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Strategic Research by the

Center for Strategy, Enterprise & Intelligence

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Volume 2 - Number 1 • January 9 - 15, 2012

WORLD

04 The Global Economy in 2012

Debt woes are stifling growth in Europe and America. Asia too will slow down this year, but it won't be as bad as 2009. And there's a silver lining: As the West slumps, Asian economies will rise to dominance in the emerging world economic order. • The Boom in Gloom and Doom Investors, business watchers, and the media can't have enough of doomsayers. A selection of bad omens for the year ahead.

NATION

16 The ₱1.8-Trillion Question

25 Calamity Response 101

• Debt and Taxes Charting the country's climb out of the national IOU hole

• NDRRMC Framework The calamity plan to keep us safe from nature's rampage • SNAP The Strategic National Action Plan for disaster risk reduction needs your help

36 The Golden Chains

42 Trying Times for Rural Banks

The 2012 budget was again passed earlier than usual. But will it be spent on schedule? On the answer depend the prospects for the economy — and your business.

BUSINESS

How the Philippines aims to become the franchising hub for Asia. • Big Names Top franchises in the Philippines • Different Strokes Eight ways to build a chain • Beware Pirates Trademark protection in 85 countries • Franchising 101 How it's done

TECHNOLOGY

48 The Social Media Buzz

The Philippines is the third most disasterprone country in the world. Know the strategies on which millions of lives and livelihoods depend.

For the lenders to stay healthy, the government must help the farmers

• Leaner But Stronger The 600-plus banks must join up to get stronger • Asian Initiatives How it's done elsewhere around the region

POINT & CLICK You can access online research via your Internet connection by clicking phrases in blue letters

More than 30 million Filipinos are online, and some 20 million of them are on Facebook. Here's how and why your enterprise should harness the vast reach and persuasive power of social networking sites in building up brands and sales.

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For advertising, corporate premium and individual subscriptions, research and advisory services, please e-mail report@censeisolutions.com or call/fax +63-2-5311182. Links to online material on public websites are current as of the week prior to the publication Publishers of linked content should e-mail or contact us by fax if they do not wish their websites to be linked to our material in the future.


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WORLD

The Global Economy in 2012

Western debt and Asian growth are creating a new order By Ricardo Saludo

STRATEGY POINTS Recession in Europe and U.S. slowdown will hit Asia, but not as bad as in 2009. By 2020, world exports will grow 1.5 times. Plan on selling more and more within Asia. The region's high growth will pull global capital into markets and businesses with sound governance.

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The numbers say it all. By the count of The Conference Board, a high-powered New York-based grouping of leading companies and experts from around the world, the contribution of developing economies to the 3.2% global growth projected next year would be more than four times that of rich countries: 2.5 vs. 0.6 percentage points. There will be more of the same in the decade ahead. The Board’s Global Economic Outlook 2012, published in November, forecasts emerging economies to grow at twice the rate of advanced countries from 2012 to 2016. While the industrial world is tipped to turn in 1.1%-1.9%, depending on global conditions, developing nations could sprint along at 2.2%-3.5% (see table next page).

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The global economy in 2012

The Next 15 Years Comparison of Base Scenario with Optimistic and Pessimistic Scenarios. 2012 - 2025 (November 2011) 2012 - 2016

2017 - 2025

GDP Growth in Optimistic Scenario

GDP Growth in Base Scenario

GDP Growth in Pessimistic Scenario

GDP Growth in Optimistic Scenario

GDP Growth in Base Scenario

GDP Growth in Optimistic Scenario

Distribution of World Output 2020

US EU-15* Japan Other advanced* Advanced Economies

3.6 2.7 2.4 3,0 3.1

2.1 1.6 1.1 2.5 1.9

1.5 0.5 -0.2 2.2 1.1

3.1 2.4 2.1 2.0 2.6

2.3 1.7 1.5 1.7 1.9

1.8 1.0 0.8 1.4 1.3

18.2 % 16.2 % 4.9 % 7.8 % 47.0 %

China India Other developing Asia Latin America Middle East Africa Central & Eastern Europe Russsia and Other CIS*** Emerging Market and Developing Economies

9.7 7.8 5.0 4.0 4.6 4.6 3.0 3.2

7.0 6.4 4.1 3.3 3,7 3.8 2.4 3.1

3.8 4.5 3.4 2.9 2.8 2.9 1.7 3.0

4.9 5.6 4.6 3.8 4.2 4.6 2.3 2.2

3.5 4.6 3.8 3.2 3.5 3.9 2.0 1.1

3.0 4.2 3.1 2.8 2.8 3.5 1.7 0.0

22.0 % 8.5 % 4.3 % 7.4 % 3.4 % 1.9 % 2.7 % 2.9 %

6.4

4.9

3.4

4.3

3.4

2.8

53.0 %

World

4.8

3.5

2.2

3.6

2.7

2.2

100.0 %

Chart from The Conference Board, Global Economic Outlook 2012

At that pace, more than half the planet’s economic production would be generated outside the West and Japan by 2020. China would be the largest economy, with 22% of global output, with the United States falling to second (18.2%), and the 15 nations of the European Union before 2004 coming in third (16.2%). Asia would lead the world economic steeplechase, with behemoths China and India setting a torrid pace (see chart right). What forces will underpin this reordering of the world economy, and how will the intercontinental shifts in commerce, capital and consumption affect companies? This Special Report on the Global Economy charts the turbulent years ahead, starting with the repeatedly downgraded prospects

The

China and India lead the world Global Outlook for Growth of Gross Domestic Product, 2012 - 2015 (November 2011) United States EU-15 Japan Other Advanced Advanced Economies

GDP growth 2012 2013- 2016 2017 - 2025

China India Other Developing Asia Latin America Middle East Africa Central & Eastern Europe Russia and other CIS Emerging and Developing Economies World Total -1

1

3

5

7

9%

Chart from The Conference Board, Global Economic Outlook 2012

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• January 9 -15, 2012

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6 for 2012, as Europe slumps, America stagnates, and Asia sets the pace along the bumpy road to a new global economic order. Gnashing teeth, not blaring trumpets. For those who expect blaring trumpets to herald the coming dominance of Asia, think again. There will be much whining, if not gnashing of teeth among the region’s enterprises and economies, as Europe double-dips into recession next year, and the U.S. barely escapes it, as predicted by leading economists and global institutions. Take it from the International Monetary Fund (IMF), whose intensive-care unit has hosted many a cash-strapped country, including for years the Philippines. “The global economy is in a dangerous new phase,” warned the Fund in its World Economic Outlook, out last September.

Since then, Italy and the euro flirted with financial collapse, political gridlock in America torpedoed a medium-term fiscal consolidation plan, and pretty much every major economic report and forecast has downgraded growth projections for the regions and countries they rate. In its midDecember Global Economic Forum 2012

Outlook, New York-based Morgan Stanley investment bank warns of a world recession if certain easy-to-miss policy actions are, well, missed. “Our bear case is a full-blown recession, and it won't take much to tip the balance,” says Joachim Fels, the bank’s Global Head of Economics, based in London. What moves is Fels watching? “Our base case assumes that European governments make a big step towards fiscal integration soon that stabilises confidence, and that the U.S. Congress extends most of this year's [economic] stimulus.” But even if all goes well, Fels still expects a worldwide slowdown: “With a recession in Europe, anaemic growth in the U.S., and a further dimming of emerging market economies’ growth prospects as our base case, we see global growth falling below its longterm average.” ‘Tis the season to downgrade. The Conference Board put that average at 3.6% in the decade ended 2005, before financial crises late in the decade hammered the world economy. The IMF Outlook in September forecast 4% world economic growth next year. That’s now nearly a full point above the emerging consensus projection of 3%-3.5%. Morgan Stanley cut its 2012 forecast to 3.5% from 3.8% — if it gets its wish list of policy actions. Otherwise, the rate falls below the recession level of 2.5%. The Conference Board expects 3.2%, the same estimate made by another top Wall Street investment bank, Goldman Sachs. The world’s largest bond investment company, California’s PIMCO, is even more bearish about world growth next year: 1%-

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The global economy in 2012

1.5%. But not as much as Nobel laureate economist Paul Krugman, who argued as early as last June that America and Europe were already in a depression (see box story).

Hatzius: Watch for strong and weak performers

Espousing the more conventional view, Goldman’s chief economist Jan Hatzius said in a Dec. 2 talk: “Our outlook for the global economy in 2012 and 2013 is slower growth than the last couple of years ... with quite a bit of differentiation between the strongest performers and the weakest performers.” China will keep zooming at 8% expansion, Hatzius predicts, while at the hellish end of the spectrum, Europe will sink into recession, if it isn’t there already. As for the U.S., “we expect growth to slow, although we still do not expect a recession.” Back from the brink — for now. As the past year ended, things seemed to look up a bit on both sides of the Atlantic. At the Dec. 9 European Union summit in Brussels, 26 of 27 EU leaders agreed to stricter fiscal discipline in a bid to restore market confidence in the state bonds and ability to pay of the grouping’s members. As set out in the draft fiscal agreement and explained in the EU Council statement, signatory nations commit to keeping budget

The

deficits to just half a percent of national economic output, a safe distance from the 3% level required to stay in the euro currency system. If the 0.5% rule is violated, sanctions would be imposed unless threefourths of Union members vote otherwise. It’s far from a done deal. Britain opted out, though it will join technical discussions on the euro zone’s future. Agreeing nations still had to get their legislatures to ratify the accord and cede more sovereign power to the Union — never a sure or easy task. But the markets seemed relieved for now. World stocks rallied after the two-day EU summit, and Italian and Spanish bonds recovered from recent market attacks. It also helped investor sentiment that U.S. unemployment dropped slightly to 8.6% in November, with 100,000 jobs added since July, the longest streak in five years. In addition, consumer confidence rose to an eight-month high, beating expectations (see Bloomberg charts next page). In late December an Associated Press survey of leading U.S. economists found that most now expect faster growth in 2012, hitting 2.4% against barely 2% estimated last year. But the bears and the smart money are far from clinking champagne glasses. In the sector that started the 2008 financial mess, home prices in 20 U.S. cities fell more than forecast last October, although purchases of new houses rose in November to a seven-month high. Also in October, personal spending rose less than forecast, and the following month, business equipment purchases dropped 1.2%, the biggest decline since January, although big aircraft orders masked the retreat.

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• January 9 -15, 2012

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8 Bloomberg Charts America's Mood Consumer Confidence

Unemployment Rate

Conference Board survey

Seasonally adjusted

70 10%

60 50

9

40 8

‘09 Nov. ‘11 8.6% Oct. ’11 9.0

’10 ‘11 ’12 A lagging indicator, likely to stay bad until after a recession has ended

30 ‘09 Dec. ‘11 Nov. ’11

Most crucial, just like the leaders who met in Brussels, those in Washington have tough decisions to make before investors and consumers turn on the spigot and bankroll a real recovery. Top on the wish list for the new year: an extension of the Bush era payroll tax cut and a serious agreement on Capitol Hill to bring down the budget deficit in the medium term and avoid draconian spending cuts in 2013.

64.5 55.2

’10 ‘11 ’12 Is 60% expectations about six months ahead, Charts from Bloomberg 40% about current conditions

“The deterioration in the outlook for the world economy and the lagged impact of policy tightening in some countries, including the region’s two giants, China and India ”prompted the cut in GDP forecasts,” reported Fitch analysts led by Andrew Colquhoun, head of its Asia-Pacific sovereign credit division. Even the region’s pacesetters saw their forecasts trimmed. China is tipped to grow 8.2%, down from 8.5% previously forecast, while India slipped to 7.5% from 8.2%.

The fallout for Asia. With all the bad news in the industrialized world, including Japan’s deflation, power and strong yen A similar prognosis emerges from the problems as well as the export dampening Asian Development Bank’s Asian Economic impact of Monitor last month. the West’s The report cut 2012 economic woes, growth projections for forecasts for East Asia’s emerging the region’s economies by nearly developing half a percentage economies are point to 7.2%, down predictably from its 7.5% revised down too. Dual estimate for last year headquartered and 2010’s soaring Fitch analyst Colquhoun: Down goes the forecast in London and 9.4% (see table next New York, page). Expected to credit analyst Fitch Ratings cut its forecast suffer the biggest drop from 2010 is the for emerging Asian economies to 6.8%, Philippines, going from 7.6% expansion to from 7.4% in June. 4.8% in 2012.

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The global economy in 2012

Annual GDP Growth RatesEngine ( percent, year-on-year) The Asian Growth Annual GDP Growth Rates ( percent, year-on-year)

Using the Oxford Economics forecasting model, the ADB estimated the likely impact of three scenarios on East Asia: a eurozone recession, as many economists believe to be already happening; a U.S. recession along with Europe’s slump; and a new global crisis slashing the West’s economic output to 2009 levels.

Annual GDP Growth Rates ( percent, year-on-year) Revised 2001-2010 Annual (( percent, Revised 2001-2010 Annual GDP GDP Growth Growth Rates Rates percent, year-on-year) year-on-year) Forecast Average

Revised 2001-2010 Forecast Average Revised 2001-2010 Forecast 2012 Average 2010 2011 Revised 2001-2010 2012 Forecast Average 2010 2011 Forecast Average 2011 2012 2010 7.4 Emerging East Asia 9.4 7.5 7.2 2011 2012 2010 7.4 Emerging East Asia 7.5 7.2 9.4 2011 2012 2010 7.4 Emerging East Asia 7.5 7.2 9.4 4.8 ASEAN 7.9 4.8 5.3 7.4 Emerging 7.5 7.2 9.4 7.4 Emerging East East Asia Asia 9.4 7.5 7.2 4.8 ASEAN 4.8 5.3 7.9 1.5 Brunei 2.0 1.7 1.8 4.8 ASEANDarussalam 4.8 5.3 7.9 1.5 Brunei Darussalam 1.7 1.8 2.0 4.8 ASEAN 7.9 4.8 5.3 8.0 Cambodia 6.3 6.8 6.5 4.8 ASEANDarussalam 1.5 7.9 4.8 5.3 Brunei 1.7 1.8 2.0 8.0 Cambodia 6.8 6.5 6.3 1.5 Brunei Darussalam 2.0 1.7 1.8 5.1 Indonesia 6.1 6.6 6.5 1.5 Brunei Darussalam 8.0 2.0 1.7 1.8 Cambodia 6.8 6.3 5.1 Indonesia 6.6 6.5 6.1 8.0 Cambodia 6.3 6.8 6.5 6.7 Lao PDR 7.5 8.1 7.6 8.0 Cambodia 5.1 6.3 6.8 6.5 Indonesia 6.6 6.1 6.7 Lao PDR 8.1 7.6 7.5 5.1 Indonesia 6.1 6.6 6.5 4.3 Malaysia 7.2 4.8 4.7 5.1 Indonesia 6.7 6.1 6.6 6.5 Lao PDR 8.1 7.6 7.5 4.3 Malaysia 4.8 4.7 7.2 6.7 Lao 7.5 8.1 7.6 7.7 Myanmar 5.3 5.3 5.4 6.7 Lao PDR PDR 4.3 7.5 8.1 7.6 Malaysia 4.8 4.7 7.2 7.7 Myanmar 5.3 5.4 5.3 4.3 Malaysia 7.2 4.8 4.7 4.6 Philippines 7.6 3.7 4.8 4.3 Malaysia 7.7 7.2 4.8 4.7 Myanmar 5.3 5.4 5.3 4.6 Philippines 3.7 4.8 7.6 7.7 Myanmar 5.3 5.3 5.4 4.2 Thailand 7.8 2.0 4.5 7.7 Myanmar 4.6 5.3 5.3 5.4 Philippines 3.7 4.8 7.6 4.2 Thailand 2.0 4.5 7.8 4.6 Philippines 7.6 3.7 4.8 7.2 Viet Nam 6.8 5.8 6.3 4.6 Philippines 4.2 7.6 3.7 4.8 Thailand 2.0 4.5 7.8 7.2 Viet Nam 5.8 6.3 6.8 4.2 Thailand 7.8 2.0 4.5 4.2 Thailand 7.2 7.8 2.0 4.5 Viet Nam 5.8 6.3 6.8 7.2 Viet Nam 6.8 5.8 6.3 7.2 Viet Nam 6.8 5.8 6.3 3.9 Newly Industrialized 8.2 4.2 4.0 3.9 Newly Industrialized 4.2 4.0 8.2 Economies 3.9 Newly Industrialized 8.2 4.2 4.0 Economies 3.9 Newly Industrialized 8.2 4.2 4.0 3.8 3.9 Hong China 7.0 5.0 4.0 NewlyKong, Industrialized 8.2 4.2 4.0 Economies 3.8 Hong Kong, China 5.0 4.0 7.0 Economies 4.1 Republic of Korea 6.2 3.7 3.9 Economies 3.8 Hong Kong, China 7.0 5.0 4.0 4.1 Republic of Korea 3.7 3.9 6.2 3.8 Hong Kong, China 7.0 5.0 4.0 5.1 Singapore 14.5 5.1 4.0 3.8 Hong Kong, China 4.1 7.0 5.0 Republic of Korea 6.2 3.7 3.9 5.1 Singapore 5.1 4.0 14.5 4.1 Republic of 6.2 3.7 3.9 3.4 Taipei, China 10.7 4.6 4.1 4.1 Republic of Korea Korea 5.1 6.2 3.7 3.9 Singapore 14.5 5.1 4.0 3.4 Taipei, China 4.6 4.1 10.7 5.1 Singapore 14.5 5.1 4.0 5.1 Singapore 3.4 14.5 5.1 4.0 Taipei, China 10.7 4.6 4.1 3.4 Taipei, 10.7 4.6 4.1 3.4 Taipei, China China 10.7 4.6 4.1 10.3 People’s Republic 10.4 9.3 8.8 10.3 People’s Republic 10.4 9.3 8.8 of China Republic 10.3 People’s 10.4 9.3 8.8 of China 10.3 People’s 10.4 9.3 8.8 10.3 People’s Republic 10.4 9.3 8.8 of China Republic of China 0.7 Japan 4.1 -0.5 2.5 of China 0.7 Japan 4.1 -0.5 2.5 1.5 US 3.0 1.6 2.1 0.7 Japan 4.1 -0.5 2.5 1.5 US 3.0 1.6 2.1 0.7 Japan 4.1 -0.5 2.5 1.3 eurozone 1.8 1.7 0.5 0.7 Japan 1.5 4.1 -0.5 2.5 US 3.0 1.6 2.1 1.3 eurozone 1.8 1.7 0.5 1.5 US 3.0 1.6 2.1 1.5 US 1.3 3.0 1.6 2.1 eurozone 1.8 1.7 0.5 Source: Asian Economic Monitor, Asian Development Bank 1.3 eurozone 1.8 1.7 0.5 1.3 eurozone 1.8 1.7 0.5

For Scenario 1, with the euro currency zone alone going into recession, East Asian growth would slow by 0.4 to 2 percentage points. If contraction hits both the EU and the U.S., the impact on East Asia would rise to 0.5-2.5 points off the projected rate of expansion. In the least likely event “where eurozone and U.S. GDP were to fall to 2009 levels, the impact on East Asia would be much more serious, though still less than in 2008/09,” the ADB reckons (see chart below).

Eurorecession and Amerecession

How Economic Contraction in the West Would Hit East Asia (estimated reduction in 2012 GDP growth, in percentage points) Indonesia

Projected drop in GDP growth if there is: New global crisis Severe recession eurozone recession

Malaysia Philippines Thailand Hong Kong South Korea Singapore Taiwan China excluding Japan Emerging East Asia Japan East Asia

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

GDP = gross domestic product. Eurozone, according to the OEF model, includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovakia, and Spain. Eurozone recession refers to the case when eurozone 2012 GDP level settles at its 2009 trough. New global crisis refers to the case of a eurozone recession and a US 2012 GDP level settling at its 2009 trough. Severe recession refers to a eurozone recession and a technical recession in the US for the first two quarters of 2012. Source: ADB calculations using the Oxford Economics Forecasting Model.

Chart from Asian Economic Monitor, Asian Development Bank

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A global reversal of roles. Now, the shoe is on the other foot. In fact, for countries and companies that weathered the 1997 Asian Financial Crisis, the Bank’s worstcase scenario would still be far easier to bear than the regionwide crunch one and a half decades ago. At that time, the worst-hit economies, Thailand, Indonesia and South Korea, suffered contractions exceeding Imagine 5%, compared with a the West maximum decline of less heading to than 3% in 2009.

emerging

Even more important, markets to the region’s economies and financial systems plead for are much stronger now, with mammoth funds resources and sweeping reforms to counter future crises. Recounts PIMCO chairman Mohamed A. El-Erian in “The New International Economic Disorder,” as posted on the Project Syndicate site: “Once they succeeded in overcoming a painful crisis-management phase, many of these countries [in Asia, Eastern Europe and Latin America] accumulated previously unthinkable levels of international reserves as precautionary cushions. They extinguished billions in external indebtedness by generating and sustaining large currentaccount surpluses.” By contrast, El-Erian observes, in the West, “unprecedented leverage, massive debt creation,

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The Boom in Gloom and Doom Last August investmentwatchblog.com warned of “A Perfect Storm Brewing: 20 Signs That The World Could Be Headed For An Economic Apocalypse In 2012”. Among them: escalating food prices, record-high U.S. misery index, and growing expectations of another Great Depression on the way. In good times or bad, there will always be prophets of doom crying the end is nigh. Not a few hope they’ll prove prescient and reap the fame and fortune of Nouriel Roubini. The Crisis Economics author famously predicted that subprime mortgages would go bust and trigger a U.S. financial crisis. Investors and business people can’t have enough of Roubini and other doomsayers, if only to make sure they aren’t blind-sided by some wayward ball from left field wreaking havoc on their bottom line. So the risk watchers would lap up “Fragile and Unbalanced in 2012,” the New York University professor’s New Year prognosis: “recession in Europe, anemic growth at best in the United States, and a sharp slowdown in China and in most emerging-market economies.” For Paul Krugman, the bad news is now, not next year. Back in June, the Nobel laureate economist turned head when he labeled the worldwide economic slump a depression in his New York Times column “The Third Depression.” The Princeton professor likened stagnant economies in America and Europe to the Long Depression of the late 19th Century, when bouts of resurgence punctuated stretches of steep decline. Though not as intense as the 1930s Great Depression, wrote Krugman, “the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

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The global economy in 2012

Not everyone agrees, but certainly, for millions of jobless, indebted folks in the West, the current debacle is bad enough to use the “D” word for. In his Dec. 11 column “Depression and Democracy,” Krugman frets further that the mass hardship is

Even if doomsayers prove wrong, many of their listeners are just glad the sky didn’t fall and the wolf wasn’t there. Still, some would-be Cassandras can get it very wrong and lose big for others and themselves.

THE WORLD ACCORDING TO PIMCO Forecast

Real GDP Current

Headline Inflation

Q4 ‘11 - Q4 ’12

Current

Q4 ‘11 - Q4 ’12

United States

1.5%

0.0% to 1.0%

3.4%

1.5% to 2.0%

Europe

1.4%

-1.5% to -1.0%

2.5%

1.0% to 1.5%

United Kingdom

0.5%

-0.5% to 0.0%

4.5%

2.0% to 2.5%

Japan

-0.2%

0.5% to 1.0%

0.1%

-1.0% to -0.5%

China

9.0%

6.75% to 7.25%

6.2%

4.0% to 5.0%

BRIM

4.0%

3.0% to 4.0%

6.2%

5.0% to 5.5%

World

2.5%

1.0% to 1.5%

3.1%

1.755 to 2.25% Source: PIMCO

opening doors to extreme politicians, especially in Europe, including those who would compromise democracy supposedly to deliver their nations from economic malaise. Also bearish last year was the largest bond investment company. With $1 trillion under management, PIMCO of Newport Beach, California, clearly had quite a bit to protect from unforeseen debacles, which may lead it to be more wary than usual. Last September PIMCO forecast that the world economy would crawl at 1%-1.5% through 2012. “That compares with our estimations of 2.7% to 3% in 2011 and 4.1% in 2010,” noted Saumil Parikh, a member of its investment management committee. “We are more bearish than the consensus outlook of 3% to 4% growth for 2012.”

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Take PIMCO founder and investment czar William Gross. Last March he pronounced that government debt securities were bad news and proceeded to dump them, zeroing the asset from his firm’s top vehicle, the Total Return Fund. With nearly $240 billion in assets at the time, the fund comprised a quarter of the company’s investment portfolio. But Total Return missed out on some mega-returns when the bottom didn’t fall out of the government bond market, as Gross predicted. In August he admitted his gross miscalculation and two month later, issued a letter titled ‘Mea Culpa’. The crow diet, however, didn’t stop investors from exiting Total Return, never to return. As Mr. Gross knows, zeroing one's risk also zeroes any rewards that come with taking it.

• January 9 -15, 2012

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12 and a seemingly infinite sense of credit entitlement prevailed.” Result: “the world turned upside down ... We can now consider the image of Western delegations heading to emerging countries to plead, cap in hand, for financial support, both direct and through the IMF.” Touché: last year the EU, in private and through IMF Managing Director Christine Lagarde, asked China to help keep its government securities and currencies afloat by buying its bonds. Visiting Berlin last June, Chinese Premier Wen Jiabao was happy to oblige. “When Europe is in difficulty we will extend a helping hand from afar,” Wen said at a joint press conference with German Chancellor Angela Merkel. “We will, according to need, definitely purchase certain amounts of sovereign debt.” To be sure, China or any other cash-rich country, for that matter, won’t lend a hand out of altruism, as longtime Asia hand Philip Bowring argues in his Wall Street Journal column, "Europe Doesn’t Need China’s Money." Beijing, he says, needs to buy euro to keep its renminbi from getting too strong and hitting its exporters. Moreover, Chinese help would come at a price: “treatment as a market economy, ending of bans on sales of high technology, easing of pressure for yuan appreciation, and a further enhanced role at the International Monetary Fund.” Whatever the motives, nonetheless, global economic roles are reversing. And with the shift in growth and financial prowess eastward, so will investor interest. Says Goldman Sachs chief Asia-Pacific equity strategist Timothy Moe: “The structural flow of funds from developed markets into

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emerging markets will be a significant theme for the next ten to 20 years, as emerging markets are expected to contribute significantly to the growth of global GDP over the next decade.” Translation: Western capital will be chasing the higher returns offered by the East’s pace-setting economies. Of the $60 trillion in investment funds in the U.S., EU and Japan, only $1.17 trillion is in emerging market equities, notes Moe. With those economies contributing “fully half of global GDP growth this decade,” that small fraction of industrial world investments is “woefully underexposed to the most dynamic, rapidly growing part of the world — that has to change.”

Equity strategist Moe sees capital flowing to Asia

The dawn of the Asian century. Of course, the global swing to Asia began in trade half a century ago, with Japan, then the four Tiger economies of Hong Kong, Singapore, South Korea and Taiwan, and in recent decades, China and India taking bigger and bigger chunks of world exports. Business services giant Ernst & Young and think tank Oxford Economics project the Asian export juggernaut to continue through the this decade in their 2010 study, “Trading Places: The emergence of new patterns in international trade,” and its supporting country reports.

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The global economy in 2012

Here are some of the study’s key projections for 2020 with strong relevance to Asia: • Global merchandise commerce will grow 1 1/2 times to $35 trillion between 2010 and 2020, while services trade would double to around $6 trillion.

biggest boost to world trade through 2020 (see chart below from the study.)

Rise of the machines

Sectoral contribution to increases in global trade Machinery and transport Other manufactured goods Chemicals

• Rapid-growth markets will become even more dominant in world trade, with Asia leading the trade expansion.

Metals Oil and gas Food and beverages Passenger cars

• More and more Asian exports will ship within the region. The burgeoning intra-regional trade will create ‘a renewed concentration of global demand.’

2010 - 20 2000 - 10

Crude oil excl. fuels 0%

10%

20%

30%

40%

Chart from Oxford Economics

• As incomes rise in rapid-growth markets, final demand rather than factory locations will increasingly drive trade patterns between those economies. • Machinery and transport equipment, including electric consumer products like computers, TVs and home appliances, as well as industrial goods, will give the

The map below, reproduced from the study, show forecasts for 2020 of trade in goods and services between four major regions: Asia-Pacific excluding Japan, Europe, North America, and Latin America and the Caribbean. The arrows show the direction of exports from one region to another, while the circular lines represent intra-regional trade. The numbers indicate projected trade in U.S. dollars and as share of global trade.

2020 VISION Projected exports between and within regions by 2020 US$ 1,694b US$ 1,179b

US$ 1,704b

US$ 743b US$ 248b

US$ 817b

US$ 1,371b US$ 1,928b

US$ 7,955b US$ 6,154b

US$ 769b

US$ 1,963b US$ 195b

US$ 222b

US$ 325b

Regions

US$ 459b

Europe North America Asia Pacific excluding Japan Latin America and Caribbean

Chart from Trading Places, Oxford Economics

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• January 9 -15, 2012

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14

The global economy in 2012

So what’s in it for my business? With the recasting of the global economy toward emerging Asia in the decades ahead, there are three imperatives for the smart money and the dynamic, growthseeking enterprise.

get ahead of the curve and snap up quality stocks and bonds ahead of their prices being bid up by the money flood. • Enterprises and markets aiming to raise capital as Western and Japanese portfolio funds move to emerging economies, should ensure that their capital market systems and corporate governance standards are world class.

• Since economic expansion will be mainly in East Asia and other emerging markets in decades to come, industries and businesses should gear up to sell more to those countries, especially China and India (see table below on export growth forecasts).

• Get ready for the volatility that comes with every major global shift. When old Europe gave way to the continental powers of America and Russia in the first half of the 20th Century, two world wars and the Great Depression racked humankind.

• Services, too, will show rapid growth as nations and economies become more affluent and sophisticated. That means linking up with telecoms, transport, tourism, finance and other service firms in countries forecast to show high services growth (see below).

We hope for a smooth transition as Asia takes a bigger chunk of global prominence and power in the coming decades. But let’s be ready for a rough ride.

• Before the expected gush of Western and Japanese capital to the east, investors should

WHERE THE TRADE WILL GO

Projected Merchandise Growth

Growth greater than world average of 9.4%

Annual % rate of increase, 2010-2010

Flows from: US Rest of Americas China India Japan Rest of Asia Pacific Europe Russia MENA Sub-Saharan Africa

US 0.0 8.5 13.0 16.4 6.4 8.6 7.9 6.9 8.4 6.8

Rest of Americas 2.5 7.2 12.1 15.3 5.4 7.9 7.5 6.1 8.0 5.8

Projected Services Export Growth Total increase in US$ billion, 2010-20

Flows from: US Rest of Americas China India Japan Rest of Asia Pacific Europe Eastern Europe Africa and Middle East

US 85.0 34.4 31.8 16.5 33.4 188.3 5.3 21.6

China 15.6 12.7 0.0 21.7 11.3 13.0 13.2 11.7 12.5 12.0

India 15.2 13.0 18.5 0.0 11.6 13.5 13.4 12.1 13.5 12.3

Increase of $5b or less

Rest of Americas 164.4 19.5 23.1 5.0 16.5 13.2 69.3 4.5 4.7

China 52.7 29.0 12.3 21.3 234.8 74.1 1.6 30.9

Growth greater than 12%

Rest of Asia Pacific 11.7 9.5 14.3 17.0 8.1 9.3 8.9 10.8 10.0 9.6

Japan 9.7 7.1 12.1 15.5 0.0 8.0 7.0 6.1 7.3 7.7

Increase between $30b and $70b India 30.9 6.2 18.2 4.3 26.4 34.8 0.9 31.4

Japan 45.4 6.2 28.5 1.5 31.0 22.6 1.9 2.3

Europe 0.4 7.1 12.0 15.3 4.7 7.7 6.6 6.3 7.7 7.8

Russia 12.0 9.4 14.5 18.0 7.9 10.6 10.3

MENA 10.7 7.9 13.1 16.3 6.0 9.3 9.1 9.1 9.2 9.8

14.4 11.5

Increase between $71b and $160b

Rest of Asia Pacific 85.0 15.1 288.8 210.5 36.1 98.8 149.7 7.6 21.3

Europe 157.2 51.1 58.2 17.1 16.7 58.1 791.6 69.2 29.5

Estern Europe 36.4 6.2 8.2 0.7 2.0 2.3 94.1 3.6 0.1

Growth greater than 15% Sub-Saharan Africa 11.5 9.2 13.2 16.7 6.5 9.1 8.9 6.9 8.6 7.9

Total exports 10.0 8.5 13.3 16.7 6.7 9.7 8.4 7.1 9.1 7.9

Increase greater than $160b Africa and Total Middle East 10.0 35.5 538.7 5.5 226.1 21.6 397.9 25.4 304.2 1.4 114.6 49.6 546.3 74.5 1,241.7 99.9 5.4 62.5 204.2

Tables from Trading Places, Oxford Economics

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15

NEWS ON THE NET World CHINA no country for old men as government battles ‘demographic tsunami’ There is a demographic shift looming in China. A government census conducted in 2009 shows that 178 million Chinese were over the age of 60. The United Nations forecasts that number could balloon to 437 million by 2050, equivalent to one third of the country’s population. This shift is likely the result of urbanization and China’s one-child policy, and signals what Joseph J. Christian of the Harvard Kennedy School is calling a “demographic tsunami.” In the past, he says, the elderly could count on their children to look after them; since the onechild policy, however, the tradition of family care has broken down and the “whole multi-generational housing model has disappeared.” In an interview with the Asian Scientist Magazine, an online publication for researchers and healthcare professionals, among others, Ninie Wang, founder of Pinetree Senior Care Services in Beijing, says that “elderly health care is in its infancy.” Pinetree Senior Care Services employs just 500 nurses for 20,000 seniors, a stark illustration of the growing immensity of the problem.

The

U.S. companies add 325,000 to payrolls in December he US labor market picked up momentum leading into 2012, adding more workers on payroll than initially forecast for December, according to this report by Bloomberg. An increase of 325,000 was recorded – the highest since 2001 – and proved to exceed the highest projection in a previous survey done by Bloomberg based on the estimates of 38 different economists. New Jersey-based ADP Employer Services reflected the recent labor market gain in a report released last Jan. 5. The US Labor Department also released a report showing a decline of 15,000 of first-time claims for jobless benefits from the last week’s 372,000. Over the past four weeks, the average fell to its lowest level in more than three years.

South Korea eyes good relations with the North

S

outh Korean Foreign Minister Kim Sung-Hwan reached out to the North last January 5 and indicated that the South was willing to work on improving the relationship between the neighboring countries. Despite the communist country’s statement

cenSEI Report

vowing to never deal “with the Lee Myung-bak group of traitors,” and young successor Kim Jong-un’s apparently meticulous leadership style, the official stand of both countries is that they are both committed to reuniting after more than six decades of conflict and separation. South Korean Unification Minister Yu Woo-ik also said that the North “seems to be focused on solidifying the new leadership under difficult conditions” and that the South should “make good choices about the future and bring about peace, prosperity and eventual reunification of the Korean peninsula.”

• January 9 -15, 2012


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NATION

The ₱1.8-Trillion Question

Will the budget be spent on time to lift the economy? By Verbo Bonilla

STRATEGY POINTS With the global slump, we can't afford a repeat of budget underspending. Nearly P440 billion is earmarked to boost industry and agriculture. Budget czar Abad expects more than 2,000 projects to start after March. Let's hope so.

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With the world economy due for a further slowdown, if not a slump, this year (see World story), the Philippines will need to lean on domestic spending to manage decent growth in 2012. And with local businesses and consumers constrained by the global downturn, the economy’s expansion largely depends on government outlays. That makes the General Appropriations Act of 2012, signed into law last December 15, pretty much the only economic growth formula this year — assuming the GAA’s ₧1.8-trillion budget would be spent as programmed. That wasn’t done with the

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The ₧1.8-trillion question

outlays in 2011, when underspending contributed to the sharp deceleration in real gross domestic product, to 3.7% inflationadjusted growth, as the Asian Development Bank projects, from more than 7.6% in 2010 — the biggest slowdown among the region’s economies.

bonanza would also erect long overdue infrastructure needed to lure investors and tourists, expand production and markets for farming and fishing, and address the country’s biggest competitiveness drawback.

So what are the highlights of the Budget Secretary Florencio Abad took pains 2012 national budget, and what else to assure economy watchers that the budget should we be looking for in it? How far or would be spent as planned this time. For how close are the GAA’s pesos and centavos starters, he told media, nearly ₧142 billion to the government’s avowed development in budgetary allotments for infrastructure goals and priorities? And will the budget’s alone would be ‘comprehensively released’ major programs and projects truly address in January, compared with August last year. the country’s needs, especially in alleviating poverty and The Department boosting growth, SLICING UP THE PIE of Budget and productivity, and Proposed 2012 National Budget Management competitiveness? Breakdown by Sector (in billion pesos) statement added We’ll see. that 93% of the 114.4 568.6 6% 2,187 projects in Dividing the 31% 338.1 this year’s GAA were 19% ₧1.8-trillion pie. already bid out and At ₧1.816 trillion, should get notices the national to proceed in the budget for this first quarter. Last year is 10.4% 356.1 week another DBM higher than the 20% 438.8 statement estimated 2011 budget of 24% that a quarter of the ₧1.645 trillion. Social Service Economic Services 2012 budget — nearly Based on DBM Debt Servicing General Public Services ₧440 billion — would data, the Social Defense go to infrastructure, Services sector, agriculture, tourism including health, Breakdown by Expense Class and economy-boosting projects (see budget education, social welfare and housing, 280.3 593.3 sectoral breakdown chart). will receive the bulk of the budget at 15% 33% ₧568.6 billion, followed by Economic All those figures are welcome numbers Services (agriculture, trade and industry, amid the global economic gloom — as long tourism, energy, public works and as the outlays are actually spent. Not only transport) with₧438.8 billion. The amount, would massive public works and other state as well as the percentages allotted for outlays create jobs and boost incomes and the other sectors, are indicated below enterprises hurting from the slowdown in a pie chart detailing budget breakdown 942.4 in exports and remittances. The 52% building by sector. Personal Services MOOEs Capital Outlays and Net Lending

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• January 9 -15, 2012

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18 In terms of expense class, Maintenance and Other Operating Expenses (MOOE) take up more than half the pie at ₧942.4 billion;

Department of Public Works and Highways, with P125.7 billion, and the Department of National Defense, with P108.1 billion.

WHERE THE MONEY IS SUPPOSED TO GO

Breakdown by Expense Class 280.3 15%

593.3 33%

1,200.0

1,148.0

1,000.0

962.1 817.4

800.0 600.0

357.1

400.0

942.4 52%

291.6

200.0

Personal Services MOOEs Capital Outlays and Net Lending

333.1

300.0

294.2

287.1

74.2

43.3 25.8

0.0 NG Agencies

GOCCs

2012

LGUs

2011

Creditors

2010

Source: DBM, BESF 2012, Table B9

Personal Services account for a third at ₧593.3 billion; and, finally, Capital Outlays comprise 15% at ₧280.3 billion. In terms of recipient entities, local government units (LGUs) will receive an allocation of ₧291.6 billion, the bulk of which is comprised of the ₧273.3-billion internal revenue allotment. There is a 40% increase in budgetary support to government-owned and controlled corporations (GOCCs) from this year’s ₧25.8 billion to ₧43.3 billion in 2012. The agency with the biggest allocation remains the Department of Education with ₧238.8 billion (inclusive of the School Building Fund), inasmuch as the Constitution requires giving budgetary priority to education. It is followed by the

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The Department of Interior and Local Government, with ₧99.8 billion, and the Department of Agriculture, ₧53.3 billion, round out the top five departments in terms of budgets. The ranking of departments in terms of budget allocation is reflected in the table below. (The breakdown of the national budget is as yet unavailable from the DBM website, but while the figures cited in the list below are based on the proposed National Expenditure Program and not on actual 2012 budget figures, the differences between the proposed and the actual budget figures will not be enough to affect the rankings.) The strategic goals behind the budget gold. Is the budget merely a consolidation

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The ₧1.8-trillion question

of disparate projects from individual government agencies? With such large amounts involved, the budget should be guided by strategic policy, and every item ought to contribute to the attainment of

overarching national goals. In the 2012 Budget Message, government discloses this strategic outlook, with President Aquino saying that the national expenditure program is a “results-focused budget”

Expenditure Program by Department/Special PURPOSE

Approved allocations in 2010 and 2011, proposed in 2012, in million pesos

2010

2011

2012

A. Departments Department of Education Department of Public Works and Highways Department of National Defense Department of the Interior and Local Gov't Department of Agriculture Department of Social Welfare and Development Department of Health Department of Transportation & Communication State Universities and Colleges Department of Finance Department of Agrarian Reform Department of Environment & Natural Resources Department of Foreign Affairs

817,428 191,106 141,779 109,986 95,320 34,825 16,054 25,308 20,656 26,710 19,695 10,399 11,884 9,774

805,429 206,271 110,630 104,670 88,114 35,198 34,349 33,132 32,346 23,725 12,226 16,705 11,596 11,101

940,984 228,871 125,542 106,914 96,186 54,067 49,424 43,396 34,574 23,609 23,065 18,283 17,479 10,988

Other Departments… Autonomous Region in Muslim Mindanao

10,690

11,853

12,469

The Judiciary Commission on Elections Congress of the Philippines Other Offices…

15,015 12,841 9,263

14,307 2,381 8,723

13,706 9,990 8,878

B. Special Purpose Funds Budgetary Support to Gov't Corporations Allocations to Local Government Units Miscellaneous Personnel Benefits Fund Retirement Benefits Fund Priority Development Assistance Fund Tax Expenditure Fund Debt Service Fund-Interest Payment

655,549 74,164 287,142 0 0 0 0 294,244

839,561 25,782 300,046 70,657 35,000 24,620 15,000 357,090

875,016 43,250 291,615 101,490 34,438 24,890 33,043 333,107

GRAND TOTAL

1,472,977

1,645,000

1,816,000

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20 • ₧12.3 billion for flood-control projects.

formulated under the framework of his Social Contract with the Filipino People and the Philippine Development Plan (PDP) 2011-2016. Under the aforementioned framework, the 2012 expenditure program has the following five priorities: 1. Transparent, accountable and participatory governance; 2. Poverty reduction and empowerment of the poor and vulnerable; 3. Rapid, inclusive and sustained economic growth; 4.Just and lasting peace and the rule of law, and; 5.Integrity of the environment and climate-change adaptation and mitigation. Among the big-ticket items in the national budget are the following: • ₧39.5 billion for the cash transfer Pantawid Pamilyang Pilipino Program; • ₧22.1 billion as strategic support for Public-Private Partnerships (PPP); • ₧2.9 billion for major ICT governance projects; • ₧24.8 billion for the construction and rehabilitation of irrigation systems; • ₧1.8 billion for the Payapa at Masaganang Pamayanan (PAMANA) program, which aims to build peaceful communities in conflict affected barangays, and;

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Presumably, the national budget will be instrumental in attaining the following strategic goals laid out in the PDP 2011-2016: • Economic growth of 7%-8% for at least six years; • Growth that generates mass employment (at least a million per year), and; • Growth that reduces poverty, including the achievement of Millennium Development Goals (MDGs). Certainly, growth and employment can be achieved with just about any budget, but meeting specific growth and employment levels consistently for six years requires adept fiscal management and governance. The same can be said of our country delivering on our MDG commitments, even with a large budget provision for social services, including the allocation for the conditional cash transfer (CCT) program. Whether or not the government can deliver on these goals with its national budget and strategic framework is another matter best left for future reckoning. What about universities and calamities? Among the contentious items in the 2012 national budget are: • The ₧39.5-billion allocation for CCT, also called the Pantawid Pamilyang Pilipino Program, up 86% from P21.2 billion this year. Cited in a past article in The CenSEI Report, studies by the ADB, the World Bank, and the U.N. Development Programme raised questions about CCT implementation and effectiveness, such as lack of empirical evidence of its long-term impact, the dependency it promoted among

BUSINESS

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The ₧1.8-trillion question

beneficiaries, and alternatives with possibly higher economic payoffs. • A further CCT issue is the criticism from Social Watch Philippines, a nongovernment organization addressing poverty and development concerns, that too much of the Department of Social Welfare and Development budget goes to CCT, to the neglect of other DSWD mandates. The SWP position paper notes that fourfifths of the department’s unprecedented ₧49.2-billion budget goes to CCT, administered by Secretary Corazon Soliman’s office. That leaves barely one-fifth of the social welfare pie for other programs including disaster relief and aid to children, youth, and the disabled. Calamity victims get less than 0.1%. • The ₧23.6-billion allocation for 110 state universities and colleges (SUC) in 2012 from this year’s ₧23.7 billion, which students and SUC officials decry as a ₧146.6-million budget cut. To decry what “the dwindling budget for tertiary education”, a series of protests were held in various SUCs late last September. The protesters also complained about the continuous decrease in real terms of state support to the SUCs, with an Associate Dean of UP Diliman defending the move by citing the shrinkage in subsidy “from around 87.7% to only 65.6% of the budget of these institutions” over recent years. Budget Secretary Abad contends, however, that “there is no budget cut” and that, in addition to the ₧23.6 billion, another ₧2 billion has been lodged with the Miscellaneous Personnel Benefits Fund for unfilled positions in the SUCs, as well as another ₧500 million under CHED for “SUC development.” In effect, he says, the 2012

The

allocation for SUCs is already 10.1% more than this year’s budget. Explains Sec. Abad, “If they define ‘budget cut’ as the difference between what they proposed and what was included in the proposed budget, then the whole government got a ‘budget cut’.” Other discretionary funds. The President’s discretionary funds — outlays requiring approval from the Office of the President — could amount to at least P298 billion in the proposed 2012 budget. An ABS-CBN News article lists the following components of this “largesse”: Contingent Fund ₧1 billion; Calamity Fund ₧7.5 billion; Lawmakers Priority Development Assistance Funds (PDAF) ₧24.89 billion, Unprogrammed Fund₧161.69 billion; the Deped Educational Facilities Fund ₧1 billion; the ₧329-million budget for conflict-ridden villages (lodged in the Office of the President); and Malacañang’s own P666 million in intelligence funds. Such lump-sum discretionary money is usually scrutinized since these represent allocations open to abuse and possibly exploited by the President for political influence. As pointed out by the ABS-CBN article, the PDAF, or pork barrel, “is widely perceived to be Malacañan's dole-out to lawmakers to ensure their continued support.” It is not directly released to the lawmakers but instead is used to fund projects they identify. The Contingent Fund, on the other hand, may be used to “fund the requirements of new and/or urgent projects and activities that need to be implemented during the year,” as well as to fund local and foreign travels of the President. The descriptions and uses of the other discretionary funds are found in the included links above.

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22

Debt Service Payments. The annual level of debt service payments is always carefully studied because it represents amounts which could otherwise be spent on government projects instead of given to creditors. The ₧356.1-billion appropriation for interest payments, about 20% of the 2012 national budget, represents a slight decrease from last year’s programmed ₧357.1 billion, which was about 22% of the 2011 budget. Beside is a table of debt interest payments our government made over the years from 2000 to 2010. Relatedly, a provision introduced by the Philippine Senate in the 2012 budget to limit the indebtedness of the government to 60% of economic output or gross domestic product was vetoed by the President. In his veto message, President Aquino stressed that “a change in our borrowing policy ought to be more deliberately discussed and embodied in a separate substantive law.” Further, he said, “no fiscal rule can take the place of government’s unwavering commitment to fiscal prudence and discipline.” Budget Secretary Abad also explained the presidential veto, “The Executive should be given flexibility in managing its finances and in borrowing responsibly in order to stimulate economic growth and provide ample social services to the poor.” The said veto on the debt cap provision, however, was promptly slammed by urban poor groups and other progressive organizations as “anti-poor.” A youth group spokesperson lamented that instead of increasing funding for social services, “Aquino chose to divert two-fifths of the public’s money to big banks, investment corporations, and institutions.”

2000

2011

Domestic

93,575

112,592

Foreign

47,319

62,242

Total Interest Payments

140,894

174,834

21.7%

24.5%

2000

2011

Domestic

1,068,200

1,247,683

Foreign

1,098,510

1,137,234

TOTAL

2,166,710

2,384,917

GDP

3,580,714

3,888,801

0.61

0.61

As % of NG budget

Debt- tp-GDP

10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0

The table and graph beside show outstanding debt of the government being kept below 60% of GDP in recent years. It is considered sound fiscal policy to keep debt levels within the ability of government to pay off its obligations.

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2000

Debt-to-GDP

TECHNOLOGY

2001

2000

2011

0.61

0.61

200


The ₧1.8-trillion question

IN AND OUT OF THE DEBT TRAP Total Interest Payments 2000-2010 (₧ million)

2002

2003

2004

2005

2006

2007

2008

2009

2010

119.985

147,565

169,997

190,352

197,263

157,220

170,474

164,703

175,673

65,876

78,843

90,904

109,455

112,845

110,580

101,744

114,163

118,571

185,861

226,408

260,901

299,807

310,108

267,800

272,218

278,866

294,244

23.6%

27.0%

29.2%

31.1%

29.7%

23.2%

21.4%

19.6%

19.3%

Total National Government Debt ( ₧ million)

2002

2003

2004

2005

2006

2007

2008

1,471,202

1,703,781

2,001,220

2,164,293

2,154,078

2,201,167

2,414,428

2,470,040 2,718,202

1,344,266

1,651,327

1,810,734

1,723,938

1,697,428

1,511,320

1,806,475

1,926,600 1,999,969

1,815,468

3,355,108

3,811,954

3,888,231

3,851,506

3,712,487

4,220,903

4,396,640 4,718,171

4,198,245

4,548,102

5,120,435

5,677,750

6,271,157

6,892,721

7,720,903

8,026,143 9,003,480

0.67

0.74

0.74

0.68

0.61

0.54

0.55

02

2009

2010

0.52

0.55

GDP Outstanding Debt

2003

2004

2005

2006

2007

2008

2009

2010

2002

2003

2004

2005

2006

2007

2008

2009

2010

0.67

0.74

0.74

0.68

0.61

0.54

0.55

0.55

0.52

Chart from Bureau of the Treasury, NG Debt Indicators

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24

The ₧1.8-trillion question

Addressing underspending. While this issue is not exactly a feature of the expenditure program, it is nonetheless relevant, especially since it calls into question the very act of allocating all these figures in the budget. If the amounts are not going to be spent, what is the use of putting them there in the first place? According to the DBM Assessment of Disbursements as of November 2011, by November 30 of last year, government has already spent ₧1.346 trillion, or about 87% of the ₧1.554-trillion spending program for the year. For the month of November alone, government spent ₧39.7 billion, equivalent to about a 35.7% hike in spending compared to what was spent in the same month last year. The large hike in spending in November, however, only underscores the catching-up that government has to do with regard to its spending program. The Aquino government has been criticized for its inability to use its budget, particularly in implementing its infrastructure projects. In response to criticisms, the government announced what it initially called a ₧72-billion stimulus package. The Budget Department has since more correctly termed the package a “disbursement acceleration plan,” since no additional funds have actually been approved for government use. Economist and former Budget Secretary Benjamin Diokno, in a Malaya column, cautioned government against spending

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for spending’s sake just so it can “show a higher spending performance.” Diokno listed several examples where, at the end of 2011, government poured funds on “socially inferior and unplanned programs and projects” that will have little macroeconomic effect. The slowdown of the Philippine economy has been pinned on government and its inability to implement its programs and projects. According to the National Statistical Coordinational Board, the economy grew by a modest 4.9% in the first quarter, decelerated to 3.4 % in the second quarter and skidded to 3.2% in the third quarter of 2011. Each quarterly report cited government underspending as one of the factors for the low economic growths. Diokno, in his BusinessWorld column, estimates the Philippine economy will grow by a mere 3.7%, much lower than the government’s 5% growth target and best-case scenario of 7-8% in 2011. Has the government learned its lesson after chasing a sharply lower budget deficit at the expense of public sector programs and economic growth? Budget Secretary Abad’s New Year statements give assurances that 2012 will see accelerated spending to spur growth and deliver services and facilities to the people. Let’s hope the Aquino Administration puts its money — all ₧1.812 trillion — where Sec. Abad’s mouth is.

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Rescue and response 101

Rescue and Response 101 The strategic plans for disaster risk reduction By Verbo Bonilla

STRATEGY POINTS The national acton plan and strategic framework for disaster risk reduction must be reviewed and constantly updated to prevent another Sendong. Most importantly, disaster response plans and frameworks must be carried out.

The

According to a January 4, 2012 situational report from the National Disaster Risk Reduction and Management Council, Typhoon Sendong (Washi) left about 1,257 people dead and 4,658 missing, in addition to more than a billion pesos of damages in infrastructure and agriculture. In the aftermath of the typhoon, President Benigno Aquino III ordered a review of the government’s disaster response manual to “prevent unnecessary loss of lives.” Malacanang also disclosed that the President wants “a more accurate and effective typhoon tracking system” so that communities along the typhoon path would have enough time to prepare for such eventualities.

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26 President Aquino’s order has put the spotlight on existing documents which currently guide government agencies and other stakeholders concerned in preparing for, responding to and managing disasters. Aside from the Philippine Disaster Risk Reduction and Management Act of 2010, two documents which may be called “manuals” for disaster risk reduction and management are the National Disaster Risk Reduction and Management Framework and the Strategic National Action Plan (SNAP) on Disaster Risk Reduction 2009-2019. Pertinent features of both the NDRRM Framework-signed and approved in June 2011-- and the SNAP- published in April 2009-are provided below for the benefit of our readers. As a follow up to this article, the CenSEI Report will feature next issue the pertinent provisions of the law on disaster risk reduction and its implementing rules and regulations.

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National Disaster Risk Reduction and Management Framework

Prevention and Mitigation

Avoided hazards and mitigated their potential impacts by reducing vulnerabilities and exposure and enhancing capacities of communities

Preparedness

Established and strengthened capacities of communities to anticipate, cope and recover from the negative impacts of emergency occurrences & disasters

Response

Provided life preservation and met the basic subsistence needs of affected population based on acceptable standards during or immediately after a disaster

Rehabilitation and Recovery

Restored and improved facilities, livelihood and living conditions and organizational capacities of affected communities, and reduced disaster risks in accordance with the “building back better” principle

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Rescue and response 101

The NDRRM Framework provides an approach to disaster risk reduction and management, based on the four interrelated aspects of (1) Prevention and Mitigation; (2) Preparedness; (3) Response; and (4) Rehabilitation and Recovery.

Key Result Areas

1. Mainstreamed and integrated DRR & Climate Change Adaptation (CCA) in national, sectoral, regional and local development policies, plans and budget 2. DRRM/CCA sensitive environmental management 3. Increased disaster resiliency of infrastructure systems 4. Community based and scientific DRR/CCA assessment, mapping, analysis and monitoring 5. Risk transfer mechanisms 1. Community Awareness and understanding of the Risk Factors 2. Contingency Planning at the local level (to include Incident Command System, Early Warning Systems, Pre-emptive evacuation, stockpiling and equipping) 3. Local drills and simulation exercises 4.National disaster response planning 1. Damage and needs assessment as a generic activity 2. Relief operations 3. Search, rescue, retrieval 4. Dissemination/information sharing of disaster-related information 5. Water, sanitation and health 6. Development/provision of temporary shelter 7. Psychosocial support 8. Early recovery mechanism 9. Management of dead and missing 10. Evacuation management 1. Livelihood (1st priority) 2. Shelter (2nd priority) 3. Infrastructure (3rd priority)

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The DRMM framework strategy 1.Advocacy and Information, Education and Communication (IEC)

Mobilize and harness the print and broadcast media to regularly communicate, warn and educate people nationwide about DRRM.

2.Competency-based capability building

Develop customized training programs on the needed skills in the different DRRM aspects

3.Contingency Planning

Regularly hold and update contingency planning Integrate DRR concepts in the curriculum and for the public sector employees

4.Education on DRRM and CCA for all

Create permanent local DRRM offices and functioning councils at the local level to sustain DRRM-related activities, plans and programs

5.Institutionalization of DRRMCs and LDRRMOs

Include DRRM and CCA in the programs, plans, projects of national and local government units, including the private sector groups

6.Mainstreaming of DRRM in all plans

Research, innovate, adapt and maximize the use of resources to help the cause of DRRM

7.Research, Technology Development and Knowledge Management

Institute feedback mechanisms to gauge performance targets and learn from experiences on the ground

8.Networking and partnership building between and among stakeholders, media and tiers of government

Build effective and mutually reinforcing partnerships and evolving networks to ensure multi-stakeholder and multisectoral participation of different players in DRRM

Strategic National Action Plan (SNAP) on Disaster Risk Reduction, 20092019. The SNAP is a 10-year roadmap for Philippine DRRM containing specific programs, activities and desired outputs, as well as assigned lead and responsible government agencies. It identifies 18 priority programs and projects based

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on the five priorities under the Hyogo Framework for Action, the global blueprint for disaster risk reduction adopted by governments around the world. Some priority programs/projects and activities are listed in the succeeding matrix.

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Rescue and response 101

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National Government Agencies:

Acronyms & Abbreviations:

AFP Armed Forces of the Philippines CSC Civil Service Commission DAP Development Academy of the Philippines DBM Department of Budget and Management DENR Department of Natural Resources DepEd Department of Educationh DILG Department of Interior and Local Government DOE Department of Energy DOF Department of Finance DOH Department of Health DOST Department of Science and Technology DOTC Department of Transportation and Communications DPWH Department of Public Works and Highways DSWD Department of Social Welfare and Development GSIS Government Service Insurance System HLURB Housing and Land Use Regulatory Board NAPC National Anti-Poverty Commission NDCP National Defense College of the Philippines NEDA National Economic and Development Authority OCD Office of Civil Defense PCIC Philippine Crop Insurance Commission PDIC Philippine Deposit Insurance Corporation PIA Philippine Information Agency PICE Philippine Institute of Civil Engineers

ASEP Association of Science Educators in the Philippines CCA Climate Change Adaptation CSO Civil Service Organization DMO Disaster Management Office DRR Disaster Risk Reduction ICS Incident Command System IEC Information, Education and Communication LCF Local Calamity Fund LCP League of Councilors of the Philippines LDCC Local Disaster Coordinating Council LDRRMO Local Disaster Risk Reduction Management Office LGU Local Government Unit LMP League of Municipalities of the Philippines LPP League of Provinces of the Philippines NDRRM National Disaster Risk Reduction Management PNRC Philippine National Red Cross PPP Public-Private Partnership SAR Search and Rescue SNAP Strategic National Action Plan SOP Standard Operating Procedure SSS Social Security System

STRATEGIC NATIONAL ACTION PLAN HIGHLIGHTS Program/ Project

Objective

Activities

Output

Agency of Primary Partners Responsibility

I. ENABLING ENVIRONMENT. Adopt a responsive policy and legal framework which creates an enabling environment for all Filipino citizens and the government and guides them towards reducing losses from disaster risk. (p. 44, SNAP) Institutionalization of Disaster Management Office

Promote the establishment of DMOs at locallevels, especially in high risk LGUs

Short term (2009-2010) - Inventory of functional LDCCs - Identification of existing DMOs in the country - Prioritization of LGUs that require DMOs

DMOs established (facility, manpower and budget)

DILG

DBM OCD NEDA CSC LPP LCP LMP LB

Enhancing Capacity Development for LDCCs

Enhance capacity of LDCCs to fully implement DRR programs and projects

Short-term to Long term (2009-2019) - Continuous conduct of trainings (i.e. geographic information system, skills training, etc. - Standards setting in the development of training

LDCCs are self reliant and capacitated (trained, equipped, prepared for response)

DILG

PNRC LPP LCP LMP LB CSOs

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modules and Standard Operating Procedures (SOPs) - Search and Rescue (SAR) equipage - Establish protocols and procedures on incident command system (ICS)

II. FINANCIAL AND ECONOMIC SOUNDNESS. Pursue ways and means to offset socio-economic losses from disasters and prepare the nation for disaster recovery. (p. 46, SNAP) Public-Private Partnership (PPP)

Establish an enabling environment with innovative instruments for creating space for the private sector to increase its contribute to risk reduction activities

Short-term (2009-2010): - Develop a manual on DRR for private sector, NGAs, and LGUs - Engage telecommunication firms as partners on DRR advocacy Medium-term (2011-2015): - Establish policies on handling disaster management fund and contributions by businesses industries and private sector

Partnership arrangements among stakeholders established through memoranda of agreement or understanding forged with business sector, NGOs and other groups

DILG

DBM OCD NEDA CSC LPP LCP LMP LB

Inventory of available resources for DRR

DBM

DOF NEDA OCD

Long-term (2016-2019): - Develop SOPs on monitoring, warning, and response for LDCCs and organizations working on DRM (pre, during and post-disaster periods). Resource Mobilization

Develop common understanding of resource needs for disaster mitigation and preparedness Institutionalize DRR into day today business, policies and actions of organizations

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Short-term (2009-2010): - Inventory of available resources and generation of other sources that support mainstreaming of DRR - Develop manuals and protocols for the proper utilization of available resources - Generate funds from private sector and other stakeholders including funding support from international

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GSIS PCIC SSS PDIC


Rescue and response 101

Resource Mobilization

Develop common understanding of resource needs for disaster mitigation and preparedness Institutionalize DRR into day today business, policies and actions of organizations

donors for DRR activities and other mitigation measures - Evaluate the use of local calamity funds (LCF) - Develop directory of available financing windows for LGUs

Inventory of available resources for DRR

DBM

DOF NEDA OCD GSIS PCIC SSS PDIC

Medium-term (2011-2015): - Educate and promote insurance schemes among farmers, local communities and responders

III. SUPPORTIVE DECISION-MAKING AND AN ENLIGHTENED CITIZENTRY (SCIENCE-BASED DECISION-MAKING AND LEARNING LESSONS). Use the best available and practicable tools and technologies from social and natural sciences to support decisionsby stakeholders in avoiding, preventing, and reducing disaster impacts. (p. 46, SNAP) Information and Database Generation

Organize data collection and dissemination processes according to risk knowledge needs and develop information systems to support decision makers

Medium-term (200112015): - Develop inventory of elements at risk (i.e. critical infrastructures such as hospitals and schools) - Generate/update topographic/base maps and nautical charts - Devise a disaster information management system to handle database, profiling, and statistics - Devise mechanism to organize databank and share information for rapid/joint damage needs capacity assessment

Disaster information management system with updated data sets

OCD

DENR DSWD DPWH DILG DOH DOTC AFP NEDA

DRR enlightened citizenry

DOST DENR

DSWD DOE OCD PNRC

Long-term (2016-2019): -Develop disaster information and database at all levels - Develop and adopt a common spatial database Knowledge Management

Ensure appropriate information and data are

The

Short –term (2009-2010): - Map out available knowledge resources

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32

shared with all stakeholders.

Medium-term (2011-2015): - Collate and disseminate good practices on DRR for replication Long-term (2016-2019): - Support reflective learning and dissemination of DRR information

Support DRR Mainstreaming through Sectoral Approach

Ensure the implementation of the national DRR policy through its integration into the sectoral plans and programs.

Short-term (2009-2010): - Institutionalize disaster management system at local levels - Integrate DRR into the Comprehensive Land Use Plan (CLUP) vis-avis DRR in LGUs local planning processes - Review city/municipal land use plans taking into account the areas risk profile - Integrate contingency planning in CLUPs

Decisions supported by tools and technologies that facilitate the financial and economically sound mainstreaming of DRR

OCD

Enhanced preparedness strategies including coordination mechanism and infrastructure

OCD

DILG DOST DOE NEDA HLURB NAPC

Medium-term (2011-2015): - Formulate a national framework for climate change adaptation and DRR for LGUs Preparedness for Effective Disaster Response

Enhance disaster preparedness capacities and requirements including multistakeholder coordination

Short –term (2009-2010): - Establish joint and collective inter-agency mechanisms - Evaluate implementation of contingency planning in LGUs - Conduct scenario-based simulation exercises Medium-term (2011-2015): - Construct multi-purpose structures with adequate facilities which can also serve as evacuation centers - Establish inter-regional disaster response system

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DSWD DOH DPWH AFP PNRC DOST DepEd


Rescue and response 101

IV. SAFETY AND WELL-BEING ENHANCEMENT. Increase capacity, reduce vulnerability and achieve improved public safety and Information, Education and Communication (IEC) Campaign

Increase the level of DRR awareness and competencies of concerned stakeholders

Short-term (2009-2010): - Assess the level of DRR awareness and ongoing activities e.g., “‘Pag Alerto” Campaign - Draw up guidelines for national, regional and local awareness campaigns based on results of survey and review

A comprehensive national DRR IEC program developed and implemented

PIA

DILG DepEd DOST DENR DOH OCD

Education and Research

Provide means to advance knowledge and application for DRR

Education Short-Term (2009-2010): - Develop DRR publications and training materials - Integrate DRR subjects in tertiary education curriculum; modules for primary and secondary schools - Support teachers’ training program with technical assistance from DRR experts and warning organizations

Disaster risk reduction and other human resources

DepEd CHED

DOST DENR DILG DOH PNRC DAP NDCP

Medium-term (2011-2015): - Develop human resources through specialized courses on DRR - Establish a National DRR Training Institute Medium-term (2011-2015): - Formulate a national agenda for research and technology development on DRR - Conduct research on identification of development sectors, ecosystems, and geographical areas most vulnerable to climate change and impact prediction

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Rescue and response 101

Forecasting and Early Warning

Enhance monitoring, forecasting, and warning of hazards.

Short-term (2009-2010): - Institutionalize public announcement systems and local emergency broadcast system Medium-term (2011-2015): - Develop localized disaster early warning systems

Enhanced monitoring, forecasting and hazard warning

DOST

DILG DOH DENR DOST OCD PNRC PIA

Risk Evaluation

Identify, assess, and monitor risk

Medium-term to LongTerm (2011-2019): - Conduct hazards mapping and assessment at town/city to barangay levels - Conduct vulnerability assessment on a regular basis

Assessed risks that need monitoring

DILG

DENR DPWH DSWD DOST NEDA PICE ASEP

V. EVALUATION AND MONITORING OF DRR. Monitor progress and prepare better for disasters. (Stakeholders are representativesof all governmental and non-governmental agencies and organizations with a role in disaster preparedness, from disaster risk reduction and disaster response.) (p. 49, SNAP) Development of Tools for Assessment and Monitoring of DRR Measures

Equip stakeholders with appropriate assessment and monitoring tools to deal with underlying risk factors

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Short-term (2009-2010): - Formulate M&E manuals, tools and procedures to assess benefits and impacts of DRR programs and projects

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DRR Monitoring and evaluation (M&E) tools

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DENR DOST DBM


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NEWS ON THE NET Nation Gov't says it's ready to spend

T

he Philippine government will begin spending for its infrastructure projects this early and will release a chunk of the P1.816 trillion national budget for 2012 this January, according to a BusinessWorld report. The Department of Budget and Management said the initial projects include building of roads, school facilities, ports and water supply systems. The government has been criticized for underspending and for contributing to the country’s slow economic growth, as shown by lackluster quarterly GDP reports. The government also recently said that it will spend P141.8 billion on infrastructure to reverse the economic slowdown.

HDO on GMA

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he Sandiganbayan Fourth Division rejected the government's prayer for a warrant of arrest to be issued against former President and now Congresswoman Gloria Macapagal Arroyo and her other co-accused in the graft case relating to the cancelled NBN-ZTE broadband project. The graft court ruled that due process of law must first be accorded to the accused before a determination of probable cause may be made. However, the same court issued a hold-departure order against Arroyo, Jose Miguel Arroyo, former Comelec Chairman Benjamin Abalos Sr. and former DOTC Secretary Leandro Mendoza. The Malacañang Palace, according to a report by InterAksyon.com, welcomes the hold-departure order and views it as a fallback if the Supreme Court junks the Justice Department’s watch list order.

The

'Report on lack of progress on human rights baseless' In this news report by The Philippine Star, the Armed Forces of the Philippines belied a report of Human Rights Watch, a New York-based human rights watchdog, that the Philippine government and its military has failed in their commitment to address the issue of human rights violation in the country. The AFP countered the report saying that all efforts are taken in educating the troops on the government's policy against all kinds of violence while pursuing lawless elements all over the Philippines as well as against extra-judicial killings and enforced disappearances. A separate report of Human Rights Watch titled, “No Justice Adds to the Pain,” purportedly details “strong evidence” of military involvement in several killings and disappearances since the start of the Aquino Administration.

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BUSINESS

The Golden Chains

Gearing up to become the region's franchising hub By Joanne Angela B. Marzan

STRATEGY POINTS The Philippines has 1,093 franchisors, who at present collectively account for: • 5% of the country's gross domestic product, highest in Southeast Asia • 29% of the country's retail sales in 2010.

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In this country, when you see a king-size bee in what appears to be a bright red tuxedo and yellow shoes, you don’t reach for the bug spray, you shout “Jollibee!” The symbol of a two-branch ice-cream parlor that also offered hot meals and sandwiches in 1975 is now the mascot of a flotilla of 719 local Jollibee outlets, and 69 outlets in foreign countries, i.e., Brunei, China, Hong Kong, Qatar, Saudi Arabia, Vietnam, and the United States, according to information the Jollibee Foods Corporation provided to the Securities and Exchange Commission.

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The golden chains

The Jollibee Foods Corporation also reported over P59 billion in system-wide retail sales (including sales by other local and foreign fast-food brands that it picked up along the way) as of the third quarter of 2011. In an interview with The Manila Times in September, Jollibee Chairman and CEO Tony Tan Caktiong said that franchising (of its foreign fast-food brands) will eventually pave the way for Jollibee to become “Asia’s leading restaurant chain as well as one of the top companies of the world.” It should be noted here that he was speaking in the context of having those foreign brands contribute equally to its sales (from the current 80-20 localforeign split). Not bad for a former ice-cream parlor and lunch counter. One of the economy’s fastest-growing sectors. In the Doing Business in the Philippines: 2010 Country Commercial Guide for U.S. Companies publication prepared by the U.S. & Foreign Commercial Service and US Department of State, the Philippine franchising sector is considered “one of the fastest-growing sectors of the Philippine economy.” “Demand continues to grow for new products and services, providing new opportunities for U.S. companies. Population growth, consumer preferences, and increased economic activity contributed to the growth of franchises in the Philippines,” the report observes, adding that the Philippines’ franchising sector has grown to more than 800 franchise concepts with an estimated 100,000 franchises nationwide.

The

37

Southeast Asia’s leader in franchises. According to PFA President Elizabeth Pardo-Orbeta, who spoke with The Manila Bulletin in September, the Philippine franchising industry now accounts for 5%

Top franchises in the Philippines The Philippine Franchise Association (PFA) is the biggest franchise association in the country. It was formed in 1995 to organize homegrown and foreign franchise industry players. It is a member of the World Franchise Council and the Asia Pacific Franchise Confederation. According to its President’s Midterm Report 2009-2010, 80% of PFA members are franchisors while 20% are suppliers and allied services providers. In terms of asset size, micro-sized operations account for 8%, 26% are small-sized operations, while medium- and large-scale business account for 28% each. The food sector dominates Philippine franchises with 51%, retail is a far second with 28% and the service sector is last with 21%. Data from the PFA also reveal the top franchise brands in the country. The biggest international franchise-systems in the Philippines in terms of gross revenues and corresponding nationwide outlets are: 1. McDonald’s with US$215 million and 309 outlets; 2. 7-Eleven with US$152 million and 543 outlets; 3. Pizza Hut with US$88 million and 160 outlets; 4. Mini Stop with US$81 million and 200 outlets; 5. Starbucks Coffee with US$74 million and 175 outlets; and 6. Dunkin’ Donuts with US$30 million and 600 outlets.

of the country’s gross domestic product, from 3% in the late 1990s. The Philippines’ 1,093 franchisors have generated 124,000 franchise outlets, which employ 1.023 million people, the combination of which is enough to lead Southeast Asia in terms of franchise concept development.

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38 The 60-40 foreign-local franchise ratio that prevailed when the PFA was founded has now been reversed, she said. And apart from benefitting the domestic economy, she thinks franchising also offers the chance for the country to export Philippine brands. Filipino brands go global. The idea of exporting Filipino brands was amplified by PFA Chairperson Robert Trota in an ABSCBN News Channel interview. “I think Filipino brands are global already and it’s a time for us to show who we are. The Filipinos can Franchise leader Trota: 'Filipino brands are global' deliver global products and services,” he explained, adding that there are now more than 28 Filipino brands in the global market.

U.S., Indonesia, United Arab Emirates, and Qatar; 4.Red Ribbon, with 38 overseas outlets in the U.S.; 5.Goldilocks, with 23 overseas outlets in the U.S., Canada, and Thailand, and; 6.Max’s Restaurant with 10 overseas outlets in the U.S., Canada, and Dubai. Chowking and Red Ribbon are subsidiaries of Jollibee Foods Corporation, while Max's Restaurant is the flagship brand of Max's Group of Companies. The franchise hub of Asia? Philippine Franchise Association Chairman Emeritus and World Franchise Council (WFC) Chairman Samie Lim thinks that the Philippines is poised to become “the Franchise Hub of Asia.”

The Philippines is in what Lim considers an “enviable position,” to be able to serve “as the gateway for international and homegrown brands to reach the 600-million ASEAN market.”

The Philippines is in what Lim considers an “enviable position,” to be able to serve “as the gateway for international and homegrown brands to reach the 600-million ASEAN market.”

According to the previously mentioned WFC information, the top Philippine franchises that have penetrated the international market are: 1.Jollibee, with 69 overseas outlets in the United States, China, Brunei, Vietnam, Saudi Arabia, Qatar, and Hong Kong;

"The Philippines has 90 million people, we have the market. The other countries do not have a population that can be their market. We are also English-speaking, and that's key to franchising. The transfer of technology, reading operations manuals and business plans... all of that has to be communicated in a language,” he said in an Oct. 12 Channel News Asia article on franchising in the Philippines.

2.Bench, with 68 overseas outlets in the U.S., and the Middle East countries of Oman, United Arab Emirates, Qatar, Kuwait, Saudi Arabia, and Bahrain; 3.Chowking, with 40 overseas outlets in the

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According to WFC information released in advance of the Philippine Franchise Association’s hosting Franchise Asia 2011 in

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September, the Philippines is the only Asian country among the top five countries in terms of franchisors and franchisees. From 2000 to 2010, the number of Filipino franchisors grew by 83%, to 1,093, while the number of franchisees grew by 307%, to 124,000, second only to the United States’ 2,200 franchisors and 765,723 franchisees. Sales from the franchise sector saw an

impressive 209% increase, from US$3.04 billion in 2000 to US$9.4 billion in 2010, which accounted for 29% of the country’s total retail sales of US$32 billion in 2010. The sector also helped boost the country’s employment, posting a 273% increase in employed individuals over the last 10 years, from 274,482 in 2000 to 1,023,000 in

Eight ways to build a chain In the afore-mentioned Channel News Asia article, American sandwich chain Subway and sports bar Buffalo Wild Wings disclosed that they are looking into putting up more stores in the Philippines. Buffalo West Wings sees the country’s large population and many residential developments as key factors, while Subway wants to open outlets outside Manila. Elsewhere, American premium ice-cream brand Haagen-Dazs and doughnut company Krispy Kreme also expressed interesting in expanding their local exposure. Haagen-Dazs is aiming to open another five to 10 more outlets in the country, mainly through franchising, while the Real American Doughnut Company, the local franchisee of Krispy Kreme doughnuts, is planning to open 23 more Krispy Kreme outlets within the next five years, to add to the 26 they already have. Food-related franchises might be the most popular, for any number of reasons, but does that mean you should consider only food-related franchises? Franchise Philippines lists its top eight local franchise types in terms of their potential profitability: 1. Food Cart & Kiosk Franchise MinimumInvestment Required: P20,000 Point to consider: Minimum investment needed. Highly recommended for people who are first-time entrepreneurs.

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2. Fast Food and Restaurant Franchises Minimum Investment Required: P150,000 Point to consider: The Filipinos’ insatiable appetite. 3. Service-Type Franchises Minimum Investment Required: P2 million Point to consider: Potentially lucrative, especially in the call-center industry. 4. Personal Care Franchises Minimum Investment Required: P200,000 Point to consider: There is a growing market of men and women who like topamper themselves. 5. Bar & Café Franchises Minimum Investment Required: P250,000 Point to consider: A popular franchise, e.g., Starbucks, can generate a high return on your investment. 6. Bakery & Food Store Franchises Minimum Investment Required: P250,000 Point to consider: Pandesal will always be a part of the Filipino breakfast. 7. Education & Training Franchises Minimum Investment Required: P1 million Point to consider: There will always be a demand for a review center for licensure exams. 8. Water Refill Franchises Minimum Investment Required: P20,000 Point to consider: Clean and safe drinking water is a basic necessity.

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Trademark protection in 85 countries The Philippine Franchise Association (PFA) has been pushing for the country’s ratification of the Madrid Protocol on trademark registration. According to the World Intellectual Property Organization, the Madrid Protocol “offers a trademark owner the possibility to have his trademark protected in several countries by simply filing one application directly with his own national or regional trademark office. An international mark so registered is equivalent to an application or a registration of the same mark effected directly in each of the countries designated by the applicant.” The Joint Foreign Chambers of the Philippines also supports this move. In a press release, JFC stated that “the Philippines accession to the Madrid Protocol will allow our members to seek protection for their trademarks in 85 countries, including the United States, Australia, Japan, Korea, Singapore, the European Union, by filing a single application directly with the Intellectual Property Office of the Philippines.” In addition, the Madrid Protocol will also provide foreign investors with an “efficient and transparent infrastructure to register their marks in the country.” According to Philippine Franchise Association chairman Robert Trota, who spoke with BusinessMirror, ratification of the Madrid Protocol would mean that local brand owners need only register their brands with the Intellectual Property Office of the Philippines, and pay from P35,000 to P50,000 to have their brands registered in all the countries that are signatories to the protocol. 2010 -- accounting for more than 3% of the country’s total employment. Government support is crucial. Potential aside, for the Philippines to actually become the next franchise hub in Asia, policy support from the government is crucial, Trota says.

the only reason Hong Kong and Singapore are the destinations of choice for regional headquarters is the numerous incentives they are giving away. He also stressed the need for the government to improve the country's nautical highways in order to promote sourcing of local materials and shipping of goods within the archipelago.

“There is opportunity in Asia. They are saying that in the US and Europe, the returns are too small so they are just surviving. But in Asia and the Philippines, the growth is strong. That is why they are seeking partners here and I hope the government will help us,” he told the BusinessMirror.

The Philippines' unique qualifications. If we're to believe he Philippine Franchise Association, the Philippines appears to be uniquelyequipped to support both international and local franchises.

The government needs to grant more incentives to encourage global franchisers to establish regional headquarters in the Philippines, he elaborated, adding that

The country's general proficiency in English provides language skills needed for technology and marketing transfer involving franchises that are primarily of

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The golden chains

Western origin. Both local and international franchisors in the Philippines have a sizeable homegrown market of over 90 million people for their goods and services. For their part, Filipino brands can reach overseas markets of Filipino workers and

immigrants all over the world. If you have a promising product or a winning business model, the Philippines might just be the best place for testing it, launching it, and even taking it to the rest of the world.

Franchising 101 Franchising is the business practice of using one company’s successful business model. It is taking advantage of a proven profitable business.

FRANCHISE AGREEMENT FRANCHISOR

FRANCHISEE

Owns trademark or trade name

Uses trademark or trade name

Provides support: • (sometimes) financing • advertising & marketing • training

Expands business with franchisor’s support

Receives fees

Pays fees

Source: An Introduction to Franchising, by Barbara Beshel, International Franchise Association Educational Foundation, 2001

Buying a franchise. According to Business Link, buying a franchise is the fastest way of setting up a business. Here are the benefits of buying a franchise: 1. Your business is based on a proven idea. 2. You benefit from a recognized brand name and trademarks. 3. The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice. 4. You usually have exclusive rights in your territory. The franchisor won’t sell any other franchises in the same area. 5. Financing the business may be easier as banks are more likely to lend money to buy a franchise with a good reputation. 6. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network. 7. Relationships with suppliers have been established. On the other hand, in An Introduction to Franchising, prepared for the International Franchise Association Educational Foundation, author Barbara Beshel lists some disadvantages of buying a franchise, including: less autonomy for franchisee, payment of additional cost like royalties and advertising fees, and franchisors may impose restrictions. The publication also offers a checklist for entrepreneurs who are thinking about going into franchising.

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Trying Times for Rural Banks

To strengthen lenders, the state must help farmers By Marishka Noelle M. Cabrera

Bad loans mean bad business. No truer is this than for banks that lend to small borrowers in the countryside.

STRATEGY POINTS

At 10.39% in end-2010, doubtful loans of rural banks rose for consecutive quarters. Lenders constantly face default risk from crop failure, disasters and price collapse. To sustain countryside credit, government must help both rural banks and farmers.

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As of the end of 2010, the non-performing loan (NPL) ratio of rural banks rose to 10.39% of total loans, from 9.46% in the same period in 2010. The Bangko Sentral ng Pilipinas (BSP) in its media release said: “This has been the third consecutive quarter that the industry’s delinquency ratio has increased from 9.42 percent at end-June 2010 and 9.63 percent at endSeptember 2010.” The increase also resulted in an elevated ratio of non-

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Trying times for rural banks

performing assets (NPA) to total assets of 11.12%, from 10.83% the previous quarter.

report finds that NPL ratios of these small banks since the onset of the crisis have been more than twice that of universal and commercial banks—and rising.

In the first quarter of 2008 and 2009 the NPL ratios for the rural banking system stood at 9.88 and 10.77%, respectively Improve by productivity. Former — still a far cry from the NPL and nonLand Bank senior executive vice-president performing asset (NPA) ratios at the height Alfonso Cruz Jr. sees no of the Asian financial crisis. indication that current NPL According to a presentation ratios portend disaster for by BSP’s Nestor Espenilla the rural banking system. If there is an Jr., in 2007 the ratios had But it does bring to the fore economic peaked at around 18% and the perpetual dilemma of slowdown, were reduced through a rural banks: they cater to cleanup process put in the rural credit needs, but cannot bigger rural Special Purpose Vehicle afford the losses, coupled banks could be Act of 2002, enacted to with other issues like high the survivors, spur banks to dispose of operating costs, in the event their NPAs. that borrowers fail to pay back while smaller loans. And with the vagaries ones seek help In “Banking on Banking: of weather, commodity prices Issues and Challenges and other farming risks, Facing the Banking loan defaults can soar. One Sector,” however, the solution to consider, Cruz Senate Economic Planning Office reports says, is to improve the repayment capacity the persistence of high levels of NPLs of borrowers through despite the SPV Act. It finds the reduction of agricultural productivity. NPL levels as “progressing slowly” because of “still unfavorable environment for In her widely quoted 1998 paper disposing NPLs.” Quite simply, bad assets “Agricultural Finance: Getting the Policies are difficult to dispose of because of the Right," published by the U.N.’s Food and uncertainty of recovery and discrepancy Agriculture Organization, Elizabeth Coffey in valuation. puts it succinctly: “Rural financial markets cannot thrive and grow if their clients lack If there is an economic slowdown, bigger creditworthiness, lack the ability to repay rural banks could be the survivors, loans, and are unable to save because their leaving smaller ones in distress. The incomes are depressed.” Her paper cited International Monetary Fund, in its April the case of development banks and rural 2010 “Philippines: Financial System cooperatives in Latin America and Asia that Stability Update,” explains that while bigger failed or got weakened in the 1980s because institutions are resilient against a “wide of “hostile economic environments,” range of credit, market, and liquidity risks," characterized by cheap food policies, the asset quality of thrift, cooperative, and subsidized food imports, farm price controls rural banks remains weak. Data cited by the and unfavorable terms of trade.

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44 Rural banks still a vital part of local banking system. Rural banks act as “a primary catalyst of broad-based countryside development.” A BSP Status Report in late 2008 stressed that rural banking is a vital piece of the Philippine banking system, making up 85.9% of all banks operating in the Philippines in that year, owing to their “unique social function and regional network distribution.” As an example of such social function and network distribution, the Financial highlights of the Land Bank of the

AND THEN THERE ARE... Rural Lenders Consolidate No. of Rural Bank Head Offices

Philippines indicate that in 2009, its total loans to the priority sector – i.e., farmers, fisherfolk, SMEs, microenterprises, agribusiness – amounted to P132.8 billion from P129.6 billion the year prior. Furthermore, share of loans to the priority sector reached 68% of total loans, from a mere 35.8% in 2000. Looking at outstanding loans of rural banks as of March 2011, around P36.4 billion in loans went to the areas of agriculture, hunting, forestry, and fishery, comprising 34.38% of total loans. The regional

Year end 2007

2008

2009

2010

682

658

631

607

Source: TCR compilation from Bagko Sentral ng Pilipinas, Supervisory Data Center, Supervision and Examination Sector.

The urge to merge will purge the industry The emergence of fewer, but stronger, rural banks through mergers, consolidations, and acquisitions has long been the advocacy of the BSP through its Strengthening Program for Rural Banks (SPRB). Launched in 2010 in partnership with the Philippine Deposit Insurance Corporation (PDIC), the SPRB was designed to encourage mergers and consolidations of rural banks via incentives such as regulatory relief and financial assistance. A quick review of BSP published statistics show that in recent years, the number of rural banks has been declining, with a total of 589 head offices as of June 2011, from 682 as of the end of 2007. The BSP, in its 2010 Annual Report, attributes the decline in the number of banking institutions, including rural banks, to consolidations and closure of weaker players. The Rural Bankers Association of the Philippines (RBAP) remains optimistic about the strength of the industry after a wave of mergers and acquisitions the past year. In a report from the Business Mirror, RBAP president Eric Pama says in a statement sent via e-mail, “After the smoke cleared, the RBAP is now leaner but meaner. Our members are upbeat about the strong performance delivered by the industry and I believe this has been partly due to the consolidation process.”

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Trying times for rural banks

distribution of loan portfolio from 2001 to 2010, meanwhile, shows that the bulk of rural and cooperative bank loans belonged to the regions of CALABARZON and Central Luzon. Still not enough credit. Still, the amount of credit extended to these sectors is not enough. According to a Philippine Daily Inquirer report on the Agriculture and Fisheries Credit Summit in August, which presented strategies for farm credit, there still exists a financial gap between banks and the agricultural sector. A briefing paper by the Agriculture Credit Policy Council (ACPC) of the Department of Agriculture cited in the news report reveals a credit gap of P252 billion, reflecting the difference between credit requirements and actual loans. Quoting the briefing paper, the news report reveals as of September 2010 “banks lent a total of P522 billion, a decline of 8 % from last year’s level. This reflects 19% of the total loanable funds, or 6 percentage points short of the total credit requirement.” The paper also shows the sector relies heavily on informal lending because of the banks’ high interest rates, “stringent and voluminous requirements," and inaccessibility.

“Philippine Agriculture over the Years: Performance, Policies, and Pitfalls," the authors posit: “Micro-enterprises and agricultural activities which operate outside Metro Manila will require greater access to resources to spur growth in the countryside.” More government support please. The rural banking system, Cruz emphasizes, is a well-meaning concept. Rural banks have been an integral part in agricultural development, and a beacon of hope for those in dire need of credit. However, the fact remains that much has yet to be done in order to improve the banks’ ways and means to assist farmers and fisherfolk.

Rural areas need over P200 billion more credit. Loan sharks fill the gap — at high interest rates

In a 2005 presentation by former planning secretary Cielito F. Habito and fellow economist Roehlano M. Briones, entitled

The

Habito and Briones note: “One of the biggest stumbling blocks to significant progress in the Philippine agricultural sector has been the general weakness and ineffectiveness of the bureaucracy that is tasked with implementing agricultural development initiatives.”

In short, government still has a pivotal role in improving the agricultural sector’s ability to repay loans. Greater support, in terms of irrigation, post-harvest facilities, farmto-market roads, and the like, must be provided in order to enhance agricultural productivity and reduce wastage.

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Trying times for rural banks

A regional initiative to boost rural finance Efforts to increase lending have been made, particularly through the ACPC, the agency tasked to oversee the country’s rural financial system. In the paper “Rural Credit Success Stories: The Case of the Philippines and Selected APRACA Member Countries," Jovita M. Corpuz and Ferdinand Paguia present the various measures implemented by five member-countries of the Asia-Pacific Rural and Agricultural Credit Association (APRACA). Established in 1977, the APRACA “promotes regional cooperation and facilitates the mutual exchange of information and expertise in the field of rural finance.” The paper discusses the different small farmer credit policies and programs of the Philippines, Indonesia, Thailand, Vietnam, and India, all of which have generally “established the fundamentals for the development of strong and viable market-based financial institutions.” The Philippines, for instance, has developed the Agro-Industry Modernization Credit and Financing Program, the umbrella credit program of the Department of Agriculture. Indonesia used the vast network of village banks of the Bank Rakyat Indonesia (BRI), a state-owned commercial bank, to provide finance for poor rural communities. Thailand, for its part, has provided agricultural credit to farm households and agricultural cooperatives through the Bank of Agriculture and Agricultural Cooperatives. Vietnam has the Vietnam Bank for Social Policies Non-Collaterized Group Lending Schemes, while India has developed the Self-Help Group-Bank Linkage Program, which links informal groups of poor households with banks to address their financial constraints. More importantly, the paper provides the common features of successful lending programs, such as: Partnership between government banks and grassroots organizations such as cooperatives and NGOs; Wide network of credit retailers; Joint-liability group lending scheme which utilizes peer pressure to ensure repayment; Cash flow-based repayment which takes into consideration the seasonal nature of agriculture and thus allows for a more flexible repayment schedule; Integrated approach to microfinance, such as savings- and capacity-building, to ensure sustainability, and; Interlinked transactions like contract growing. The paper also reminds readers that there is no “one size fits all” approach to successful rural lending. More than the policy and regulatory environment, cultural factors unique to each country must also be considered.

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NEWS ON THE NET Business BIR: Don't forget to register your business

Wider Panama Canal to alter trade patterns among major U.S. ports

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US$5.25 billion project to widen and deepen the Panama Canal, allowing freighters from Asia to bypass West Coast ports and sail straight to Gulf Coast and East Coast terminals, is currently the cause for alarm in the neighboring ports of Los Angeles and Long Beach, according to a report by Business Mirror. The expansion could greatly affect the West Coast region’s role in international trade. The two West Coast ports comb ined handle around 40% of the Asian goods imported into the US. Once the Panama expansion is completed in 2014, their cargo business could drop by as much as 25%. This troubling news comes on top of the Los Angeles and Long Beach ports losing some market shares to East coast docks in 2011.

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usinesses and professionals in the Philippines are reminded by the Bureau of Internal Revenue (BIR) to register or renew their registration at the nearest BIR district office before the end of January 2012. Taxpayers who fail to meet this deadline may be liable for “unlawful pursuit of business charges” and can be jailed for up to two years, on top of a fine of Php20,000, as imposed by Section No. 258 of the National Internal Revenue Code. To avoid this, all that is needed is payment of an Annual Registration Fee (ARF), which is similar to permits issued by local government units. Note that employed individuals who are earning income purely as salaries and Overseas Filipino Workers are both not covered by the ARF. A step by step Tax Guide for Professionals is also available at the BIR website.

The

8 PPP deals planned this year At least eight out of 16 public-private partnership (PPP) projects are set to be rolled out this year by the national government, in part to make up for lost time due to various delays in the administration’s centerpiece infrastructure scheme, according to PPP Center Executive Director Cosette V. Canilao. Included in the eight is a Php10.4 billion classroom construction contract – the first PPP to surge forward this year after the Daang Hari – South Luzon Expressway Link Road deal was awarded to Ayala Corporation. Canilao has also indicated that the national government is hoping to open bidding for the Department of Health’s Php900 million Vaccine Self-Sufficiency Program in the first quarter of 2012. Following these two initial projects will be six more throughout the second half of the year. The government is confident that more PPP projects will move in 2012 than last year's single deal.

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TECHNOLOGY

How to Harness Social Media 'Like' and 'tweet' your way to a successful brand By Tanya L. Mariano

STRATEGY POINTS

Social networking sites are the top online destinations among major global markets. 93.9% of Internet users in the Philippines log on to Facebook. Major Philippine and other Asian firms are still reluctant to use social media.

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Social networking sites are the top online destinations in a sample of 10 global markets, according to Nielsen’s “State of the Media: The Social Media Report, Q3 2011.” The Philippines, in particular, is already a leader in terms of social media usage and has even been dubbed “The Social Media Capital of the World.” In an article published in May 2011, financial news website 24/7 Wall Street used data from comScore, ZDNet, Inside Facebook, and New Media Trend Watch to draw up a list of the top ten countries where

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How to harness social media

“Facebook rules the Internet.” That list put the Philippines at number one, with 93.9% of Internet users logging on to Facebook. Research firm Gartner in 2010 also reported that the Philippines is home to “the most avid social networkers,” with Facebook being the most visited website.

“fears of being too transparent," reports BusinessMirror. According to the study, at least three of the Philippine firms surveyed had inactive microblogs and none had active corporate blogs or video-sharing services. The following graph illustrates the proportion of active to inactive social-media accounts of the Philippine businesses surveyed.

Few local, Asian firms using social media. And yet, while 90% of the country’s Internet users visited social networking Another study, with similar results. sites in February 2010, according to A survey of 2,721 firms in 39 economies an April 2010 study from marketing by Grant Thornton International Ltd. also intelligence found relatively agency comScore low social-media Corporate Use of as reported by adoption rates: Social Media Channels GMA News, few 44% of Philippine Active Accounts Inactive Accounts local firms are firms surveyed using social media were using social 100% 25% 100% 40% to strategically media, slightly enable their higher than the businesses. global average of 43%, and 71% A survey of 120 marginally lower 60% leading companies than the ASEAN in Asia, including average of 45%. 10 from the Philippines, (As posted on released by global the website of public-relations Grant Thornton firm Bursonlocal partner Video Social Corporate Micro-blogs Marsteller in Punongbayan Sharing Networks Blogs October reported & Araullo, the Source: Burson-Marsteller Corporate Social Media 2011 that many Philippine Daily Report, p. 23 corporations remain Inquirer's story hesitant to integrate social media in their tried to put the figures in a positive light, business operations. with the headline “Philippine firms beat global peers in social media usage,” while Speaking with local press in November, BusinessWorld went with “Few firms Burson-Marsteller Asia Pacific president tapping social media, survey shows.”) and CEO Bob Pickard said that top Asian companies might be hesitant to use But why exactly should businesses go branded social-media channels because of social? What can social media do for

The

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50 your company that traditional marketing methods can’t?

engaging them in order to promote brand loyalty and eventually increase profits, it’s sound advice.

Social media: the big picture. To get a better idea of just how big social media is, here is a video showcasing a few interesting statistics from Erik Qualman’s book, “Socialnomics.”

• Over 50% of the world's population is under 30. • If Facebook were a country, it would be the world’s 3rd largest. • Social media has overtaken pornography as the #1 activity on the Web. According to Gartner, global social media revenue will reach $10.3 billion in 2011, jumping 41.4% from $7.3 billion in 2010. If that growth rate is maintained, revenue will reach $14.9 billion by 2012, and $29.1 billion by 2015. Everybody will be doing it. If there’s one reason your company should utilize social media, it’s this: sooner or later, everyone will be doing it. And while that might be an inadequate justification when one is trying to excuse bad behavior, when it comes to reaching out to current and potential customers and

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Today, more and more marketers are recognizing the importance of social media in their businesses. In a 2011 survey of 2,278 marketers, web magazine Social Media Examiner found that an overwhelming 90% believed that social media is important for their business. Respondents identified the top benefit of social media marketing as improving business exposure, and cited other benefits such as improved search rankings and reduction in marketing costs.

The study found that Facebook is the most preferred social media tool, but that Youtube is expected to emerge as the next big thing for social media marketing, with 73% saying that they will increase their use of the video-hosting website in the near future. A 2011 Grant Thornton survey of 141 senior executives from across America and Europe entitled “Social Media and its associated risks” also found that 48% of respondents felt that social media will play an integral role in future marketing efforts, and 53% see a significant increase in corporate use of social media in the next 12 months. “The State of Marketing 2011: Unica’s Annual Survey of Marketers” by IBMowned company Unica, reported that 53% of respondents said their companies incorporate social media in their marketing efforts. In this survey of 279 marketing professionals from North America and Europe, 3rd party social networks were again reported as the most popular social media channels used.

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How to harness social media

Social media marketing: serious business, serious rewards. In the Philippines, social media and Internet marketing consultant Carlo Ople observes that many Filipino entrepreneurs and businessmen regard Internet marketing as “a joke,” and that Facebook is just a place to upload photos, connect with friends, and play games. In his eBook, “Social Media Guide for Filipino Entrepreneurs,” Ople writes, “Who can blame them? They’ve gotten used to the success that was brought about by traditional marketing initiatives that they’ve been doing for years.” Ople urges local entrepreneurs to step up their online presence, citing the massive growth potential in the country’s social media scene. He also mentions that social media websites are optimized for search engines, and will likely increase the chances that a Google search will field your company’s name. An interesting trend mentioned in the eBook is the integration of traditional and new media, citing the successful experiences of FM radio station Magic 89.9 and TV station ABS-CBN in building online communities. Both stations aggressively promote their official Facebook and Twitter pages, which allow them to disseminate information about programs and promos, while their followers can use the pages to interact with them and with each other. In addition to promoting follower feedback, their online presence fosters a sense of community and strengthens followers' relationship with the brands. A primer on social media from Vancouverbased digital agency smashLAB details some benefits from the use of social media for business. According to the

The

whitepaper, social media platforms can help companies “connect with passionate users, build relationships, create higher levels of engagement, and access unfettered customer response.” Moreover, social media strategies cost significantly less than advertising and other traditional promotional campaigns. Brand loyalty and more recommendations. In terms of attracting new customers, figures from the Nielsen/ McKinsey company NM Incite show that “Facebook fans are 28% more likely than non-fans to continue using the brand and 41% more likely to recommend that product to their friends” – an important piece of information, given that 90% of consumers trust peer recommendations, while only 14% trust advertisements, according to Qualman’s “Socialnomics.” The NM Incite data, which can be found in a presentation by Associate Director of Product Leadership Justin St. Pierre, also showed that word-of-mouth drives 20-50% of purchasing decisions. Bigger risks with social media. There are risks, of course, and smashLAB’s whitepaper cautions that these might not be as easily manageable as those posed by traditional media usage. In the Grant Thornton study on social media risks,

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52 majority of respondents ranked “disclosure of proprietary information” as the most important among identified dangers, followed by “negative comments about the company.” Cautionary tales of unsuccessful, if not downright disastrous, corporate use of social media abound. From the negative experiences of, for instance, Honda, Taco Bell, Asus, Domino’s, and Belkin, as featured in an article in Web technology magazine Penn-Olson, it's obvious that social media fumbles can alienate customers on a massive scale. Some lessons that can be gleaned from the Penn-Olson article include not trying to manipulate negative feedback and religiously monitoring social media buzz surrounding your company.

The following are the four steps to plotting the correct social media strategy, as outlined in the report:

Social media, strategy, response plan. It makes sense to immediately go where the consumers are, but corporations should avoid jumping into social media without a carefully laid-out strategy. Also, be ready with a clearly defined response plan in the event of a social media fumble. The 2011 TNS study, “Digital Life: Understanding the opportunity for growth online,” also provides valuable insight on how to make the most out of social media, and recommends that it be part of a wider marketing communications strategy.

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To combat the negative commentary that “hijacks” consumers in their “path-topurchase,” the report says, “brands need to build connections earlier in the customer journey, strengthening their relationship and minimising the risk that negative buzz can present.” There’s a silver lining: TNS discovered that 61% of respondents comment online to praise a brand, whereas a slightly lower 53% comment to complain. Universal McCann, in its study, “Social Media Wave 5: The Socialization of Brands,” stresses the need to tailor-fit social media strategies to the needs of the business, since different audiences and different categories (i.e., health care, sports, luxury goods, music, etc.) have unique needs.

Mapping the right social media experience Theses are four steps to identify the right social media experience for brands: Understand the social landscape of the category Identify where the consumer fits in this landscape Identify the social needs of the consumer in the category Map them to social media platforms that can best deliver

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How to harness social media

Harness the potential while managing the risks. Social media has massive potential to attract new customers, keep current ones, engage consumers in genuine dialogue, and acquire information that can be useful for enhancing your business, as can be seen from many success stories, including those of Harvard Business School, Disney, JetBlue, and the National Football League, as reported in online tech magazine Mashable’s Social CMO Series. As in any other effective communication channel, social media doesn't come without risks, if only because one should be prepared for what one might hear coming from the other side of the channel.

The

With social media's wide reach and relative accessibility compared to traditional channels, it can be said that the consequences of a misstep can be much more catastrophic for a brand. But make no mistake about it, social media is here to stay, so the question is not a matter of whether or not to adopt it, but of when and how. The use of social media, therefore, needs to be part of a well-crafted social-media strategy. Define and develop your online presence and identity, and be prepared to deal with negative online feedback and bad customer experiences. Properly utilized, social media can help define and enhance your brand, and keep you relevant in this digital age.

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NEWS ON THE NET Technology 'Online Armageddon': Piracy bill that could 'break the Internet''

Face recognition app — for free

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sraeli startup company Face.com has developed a controversial and complicated tool that can be yours for free, according to this news feature by CNN Money. Similar to the “photo tagging” feature on Facebook, the company’s facial detection and recognition technology has been used by various other websites and mobile applications since 2010. But, while helpful and useful, the application does raise some safety and privacy concerns. Shang-Hung Lin, Ph.D. of the IC Media Corporation provides an introduction to this tool and discusses its possible (and now current) applications. A survey released by the Center for Catastrophe Preparedness and Response at the New York University discusses policy and implementation guidelines as well as moral and political considerations.

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The Stop Online Piracy Act (SOPA), otherwise filed in the U.S. Congress as H.R.3261, is a bill that has the Internet in an uproar. It has garnered a steady stream of resistance since it was introduced in the U.S. House of Representatives by Texas Republican Rep. Lamar Smith last October, with industry heavyweights like Facebook, Ebay and Yahoo actively opposing it and Google saying that it would be an “online Armageddon” if the bill were passed. SOPA’s intention is to crack down on copyright infringement, specifically instances of it which occur online. Targets include torrent sites like The Pirate Bay, which encourage illegal downloads of films, music, television shows and other digital content. This is precisely why huge media companies such as CBS, Sony and ESPN support SOPA. The tech site Cnet.com has compiled a FAQ on SOPA, to help the everyman understand both sides of the debate.

The iPassport: Canadian enters U.S. showing passport on iPad

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n what may yet be another reason to buy the iPad, a Canadian man was able to gain entry into the United States from Quebec with the use of his tablet. Martin Reisch was already about half an hour to the U.S. border when he realized that he had forgotten his passport back in Montreal. Instead of turning back, like most people would, he decided that he would try to gain entry by presenting an image of his previously scanned passport stored in his device. In talking with the U.S. border officer, Reisch mentioned that he was heading to the United States to drop off Christmas gifts. It worked, and he was let through – although the Canadian believes that the officer made an exception. U.S. Customs and Border Protection states that it only accepts a passport, an enhanced driver’s license, or a Nexus pass; there is no mention of facsimiles, digital or otherwise.

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TCR Volume 2 Issue Number 1  

January 9-15, 2012

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