-size-fits-all’ formula of attracting prospective investors failed to make the Philippines an investment magnet. That is why the country persistently lags its Southeast Asian counterparts in terms of the volume and amount of foreign direct investment inflows despite being among the region’s leading economies to offer fiscal incentives.
“On top of the massive infrastructure gap, which the Duterte administration is now fixing through its ‘Build, Build, Build’ program, and the constitutional restrictions on foreign ownership is the outmoded investment promotion strategy. That was among the reasons why the country lagged in the region in terms of FDI inflows despite the Philippines’ status as one of Asia’s fastest-growing economies.”
Is it about time we challenge the way we think, benchmark versus our neighbors, and be the next economic tiger?
For example, the Asian Tigers focused on driving revenues, and all of them drastically reduced poverty better than we did despite our focus on poverty.
It’s a 24/7 dynamic universe we live in, and we can’t keep standing still when the rest of the region is like dynamos, especially Vietnam.
Gising bayan!
“True social reform has little to do with politics. To unmoor ourselves from the burdens of the past, we must be engaged in the act of continual and conscious self-renewal. All men are partially buried in the grave of custom. Even virtue is no longer such if it is stagnant.
“Change begins when we finally choose to examine critically and then recalibrate the ill-serving codes and conventions handed down to us, often unquestioned, by the past and its power structures. It is essentially an act of imagination first.” [David Henry Thoreau; American essayist, poet, and philosopher; 1817-1862]
“Why independence, if the slaves of today will be the tyrants of tomorrow? Moreover, that they will be such is not to be doubted, for he who submits to tyranny loves it.” [We are ruled by Rizal’s ‘tyrants of tomorrow,’ Editorial, The Manila Times, 29th Dec 2015]
“Now I know why Paul dared to speak of ‘the curse of the law’ (Galatians 3:13). Law reigns and discernment is unnecessary, which means there is little growth or change in such people. When you do not grow, you remain an infant.” [Faith and Science, Open to Change, Richard Rohr’s Daily Meditation, 23rd Oct 2017]
“As a major component for the education and reorientation of our people, mainstream media – their reporters, writers, photographers, columnists, and editors – have an obligation to this country . . .” [Era of documented irrelevance: Mainstream media, critics and protesters, Homobono A. Adaza, The Manila Times, 25th Nov 2015]
“National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists. [A] nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.” [The Competitive Advantage of Nations, Michael E. Porter, Harvard Business Review, March–April 1990]
“You have to have a dream, whether big or small. Then plan, focus, work hard, and be very determined to achieve your goals.” [Henry Sy Sr., Chairman Emeritus and Founder, SM Group (1924 - 2019)]
“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” [William Pollard, 1911-1989, physicist-priest, Manhattan Project]
“Development is informed by a people’s worldview, cognitive capacity, values, moral development, self-identity, spirituality, and leadership . . .” [Frederic Laloux, Reinventing organizations, Nelson Parker, 2014]
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