THE PRICE AND SUPPLY of electricity in the Philippines are seen to be challenged this year due to warm weather but may be offset by the power capacity expansion from renewables.

Jose M. Layug, Jr., president of Developers of Renewable Energy Advancement, Inc., said he is anticipating supply challenges, especially during the summer months.

“No matter how we tried to maintain all these coal-fired plants, the point is they are already old so you should expect these power plants to break down very often and that’s why we need new capacities,” he said in a virtual interview.

“Otherwise, we will have an issue on supply, and we will be placing yellow alerts,” he added, referring to the warning when reserves fall below a designated safety margin.

In 2023, the Philippines was placed under yellow and red alerts several times due to sudden plant outages. The Department of Energy (DoE) had expected 12 yellow alerts last year. Red alerts are raised when the supply-demand balance deteriorates further, signaling the possibility of rotational brownouts.

For 2024, the DoE has so far not projected any potential yellow and red alerts as it banks on new solar power plants that will be coming in, which it said will be “favorable” under an El Niño scenario.

Latest data from the state weather bureau Philippine Atmospheric, Geophysical and Astronomical Services Administration showed that a moderate El Niño would continue to persist and intensify in the coming months.

Energy Secretary Raphael P.M. Lotilla is expecting a favorable status in electricity supply this year as he anticipates the completion of power transmission projects.

“We did manage to contain the weakness in 2023, and 2024 promises to be better. But of course, from the supply side, and we hope that by 2024, we shall also finish a number of major transmission connections, but of course, there remain threats,” he told reporters in an interview last month.

Privately owned National Grid Corp. of the Philippines (NGCP) holds the sole and exclusive concession and franchise for the operation of the country’s power transmission network, which links power generators and distribution utilities to deliver electricity nationwide.

NGCP has already energized some of its transmission projects such as the P10.2-billion Hermosa-San Jose 500-kilovolt transmission line. It is currently working on the full completion of the Mindanao-Visayas Interconnection Project (MVIP).

Majah-Leah V. Ravago, an energy economist from the Ateneo de Manila University, said increasing power generation means investing in transmission projects.

“You cannot address the problem that you’re just looking at generation because the consumption of electricity is a whole system in itself,” she said in a virtual interview.

“You cannot look at increasing generation without accompanying investment in transmission and distribution. We have many cases like that,” she added.

Two decades after the Electric Power Industry Reform Act was passed, electricity rates in the Philippines are still one of the highest in the region as there are still a lot of inefficiencies in the system.

The Philippines’ per capita consumption of electricity is low relative to its neighbors due to high power prices brought on by inefficiency and reliability issues, according to Ms. Ravago.

Citing data from the World Bank and the United Nations, she said that the country’s per capita consumption was at 975.61 per kilowatt-hour (kWh) in 2022.

This is relatively lower compared with the country’s peers in the Association of Southeast Asian Nations (ASEAN) such as Singapore (9,168.82 per kWh), Malaysia (5,318.78 per kWh), Indonesia (2,662.31 per kWh), and Thailand (1,210.67 per kWh).

Electricity consumption in the country is expected to grow by nearly four times the 2018 level by 2040, Ms. Ravago said.

“If we are to meet that growth by 2040, it means that electricity consumption has to grow. It means demand is growing, it has to be met by supply. Otherwise, we would have electricity price increases,” she said.

To meet the demand, she said that the government should address regulatory bottlenecks both for generation and transmission.

Since power generation is privately led in the Philippines — which attracts investments — the government should instead focus on facilitating these capital inflows, easing regulatory burdens, and expanding transmission, Ms. Ravago said.

“We just need to make sure that the other related infrastructure, transmission lines, and ports are also upgraded in time of these projects going online,” Mr. Layug said.

Data from the DoE showed that wind, natural gas, and solar dominated most of the indicative projects, or those currently in the pre-development stage, as of August 2023 with a capacity of 34,080.50 megawatts (MW), 7,987.60 MW, and 7,811.86 MW, respectively.

‘THE WAY TO GO’
Renewables are seen to be able to offset a rise in electricity prices and mitigate the high prices of oil and coal.

“This year… the private sector is happy about how the government, particularly the DoE, has convinced and has signaled to the private sector that renewables are the way to go,” Mr. Layug said.

As of end-2022, the share of renewable energy (RE) in the country’s power generation mix was about 22%. The government has set a target of increasing this to 35% by 2030, then 50% by 2040.

“We all know that the cost of RE is now more optimal, more affordable especially for the consumers, so we’re happy with that and we hope the government continues its forward-looking planning of the energy sector in the Philippines by continuously pushing for renewable as part of the energy mix,” Mr. Layug said.

Within RE technologies, solar and wind energy are seen to drive the growth of renewables.

“In the next three years, I still see solar onshore and onshore wind to dominate. With, hopefully, waste-to-energy [projects] catching up a little bit,” Mr. Layug said. “We hope to see floating solar and offshore wind to dominate.”

As of October, the DoE has awarded around 1,300 RE contracts, promising a total potential capacity of about 130,000 MW.

Of the total, 225 wind energy contracts have been awarded with the highest combined capacity of 83,079.3 MW. This was followed by 356 solar energy projects with 27,889 MW and 430 hydropower projects with a capacity of 18,924.4 MW.

“We are in a good position to implement reforms necessary to energy transition,” Ms. Ravago said, citing the moratorium on new greenfield coal power plants and the liberalization of the RE sector.

LILY G. TERRENIO was 19 years old when she became a factory worker at Amertron, Inc. inside the Clark Freeport Zone north of the Philippine capital in 1988.

The high school graduate worked for the Taiwan-owned semiconductor company until 2000, before leaving for Dubai to work as a chambermaid.

“I would have wanted to join a different manufacturer after I left the company to broaden my experience, but options were limited,” she said in an interview.

Ms. Terrenio came back to the Philippines after two decades, when the manufacturing sector contracted by 9.8% from a year earlier amid a coronavirus pandemic.

The government must rescue the manufacturing sector from issues that have stalled growth including the lack of skilled workers, governance problems and an impending energy crisis that could paralyze the economy, analysts said.

“Philippine manufacturing has been on a retreat since the 1980s,” national scientist Raul V. Fabella, a professor emeritus at the University of the Philippines School of Economics said in an e-mail. “The share of manufacturing in Philippine gross domestic product has been losing out to services.”

He called the phenomenon “development progeria,” which happens in low-income economies when the share of industry sectors including manufacturing falls while services flourish. “The dynamics will continue into the near future because its roots are structural.”

Manufacturing activity in the Philippines continued to expand in December, albeit at a slower pace, S&P Global said on Tuesday. The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) slipped to 51.5 in December, from a nine-month high of 52.7 in November.

The Philippines had the second-highest PMI reading among Southeast Asian countries with available data, after Indonesia (52.2). Vietnam, Malaysia, Thailand and Myanmar all contracted in December.

It was a significant development for a sector that has been lagging its regional peers for decades.

In 2022, the largest share of exported commodity goods from the Philippines were electronic products, particularly semiconductors and electronic data processing products such as hard drives, making it the biggest contributor to the country’s export sales, according to Statista.

Aside from electronics, the Philippines has a large food manufacturing industry, which generated a gross value added of about P1.8 trillion ($32.5 billion) in 2022. Among the country’s leading food exports were animal or vegetable fats and oils and processed foods such as bread, cereals and dairy products.

Food manufacturers in the country also produce flour and sugar for domestic consumption and export. The Philippines also exports chemicals and chemical products such as fertilizers, petrochemicals and plastic products.

FOREIGN OWNERSHIP
Manufacturing sector growth relies on foreign direct investments (FDI), which amounted to only $9.2 billion in 2022, behind Thailand ($10 billion), Malaysia ($15.1 billion), Vietnam ($17.9 billion), Indonesia ($21.7 billion) and Singapore ($140.8 billion).

This was despite the passage of laws liberalizing the Philippine economy, including the Corporate Recovery and Tax Incentives for Enterprises Act, which cut the corporate income tax for domestic and foreign corporations to 25% from 30%.

In 2021, the Philippines passed a law that amended the country’s 85-year-old Public Service Act, allowing full foreign ownership in domestic shipping, telecommunications, shipping, railways and subways, airlines, expressways and tollways, and airports.

Global investment banker Stephen Anthony T. CuUnjieng said foreign investors “want to make money first” and changing the laws “would not necessarily make them make money.”

“If the country or the sector is unattractive or less profitable than other countries, changing the law will not change that,” he told One News channel in December, amid a renewed push to amend economic provisions of the 1987 Philippine Constitution.

“If the sector is attractive and you make foreign ownership and doing business easier, then yes, more FDIs will come in,” Mr. CuUnjieng said. “Allowing more foreign ownership will work. But if you’re not attractive to begin with, opening it up to 100% ownership and giving subsidies won’t change it if the return on investment will be lower.”

He said investors in the manufacturing sector are largely looking at labor productivity and lower electricity costs, which can be anywhere from 20% to 60% of their production costs.

“If a manufacturer in the Philippines is 20% to 40% more expensive than another in Indonesia, Thailand or Vietnam, you’re starting out already with a deficit of as much as 30% versus other countries, why would you come here for manufacturing?” he asked.

President Ferdinand R. Marcos, Jr. last year extended by another 15 years the contract for the Malampaya gas field, which supplies 20% of the Philippines’ total electricity requirements, allowing the operator to drill new wells.

Amid the declining output of the gas field, which is expected to run dry by 2027, Mr. Marcos expressed willingness to resume joint energy exploration activities in the South China Sea.

“Our power cost is the highest in ASEAN (Association of Southeast Asian Nations) for large establishments,” Mr. Fabella said, noting that the state should lower manufacturers’ electricity costs by exempting them from missionary, universal and stranded cost charges.

The possible decline in the quality of the Philippine labor force also threatens the country’s manufacturing ambitions, according to Mr. CuUnjieng.

Filipino students were still among the world’s weakest in math, reading and science, according to the 2022 Program for International Student Assessment (PISA), with the Philippines ranking 77^th out of 81 countries and performing worse than the global average in all categories.

Terry L. Ridon, convenor of InfraWatch PH, said decades-long governance issues such as corruption and red tape would continue to hound the manufacturing sector.

Investors seeking to establish hubs in emerging economies would look for countries that have “very streamlined processes for permits and licenses and have low to zero perception of government corruption, he said in an e-mail.

“Our government does not live by contracts it signed and stands ready to change provisions depending on populist sentiment,” Mr. Fabella said. “Long-term investors do not invest where expropriation noise is rampant.”

The stability of politics and ease of doing business in Vietnam have been cited as key factors behind its rise as the top choice for global manufacturers diversifying away from China, which has been in a years-long trade war with the United States.

There are fewer occurrences of policy reversals in Vietnam because of its political structure, “thus increasing certainty, which is good for the investment climate,” George N. Manzano, who teaches trade at the University of Asia and the Pacific, said in an e-mail.

Vietnam has a one-stop shop for investors, Mr. CuUnjieng said. “You go to one government agency, and they take care of everything. In the Philippines, you often have one shop at every stop.”

Vietnam had FDIs worth $112 billion from 2010 to 2019, compared with $57 billion for the Philippines. Its merchandise exports in 2019 hit $300 million, compared with $70 million for the Philippines.

“The heady foreign direct investments that Vietnam attracted in the past years may have increased its attractiveness,” Mr. Manzano said. “Investments beget other investments, particularly if an investment of a sizeable manufacturing concern will attract its supplier industries to locate as well.”

He noted that as more foreign investments cluster at one hub, the production costs usually fall, leading to so-called “economies of agglomeration.”

“At the same time, there will be more flow of ideas prompting innovation,” he said. “The clustering of industries in Vietnam’s special economic zones can lead to economies of agglomeration.”

The Philippine Economic Zone Authority said it wants to benefit from the relocation of big foreign companies, especially those in the technology sector, from China.

The country anticipates increased investments in metal fabrication or skilled manufacturing, especially in the electronic vehicle (EV) sector, PEZA Director-General Tereso O. Panga said in a Viber call. He added that EV players from China, the US, Indonesia, South Korea and Japan are expected to set up production sites in the country this year.

“It’s not just multinational companies that are relocating from China, but also mainland Chinese manufacturing businesses so they can avail themselves of GSP+ privileges for their exports,” he said.

The European Parliament and European Council have agreed to extend GSP+ arrangements for four more years while they negotiate reforms to the trade deal, where the Philippines enjoys zero duties on more than 6,000 exports.

As the Philippines steps up efforts to save its export-oriented manufacturing sector, the country must also look at its volatile exchange rate, which hurts exporters and is deadly to smaller ones, Mr. Manzano said.

“We should provide a more stable exchange rate regime geared to level the playing field between nontradable and tradable goods.”

The Philippine trade deficit has been widening in the past years, as the country imports more than it exports.

Analysts said tensions with China don’t bode well for the country’s export-oriented manufacturing sector.

China remains the largest source of technologies that the Philippines needs to make its exports competitive, such as electronics and machinery, Mr. Manzano said.

“The Philippines needs electronic parts and components from China in order to export,” he said. “If the imports of parts and components are sourced from more expensive suppliers, the competitiveness of Philippine exports, particularly electronics, would be undermined.”

“The protection and development of our export-focused manufacturing is critical to propping up our dollar reserves in light of our massive import requirements in infrastructure and agriculture,” Mr. Ridon said. “This has not been enough to ensure a positive balance of trade for almost a decade.”

MINERS are expected to perform well in 2024 due to increased demand for transition minerals used by the renewable energy industry, mining officials said.

“The government is pushing for local mineral processing of energy transition metals such as nickel and copper and the Philippine metallic mining industry would like to participate and take advantage of opportunities presented by this development,” Michael T. Toledo, chairman of the Chamber of Mines of the Philippines (CoMP), said in a Viber message.

Environment Secretary Maria Antonia Yulo-Loyzaga has said that the Department of Environment and Natural Resources (DENR) will encourage exploration for critical minerals this year, with the Mines and Geosciences Bureau (MGB) instructed to gear up for enabling projects undertaken with foreign mining partners.

Nickel, cobalt, and copper are deemed essential for the production of electric vehicles (EVs), the large-scale batteries which power them, and also wind and solar farms.

“A lot still needs to be done but we believe the signposts show we are on a course that is likely to result in success,” Mr. Toledo added.

The Philippine Nickel Industry Association (PNIA) said the industry is pushing for the government to fast-track the approval of mining permits by establishing a “one-stop shop” application process.

According to the PNIA, the streamlining of approvals will attract more investment in mining.

About 470 applications are currently awaiting approval. They are proposing to explore for copper, chromite, nickel, and cobalt, according to the MGB.

Phase 1 of the MGB’s priority list consists of metallic mines, with about 12 projects expected to start operations in the next six months.

“If realized, this (encourages) upbeat expectations for the production and export of more of these goods, given the high level of global demand,” the MGB said in its metallic production report.

These operations are a magnetite sand (Iron) site in Region 2, nickel laterite in Region 3, gold in Region 5, four nickel, copper and gold sites in Region 11, and five nickel, copper and gold sites in Caraga.

CoMP said metals prices would mainly depend on the recovery of China’s economy, a major user of Philippine minerals.

“Traders are cautious of the incoming year, considering the weaker Chinese economy and significantly cheaper nickel pig iron (NPI) from Indonesia,” Mr. Toledo said.

He added that the mining industry expects Indonesia to keep up its NPI output.

NPI is low-grade ferronickel, which serves as a cheaper alternative to higher-grade nickel used in stainless steel production.

“We don’t know when China’s economy will improve. Most developed countries are challenged at this time,” he said.

PNIA has said that nickel production this year will likely remain flat due to the limited capacity in ore-supplying regions.

The MGB said however that due to domestic nickel supply concerns in Indonesia, Chinese demand for nickel ore from the Philippines will rise.

It added that Indonesia has become a new export market for nickel ore. The Philippines has exported about 102,100.72 dry metric tons of nickel ore to Indonesia amounting to P171.37 million during the nine months to September.

Mr. Toledo said that the industry is optimistic that the Philippines can service global copper demand.

However, he said that in the absence of new copper mining operations in the next five years, “there could be a supply deficit that would drive prices upward.”

“In the next few years, we believe the Philippine copper sector can keep up with the demand for this metal as an input for renewable energy technologies,” he said.

“As the global demand for critical minerals for the energy transition intensifies, however, there are concerns on whether copper from Philippine mines can keep up,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the demand for raw materials from the renewable energy industry is expected to grow in the coming years.

“There will still be a large shift towards renewable and towards electric vehicles for the coming years amid the need for more sustainable source of energy and the need to reduce carbon emissions,” Mr. Ricafort said in a Viber message.

Mr. Ricafort added that a decline in global interest rates could also drive more investment towards minerals.

“Lower borrowing costs will encourage more investment and business activity, as well as the demand for minerals,” he said.

The Federal Reserve maintained its target rate in the 5.25%-5.5% range for a third straight meeting on Dec. 12-13.

The Bangko Sentral ng Pilipinas kept its key borrowing rate unchanged at 6.5% during its Dec. 15 meeting.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan said metal prices will largely be influenced by the strength of the Chinese economy and its adoption of EVs.

“The Philippines will be able to take advantage, should responsible mining practices be put in place to allow further export of our precious minerals,” Mr. Limlingan said in a Viber message.

Prices for nickel ore declined to $10.39 per pound from $11.97 per pound the previous year.

“For nickel, attributing factors to growth during the period are the improvement of nickel ore prices and better loading conditions on account of good weather, particularly in the southern part of the country,” Mr. Toledo said.

The price of gold increased to $1,932.07 per troy ounce, while copper prices fell to $3.9 per pound from $4.12 a year earlier. Silver prices rose 7.32% to $23.55 per troy ounce.

“The low copper prices were offset also by good weather, which resulted in less production interruptions, as well as by the strong dollar-to-peso exchange rate,” he added.

PHILIPPINE economic growth will likely miss the government’s target next year amid external headwinds and risks that could derail the country’s recovery, analysts said.

To support growth, the government will need to focus on ramping up investments and ensuring inflation continues to ease, they added.

“The probability of recession is moderate, but everything must go right, including effective and efficient spending by the government, to achieve the target growth rate range,” Moody’s Analytics Chief Asia-Pacific Economist Steven Cochrane said in an e-mail.

The Development Budget Coordination Committee on Dec. 15 revised its growth target for 2024 to 6.5-7.5%, narrower than the previous 6.5-8% goal.

Most multilateral institutions’ gross domestic product (GDP) growth forecasts for the Philippines next year are below the government’s revised goal.

The World Bank expects Philippine GDP to expand by 5.8% in 2024, while the Asian Development Bank sees growth averaging 6.2% next year.

For its part, the International Monetary Fund (IMF) said the economy could grow by 6% in 2024, while the ASEAN+3 Macroeconomic Research Office sees GDP expanding by 6.3%, and the Organisation for Economic Co-operation and Development has a 6.1% growth forecast for the Philippines next year.

Latest data from the Philippine Statistics Authority (PSA) showed GDP growth averaged 5.5% in the first nine months of the year. To meet the lower end of the government’s 6-7% target for 2023, the economy must expand by 7.2% in the fourth quarter.

In 2022, Philippine GDP grew by a stronger-than-expected 7.6%, the highest since 1976.

Mr. Cochrane said he expects Philippine GDP growth to be below the government’s target in 2024.

“The greatest risks to the forecast that keep our baseline growth rate somewhat modest are the lack of consistency of fiscal spending and its resulting stimulus, the remaining potential for high inflation, and weak external demand for Philippine export products,” he said.

Elevated inflation will continue to be one of the biggest risks to growth next year, IMF Representative to the Philippines Ragnar Gudmundsson said.

“Downside risks could stem from persistently high inflation — globally and locally — that would necessitate further interest rate increases, an abrupt global slowdown that would dampen global trade, and an intensification of geopolitical tensions that could undermine the investment climate,” Mr. Gudmundsson said in an e-mail.

Headline inflation averaged 6.2% in the first 11 months of 2023, faster than 5.6% in the same period a year prior. This was above the central bank’s baseline forecast of 6% and target of 2-4% for 2023.

The Bangko Sentral ng Pilipinas (BSP) sees inflation easing to 3.7% in 2024 and to 3.2% in 2025.   

To help bring down inflation, the BSP raised benchmark borrowing costs by a total of 450 basis points from May 2022 to October 2023. It has since kept the policy rate at a 16-year high of 6.5% for two straight meetings.

BSP Governor Eli M. Remolona, Jr. this month said the Monetary Board sees the need to keep policy settings “sufficiently tight” until inflation settles within target.

“Inflation also has been quite volatile and could continue to be volatile depending upon the path of food-price inflation. Another spike in inflation would slow consumer spending and the broader economy,” Mr. Cochrane added.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said persistently high inflation could dampen consumption.

“Household consumption, which contributes the bulk to spending, has remained in expansion but has seen a gradual moderation in pace. The slower pace of expansion can be attributed to tight budgets amidst still elevated inflation,” he said in an e-mail.

Household spending typically accounts for three-fourths of GDP. In the third quarter, it grew by 5%, the slowest pace in two years.

“Meanwhile, the borrowing binge from the sustained rise in consumer loans will eventually take its toll on the households. We note spending on food items, which accounts for more than 20% of GDP, is now crawling at less than 1%,” Mr. Mapa added.

Weaker trade prospects may also affect growth, Mr. Cochrane said.

“While the risks to the global economy appear to be easing and global trade is slowly edging upward, the rebound in goods exports and service exports — including international tourism — is bound to be slow, at least through the first half of 2024,” he said.

Data from the PSA showed exports of goods and services grew by 2.6% in the third quarter, slower than 13.6% a year ago and 4.4% in the second quarter.

“Net exports, which was a key contributor to the surprise third-quarter GDP, delivering roughly 1.6 percentage points to GDP, will likely revert to weighing on overall GDP as early as the fourth quarter and going into 2024,” Mr. Mapa added.

Security Bank Corp. Chief Economist Robert Dan J. Roces also cited factors that could derail trade recovery next year, such as the slowdown in China.

“This is because the Philippines is a major exporter of goods, and China’s economic woes would lead to a decrease in demand for Philippine exports,” Mr. Roces said in an e-mail.

For the first 10 months of the year, the country’s trade in goods deficit narrowed by 11.9% to $44.07 billion from a year ago. Exports declined by 7.8% to $60.91 billion, while imports fell by 9.6% to $104.97 billion.

“Geopolitical tensions in the region also provide risks, such as the posturing in the South China Sea that could also have a negative impact on the Philippine economy. This is because businesses may be hesitant to invest in the Philippines if they are concerned about the stability of the region,” Mr. Roces added.

Mr. Mapa said higher government expenditures, which helped drive third-quarter GDP growth, may not be sustained in the long run.

“Government spending, which bounced back niftily in the third quarter, will stay in positive territory but we remain unsure whether fiscal authorities can provide the type of support to offset the slowdown in other factors,” he said.

“The 2024 budget is an increase from this year but we remain skeptical we will see a strong double-digit effort in terms of government spending with a rising proportion of expenditure going towards interest expenses,” he added.

Gross capital formation is also unlikely to be a major driver of growth, Mr. Mapa said.

“Capital formation turned negative in the third quarter and dropped to the worst downturn in more than 10 years, excluding of course COVID-19,” he said.

Elevated borrowing costs could also affect investments, he added.

The Philippines is prone to natural disasters such as typhoons and earthquakes, as well as weather phenomena like El Niño, Mr. Roces added, which could affect inflation.

Latest data from Philippine Atmospheric, Geophysical and Astronomical Services Administration showed that a strong El Niño is present in the tropical Pacific and is showing signs of further intensification in the coming months.

National Economic and Development Authority Secretary Arsenio M. Balisacan said that the El Niño weather event could potentially stoke inflation and fuel price pressures.

MODEST GROWTH SEEN
Despite lingering risks to the outlook, the country could still post modest GDP growth figures in 2024, the analysts said.

“We are cautiously optimistic that the Philippine economy will show decent growth in 2024,” Mr. Roces said. “There are a number of factors that are expected to contribute to the Philippines’ healthy growth in 2024.”

A rebound in consumer spending due to lower interest rates in the second half of the year and improved wages could boost domestic demand in 2024, he said.

“Second, the Philippine government has been working to improve the investment climate in the country, and these reforms should be able to attract more foreign investment to the Philippines,” Mr. Roces added.

Growth next year may be driven by accelerated public investments and improved external demand for exports, Mr. Gudmundsson said.

“Flagship infrastructure projects should notably benefit from stronger foreign direct investments and private sector participation through public-private partnership modalities,” he added.

Mr. Gudmundsson also cited positive spillovers from a resilient US economy and easing financial conditions, as these could support electronics and service exports and a rebound in domestic demand.

EXPORTERS lack the knowledge to tap trade agreements and face a higher cost of doing business in the Philippines, rendering their products uncompetitive relative to other countries’ exports, a business group said.

The Philippine Chamber of Commerce and Industry said cost-of-doing-business issues center on high power and logistics costs.

“The cost of doing business is still quite high (here) compared to the other countries… These are some of the issues that the government has to address for us to really gain full benefit from (taking advantage of) free trade agreements (FTAs),” PCCI President George T. Barcelon told BusinessWorld by phone.

Mr. Barcelon said that aside from incentives, the Philippines must seek to be a competitive market as it is yet to see strong, sustained inflows of foreign direct investment (FDIs).

“It is top of mind in our meeting with the Anti-Red Tape Authority and foreign chambers that there are these issues to be addressed,” he said.

“As of now, we are not seeing any real good inflow of FDIs as investments are still headed towards Vietnam, Indonesia, and Thailand. This is something that needs work,” he added.

Net inflows of FDI slumped to their lowest level in over three years, amounting to $422 million in September. This was 42.2% lower year on year and down by 46.5% from a month prior.

This brought the FDI net inflows to $5.9 billion in the first nine months of the year, representing a 15.9% decline from a year earlier.

Mr. Barcelon said that the Philippines must upskill its workers to move its products higher up the value ladder.

“Once we have increased to a higher value, be it agricultural or electronic products… the other thing that I think the government must be aware is the cost of compliance and permits,” he said.

He said that the added costs do not align with the government’s target of rightsizing the bureaucracy.

“What businesses see is that there is more bureaucracy, and bureaucracy sometimes can be interpreted as the flip side of corruption,” he added.

Last year, the Philippines improved its ranking on the global corruption index compiled by Transparency International. It placed 116^th out of 180 countries in the 2022 Corruption Perceptions Index, a spot higher than its worst-ever showing of 117^th place in 2021.

Despite the improvement in ranking, the Philippine score was 33, its lowest ever in the index and below the global average of 43 and the Asia-Pacific average of 45.

TRADE DEALS
Trade and Industry Undersecretary Allan B. Gepty said some investment must be made in navigating the preferential arrangements and their compliance rules to be in a position to access trade agreements.

“There are still many businesses who are not that aware of these preferential arrangements, including compliance procedures,” Mr. Gepty said in a Viber message.

“The continuing program is for advocacy and education so that exporters can avail of the preferential arrangements and other businesses can be encouraged to export or even do business in other countries,” he added.

Mr. Gepty said the Department of Trade and Industry (DTI) plans to sustain its campaign to inform and educate stakeholders on the benefits of FTAs such as the Regional Comprehensive Economic Partnership (RCEP) and other preferential agreements such as the European Union’s (EU) Generalised Scheme of Preferences Plus (GSP+).

The Philippines has been a beneficiary of the GSP+, a special trade scheme for vulnerable low- and lower-middle-income countries, since 2014. GSP+ grants zero duties on 6,274 Philippine products.

The current arrangement was set to expire by the end of 2023. However, the Council of EU Member States and the European Parliament amended the GSP scheme to extend it to 2027.

Under the current scheme, eligible countries, such as the Philippines, will have to comply with 27 international conventions on human rights, labor rights, climate action, and good governance.

The Philippines was threatened with the loss of its GSP+ status during the Duterte administration due to European concern over extrajudicial killings and alleged human rights violations.

The Duterte administration’s “war on drugs” was condemned by the European Parliament in a resolution passed in February 2022, which asked the country to act on human rights abuses.

On the other hand, RCEP, the world’s biggest FTA involving a third of the global economy, counts among its members Association of Southeast Asian Nations, Australia, China, Japan, New Zealand, and South Korea.

The deal aims to increase trade among RCEP participants by allowing minimal to zero restrictions on shipment volumes, tariffs, and import taxes.

The Philippines was the last participating country to ratify the FTA on June 2, more than two and a half years since the participating countries concluded the deal in November 2020.

Mr. Gepty said that the late ratification is one of the reasons why it is still too early to assess RCEP utilization in the Philippines.

“Since its implementation in the Philippines only started in June, it would still be too early to gather and process data. We are coordinating with concerned agencies to gather relevant data for purposes of monitoring,” he said.

Mr. Barcelon added: “RCEP was just ratified in the middle of the year, so it will take some time to really get the benefits from it.”

He said that most RCEP countries are already Philippine trading partners.

“Some of the benefits that I would see are for our agricultural sector to be able to expand their market in Japan, among others,” he added, citing the benefits of the lowered tariffs for Philippine produce under RCEP.

Tereso O. Panga, director-general of the Philippine Economic Zone Authority (PEZA), said there has been an increase in investment approvals from some RCEP countries.

“There has been a marked increase in our ecozone investment approvals this year from Australia and China, countries we consider in PEZA as non-traditional sources of economic zone (ecozone) FDI and exports,” Mr. Panga said in a Viber message.

“Clearly, we can attribute this trade and investment market diversification to the country’s recent accession to RCEP,” he added.

PEZA reported that approved investments from Australia more than doubled to P772.82 million in the first 11 months while investments from China grew 65.8% to P1.28 billion during the period.

“With the entry of more Chinese and Australian investors, we can expect these locators to be exporting their products and services back to their principal headquarters or to other RCEP member countries to take advantage of the lower trade barriers and improved market access from trading partners,” Mr. Panga said.

He said that the increase in investment after the implementation of trade agreements was also seen in the case of European countries.

“We see the same trend with the huge growth in ecozone FDI from EU member countries. In addition, we expect our ecozone exports to the EU to likewise achieve a significant increase given the latter’s continued grant of GSP+ privileges to Philippine exporters,” he said.

“With PEZA accounting for more than 60% of the exports of goods and commodities, we are pursuing more locators seeking to avail of the benefits under RCEP and the proposed EU-Philippines FTA to grow their operations in the country,” he added.

In the first 11 months, PEZA approved P16.56 billion in investments from EU member countries, sharply higher compared with the P2.44 billion in approvals a year earlier.

Philip Dupuis, head of trade for the EU Delegation to the Philippines, said the Philippines retains the potential to more fully utilize GSP+.

“Utilization by the Philippines… has been relatively good. I think we are utilizing two-thirds of the eligible exports, more or less, if I remember well, but it could be better,” Mr. Dupuis said in a chance interview.

He said that it is important to determine whether exporters have an ingrained preference for trading with nearby or familiar markets.

“I think there is a lot of work for us to do in terms of making the European market better known, but the companies also need to inform themselves because all the materials are there,” he said.

“Obviously, if you are satisfied with your exports to Japan and the US, then you don’t necessarily look at the EU market. But I think the potential is there; there is potential to grow for Philippine companies in Europe,” he added.

Mr. Dupuis also said that the EU legislators are still looking to update the GSP+ scheme after the current deal’s extension, as the EU Council and Parliament have yet to reach agreement on updating GSP rules.

The EU and the Philippines have also resumed talks for an FTA since the suspension of the negotiations in 2017. Negotiations were put on hold due to issues over intellectual property rights and data exclusivity, among others.

The two parties are expected to complete the initial phase of the negotiations by the end of December, which involves the identification of the chapters that would form part of the FTA.

The two first launched negotiations for an FTA in 2015.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that there is also a need to push the participation of micro, small, and medium enterprises (MSMEs) to further increase utilization of GSP+.

“Some MSMEs that are part of the export supply chain and ecosystem have yet to maximize the potential of GSP+,” Mr. Ricafort said in a Viber message.

He added that supporting “online businesses and transactions would also be able to maximize the economic benefits and potential of these FTAs, given their immense possibilities to expand export markets.”

Mr. Ricafort said FTAs are helpful for effectively expanding the markets of Philippine exporters at much reduced cost, making them more competitively priced.

He said such trade deals also attract more investment, with investors from nearby countries using the Philippines as a stepping stone to access the benefits of preferential agreements such as GSP+.

THE WIDELY expected monetary policy easing from the Bangko Sentral ng Pilipinas (BSP) next year will likely spur economic activity especially if inflation is kept in check.

However, the BSP and the banking industry should remain vigilant against risks  amid a prolonged period of volatility and uncertainty, analysts said.

Security Bank Corp. Chief Economist and Senior Assistant Vice-President Robert Dan J. Roces said the BSP is expected to start monetary policy easing by mid-2024.

“It’s expected that there might be a shift towards policy easing, potentially starting in mid to late 2024. Such rate cuts could stimulate economic growth by encouraging consumer spending and business investments, provided that inflation is kept under control,” he said in an e-mail. 

At its last meeting for the year, the Monetary Board maintained its target reverse repurchase rate at a 16-year high of 6.5%. The BSP has raised borrowing costs by a cumulative 450 basis points from May 2022 to October 2023 to curb inflation.

Bank of America Country Executive for the Philippines Vincent Valdepeñas said he expects the BSP to start rate cuts by the second quarter. 

“A moderate acceleration of rate cuts can further increase economic activity and can help boost growth. We view a 100-basis-point (bps) cut in 2024 starting second quarter next year, which will bring down the key policy rate to 5.5%,” he said in an e-mail interview. 

Mr. Valdepeñas said Philippine gross domestic product (GDP) will likely expand by 5.5% in 2024, lower than the revised 6.5-7% government target for next year.

Krisjanis Krustins, director for Asia Pacific sovereigns at Fitch Ratings, also see a 100-bp worth of rate cuts from the BSP next year. 

“We assume BSP will cut rates to 5.5% by end-2024 and 4.5% by end-2025, under our forecast of consumer price inflation moderating to an average of 3.5% by 2025 on lower commodity prices, base effects and monetary tightening up to 2023,” he said in an e-mail. 

Headline inflation slowed to 4.1% in November, which marked the 20^th straight month that inflation breached the central bank’s 2-4% target range.

Year to date, inflation averaged 6.2%.    

RISING RISKS

However, Fitch’s Mr. Krustins said risks remain despite the slowdown in November inflation, citing elevated inflation expectations, supply-side price pressures, and potential second- round effects from higher minimum wages and transport fares. 

The BSP’s risk-adjusted inflation forecast for 2023 stood at 6% this year, 4.2% for 2024 and 3.4% for 2025.

The BSP also maintained its average inflation baseline forecasts at 6% for 2023, 3.7% for 2024, and 3.2% for 2025.    

Mr. Valdepeñas said some of the key risks to the Philippine economy next year would be geopolitical uncertainties, higher interest rates that may lead to sluggish growth, and climate-environment worries.

“A key challenge for the (banking) industry in 2024 would be maintaining profitability with a prolonged higher rates environment and market volatility while navigating through the credit cycle,” he said. 

He said the Philippine banking industry has so far done well in an environment of higher interest rates.

Banks have seen increased revenues and profits this year due to higher net interest margins, while also better managing their credit portfolios. 

The banking industry’s cumulative net income rose by 10.4% to P270.352 billion as of end-September from P244.876 billion last year, based on the latest central bank data. 

As of end-September, banks’ net interest income jumped by 20.4% to P663.24 billion from P550.666 billion last year.

The Philippine banking industry wrote off P457.88 million worth of bad debts in the nine-month period, 80.1% lower than P2.3 billion a year ago.

Banks have also spent a lot of resource on digitization and technology to remain competitive, Mr. Valdepeñas said. 

“A competitive landscape is always good as it leads to better outcomes for clients, for the business community and for the broader economy,” he said. 

Meanwhile, Mr. Roces said banks had to adapt when the BSP aggressively tightened monetary policy to tame inflation.

“High interest rates typically lead to more expensive loans, dampening borrowing enthusiasm, and slowing down loan growth. However, this also provides an opportunity for banks to achieve higher net interest margins,” he said.

“The industry has had to enhance its risk management practices, with a more prudent credit risk assessment to mitigate the risks. In addition, banks have been adjusting their investment portfolios,” he said.

However, stubborn inflation remains a significant concern as it could prompt the BSP to keep interest rates higher for longer, which could continue to hurt consumer spending and investments.

“The global economic environment also poses a risk, especially if a slowdown affects sectors reliant on exports and foreign investments. Domestic and regional political stability is crucial for maintaining investor confidence and economic stability,” Mr. Roces said.

DIGITAL TRANSFORMATION

The increased adoption of digital technology in the banking sector also requires a “substantial investment” in cybersecurity and digital infrastructure. 

The BSP has been proactive in promoting digital transformation in the financial sector. The BSP aims to convert 50% of retail payments into digital form and expand financial inclusion.

The BSP has said it is working closely with the industry to introduce new digital payment streams and facilitate the growth of financial technology (fintech) businesses engaged in e-commerce. 

“Overall, the banking industry faces evolution in 2024, primarily centered around adapting to the digital revolution. This involves enhancing digital platforms and services, offering innovative products, and focusing on personalized customer services,” Mr. Roces said.

Banks and financial institutions need to manage market volatility and enhance strategies such as asset diversification and strengthened liquidity management, he said. 

“The prolonged period of volatility and uncertainty has also changed the competitive landscape, with increased competition from fintech and digital banking platforms. Banks are now more focused than ever on improving customer experience and service efficiency,” he added.

THE PHILIPPINE stock market is expected to improve in 2024 amid more opportunities for capital raising and growth, according to industry players and analysts.

Ramon S. Monzon, president and chief executive officer of local bourse operator the Philippine Stock Exchange, Inc. (PSE), said in an interview that about P160 billion worth of capital-raising activities is expected next year, higher than the expected P120 billion this year.

“Next year, we’re going to ramp it up to P150 billion to P160 billion worth of capital raising,” Mr. Monzon said.

“I projected a capital raising of P160 billion [in 2023]. We’re only going to hit about P120 billion,” he added.

As of end-September, the PSE said that total capital raised was at P91.88 billion, of which 58.4% were from follow-on offerings, followed by private placements at 21.9%, stock rights offerings at 15%, and initial public offerings (IPOs) at 4.7%.   

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message that the PSE’s main index could hit the 7,000 level next year on the back of a better interest rate environment.

“There are reasons to be optimistic about the equity market next year, and I see a reasonable chance that the index will reach the 7,000 level,” Mr. Colet said.

“There are potentially three major drivers of better market performance: first, a dovish shift in monetary policy that creates a more favorable interest rate environment; second, higher economic growth on the back of improved domestic and external demand; and third, implementation of capital markets reforms, such as the proposed reduction of the stock transaction tax to 0.10%,” he added.

As of the Dec. 15 close, the PSE index rose 67.96 points or 1.06% to 6,478.44 while the broader all shares index improved by 14.59 points or 0.43% to 3,409.55.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that there is a good chance for market conditions to improve next year and hit the 7,000 level.

“There is a good chance for market conditions to improve so some local listed companies could revive share sale and IPO plans in 2024 as they can sell shares at the highest possible price especially if the Fed starts cutting rates in 2024, [which] would reduce borrowing costs, spur more investments, increase profits and boost stock market valuations, on top of the further recovery of the economy,” Mr. Ricafort said.

Mr. Ricafort added that higher investment valuations for the local stock market are expected following the government’s move in July to lift the state of public health emergency due to the coronavirus disease 2019 (COVID-19) pandemic.   

“This boosted employment and generated more business opportunities, all of which would help support higher investment valuations,” Mr. Ricafort said.

He warned that although the lifting improved revenues, “these could be offset by still relatively higher prices and still relatively higher interest rates.”   

Alvin D. Lao, president and chief executive officer of listed oleochemicals and specialty food ingredients manufacturer D&L Industries, Inc., said that next year is expected to be better as interest rates are seen to ease. 

“It is possible that next year would be quite different because one thing that happened this year is that interest rates went up by a lot. When interest rates rapidly change, definitely it’s disruptive. In this case, when interest rates go up so much, financing becomes very expensive,” Mr. Lao said in an interview. 

“For next year, even though the conditions are similar to where we are now, the increase in rates is not as bad anymore because we’re starting at a higher level. So for next year, I don’t think there’s a chance that interest rates will go up even more. From that perspective, next year would be better than this year,” he added.

The Bangko Sentral ng Pilipinas (BSP) on Dec. 14 decided to keep its key rate unchanged at 6.5% for a second straight meeting but signaled a “tighter-for-longer” policy until inflation expectations have become more firmly anchored.    

“The Monetary Board continues to see the need to keep monetary policy settings sufficiently tight to allow inflation expectations to settle more firmly within the target range,” BSP Governor Eli M. Remolona, Jr. said in a statement.

The country’s headline inflation slowed to 4.1% in November compared with 4.9% in October. The inflation figure for November signaled the 20^th consecutive month that inflation exceeded the central bank’s 2-4% target range. Inflation averaged 6.2% during the January-to-November period. 

Henry D. Antonio, president and chief executive officer of listed construction firm EEI Corp., said that 2024 would be a different year for listed companies, citing the resurgence of the US economy.

“I think next year would be different for listed companies because the US has already started to get on this run. The US always has a significant impact on the equities market. If the rates start easing, confidence will return,” Mr. Antonio said in an interview.

The US Federal Reserve opted to maintain its benchmark overnight borrowing rate at the 5.25% to 5.5% range on the back of easing inflation. It also announced that there would be at least three rate cuts next year. 

In terms of IPOs, analysts and stakeholders predict about four stock launches next year.

PSE’s Mr. Monzon said the possible listings consist of Sy-led SM Prime Holdings, Inc.’s real estate investment trust (REIT) IPO, as well as companies in the mining, industrial, and food sectors.

“As of now, we have about four big IPOs in line [for next year],” Mr. Monzon said.

For 2023, the PSE saw three conducted IPOs, namely: Alternergy Holdings Corp. in March, Upson International Corp. in April, and Repower Energy Development Corp. in July.

Eduardo V. Francisco, president of top investment house BDO Capital and Investment Corp., projected that the PSE could see two to three IPOs next year. 

“Realistically, I see about two to three IPOs,” Mr. Francisco said in an interview.   

“Five IPOs are already optimistic because [the] first half [of next year] will be muted if rates are still high. If the rates don’t go down, no one would do an IPO because the yield is too high. Those (IPOs) might all come in the second half of next year,” he added. 

EEI’s Mr. Antonio projected that IPOs could come by the latter part of 2024, adding that the local bourse has been “very resilient.” 

“We will see more IPOs coming in. Probably not in the beginning of next year, maybe towards the end of next year is what I would expect. But the nice thing is that the Philippines is very resilient in terms of the market,” Mr. Antonio said. 

Meanwhile, Mr. Colet said that more IPOs and equity deals are projected in 2024 but warned that risks such as hawkish monetary policy and geopolitical tensions could hamper the projection. 

“Given this backdrop, we can expect IPOs and equity deals next year, especially as interest rates start to move down. Delistings are not out of the picture, but hopefully, we see more listings,” Mr. Colet said. 

“As always, there are risks. Among those we should watch out for are a hawkish monetary policy overshoot that stuns economic growth, a failure by China to shore up the world’s second-largest economy, and geopolitical flareups or natural calamities that severely destabilize supply chains and financial markets,” he added.

PHILIPPINE MICRO, small, and medium enterprises (MSMEs) demonstrate resilience in addressing economic uncertainties through swift digital adoption, leveraging platforms such as e-commerce and social media, according to industry experts.

Digital transformation is now crucial for MSMEs, arising from the necessity for lean and efficient operational alternatives to recover from crises,  Armando “Butz” O. Bartolome, founder and president of GMB Franchise Developers, said in an interview with BusinessWorld.

“MSMEs have started to recover gradually but not really skyrocket,” he said.

  “We are not really there yet, but I can see a lot of entrepreneurs are gung ho about how things are going,” he added. “They know the past is past. It’s a hard lesson to accept, but they really have to move forward and adapt.”

  “If they’re not online, they’re not going to be in business.”

MSMEs are the backbone of the economy, accounting for 99.59% of all business establishments and employing 65.10% of the workforce, according to the Philippine Statistics Authority. Small businesses created 5,607,748 jobs last year.

“In 2023, it was more of a ‘rebasing era’ for us,” noted Rosemarie B. Ong, chairwoman of the Philippine Retailers Association (PRA), referring to the persistent economic uncertainties marked by price fluctuations, high inflation, and supply chain disruptions from the Russia-Ukraine and Israel-Palestine wars.

Mr. Bartolome said that MSMEs have to stay informed to navigate through such challenges with limited resources. “We are not the decision-makers, but find out how much these situations will affect you.”

“The growth will depend on how you innovate. It’s high time to realign the types of services you can now provide to adapt and consider the investments you can make to lower costs,” he added, emphasizing continuous recalibration as a sign of the times.

In terms of consumer behavior, he observed a stronger ‘sachet mentality,’ with Filipinos increasingly preferring layaways, segmented payment schemes, and installments when accessing products and services.

This also means exploring emerging technologies such as artificial intelligence (AI) and automation to improve efficiency, which Jose Ma. “Joey” A. Concepcion III, founder of the Philippine Center for Entrepreneurship-Go Negosyo, noted as an inclusive opportunity, which entrepreneurs are bound to embrace in the face of risks.

“We tell them that you have to ride. It’s never a straight flight,” he said. “There will be bumps, and that’s part of business.”

E-COMMERCE
The Philippines’ digital economy is projected to grow by 13% this year, reaching $24 billion in gross merchandise value, according to the e-Conomy report by Google, Temasek Holdings, and Bain & Co.

This growth will be primarily driven by e-commerce, expected to expand by 21% annually and reach $24 billion by 2025.

According to the GoDaddy 2023 Data Observatory report, around 95% of Philippine small business have planned investments in online sales and marketing spending this year. It also found that 62% reported generating up to half of their annual revenue from online sales channels.

E-commerce platforms have become an avenue for MSMEs to participate in growing digital opportunities such as shoppertainment, which aims to attract consumers with content to help drive sales. It is projected to expand to a market value of over $1 trillion by 2025, according to the Boston Consulting Group.

Danecia Reverie Fojas, senior account manager at TikTok Shop, noted how MSMEs often find it challenging to compete with established brands in traditional retail spaces, and how a creative digital storefront democratizes the scene and helps entrepreneurs grow.

  “There is a fundamental shift in consumer-based brand interactions, and consumers now seek engaging, exciting, educational, and entertaining experiences with brands,” said Life Dawn Cervero, vertical head for food and beverage at TikTok Philippines.

“Advertising their brands is now very inclusive with the shift to social platforms. The dynamics have changed,” Mr. Concepcion said. “We’re teaching them how to become nano-influencers able to market themselves and their product.”

Shopee reported a fiftyfold increase in orders on Shopee Live, an interactive live-streaming feature on the e-commerce platform, during its 12.12 mega sale, which resulted to 12 million items sold across markets in just the first two minutes.

  The surge in livestream shopping led to a forty-sixfold increase in new buyers locally, emphasizing the trend’s popularity, it added.

  “I’m very bullish and optimistic that the whole digitalization move is helping more entrepreneurs next year,” Mr. Concepcion said.   

DIGITAL TRANSFORMATION
But more than sales, digital platforms have also allowed small businesses to unlock efficiency from the backend, improving their access to suppliers and distributors.

  “We have found that an information gap in product selection, stocking, and marketing prevents digital empowerment for MSMEs, especially those in rural areas and from disadvantaged groups,” Ms. Fojas said as the industry’s top risks, which can be alleviated by empowering everyone to seize the opportunities of the digital economy.

  Mr. Concepcion noted that digital transformation is increasingly being pushed for sari-sari stores, as they are significant players among retail MSMEs, which are often easy to overlook.

There are about 1.3 million sari-sari stores in the Philippines, which 94% of consumers depend on for daily needs, according to the Asian Preparedness Partnership. Excluding those without paid employees, there are 40,549 sari-sari stores in the country, according to the local statistics agency.

Ibrahim R. Bernardo, co-founder and chief marketing officer at Packworks, said that providing enterprise resource planning solutions and tech support for sari-sari stores has begun opening up possibilities for both their present and future.

This includes inventory management, insights dashboards, and a customer relationship management system, which collectively elevate sari-sari store owners as key opinion leaders in their respective communities, he added.

“Access to brands, helping their businesses with tools specific to them, margin protection — there are many ways we’re helping the stores, but the challenges are still there,” he noted. The majority of stores aided by Packworks have increased sales, “doing better with the app than without it.”

  “We amplify and put those super sari-sari stores on a podium and give them tools so that the smaller stores are inspired and emulated,” he said on directing efforts to maximize the potential of small community retailers.

  “There are so many possibilities once you get them connected and provide value,” he added, envisioning sari-sari stores soon becoming an affordable internet provider, job placement hub, and dark warehouse, with a committed vision and support for a high-tech future for them.

ARTIFICIAL INTELLIGENCE
However, with the rapid emergence of sophisticated technologies such as AI, entrepreneurs are faced with the challenge of balancing technology costs with efficiency gains.

The Trade department earlier said that AI could contribute as much as $90 billion to the Philippine economy by 2030.

However, only 17% of Philippine organizations are ready to utilize and deploy AI, with the majority of them raising concerns about the impact of not adopting these advances, according to a recent report by technology company Cisco.

It said that 44% of Philippine organizations are chasers or moderately prepared, 35% are followers with limited preparedness, and 4% are laggards with no readiness to leverage AI.

“While tech adaptation is crucial, affordability remains a key factor,” PRA’s Ms. Ong said regarding MSMEs’ limited financial capacity for tech advancement. “In any technology, there’s always a cost associated with it, especially since [AI] is still a work in progress.”

  “If you introduce AI solutions, it should align with the basic needs and affordability of MSMEs, not just because it’s a trend,” she added, emphasizing the importance of identifying specific pain points that AI can address, which vary for each business.

“[AI] is not a one-stop solution. It is about how you use it,” Mr. Bartolome said. “Learn and understand how AI can be productive for you. It’s something that cannot just sit down and work for you. You have to ensure you can control and modify it to meet your needs.”

AS THE PHILIPPINES steps into 2024, a swift enactment of amendments to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act is highly anticipated by business groups to attract a surge in foreign investments.

Speaking to BusinessWorld, Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon expressed optimism about the potential impact of changes under the CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) bill, which is currently being taken up in the House of Representatives.

He said companies considering relocation are likely to appreciate the flexibility the Philippines would offer in encouraging foreign direct investments (FDI). “Let’s say an operation from China,” he said, could be enticed to relocate once it sees the advantages of new incentives and policies in the country.

These companies are typically export-oriented, said Mr. Barcelon, so they tend to choose to be located in any area they are entitled to the full benefit of such incentives under CREATE MORE. “That would definitely help make our country more attractive,” he added.

Based on a Fiscal Incentives Review Board (FIRB) report released last October, the bill focuses on key reforms that include streamlining the tax refund process for registered business enterprises and implementing a risk-based classification system for claims and audits.

But one of its salient features is to boost the country’s foreign market presence by expanding the enhanced deduction regime. This involves increasing the deduction for power expenses from 150% to 200% and introducing a 200% deduction for expenses related to approved trade fairs, exhibitions, and missions.

Ebb Hinchliffe, American Chamber of Commerce of the Philippines (AmCham) executive director, said the enactment of the CREATE MORE bill would help them promote the country as an operable investment site in an upcoming US trade mission in March 2024.

“[The year] 2024 is shaping up to be a banner year for AmCham. Not only the benefits of CREATE MORE but also the recent ruling allowing 100% ownership of renewables,” he said in a Viber chat.

AmCham has been batting for the streamlining of FIRB processes, the clarification of work-from-home arrangements for companies under the Philippine Economic Zone Authority (PEZA), and timely tax refunds, Mr. Hinchliffe said.

CREATE was signed in to law in 2021 to aid enterprises who have yet to recover from the coronavirus pandemic. And one of its aims is to enhance the efficiency, timeliness, and predictability of VAT refunds.

While the law was able to grant several fiscal incentives to registered companies and projects, key industry sectors were called to solve bottlenecks in the law.

One of the major concerns from CREATE was the VAT zero-rating on local purchases, as it would require claimants to prove that their local purchases are “directly and exclusively” used in their registered activities.

The information technology and business process management (IT-BPM) sector also sought clarification on work-from-home arrangements, after the FIRB denied requests to allow the set-up.

The CREATE MORE bill was approved by the House Ways and Means Committee on Nov. 21, following instructions from President Ferdinand R. Marcos, Jr. to speed up its passage, said panel chairman and Albay Rep. Jose Ma. Clemente “Joey” S. Salceda.

Under CREATE MORE, local and export companies, even those inside ecozones and freeports, would continue to enjoy duty exemptions, VAT exemption on importation, and the VAT zero-rating of local purchases as provided in their respective investment promotion agency (IPA) registrations.

“Registered export enterprises shall enjoy non-income tax incentives, such as duty exemption on importation of capital equipment, raw materials, spare parts or accessories, VAT exemption on importation and VAT zero-rating on local purchases, as long as the registered export enterprise maintains 70% of the total annual production as export sale and continues to be registered in good standing with the IPA,” according to a copy of the bill.

The measure also proposes to lower corporate income tax (CIT) to 20% for those under the enhanced deduction regime from 20-25%.

Under the measure, the IT-BPM sector will be allowed to “conduct business under alternative work arrangements.”

Bienvenido S. Oplas, Jr., president of think tank Minimal Government Thinkers, said a lower CIT would ensure a favorable business climate in the Philippines.

“Better yet bring it down to a 17% flat rate… to keep up with tax competition in CIT at least in the ASEAN-6 (Association of Southeast Asian Nations),” Mr. Oplas said in a Viber message.

Among six ASEAN countries, the Philippines has the highest CIT rate at 25%, compared to Malaysia (24%), Indonesia (22%), Vietnam (20%), Thailand (20%), and Singapore (17%).

“More companies paying a lower tax rate may produce more revenues than few companies paying a higher tax rate,” he added.

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said Congress should not only legislate on tax rates to entice investors.

“Reducing corporate tax rates is no magic bullet to broaden foreign investments to the country, as other impediments remain, such as red tape and corruption,” Mr. Ridon, also a former lawmaker, said via Viber.

CREATE MORE empowers the President to motu proprio grant incentive packages, essentially removing the FIRB’s capacity to assess and recommend fiscal incentives. Mr. Salceda said this amendment was specifically requested by Mr. Marcos.

In a Nov. 8 committee meeting, Finance Assistant Secretary Juvy C. Danofrata, who also heads the FIRB Secretariat, said the board seeks to ensure “fiscal responsibility” when granting exemptions or tax incentives.

“Before CREATE, there’s really no conscious effort on the part of anybody except, I think, the DoF (Department of Finance) to look into what is the cost and what is the benefit [of tax incentives and exemptions] to the economy,” she told congressmen.

Anthony B. Rivera, director for commercial affairs at the Philippine Trade and Investments Center in Taipei, said changes made under the CREATE law must ensure ease of doing business to attract more Taiwanese investors.

“They (Taiwanese enterprises) would like to have an enabling environment that will lower their costs and have faster processing of VAT refunds,” Mr. Rivera said in a Viber message.

Finance Secretary Benjamin E. Diokno earlier said that amendments to the CREATE law will improve the country’s investment climate.

“The proposed amendments to the CREATE Act will enhance the incentive system, clarify the rules and policies on the grant and administration of incentives to qualified enterprises, and address issues affecting the country’s investment climate,” Mr. Diokno said on Oct. 25.

CINEMAS and other places of entertainment are hopeful as they aim for resilience amid economic risks. Since reopening in 2021 after the pandemic-induced lockdowns, movie theaters are attracting more audience members through upgraded facilities and an increased variety of film choices.

Ayala Malls Cinemas reports that operations have been picking up. In September, the division reported that “watching movies in cinemas, long cherished by Filipinos, is experiencing a renaissance.”

“Philippine cinemas successfully achieved a robust box office performance for the year 2022. The same performance was reached as early as September 2023,” said Emee Aganon, head of Ayala Malls Cinemas, in an interview with BusinessWorld.

This year, this renaissance manifested in blockbuster favorites like Barbie, The Little Mermaid, and Insidious: The Red Door, as well as the acclaimed Cinemalaya film festival.

Barbie was Warner Bros. Pictures Philippines’ biggest release in 2023, spurred on by toy box photo booth campaigns in malls nationwide. Meanwhile, its “partner-in-crime” in the “Barbenheimer” moviegoing phenomenon, Oppenheimer, was the highest-grossing IMAX release in 2023, according to Universal Pictures Philippines.

“These films drew substantial audiences back to theaters,” said Ayala Malls Cinemas via e-mail.

MAKING FILMS MORE ACCESSIBLE
Steven Tan, president of SM Supermalls, said in December that SM Cinemas’ response to the returning demand is to make films more accessible to Filipinos.

At the opening ceremony of the French Film Festival, which was done in partnership with the French Embassy, he said, “Film is such a compelling medium to enrich our perspective. This is why we expanded the film festival to two of our iconic SM Supermalls, making French cinema more accessible than ever before.” The festival was held at the cinemas of the SM Mall of Asia and SM Megamall.

Regular tickets for those films cost P150 while tickets for students, seniors, and persons with disabilities (PWDs) cost P100.

Most notably, Filipinos’ clamor for accessible films was seen on Oct. 15, during SM Cinemas’ 65^th anniversary, when eight titles were available for only P65 across SM Cinemas nationwide.

Photos of long queues at the mall went viral as audiences chose from the eclectic mix of American, Asian, and Filipino selections under the one-day promo. The films were Instant Daddy, The Creator, The Expendables, Forbidden Play, Monster, Coffee Wars, and Dr. Cheon and the Lost Talisman.

In a disclosure on Nov. 6, SM Prime said “cinemas, event ticket sales, and other revenues increased significantly to P7.7 billion from P3.5 billion in the same period last year” — a whopping 120% increase.

NOT AT PRE-PANDEMIC LEVELS YET
However, despite the seemingly positive growth in the country’s cinema exhibition industry, it pales in comparison to pre-pandemic times.

Ms. Aganon of Ayala Malls Cinemas notes: “Although there’s a considerable improvement compared to the previous year, it’s important to note that the current performance is still 60% below pre-pandemic levels.”

Both companies acknowledge the arduous journey ahead for cinema operators. They cite the potential occurrence of another pandemic, evolving consumer behaviors, and the persistent issue of piracy.

But there will always be people who will want to go to the movie theater, according to Mr. Tan of SM Supermalls. This is why SM opened many cinemas in some of their malls this year: in Bataan, in Sto. Tomas in Batangas, and in Pulilan in Bulacan. Its newest IMAX theater opened in SM Iloilo just last month.

As the country’s largest cinema operator, it has 384 screens combined nationwide.

BETTER TECHNOLOGY
To keep Filipinos coming back to the movies, it’s also essential to continue bettering their current offerings, as per Ayala Malls Cinemas, a major runner-up cinema operator in the Philippines.

“Cinemas play an integral role in the malling experience for Filipinos. Along with our competitors, we persistently invest in upgrades and introduce new formats to enhance the overall cinematic experience,” said Ms. Aganon.

Both companies told BusinessWorld that audiences can look forward to more cutting-edge projectors, state-of-the-art sound systems, comfortable seats, and enhanced online ticketing systems.

Given these technical advantages, the question that emerges is: What experiences do cinemas offer that (admittedly convenient) streaming platforms don’t? Many point to the communality of watching with a crowd and the sense of exploration provided by an in-person venue, program, or festival.

“There’s something about watching films collectively, with the audience reacting together, that strengthens bonds,” said Mariel Nini, officer in charge of the National Commission for Culture and the Arts’ (NCCA) Sentro Rizal International Cultural Affairs Office.

FILM FESTIVALS GO ON-SITE
At the sidelines of the Tingin Southeast Asian Film Festival in September, she noted that although many online platforms have mushroomed, moviegoers are still coming back to the theaters. “There has been clamor for in-person screenings,” she added, on why film festivals are now veering away from the purely online format they adopted during the COVID-19 pandemic.

Patrick Campos, a University of the Philippines Film Institute (UPFI) professor and Tingin’s festival programmer, said that the lockdown “has certainly changed people’s viewing habits, although Filipinos’ exposure to Southeast Asian and world cinema remains the same.”

“Our interest in films from the region is piqued not by popularity, but by thoughtful programming, and audiences turn to festivals to gain insight into other cultures and histories,” he told BusinessWorld back in September.

This is also the reason the Film Development Council of the Philippines (FDCP) licensed the rights to various world cinema titles for commercial release in Ayala Malls Cinemas in August. These included Cannes-winning titles Aftersun by Charlotte Wells and Return to Seoul by Davy Chou.

“More than its aim to encourage audiences to return to the cinemas, this program aims to further expose moviegoers to titles that would help them expand their horizons,” said FDCP Chairman Tirso Cruz III in a statement.

2023 also saw a colorful array of film festivals from embassies such as Japanese, Korean, Spanish, Italian, and so on — all held in person — as well as a much bigger QCinema International Film Festival.

In November, QCinema screened nearly 70 films from the Philippines and around the world, welcoming three times more guests and filmmakers compared to last year, said Ed Lejano, its festival director.

“We know there’s a strong filmgoing market here. Yes, streaming platforms have become the most popular form of entertainment for Filipinos nowadays, but film festivals are back with a vengeance,” he told the press at the launch.

AFTER THE HOLLYWOOD STRIKES
Moving forward, these festivals showing independent and acclaimed foreign titles will be providing a variety to complement the blockbusters peddled by the Philippines’ major cinema operators.

Both SM and Ayala have said they are eagerly anticipating the Hollywood movie lineup for 2024, despite the delays caused by the actors’ and writers’ strikes in the USA.

“Currently, the ratio of foreign movies to local movies stands at 70:30,” said Ms. Aganon of Ayala Malls Cinemas. “We hope that this will improve with more contribution from local movie producers.”

She added that partnerships with foreign distributors will be broadening their offerings. This includes concert films featuring the successful live performances of popular global artists such as Taylor Swift, Beyoncé, Coldplay, BTS and other notable K-pop groups.

For renowned Filipino screenwriter Ricardo “Ricky” Lee, the variety of films in theaters is essential to not only entertain audiences, but also inspire them.

“Aspiring artists and writers, upon seeing the variety of films in theaters, get a strong push to explore storytelling possibilities. These avenues embolden the youth,” he told BusinessWorld at the sidelines of QCinema’s opening night.

“I’m also very optimistic about Filipino audiences. I don’t think streaming will go away because it’s convenient, but I think people are realizing how great it is to watch on a big screen. There will always be a place for it,” Mr. Lee added.

UPFI’s Mr. Campos concludes that pitting movie theaters against streaming platforms is not necessary: “It is not that one is better than the other, but that each mode of distribution and consumption should be considered distinct and worthy of being explored separately.”

THE YEAR 2023 was the first year since the lockdowns of 2020 when businesses in the Philippines were free from pandemic-related restrictions. These included limited operating hours, limited occupancy, and, for some businesses deemed nonessential in the very early days of the pandemic, closure.

In that period, malls treaded carefully. Quarantine passes, and later, vaccine cards had to be presented at doors, and only a limited number of shoppers could be accommodated at one time, forming long lines, or else the businesses had to completely turn away potential customers.

BusinessWorld asked for insights of two of the largest mall operators in the country on their first year of restriction-free operations. Ayala Malls — under Ayala Land, Inc., which is itself under the larger Ayala Corp. umbrella (which has interests in banking, telecommunications, energy; among others) — operates more than 30 malls across the country, including several in the National Capital Region, reaching across to the Visayas and Mindanao with several more properties. Robinsons Malls, meanwhile, is the second-largest mall operator, with over 50 malls in the country. It has properties as far up the northern region with Robinsons Place La Union, all the way down to Mindanao’s Iligan. Robinsons Malls is one of the business units of Robinsons Land Corp. (RLC), itself under JG Summit Holdings, Inc.

According to Robinsons Malls website, its establishments generate over 120 million visits annually. Meanwhile, Ayala Land’s annual report for 2022 says that “footfall and tenant sales exceeded pre-COVID levels, reaching 108% and 110%, respectively” in Q4 in 2022. “This significant improvement brought the average footfall and tenant sales to 87% of 2019 levels,” said the report. For this year, Clavel Tongco (Head of Operations, Ayala Malls), Mark Sablan (Head of Leasing, Ayala Malls), Lisa Yang (Marketing Director, Ayala Malls), told BusinessWorld in a joint e-mail, “We are pleased to confirm that we have successfully recovered to pre-pandemic levels in terms of foot traffic and sales.

“Our malls are once again bustling with activity, and we are delighted to witness a resurgence in people returning to the malls for their shopping needs,” they said. “This positive trend indicates a renewed confidence among our patrons, reflecting their eagerness to engage in the vibrant and diverse retail experiences our malls offer.”

Meanwhile, Robinsons Land’s annual report for 2022 says that their footfall and occupancy rates are nearing pre-pandemic levels. For 2023, Joel S. Lumanlan, Robinsons Malls Vice-President for Operations, Marketing, and Business Development told BusinessWorld, “Robinsons Malls’ rental revenues experienced a 32% increase, propelled by strong consumer spending and the normalization of business operations nationwide.” That figure is 6% above pre-pandemic levels.

BIGGER, BETTER?
Because malls had to adjust to less foot traffic during the pandemic, a possible scar would be smaller spaces for fewer people. But because of a post-pandemic surge in business, that may not have to be the case.

According to its 2022 Annual Report, Ayala Malls completed 7,000 sqm of gross leasable area (GLA) in 2022 with the opening of The Shops at Ayala Triangle. As of 2022’s end, their total GLA was 2.1 million sqm. “Bigger is still better when it comes to building mall space,” they told BusinessWorld. “A larger mall space allows us to offer a wider array of retail options, dining experiences, entertainment facilities, and community spaces, thereby enhancing the overall shopping experience for our patrons.

“This strategic focus on creating spacious and comprehensive mall spaces aligns with our commitment to staying at the forefront of evolving consumer preferences and industry trends, ensuring that Ayala Malls remains a preferred destination for both tenants and visitors,” they continued.

As for Robinsons Malls, in 2022, they opened three new malls (including one in Gapan, Nueva Ecija), and expanded two other malls, including their property in Antipolo, Rizal. “Yes, the bigger the better,” said Maria Kristina Real-Lim, Robinsons Malls Vice-President for Leasing. Mr. Lumanlan however, added, “The choice of the size of mall to build depends on a lot of factors including the market, economic, and competitive profile in an area and the property that is available for the developer to build on.”

GOING ONLINE
When malls operations were limited during the pandemic, the mall operators’ online arms reached out for customers. Robinsons retail units like its supermarkets and department stores jumped into online platforms such as Grab, Shopee, and Lazada, as well as maintaining its department store’s website. “Given the acceleration of digitalization in the industry post pandemic, the online platforms became more relevant and more important especially the video sharing, payment systems, and social networking platforms,” said Ms. Real-Lim. Mr. Lumanlan, agreed, saying, “With consumer shopping habits evolving, it’s important to reach, interact with and engage customers across different channels and platforms.”

Ayala Malls, however, reminded BusinessWorld: “We don’t have our own retail store, unlike our competitors,” they said. “Unlike some competitors who operate their own retail stores, Ayala Malls functions as a facilitator for various brands and retailers.”

However, they continued: “Recognizing the evolving retail landscape, we acknowledge the ongoing importance of online platforms. Ayala Malls views online channels as complementary to our mall-based business.”

During the pandemic, they had the Ayala Malls Neighborhood Assistant (nicknamed ANA) as a sort of a personal shopper service. The complementary services of their online arm includes today its Ayala Malls Zing App, which serves as a loyalty program.

Both entities opined on the continued importance of malls in a post-pandemic world. While online shopping may be here to stay, the age-old practice of choosing items by yourself seems to be indelible. However, the mall operators conclude that being in the mall just to buy things is no longer enough, and every visit should have value added to it, perhaps with added and amplified experiential factors.

“Consumer journeys continue to evolve and the malls are adapting well to the changes by introducing more experiential, differentiated, and wider range of options for shoppers,” said Mr. Lumanlan. “The pandemic-evolved Pinoy shopper is more empowered so it’s very important that we focus on customer experience in providing convenience and customer satisfaction,” said Ms. Real-Lim.

For Robinsons Malls, these include the evolution of their spaces beyond retail to be entertainment hubs with “experiential installations,” dining options, art exhibits, and other leisurely activities. While malls had already been used as government-service hubs, the use of mall space for these activities accelerated by the pandemic. “Malls also are now more actively engaging the local communities through government services, community events, etc.; nurturing the relationship between retail and the local area where the mall is located in,” said Mr. Lumanlan.

For Ayala Malls, they discussed their various holiday-related events that keep shoppers captivated, as well as the traditional holiday sales, and even CSR efforts such as community exchange gift activities and opportunities for shoppers to pledge money to children’s charities. “While the convenience of online shopping has become a significant aspect of consumer behavior, Ayala Malls recognizes the evolving landscape and remains committed to providing engaging, community-centric, and immersive experiences that go beyond the transactional nature of e-commerce,” they said.

Malls have become our main cultural and social centers — more than museums, parks, libraries, and other such spaces. There is an enduring importance of the mall, despite shifts in consumer behavior. Malls, apparently, are less a retail space in the Filipino psyche, but are instead an important pillar in building a community.

“Consumer behavior has shown a preference for community-centric spaces. Ayala Malls, with its emphasis on creating vibrant and social environments, taps into the Filipino culture of malls being gathering places. This aligns with the desire for not just shopping but also socializing, dining, and engaging in cultural experiences,” they said. “Our malls continue to be an integral part of the retail ecosystem, offering a dynamic and social shopping environment that complements the convenience of online platforms.”

“Shopping in a mall remains to be an important social activity,” said Robinsons’ Mr. Lumanlan. “One can go shopping with families or friends and enjoy spending time together while going around the stores, try on stuff being sold, dine in exciting food outlets and these cannot be easily replicated online. It’s also great way to bond, meet new people, build new friendships and create more memories.” His colleague Ms. Real-Lim, agrees: “Malls are important in nurturing communities as we bring people together in malls in ways e-commerce cannot.”

IT HAD been, for a time, a mission aborted for a coalition of civic groups that sought to deliver food and other supplies to Filipino fishermen and other civilians in Philippine-occupied features in the South China Sea.

Its 40-boat convoy was forced to change course on the night of Dec. 10 after leaders said they had been shadowed by Chinese vessels on their way to Lawak Island, which China calls Nanshan, in the disputed Spratly Islands.

But to the surprise of many on board as well as journalists awaiting updates in Manila, a smaller boat had veered away from the direction of the lead supply ship, which was bound to return to the province of Palawan with the rest of the small boats, and managed to slip past the gigantic vessels of China which, in recent months, has been blocking the resupply missions of the Philippine government.

The Dec. 10 incident involving Filipino civilians and Chinese state forces, which followed two separate water cannon attacks of the Chinese coast guard against Philippine government vessels, is just a microcosm of both the challenges and opportunities facing Manila’s bid to modernize its infrastructure and build new ones within its 200-nautical mile exclusive economic zone (EEZ) in the South China Sea, according to experts.

THE INFRASTRUCTURE RACE
“There is a brewing race among claimants to build infrastructure in their occupied features to consolidate control and beef up their claim for effective jurisdiction,” Lucio B. Pitlo III, a research fellow at the Asia-Pacific Pathways to Progress Foundation, told BusinessWorld in a Messenger chat.

Mr. Pitlo said the Philippines should consider building more wharves and ports to house ferries and coast guard vessels in the Kalayaan Island Group to improve logistics and response times during emergencies.

“Manila should not be left out in this infrastructure build-up in the flashpoint,” he said, pointing out that not only China is moving into the many maritime features in the South China Sea.

For the Philippines, the main barrier to pursuing massive infrastructure development in the West Philippine Sea is China’s interference as demonstrated by its ongoing illegal blockade of Second Thomas Shoal, said Raymond M. Powell, a fellow at Stanford University’s Gordian Knot Center for National Security Innovation.

He noted that China restricts the delivery of anything but food and replacement troops to BRP Sierra Madre, a World War II-era vessel that the Philippines intentionally grounded in the shoal in 1999 to serve as an outpost for Filipino troops

This action was aimed at asserting the Philippines’ sovereignty after China seized Mischief Reef.

“Right now Beijing is especially focused on Ayungin Shoal (Second Thomas Shoal), where its long-time strategy has been to blockade the BRP Sierra Madre until it disintegrates,” said Mr. Powell. “So, any efforts to build there will certainly draw a reaction.”

“Should China decide to widen the blockade to include other Philippine-held features, that would be an escalation of its aggression, though it’s not clear that would happen,” he said in an e-mail. “After all, Vietnam is currently building out many of its own outposts without direct interference by Beijing.”

Vietnam has been expanding its reclaimed area in the Spratly Islands through dredging and landfill work, which started in 2021 and measures about 750 acres as of November this year, according to the Asia Maritime Transparency Initiative.

From 2013 to 2016, China has created about 3,200 acres of land in the South China Sea.

The Philippine Department of Foreign Affairs (DFA) has urged China to stop what it called the “militarization of the South China Sea.”

In August, Armed Forces of the Philippines (AFP) Chief General Romeo S. Brawner, Jr. vowed to boost the country’s military presence in the South China Sea, given China’s aggression and the Philippines’ having only a few small structures occupied by state military and naval forces in the waterway.

Mr. Pitlo said the government should also consider building more naval vessels to patrol the marine features in the waterway. “The state should also work with the private sector and international shipbuilding firms to boost the country’s shipbuilding capabilities,” he said.

The geopolitics expert said the state should harness the Agila Subic Shipyard in Zambales to build more capable marine vessels to sail the disputed waterway.

POWER OF THE PURSE
Victor Andres C. Manhit, president of think tank Stratbase ADR Institute, said the restoration of the BRP Sierra Madre should be among the top priorities of the government because once it becomes uninhabitable for troops stationed there, “the Philippines will lose its presence in the shoal.”

The restoration of BRP Sierra Madre was among the highlights of the proposed P5.768-trillion 2024 national budget ratified by Congress on Dec. 11, months after the House of Representatives stripped several non-security departments of their confidential and intelligence funds to bolster the Philippines’ presence in the South China Sea.

The House move resulted in a total amount of P1.23 billion saved, with the Department of Transportation (DoTr) receiving an additional P381.8 for the development and expansion of an airport in Thitu Island, which the Philippines calls Pag-asa.

Speaker Ferdinand G. Martin G. Romualdez said Congress would allot P3 billion to develop islands in the South China Sea, which includes a 500-meters extension of the Pag-Asa Island runway to accommodate larger aircraft. This would also widen the opposite area to serve as shelter for fishing vessels during bad weather, said the Speaker.

Similarly, Senator Francis “Chiz” G. Escudero earlier proposed to build a pier and lodging structure for Filipino soldiers and fishermen at Second Thomas Shoal, which the Philippines calls Ayungin Shoal.

Lawmakers also allocated an additional P300 million for the National Intelligence Coordinating Agency and an additional P100 million for the National Intelligence Coordinating Agency, while the Philippine Coast Guard (PCG) got an additional P200 million for its intelligence activities and ammunition.

After the bicameral conference, Senate President Juan Miguel F. Zubiri said he had pushed the addition of P10.47 billion to upgrade the Philippines’ defense capabilities and enhance presence in the South China Sea. Of the total amount, P6.17 billion was added to the budget of the Defense department for the Philippine Navy, P2.8 billion for the Philippine Coast Guard, P1 billion for NICA, and P500 million for the Department of Environment and Natural Resources for the proposed establishment of a Marine Research Center in one of the Philippine islands in the waterway.

On Dec. 20, Philippine President Ferdinand R. Marcos, Jr. signed the General Appropriations Act (GAA) of 2024 into law.

Also recently, the Senate passed a bill seeking to boost the country’s defense program through investments in local defense equipment manufacturing amid rising tensions with China. The program will get P1 billion in seed funding.

Lawmakers have also proposed legislation establishing Philippine maritime zones and territories extending to disputed areas in the South China Sea.

Senator Francis N. Tolentino had said that the Senate Special Committee on Maritime and Admiralty Zones would craft a Philippine map to assert the country’s claim in the disputed waterway.

“Clearly the government needs to increase the capacity and capability of its maritime forces in order to present a credible deterrent to People’s Republic of China’s aggression,” Mr. Powell said. “In that sense, commitments from the legislature to increase budgets and from international partners to assist are welcome developments.”

BEACON OF STRATEGIC IMPORTANCE
Mr. Powell said the PCG station on Pag-Asa Island that was inaugurated in early December is an “excellent example” of the kind of infrastructure that will help the Philippines fully establish its presence in the South China Sea.

“The Philippines should make its surveillance and monitoring of China’s ships there public on a continuous basis,” he said, adding that if China wants to keep stationing its coast guard and militia ships so close to Thitu Island, “let them be subject to international scrutiny.”

Among all Philippine-occupied features in the Spratly islands, or the Kalayaan Island Group, Pag-Asa is the only one inhabited by Filipino civilians and has the most number of facilities and structures. The Philippine government formally established the municipality of Kalayaan on the 37.2-hectare island in 1978, through a presidential decree of Mr. Marcos’ late father.

China has been claiming ownership over Pag-Asa, calling out the Philippines for “illegally occupying” it.

“In the vast expanse of the West Philippine Sea, Pagasa Island stands as a beacon of strategic importance and potential prosperity,” said Joshua Bernard B. Espeña, a fellow at the International Development and Security Cooperation. He noted that the island is key to fostering “inter-island trade and tourism” within the Philippine EEZ.

At present, the island has a landing ramp, a dual use military and civilian airstrip, a lighthouse, a lying-in clinic, a communication tower powered by Smart, and a small school for basic education.

It is also home to the only marine research center of the Philippines in the South China Sea, which the government wants to upgrade with a mini-museum.

The government should also develop a multifunctional Western Command outpost on Pagasa Island, which would serve as both a military stronghold and an evacuation facility during national calamities, Mr. Espeña said.

“It should boast state-of-the-art command-and-control facilities, a protected cyber network, and coastal defense systems,” he added. “Operational security is a paramount concern, considering potential cyber-electronic warfare attacks or espionage.”

The vision for Pag-Asa Island as a logistic hub for the military and the coast guard and as a thriving fishing community should also be applied to other Philippine-occupied islands in the Spratlys, such as Likas Island, Parola Island, Lawak Island, Kota Island, Panata Island, and Patag Island, said Mr. Espeña.

These islands should have command-and-control facilities equipped with radar and jammers, coastal air defense and anti-ship missile batteries, as well as berthing and docking areas for ship replenishment, crew rest, and maintenance.

They should also cater to the replenishment needs of Filipino fishermen, Mr. Espeña said, citing previous plans to establish an express fisher’s hub on each island.

CIVILIAN LIFE
Above all, Mr. Manhit said Philippine features in the South China Sea should contribute to the national economy and cater to the needs of Filipino civilians, including fishermen.

“We see this in the efforts of the local government in organizing tourist activities such as The Great Kalayaan Expedition, the marine science research activities, and the regular ferry service for Kalayaan residents,” he said.

A modernized West Philippine Sea should make life on Pag-Asa Island “more comfortable for the residents,” he said, noting that a robust internet connection is also needed by the residents. “There should be enough teachers, and hospital workers as well as facilities for basic welfare services,” said Mr. Manhit. “A modernized West Philippine Sea should also include robust economic activities, which include fishing and other livelihood activities.”

Aside from Pag-Asa Island, other features held by the Philippines should also be sites for regular tourism activities and marine science research activities, he said.

“Eco-tourism represents yet another innovative way to raise the international profile of this issue outside of the security realm and make it harder for Beijing to hide its aggression,” Mr. Powell said.

On the economic front, there are pending bills in Congress seeking to designate some Philippine features in the South China Sea, including the Pag-asa Island, as an ecotourism destination and protected area. Earlier this year, Speaker Martin G. Romualdez said the Kalayaan town could be a key tourist destination comparable to the Maldives.

The municipal government of Kalayaan has been offering week-long tours, including the Pag-Asa Summer Tour (in May 2024 and May 2025), which allows travelers to stay in the main island and participate in its festival, and The Great Kalayaan Expedition, where tourists take part in various activities such as diving, bird watching, and fishing, among others, with tours slated for March, April, and May of 2024 and 2025.

PUBLIC-PRIVATE COOPERATION
There are also calls for the government to allow gas and oil exploration activities in the waterway, as the Philippines faces an energy crisis that could heavily impact the national economy.

Experts said pushing for a modernization agenda within the Philippine EEZ requires cooperation between the national government and the private sector at the national level.

“Encouraging private sector investment in strategic areas identified by the government is essential. This involves not only providing materials for development, traded goods, and essential services but also addressing critical military logistics to ensure effective sea control,” Mr. Espeña said.

As the maritime security domain expands to include cyber warfare, the private sector may offer its expertise on emerging technologies to detect, mitigate, and respond to cyber threats, Mr. Manhit said. “Tapping the private sector’s expertise and resources will enable the Philippines to boost its technological capacity to address the myriad of security threats in the West Philippine Sea,” he told BusinessWorld in an email.

Don McLain Gill, who teaches international relations at De La Salle University, said China’s “expansionist behavior” in the disputed waters may make it difficult to convince potential investors to pursue infrastructure projects.

“China may create both physical and economic obstacles for companies to effectively carry out their projects in the West Philippine Sea largely due to logistical challenges,” he said in a Facebook Messenger chat.

“Therefore, motivating the private sector to play an active role in shaping our interests in the West Philippine Sea is crucial, and it will be equally important to create the basic conditions for maximizing such projects,” Mr. Gill added.

Gregory B. Poling, director of the Asia Maritime Transparency Initiative at the US-based Center for Strategic and International Studies, said legal hurdles may prevent foreign companies from actively participating in the Philippines’ modernization agenda for the South China Sea.

“The private sector could also play a key role here, though it will likely be Filipino rather than foreign companies that do most investments due to both legal hurdles and potential business risks,” he said.

“No foreign governments take a position on sovereignty over disputed islands like Pag-asa, though they do recognize Philippine rights to its own waters, including at Second Thomas Shoal,” Mr. Poling said in an e-mail.

Meanwhile, Mr. Powell believes Manila should recognize that many of its foreign partners will be hesitant to openly side with the Philippines regarding specific island claims.

“China is not the only country with overlapping South China Sea claims,” he said, citing Vietnam and Taiwan, which both lay claim to many Philippine-held features.

But even so, a joint Philippines-U.S. military civic action mission to Thitu Island is necessary “to demonstrate US commitment to its ally,” said Mr. Powell.

Mr. Espeña said the Philippine government needs to clearly communicate its defense needs to foreign partners. “These may include specifics such as munitions for air defense, coastal anti-ship missile systems, the development of hangars, sophisticated command-and-control infrastructure, and patrol rafts, among others,” he said.

China is expected to consistently exert influence and pose a significant challenge to any efforts by the Philippines to modernize its assets and assert its claims, said Mr. Espeña.

“Specifically, China is anticipated to escalate its divide-and-conquer disinformation tactics in the Philippines,” he said. “This will likely be accompanied by economic promises to create confusion and disrupt momentum.”

Chinese ships would likely intensify their operations against Philippine vessels, “intending to wear down Filipinos both materially and psychologically,” he added.

But Mr. Manhit upheld that the Philippines is on the right side of history, citing a 2016 arbitral ruling that invalidated China’s expansive claims.

“We have the support of the international community as well as a legal basis for our presence and actions,” he said.

“We should grow up. First of all, it’s time to realize and accept the fact that heightened uncertainty and instability are here to stay.”

This, the global boss of a consultancy giant said over lunch earlier this year, has been the gist of his message to clients as economies reopen, especially to those who dream of restoring pre-pandemic systems and practices lock, stock, and barrel.

The once-in-a-century pandemic has spawned a host of challenges in the past three years, including mounting debt as countries and companies struggle to weather its impact, prolonged tight credit conditions and deep socioeconomic scars.

Add to this changing consumption patterns and other structural shifts, not to mention problems such as supply chain disruptions and repercussions of the raging Ukraine-Russia war, China’s slowing growth, a potential US and euro zone recession and economic and business risks from climate change.

The picture varies across economies, with the Philippines now expected to outpace most in Asia and the Pacific region this year and next in terms of gross domestic product growth. At the same time, the country is expected to reel from the fastest inflation in the region amid income inequality that is the worst among its peers (and which apparently crimped consumption and weighed considerably on second-quarter growth).

The central bank’s surveys have shown that businesses have understandably remained cautious — despite improvement in overall confidence since much of last year — about prospects in succeeding quarters and the next 12 months. Consumers remained pessimistic in the second quarter and confident — though less than they were in previous surveys — for the next quarter and the succeeding 12 months since the middle of 2022.

BusinessWorld’s economic fora since the pandemic struck at the start of 2020 have been providing insights on trends to watch, among them artificial intelligence (AI), automation and information technology and how they provide opportunities in areas like content generation, improving customer experience, financial inclusion and raising productivity even as companies and workers struggle with upskilling and even reskilling.

Meanwhile, social media has become a primary field of business competition, while increasingly perceptible climate change has made consumers more discerning in their choices, in turn making businesses more mindful of environmental, social and governance (ESG) imperatives, even as the impact of sustainable practices on bottom lines has not yet been that apparent. Of course, there is no turning back from hybrid and other alternative work arrangements despite productivity concerns among many employers.

This anniversary report themed “Risks and rebounds: Reframing business realities” aims to provide an updated glimpse of how sectors have been factoring in the fast-changing environment into their plans. How has recovery unfolded in specific industries so far? What have companies learned and what have they changed to become more competitive? What technologies have they adopted to spur their rebound? What emerging risks and opportunities have they seen? We hope the reader will find answers to these and other important questions in the following pages.

Take note that this report just forms part of a bigger effort to track economic recovery, which has also been the main focus of our annual BusinessWorld Top 1000 Corporations in the Philippines, biannual fora, monthly “Insights” webinars, quarterly banking reports, etc. We encourage the reader to check out these other contents that are rolled out throughout the year to get the bigger picture.

THE coronavirus pandemic exposed the world to unprecedented risks, affecting the agricultural sector and food security and prompting governments to impose protectionist policies.

But the global health crisis, which also showed the weakness of other industries in the face of supply chain disruptions, spurred companies in the agro-food sector to innovate.

“The supply chain disruptions caused by the COVID-19 (coronavirus disease 2019) pandemic created a number of responses by both companies and countries,” Christopher Ilagan, who heads the American Chamber of Commerce of the Philippines (AmCham) Agribusiness Committee, said in an e-mail.

“From a deep reliance on global trade flows, the shifts have come in various forms. There are those who have diversified supplier bases across borders and there are others who have sought to ‘near-shore’ or ‘friend-shore’ their supply chains.”

“The most extreme has been the reshoring or onshoring of supply chains, driven further by growing nationalism, protectionism and geopolitical tensions,” he added.

Cargill Philippines, Inc. was among the companies in the Philippines that adapted to the “changing marketplace conditions and operational and logistical challenges.”

“Our interconnectedness and experience from 75 years in the Philippines allowed us to deal with the challenges that arose as a result of the pandemic — we could tap local sourcing options to reduce dependency on international supply routes and satisfy demand in vulnerable communities,” it said in an e-mail.

During the pandemic, Cargill redirected poultry from restaurants in Asian countries like the Philippines to consumers, selling the equivalent of about 200,000 budget meals locally.

Cargill provides food and agricultural services and products such as grain, oilseed, commercial feeds and sweeteners.

“In response to the shifting demands, it was important to take an agile approach and adjust swiftly,” it said.

Cargill said it has been using digital solutions to efficiently analyze data, improve decision-making and optimize farm operations, “providing our partners a competitive advantage in the market.”

“With our expertise in precision nutrition, we can drive efficiencies and enable livestock farmers to do more with less,” it said. “We provide customized formulations that minimize waste while maximizing nutrient absorption and raw material utilization.”

The company has adopted new methods and technologies to become more competitive, including a cloud-based farm management platform called Agriness, which provides real-time data and insights to improve productivity, enhance animal well-being and increase profitability.

The company has also been using a poultry microbiome assessment tool called Galleon, which uses artificial intelligence (AI) and statistical analysis to help farmers assess the gut microbiome of their flock.

It has also adopted Panorama, a flexible scenario planning system that helps broiler producers make confident decisions about their operations for the best economic results; Neopigg, a young animal nutrition solution that gives piglets a good start to boost their performance throughout their life cycle; and Truvisor, a broiler breeder offering that helps improve laying performance, hatchability and chick quality.

“The global health crisis taught us the value of agility and we continue to maintain a contingency plan to address potential issues promptly,” Cargill said. “We continuously review and refine our business continuity strategies to better respond to future crises effectively.”

The same is true for Axelum Resources Corp., a Philippine manufacturer, exporter and retailer of globally in-demand consumer food essentials, including coconut products.

“The COVID-19 pandemic compelled us to innovate our ways without compromising productivity by embracing digitalization, streamlining our value chain and reinforcing contingency planning, in order to thrive in a renewed business landscape,” it said in an e-mail.

The company has capitalized on unprecedented opportunities to future-proof key areas of the business, “which will serve as our growth anchor in the long term.”

Axelum said it has continuously invested in cutting-edge technology to maximize scale and retain its competitive edge, citing its main production facility in Misamis Oriental in southern Philippines that features state-of-the–art equipment “attuned to world-class manufacturing and export standards.”

‘TECH ADOPTION’
At the peak of community lockdowns, the company managed to fast-track its expansion programs, resulting in increased production capacity of up to 50%.

Mr. Ilagan of AmCham noted that in the food and agriculture space, there has been a growing focus on enhancing domestic food security with the help of emerging technologies, including precision agriculture, robotics and automation in the food manufacturing sector, artificial intelligence in digital applications and biotechnology to maximize yields/productivity for various crops and livestock species.

“This tech adoption trend is driven not only by the pressures of having to feed a growing and more prosperous nation, but also to react against those counter-productivity trends which have reduction impacts on productivity, such as climate change and human-induced air, water, soil and solid waste pollution,” he said.

Aside from the pandemic, geopolitical tensions and the ever-changing climate have also pushed food prices up, worsening food insecurity, according to McKinsey & Company.

It noted that Russia’s invasion of Ukraine, which is among the world’s six breadbasket regions, was “tilting global food security into a state of high risk.”

Recently, Russia withdrew from a deal that allowed Ukraine to export grain through the Black Sea, raising fears over global food supplies.

Cargill said it’s working to mitigate external risks by helping boost the local food system “to avoid disruptions.”

“We firmly believe that by addressing global challenges head on and adopting forward-thinking strategies, we can turn these challenges into opportunities for a sustainable, resilient and thriving future,” it said. “After all, our mission is fueled by our drive to keep innovating and fostering collaboration with our partners and stakeholders.”

The company said it has been rehabilitating 700 hectares of coconut farms damaged by Super Typhoon Odette, helping 1,000 coconut farmers. “This is being done through farmer-led propagation of seed nuts in community-based seedbeds and nurseries, farmer training in sustainable agriculture, provision of alternative livelihoods while waiting for the coconut trees to bear fruit, and establishment of farmer cooperatives for improved access to markets and corporate buyers.”

It has also been helping corn farmers and cooperatives to boost agricultural yields, improve farmer livelihood and contribute to the country’s food security.

“By integrating an inclusive business model and training on environmentally sound agricultural practices into the program, we aim to strengthen our commitment to support the local corn industry through full utilization of corn yields while creating an alternative corn supply for Cargill feed mills in the Philippines.”

The company said it’s also committed to implementing sustainable practices, noting that it plans to reduce global greenhouse gas emissions from its global supply chain by 30% by 2030.

Axelum, meanwhile, said it has instituted an evolving sustainability agenda to address or mitigate various climate and environmental risks.

“Our manufacturing operations make full use of the coconut, resulting in zero waste generated from raw materials,” it said. “We constantly modernize our equipment and infrastructure, while optimizing logistical activities to further reduce our direct carbon footprint.”

The companies hope the government will boost the country’s access to international markets through trade agreements and export incentives.

By doing so, “the government can reduce trade barriers and create more opportunities for Filipino agri-food products in the global marketplace,” Cargill said.

Export incentives would also harness the potential of the Philippine coconut industry on the global stage, Axelum said.

Mr. Ilagan said the government needs to simplify and harmonize regulations across the agro-food sector, strengthen the push toward consolidation of operations in the agriculture sector and broad adoption of new technologies, and popularize sustainable or regenerative agriculture.

“All these are important areas of reform that must be pursued to set the country up to weather these longer-term challenges around food security.”

THE government will need to create a more enabling environment for investments to support the infrastructure sector’s post-pandemic recovery, analysts said.

“On the national front, hard-earned gains might still be lost and global opportunities missed. For instance, our failure to build the manufacturing sector, made worse by the government’s inability to lower energy costs and cut the bureaucratic red tape, has made a lot of investors look elsewhere for opportunities,” Megaworld Corp. First Vice-President for Marketing and Sales Noli D. Hernandez said in a Viber message.

Infrastructure development is one of the Marcos administration’s priority areas. The government is targeting to spend 5-6% of gross domestic product (GDP) on infrastructure annually.

This year, the government plans to spend 5.3% of GDP on infrastructure, equivalent to about P1.29 trillion.

From 2010 to 2018, developing countries used only about 70% of infrastructure investment budgets, according to the World Bank.
A recent note by Nomura Global Markets Research said Philippine infrastructure development is seen to accelerate in the medium term.

“We remain optimistic that infrastructure development in these countries will accelerate in the next few years. Despite the recent improvement, there remains substantial scope for more progress, and governments are setting more ambitious targets to narrow this gap, building on earlier successes,” Nomura said.

Colliers Philippines Research Director Joey Roi H. Bondoc said the construction sector has yet to return completely to pre-pandemic levels.

“Construction activities have yet to revert to pre-pandemic levels but we are definitely seeing glimmers of hope. In our view, return to pre-pandemic construction levels will likely hinge on interest rate movements, prices of construction materials,” he said in an e-mail.

Mr. Bondoc said that external headwinds will also continue to have an impact on the recovery of construction activities.

“Colliers also believes that overall recovery in demand will also partly rely on sustained business and consumer confidence across the Philippines. The country’s growth trajectory presents enormous opportunities for developers with office, residential, retail, and leisure footprint,” he added.

SUPPORT NEEDED
Sustained growth in government spending will be crucial for the rebound for the sector.

“The most important underlying reason for the recovery of the infrastructure sector has been the sustained and broadening government spending on public infrastructure in the last few years,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in an e-mail.

Infrastructure spending rose by an annual 7.8% to P507.2 billion in the first half. Overall infrastructure disbursements in the first six months were equivalent to 5.3% of GDP.

“Despite the coronavirus pandemic and economic headwinds, the government has continued to spend on new roads, bridges and flood control projects in various parts of the country,” he added.

Under the proposed 2024 National Expenditure Plan, the “Build, Better, More” program has been allocated P1.418 trillion. The bulk will go to physical connectivity infrastructure such as seaports, airports, and mass transport.

The National Economic and Development Authority (NEDA) Board has approved 197 flagship infrastructure projects worth P8.71 trillion.

“The government’s massive infrastructure program should benefit the Philippine property market and developers should seize opportunities by strategically launching more office projects, residential enclaves, and hotels in major growth areas,” Mr. Bondoc said.

However, the government’s massive infrastructure commitments are not enough to support the rest of the construction sector.

There is still a need to expedite permitting processes, cut red tape, and create a more enabling environment for investments.

“The challenge of the government is not about allocating the budget, but I think it’s implementation of projects. Some of the projects we are doing today were approved even during Marcos Sr.’s time, and we’re only doing it now,” Phinma Corp. Executive Vice-President Eduardo A. Sahagun said in a Zoom call interview.

“If it takes the same amount of time to do it, we will lag behind. I hope that’s where the bottlenecks must be addressed, how to speed up implementation of projects,” he added.

MORE PPP PROJECTS
The government should pursue more public-private partnerships (PPPs) and joint ventures (JVs) to accelerate the implementation of projects.

“The openness towards public-private partnerships has been an important reform in the infrastructure sector. It is bearing fruit today with the decision to implement a P170-billion solicited bidding for the rehabilitation of the Ninoy Aquino International Airport (NAIA),” Mr. Ridon said.

The government recently invited local and foreign investors to bid for the PPP project to upgrade and operate the NAIA. This will be under a rehabilitate-operate-expand-transfer arrangement, as provided for under the Build-Operate-Transfer Law.

“Local developers should explore firming up JVs with other homegrown players or even foreign property firms. In our view foreign players benefit from their partnership with local players given the latter’s experience in tapping and catering to the preferences of the domestic market,” Mr. Bondoc said.

“What’s notable is that these JVs are likely to result in a more competitive Philippine property landscape, eventually benefiting Filipino investors and end-users,” he added.

The government is hoping to attract more foreign investments after recent economic reforms allowed full foreign ownership in telecommunications, airlines, railways and renewable energy projects.

POST-PANDEMIC STRATEGIES
Meanwhile, companies involved in infrastructure are looking to revamp their internal processes to integrate post-pandemic strategies.

“One of the lessons we’ve learned coming out of the recent downturn, indeed coming out of all the previous downturns, is the primacy of a resilient, innovative, customer-centric and forward-thinking company culture, which fosters not just the aggressive seeking of opportunities but the creation of those opportunities where they seem nonexistent,” Megaworld’s Mr. Hernandez said.

Phinma’s Mr. Sahagun said firms should decentralize their decisions.

“We have to develop internal capabilities. As a company, we have to be agile in adapting to change. The first thing we did was to delegate authorities in different areas so they could make decisions on their own. If you’re just centralized in (one) office, you have no people on the ground, it will be difficult for you to continue doing business,” he added.

The shift to digitalization is also key in the post-pandemic recovery.

“Like most companies, we believe that the only way forward is to leverage our strengths with more human innovation and technological adoption and advances, either by leaps or small increments,” Mr. Hernandez said.

“The advent of artificial intelligence (AI) will definitely and definitively revolutionize and transform not just the way we do things, but ultimately determine exactly what things we are able to do and to what degree of sophistication. In the end however, AI or any other systems or technologies will only always be a tool. The key will always be the company’s culture,” he added.

CLIMATE RESILIENCE
The impact of climate change should also be considered in infrastructure planning, according to Institute for Climate and Sustainable Cities Director for Urban Development Maria Golda P. Hilario.

“The Philippine infrastructure industry must proactively address the risks and projected impact of climate change in its entire supply and value chain. It is important to not only acknowledge the threats posed by extreme weather events — such as typhoons — but also to factor in the creeping impacts of slow onset events — such as sea level rise and increasing temperature,” she said in an e-mail.

The Philippines is among the most disaster-prone countries in the world, experiencing typhoons, flash floods, earthquakes and volcanic eruptions. The Philippines ranked first globally in terms of disaster risk, based on the World Risk Index 2022.

A study by the Asian Development Bank (ADB) showed that developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion annually in infrastructure to maintain its growth momentum, eradicate poverty, and adapt to climate change.

“Infrastructure designs especially in urban areas must also be responsive to the risks and projected creeping impacts of slow onset events. Infrastructure development must already look at innovative and sustainable solutions such as green and energy efficient buildings and build around nature-based solutions, such as trees as temperature regulators to trap urban heat, and sinks to arrest flooding,” Ms. Hilario added.

The public, particularly the most at-risk and vulnerable to climate change, should also be included in the process of designing resilient infrastructure.

“The industry must also welcome the voice and participation of the public, especially the most vulnerable and most affected sector in the design, as well as be more responsive in ensuring that infrastructure projects contribute to the broader goal of connecting more people, rather than creating barriers,” she said.

“Sustainability can only be fostered through partnerships not just between the industry, private sector, and the government, but with the buy-in of the Filipino public, who are the main users of infrastructure projects in the long-run,” she added.

WHEN I started in real estate about 28 years ago, the battle cry then was “Location, location, location.”

Metro Manila was the hub of commercial activity, and the business districts that generated a significant commercial interest were the Makati and Ortigas central business districts (CBDs). At that time the primary locators were what we now consider as traditional tenants.

Workers gravitated to Metro Manila where they had convenient access to higher-paying jobs. Generally, the focus in commercial real estate development was to acquire commercial lots in locations with road access, the nearer to a corner the better for the project. It was more of a passive approach, where it was considered advantageous for office or residential projects to be located near retail areas to add to marketability.

However, in the mid-1990s, more real estate developers started to adopt an active masterplanning approach for projects with larger land areas in greenfield locations. They conceptualized integrated townships that were intended to create communities whose stakeholders were attracted to the live, work, play, pray concept where all their needs are within a short walk away and all within the district. More importantly, these townships have carefully planned pedestrian and vehicular infrastructure strategically located near transport hubs or infrastructure developments.

This wasn’t a new idea, though; it just wasn’t a prevalent approach. Makati CBD and Ortigas CBD were already established large-scale townships at the time. But even then, it was evident that transit-oriented township development was the future direction of real estate.

I was fortunate to see the birth of Bonifacio Global City (BGC), from when it was still being conceptualized to the execution of the masterplan. The designers of BGC envisioned carefully arranged development zoning for BGC, anticipating the types of land use complementing each other.

Even then, they already envisioned transport and people mover systems like a monorail and a bus system transporting workers, employees, residents, and visitors both within the district and into transport stations outside. Connectivity to roads and rails, with a multimodal station to transfer from the different transport types was already contemplated then.

As part of a pedestrian-first approach to infrastructure, underground utilities, wide sidewalks and covered arcade walks or cantilevered building covers were included in the design guidelines of the future buildings. While not all plans envisioned for BGC materialized, I’m happy that BGC has now claimed the spot as the premier business district of the country and a township in its own right.

I am a believer in township projects. If we do a comparative study of land and capital values of properties within townships versus those in the fringes or outside of these townships, the premium buyers and developers attach to townships becomes quickly apparent. The integrated development as well as the connectivity townships to other areas creates an ideal working ecosystem, where locators can live, socialize, create experiences, study, worship, shop, and work.

In Metro Manila alone, there are approximately 45 townships scattered in the 17 cities that comprise the National Capital Region ranging in size from one hectare to 800 hectares. In the provinces, it is an even bigger trend with around 180 townships.

To maximize property values, developers built vertically, with smaller residential units for sale and larger commercial spaces for lease. I remember when condominium units started shrinking in size. Some units were almost only big enough for a bed. These developments did provide retail floors where residents can dine, unwind, and entertain. Amenity areas did increase in size as shared living spaces.

BPO BOOM
Rising land costs and limited availability of large plots of land also convinced developers to build township projects outside Metro Manila. These developments became possible because of the growth of business process outsourcing (BPO) companies.

The need for Grade B office spaces for these typically call center or voice company tenants, and the corresponding residential demand created made it possible for such townships and even mini cities to grow.

As these townships started to be developed, this created an opportunity for the growing number of BPO companies to expand operations outside the National Capital Region.

Provincial locations offered cost savings for BPO companies from lower salary levels resulted in reduced operational costs. Some Manila-based employees found it attractive to return to their hometowns due to the lower cost of living. Provincial sites also enabled the BPOs to widen sources of talent or qualified employees.

When BPO firms came to the Philippines, their site selection was anchored on strategically located properties that had access to a large talent pool, sufficient support facilities for their operations and their employees. In the past, these office spaces were normally only found in Metro Manila, and only in the core CBDs.

With the newer townships, support facilities for operations came in the form of BPO-ready developments, with redundant connectivity and standard fit-outs. Support for employees came in the form of retail establishments for food, drink, and recreation, as well as nearby residential developments for employees who want to minimize transportation costs, reduce travel delay risks and ensure security (as most BPOs operate 24/7).

And thus, township developments became highly attractive options for these locators since they checked all the boxes, and then some. Traditional locators also found the characteristics of townships convenient. After all, businesses would want to have operations where everything is within walking distance; it would motivate their employees to stay with them for the long haul.

IMPACT OF PANDEMIC
When the coronavirus disease 2019 (COVID-19) pandemic hit and the country underwent the world’s longest lockdown period, people were limited to the claustrophobic confines of their homes for extended periods.

This meant taking school classes, doing office work, shopping — all online. This was extra challenging given that Filipinos commonly live with extended families under one roof. For those who lived in condominiums, units were usually space-efficient (read: small), so occupants felt restricted in such a small space with no open area. Residents felt the need for more space, more breathing room, more areas to recharge within the home.

When the lockdown was lifted, we saw the trend of potential home buyers moving out of the cities towards low-density developments within townships. The preferred choice was low-density residential subdivisions and homes outside of Metro Manila. Growth of townships offering these residential types accelerated. More pronounced were projects near transport hubs or major highways that let employees get to their offices with ease.

FUTURE OF TOWNSHIPS
What I foresee for townships in the future are the increased importance and prevalence of more transit-oriented developments. These townships will have the added advantage of high accessibility linking to an urban network of roads and rails to nodes of activity or other townships and major city centers like CBDs.

Transit-oriented townships sell the convenience, comfort, and lifestyle in a zone that is accessible to other cities or districts through major highways. These provide high mobility to future residents allowing them to traverse the connected network. These will also have the added benefit of decentralization, helping alleviate the heavy traffic and high daytime population the central business districts experience due to the daily commute of employees.

Today, a township project is a destination in and of itself where utilities are carefully laid out, locators can have access to jobs, homes, entertainment and shopping options, schools, places of worship, and guest accommodations, possibly closer to their hometown with lower cost of living.

Add to that the connection to the urban network, transit-oriented townships are strategically positioned to spread out commercial activity to multiple nodes and decongest historically highly populated areas. For instance, in 2000, 9.8 million or 13% of the population was in Metro Manila.

In Cavite-Laguna-Batangas (CALABA) — among the first areas that benefited from the spillover demand from Metro Manila — there were about five township developments 23 years ago, and their population was at 5.3 million.  This year, there are approximately 35 township developments available in CALABA and the projected population is 11.75 million, 10.29% of the total population.

Meanwhile, the population in Metro Manila is projected at 14.2 million or 12.4% of total population in 2023. Transit-oriented township development seems to be effective in decentralizing development by providing opportunities outside Metro Manila.

Transit-oriented township development is a forward-looking strategy. It provides synergy through integrated living. It also spreads out economic growth by creating connected nodes of commercial activity.

The Philippines has experienced development at a rapid pace over the last 25 years. Today, the country is likely one of the fastest-growing economies in Asia. And while the remittances of the overseas Filipino workers (OFWs) have been consistently growing and is now at $32 billion, the income from the BPO sector has already surpassed the OFW remittances and is expected to hit $35.9 billion this year.

The value of real estate is not just in the physical development, but also in the relationships, experience, lifestyle, and connectivity that locators get to access in the community. We are lucky to have witnessed the rapid changes that brought development focus from just brick-and-mortar occupancy to include the overall experience and connections over such a short time.

Who knows, the next 10 years may bring even more changes that further expand the dimensions of real estate development. It may involve net zero impact or positive impact on a large-scale development strategy that looks to give a better world, not just in terms of technology but in working with nature so our resources are renewed and preserved for future generations.

David Leechiu is the president and chief executive officer of Leechiu Property Consultants, Inc. (LPC). LPC is a premier real estate advisory firm that commits to deliver strategic real estate solutions to its clients and partners through its expertise in tenant and landlord representation, investment sales, general brokerage, research and consultancy, and property valuation.

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By Maricris Sarino-Joson

THE pandemic has been disruptive to the Philippine economy. Many businesses closed, the economy suffered, and a lot of Filipinos lost their jobs. These factors adversely affected the office market starting in 2020. The vacancies increased across Metro Manila and as a result, rents corrected.

The years 2020 and 2021 were indeed unsettling for the office market. The good news is that we are starting to see some positive trends, with the number of vacated spaces gradually declining and rents in major business hubs starting to recover as we have been recording sustained transactions across Metro Manila.

But what the coronavirus disease 2019 (COVID-19) has ultimately taught us is to be more mindful of our health, whether in public spaces, at home or at work. The health crisis highlighted the need to be in a safe and healthy space, that we shouldn’t let our guard down when it comes to health, and that being in a clean and constantly sanitized environment is a must in a post-COVID world.

For office spaces, there is definitely no compromise. Companies must ensure that employees continue to enjoy the perks of a collaborative workspace, while maintaining their overall health.

This only strengthens the argument for sustainable and healthy office spaces, especially that anti-COVID protocols have been lifted and we are all trying to thrive in a new, hopefully better, normal.

Colliers has seen major occupants, including multinational corporations taking up space in these high-quality, sustainable and healthy office towers. Major information technology and business process management companies are also looking for these office spaces as they encourage employees to gradually return to the traditional office setup; and to heed global management’s directive of occupying sustainable office spaces.

With close contact amongst employees no longer an issue given the availability of healthy workstations and meeting rooms, Colliers believes that taking up spaces in these buildings contributes to fostering a more collaborative work environment.

ENTICING COMPANIES TO LOCATE IN SUSTAINABLE BUILDINGS
Colliers sees an estimated 57% of new office supply in Metro Manila from 2022 to 2024 likely secured Leadership in Energy Environmental Design (LEED), WELL or Building for Ecologically Responsive Design Excellence (BERDE) certifications.

In our view, benefits such as 35% lower carbon emissions, 40% lower water use, 50% lower energy use should encourage more companies to locate in a green or sustainable building. Practicing green architecture can translate into energy savings as well as lower construction costs. Colliers believes that these savings are likely to entice more firms to locate in high-quality and sustainable office towers across Metro Manila.

ADOPTING THE SUSTAINABLE ROUTE TO OFFICE DEVELOPMENT
In 2009, Quezon City implemented a Green Building Ordinance which required the design, construction and retrofitting of buildings, other structures and movable properties to meet minimum standards of green infrastructure that would be eligible for incentives.

Colliers is optimistic that other local government units (LGUs) will follow suit, as these would provide landlords with enough incentives to develop more green buildings.

In our view, there should be a strong public-private partnership in promoting a more aggressive development and utilization of sustainable office spaces across the Philippines.

SUSTAINING DEMAND
Occupiers are now more discerning with design considerations. Sustainable features such as filtered air circulation, lowered density ratios, and high glass ratios for natural lighting are among occupiers’ key considerations when choosing a new location.

Other long-term benefits of having sustainable workspaces include a 15% reduction in operational costs due to energy savings (which will likely outweigh the 15% increase in capital expenditure).

DIFFERENTIATING PROJECTS IN A COMPETITIVE OFFICE MARKET
Colliers believes that product differentiation plays a crucial role in ensuring that buildings are appropriate to the needs of the tenants as more options are available in the market and as more landlords pursue sustainable developments.

Developers should be aggressive in highlighting their building certifications and should actively chase occupants that are on the lookout for these sustainable office towers. Aside from offering sustainable office spaces, landlords may consider bundling other concession such as fit-out allowance to entice new and long-term tenants.

NEW SUSTAINABLE OFFICE OPTIONS ACROSS METRO MANILA
Among the sustainable buildings completed across Metro Manila from 2022 to the first half of 2023 include Studio 7, Makati Commerce Tower, and NEX 54.

From the second half of 2023 to 2026, we expect the completion of 1.1 million square meters (11.8 million square feet) of new and sustainable office space, providing enormous options to potential tenants. The additional supply will come from M3 Corporate Center, Hudspace (GH Tower), Pioneer House BGC, Camaro Square, and Columna.

Outside traditional office buildings, developers should ramp up construction of more sustainable office towers to capture demand from large occupiers that put a premium on sustainability.

At present, most of these developments are concentrated in Metro Manila but developers outside the capital region have also started to take the sustainable route to office development.

BEING IN A SUSTAINABLE OFFICE SPACE IS A ‘MUST’
Colliers Philippines believes that these healthy, sustainable office towers play an important role in reigniting interest in the Metro Manila office market post-pandemic. Tenants now see the need to be in these office spaces while developers are actively capturing demand in the market.

We definitely see the urgency to be in these office towers. Being in a sustainable office space used to be a “nice-to-have,” now it is a “must-have.”

For now, we can conclude that when it comes to office leasing and development, sustainability is everyone’s responsibility.

Maricris Sarino-Joson is the director for office services-landlord representation at Colliers Philippines.

Digitalization in the sector was accelerated when banks were forced to find new ways of delivering financial services to the public amid the mobility restrictions imposed at the height of the coronavirus pandemic, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said.

“The increased digital transformation of BSP Supervised Financial Institutions (BSFIs) and the financial consumers’ growing preference for digital payments and financial services brought about tremendous gains in terms of BSP’s advocacy on financial inclusion and digital payments transformation roadmap,” she said in a Viber message.   

One of the central bank’s priorities is to ensure the delivery of payment solutions aligned with consumers’ needs, she said, and digitalization has enabled increased efficiency, stability and confidence in online payments.   

“As technological innovations become mainstream in financial services, financial consumers can avail of accessible, affordable and convenient digital financial services,” Ms. Fonacier said. “To further cement this positive development, the BSP implemented regulatory and supervisory frameworks covering digital banking, open finance and regulatory sandbox, among others.”

The BSP wants 50% of retail payments done digitally and to onboard 70% of adult Filipinos into the formal financial system by the end of this year.   

Latest data from the central bank showed the share of digital payments in the total volume of retail transactions in the country rose to 42.1% in 2022 from 30.3% in 2021. 

Merchant payments, peer-to-peer remittances and business transactions of salaries and wages were the key contributors to the increase in digital payments.

Meanwhile, about 22 million Filipinos gained access to formal financial accounts between 2019 and 2021, bringing the country’s banked population to about 56% of adults in 2021, up from just 29% in 2019.   

The increase was driven by faster growth in digital payments, the central bank earlier said, as 36% of all Filipinos had e-money accounts in 2021, up from the 8% share in 2019.

However, the Philippine central bank is also aware of the risks associated with digitalization, Ms. Fonacier said, including cyberattacks.

“Thus, the BSP employed various regulatory and supervisory responses to manage such risks,” she said, adding that they issued BSP Circular No. 1140 to mandate institutions to adopt fraud management systems to address increased cybercrime incidents.

The circular issued in March 2022 amended risk management regulations to help strengthen cybersecurity and minimize losses from online fraud and illicit activities.

The BSP has also issued several memoranda on application programming interface (API) security, security of retail electronic payments and financial services, and e-mail security to address emerging threats that affect BSFIs, Ms. Fonacier said.   

Amid the rapid digitalization of the sector, banks and financial institutions are tweaking their business and operational models to keep up with “new normal,” she said.

“BSFIs are increasingly migrating to the cloud to address capacity demands and scalability. We’ve also noted growing interest in the areas of artificial intelligence (AI), including generative AI such as ChatGPT, digital marketplace and open finance, among others,” she said.   

The BSP launched the Open Finance PH Pilot in partnership with the World Bank and the International Finance Corp. The initiative aims to build financial profiles and credit histories for unbanked Filipinos.

The pilot is a voluntary pledge of financial institutions to co-develop an interconnected ecosystem that would allow consumers to take more control over their financial data and to use various financial products and services from different providers.

“Moving forward, we still see a lot of growth opportunities to deepen digital innovation and transformation in financial services delivery, to capture or retain customer base and maintain competitiveness while enhancing revenue-generation capabilities,” Ms. Fonacier said.

“Nonetheless, the BSP and the industry players must continue to support the digital expansion by making sure that technologies and systems remain safe, robust, accessible and resilient against cyber and IT related risks,” she added.   

MANAGING RISKS
Using Threat Intelligence technology will help financial institutions strengthen cybersecurity, Siang Tiong Yeo, general manager for Southeast Asia at Kaspersky, said in an e-mail.

He added this technology can help allow internal cybersecurity departments to focus on objectives with higher priorities.   

“Also, having a Managed Detection and Response solution that allows a cybersecurity team to employ the help of external experts to detect and stop complex attacks on company infrastructure at an early stage would be a great defensive measure,” he said.

Mr. Yeo added that financial data sharing and open banking initiatives are not new concepts, with Singapore being among the early adopters in Southeast Asia.   

“In a study in 2022, 85% of professionals in Singapore agree that open finance is giving consumers access to a greater range of financial services,” he said.

“Additionally, 76% agreed that open finance has the potential to bring about fairer and more equal financial services, while 90% agreed that open finance is already having a positive impact on the industry and making it more collaborative.”

However, data and third-party security should be fully covered in any data-sharing business model, especially in the financial industry.   

“As there are potential opportunities for growth in the industry for both players and consumers with the adoption of open banking, our experts at Kaspersky are predicting that this may lead to more opportunities for cyberattacks,” Mr. Yeo said.

He said open banking is vulnerable to risks such as financial fraud and identity theft.

“We also predict that the continued adoption of open banking systems will result in API abuses shifting from an infrequent to the most frequent attack vector, resulting in data breaches for enterprise web applications,” he said.   

Thus, Kaspersky said banks should adopt a unified cybersecurity approach with process-based security implementation, employee and user/consumer awareness and education, and technologies created specifically for the industry.

DIGITALIZATION TO BOOST GDP
The further adoption of digital platforms can boost the Philippines’ gross domestic product (GDP) if done in a manner that provides equitable access to the internet access and digital services, Swarup Gupta, industry manager at the Economist Intelligence Unit, said in an e-mail.

“Digital transformation of enterprises and governance processes has the potential to substantially boost GDP, and this is why the Marcos administration has rolled out several initiatives in this area,” Mr. Gupta said.

“A major positive is the fact that, according to recent statistics, the Philippines has some of the best internet speeds in the world, which is a crucial factor when it comes to aiding the process of digital transformation,” he said.   

However, digitalization also makes data vulnerable to theft and other illicit activities if not monitored effectively.   

“Late last year, the BSP launched a regulatory and supervisory solution in order to lighten the burden of regulatory compliance while automating the central bank’s supervisory role on cybersecurity,” Mr. Gupta said.   

“This solution catered to 150 supervised financial enterprises as of end 2022 and will soon be expanded to 600,” he said.   

Despite having a young population and a relatively high internet penetration rate, the Philippines faces multiple challenges to digitalization, Mr. Gupta said.   

“Philippine banks have to launch and persevere with services which can cater to a population which remains relatively underbanked apart from being less fortunate economically,” he said.   

Based on the central bank data, 34.3 million adults remained unbanked in the country. Farmers and agriculture workers were the least banked among all types of workers, with 73% having no accounts, the highest financial exclusion level seen in 2021.

Other segments that had a high percentage of unbanked adults were workers for private households (48%) and self-employed individuals (45%). Non-working adults without accounts stood at 52%, equivalent to 15.6 million adults. 

Still, the outlook for digitalization and open banking in the Philippines remains bright, Mr. Gupta said.   

“The opportunities are numerous in terms of a spurt in financial innovation, leading to higher economic growth, and the evolution of personalized products and services to cater to specific need sets,” he said.

“Risks include an increasing prevalence of cybercrime and the consequent need for regulators to strike a balance between helping to foster innovation and protecting customers,” he added. — Keisha B. Ta-asan

THANKS to recent technological advances in generative artificial intelligence (AI) foundation models and record-breaking rates of consumer adoption, it’s no longer a question whether your company will use this technology. It’s a question of when and how.

Trained on enormous volumes of data and adapted to many applications, foundation models are more sophisticated, complex and capable than prior AI tools, especially at handling unstructured data. Increasingly offered as a service, they are also much easier and economical to adopt. But concerns about unforeseen consequences and potential misuse of the technology make it urgent for business leaders to understand the privacy, fairness, ethical and social implications of generative AI, and to balance those risks against its promising commercial potential.

Managing and mitigating the new risks that come with technological advance is familiar terrain for financial service institutions. Generative AI will amplify some well-known concerns but will also present new ones. The risk faced by any individual company will depend on two things: first, where and how it applies generative AI, and second, the maturity of its AI governance. Whatever their level of risk, any company using generative AI must identify relevant and emerging risks; understand how their applications map to existing and new regulations; and enhance internal functions, such as machine learning engineering, technology and legal, in anticipation of new risks.

Generative AI has the potential to significantly improve the productivity and quality of many types of knowledge work, increase revenue and reduce costs. Consequently, financial service organizations are likely to use it in a variety of ways. These may include augmenting the productivity of their workforces, personalizing content for consumers and, eventually, improving consumer self-service. Traditional AI has already been used extensively in financial services, typically with structured data for prediction and segmentation. Today’s foundation models could be used for converting unstructured data like text, images and audio, as well as data sets such as communications, legal documents and written financial reports into structured data, which could then be used for strengthening these existing AI risk models.

The breadth and scale of generative AI’s likely uses combined with its evolving social and ethical risks make creating and managing a comprehensive governance program complex (see Figure 1).

REGULATORY RISKS
Regulators are clearly still catching up to the rapid evolution of generative AI and foundation models. In the coming months, executives will have to watch out for upcoming regulations and proactively manage them. These will come from existing regulatory bodies that are forming their perspectives, as well as from new regulatory entities that may be created specifically for this technology, such as those envisioned in the European Union’s AI Act.

Generative AI also exposes organizations to increased legal risk from inadvertent or unintentional exposure of customer data by employees experimenting on public or shared systems, uncertainties in the provenance of data used in training foundation models, and potential copyright risks on content generated using these technologies.

Additionally, the economic risks from regulatory noncompliance must also be considered — the draft European regulations are suggesting stiff financial penalties, similar to fines for noncompliance with data privacy regulations.

OPERATIONAL RISKS
Given the rapid pace of advances in generative AI, many features and capabilities are being launched to support experimentation. Until these solutions are hardened to support scaling, control privacy, monitor performance, manage security anomalies, follow data sovereignty, access regulations and meet enterprise service levels, their commercial use must be very carefully considered.

Excessive complexity can make these systems brittle and more vulnerable to new vectors of cybersecurity attack, like training data poisoning and prompt injection attacks. It is likely, too, that the technology’s ease of use may enable generation of malicious e-mails, phishing attacks and “deepfakes” of voices and images, among other issues. Vendor risk relates both to locking into a “walled garden,” especially as the vendor ecosystem grows, and to the possibility that some vendors will not survive in this increasingly busy space. Open-source models may have their own complexity of maintenance and upgrades.

MODEL RISKS
The financial service industry has well-developed policies of fairness, accuracy, explainability and transparency built in compliance with regulatory guidelines. Generative AI intensifies some existing risks associated with AI while requiring a different approach to others. Given the large amount of data that goes into creating foundation models, for example, it is likely that bias will creep into some aspects of the data. And with foundation models mostly available as a service, new and derivative applications will inherit their risk of bias. Earlier machine learning models produced structured output for specific tasks, while generative AI creates novel results whose fidelity and accuracy can be difficult to assess. One particular concern: It can “hallucinate” output that was not present in its training data. That’s a desirable result when looking for innovative content, but unacceptable if presented without verification or qualification.

ECONOMIC RISKS
As with any new technology, unless planned correctly, generative AI initiatives run the risk of becoming expensive experiments that don’t deliver shareholder value. There is a risk of underestimating the extent to which an organization and its people will need to transform in order to realize the benefits of generative AI. Given the technology’s evolving nature, companies risk investing in the wrong technology or failing to hit the right balance between what they choose to build in-house and what they buy from outside vendors. Ultimately, every executive worries they might lose out to a competitor that deploys the technology in a way that is so appealing to customers it renders their business model obsolete.

REPUTATION RISKS
The tectonic shift generative AI is precipitating brings fear of automation and the potential impact on employment, employees and society at large. Stakeholders including customers, employees and investors have all demonstrated, as they have with ESG (environmental, social and governance), that they place a high level of emphasis on social responsibility, and this technology will be no exception.

5 DESIGN PRINCIPLES
Building the organizational capability to responsibly design and deploy generative AI will require an investment of significant resources. By focusing that investment on five principles, companies can begin to mitigate risk and achieve their responsible AI goals while delivering on their strategic ambitions (see Figure 2).

1. Be human-centric — design for transparency and explainability. Generative AI systems must be built with audit trails and monitoring that fit their end use. This will help ensure that the systems are accessible and fair, are not unfairly biased and do not discriminate. All stakeholders should be adequately informed when they interact with a machine and should be able to reach a human to escalate any issues they have with a decision made by the system.

For AI to be trustworthy, it must be designed for human agency and oversight. It is critical that financial service institutions ensure that a human is in the generative AI loop, whether to review feedback or address an escalated problem. End-users or other subjects should always know when a decision, content, advice or outcome is the result of an algorithm.

2. Know where you stand —ensure that data privacy and infrastructure are robust. With a growing choice of foundation models and providers, organizations will need to select the right service and vendor. Some companies will choose a fully cloud-hosted software-as-a-service approach, while others will opt for models with privately managed infrastructure. As with other cloud technologies, companies will need to balance the simplicity of single sourcing against the risk of becoming locked into one vendor, and be aware of their vendor’s data security, privacy and data residency standards.

Whichever choice is made, companies can build their technical infrastructure to be foundation-model agnostic so that they have the flexibility to change with the evolution of the ecosystem. Financial service firms can specifically mitigate customer and organizational data privacy concerns as well as security and performance risks by opting for the right technology architecture and focusing on building capability in prompt engineering, embeddings and outputs.

3. Earn trust — prepare for regulation. Regulators are playing catch-up on generative AI, but organizations can prepare by proactively monitoring for, evaluating and addressing risks and taking a forward-looking approach to governance, risk management and compliance reporting.

4. Employ agility — ensure oversight and disclosure, before and after deployment. Given the fast-evolving nature of this technology and its scale, companies will have to keep monitoring their applications for new and developing risks after deployment and build a human override. They must also have explicit criteria for testing and evaluating the model. Tools that provide information about the AI, such as model cards, will need to evolve to ensure that foundation models can be quantitatively evaluated and tested at industrial scale before deployment.

5. Act with intention — consider organizational maturity and AI governance when selecting applications. When companies first develop generative AI, it makes sense to focus on uses with low risk. Later, as their responsible AI capabilities mature, companies can work up to those with higher risk. It may be ideal for organizations to start with internal applications, then move on to applications with a limited set of external users. Once those applications have built detailed feedback loops, they can expand to a wider audience.

Generative AI is no longer futuristic but an imminent reality, one offering financial service leaders both unparalleled opportunities and new business and societal risks. Financial service firms can responsibly embrace this transformative technology by building robust governance frameworks and upskilling and reskilling employees to adapt to the AI-driven workplace.

This starts with a conscious decision to prioritize responsible AI practices that are designed with their broader impact in mind and aligned with the organization’s core values and long-term strategic objectives. By pioneering an appropriate model for deploying generative AI, financial service organizations have the opportunity to not only gain competitive advantage in an increasingly digital world, but also set an example of responsibility and foresight.

Mohan Jayaraman is Bain & Company’s expert partner based in Singapore; Philipp Rindler is an expert senior manager based in Zurich; Velu Sinha is an expert partner based in Amsterdam; and Maria Teresa Tejada is an expert partner based in Atlanta.

“With the Philippine government prioritizing the digitalization of financial transactions and showing strong support for the fintech industry, we are highly optimistic that Filipinos will not only continue to embrace cashless payment methods but also emerge as one of the fastest adopters of financial technology in the region,” Robin Wong, president and chief executive officer of fintech firm Mocasa, said in an e-mail.

The industry’s sustained growth will also be driven by digital payments, Rizal Commercial Banking Corp. (RCBC) Executive Vice-President and Chief Innovation and Inclusion Officer and Fintech Alliance PH Chairman Angelito “Lito” M. Villanueva said.

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“There will be no way by which Filipinos will be going back to the usual cash or manual means of payment transactions,” he said.

A 2020 study by the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School, the World Bank Group and the World Economic Forum showed the global fintech industry saw an increase in demand during the coronavirus pandemic, making it an outlier as most sectors were hit by the health emergency.

“In 2020, firms saw an average rise of 13% compared to 11% growth in previous years. The expansion of transactions was noticeably higher in countries with strict COVID-19 lockdown measures, where growth was 50% higher compared with firms who were operating in countries with looser lockdown measures,” according to the study.

Fintechs related to digital asset exchanges, digital payments, digital savings and wealthtech saw significant growth.

In the Philippines, digital lenders and e-wallets are leading the fintech industry’s expansion, said Enrico P. Villanueva, senior lecturer of economics at the University of the Philippines Los Baños (UPLB).

As of June, 40% of retail transactions in 2022 were done digitally, higher than 30.3% seen the prior year, according to central bank data.

Moving forward, the fintech industry will need to develop a sustainable credit scoring system, especially when rates begin to ease, UPLB’s Mr. Villanueva said.

“There will always be room for platforms that allow cheaper and more convenient ways to remitting money or doing fund transfer. The fintech companies that can do better will likely enjoy fast growth,” he added.

Fintechs have recalibrated their long-term goals amid the increased demand and fast growth seen by the industry, RCBC’s Mr. Villanueva said.

“Digital now becomes at the forefront of any strategic corporate plan — in terms of having to scale your operations, scale your business and definitely how to ensure that you can make yourself relevant,” he said.

Due to the pandemic, fintech firms had to tap new technologies to cope with demand, such as artificial intelligence (AI), he added.

However, he said AI is a double-edged sword as it could take over jobs done by humans, which means companies should help upskill and educate their employees.

“Going digital is not just about technology. It’s also about culture… Technology is just a portion of the whole proposition. Because for any digital transformation to survive, to be successful or even thrive, you need to have a change in culture or a change in mindset in the whole organization,” RCBC’s Mr. Villanueva said.

However, fintech adoption could be hampered by the high costs of smartphones and internet connections, said Calixto V. Chikiamco, Foundation for Economic Freedom president.

“The cost of smartphones and of data connectivity will have to fall further before more C and D segments of the population can make use of fintech. Accessibility is also an issue as many parts of the country, particularly in the countryside, have spotty signals,” he said. — A.M.C. Sy

FOURTEEN years ago, Robert B. Reich, professor of public policy at the University of California at Berkeley and former Cabinet member in several Democrat administrations in the US, published an extremely interesting paper titled “Government in Your Business” in the Harvard Business Review. He made the point, and it made perfect sense even before then and now, that “managers in the private sector, accustomed to ducking behind corporate- and government-relations professionals, will need to develop a new mindset and skill set that will allow them to partner with government rather than fend it off.”

It is public trust that would define the dynamics between government and the private sector, that in the last century, it has swung from government to business, and then business to government. Reich cited the experience in the US at the end of World War I and the beginning of the Great Depression. Business was failing, and the capacity of the private sector to initiate economic recovery was clearly limited. Since public money was critical to jumpstart the economy from the time Franklin D. Roosevelt was elected president in 1932 until the late 1970s, public trust in government was the highest.

But the regulatory framework started to get complicated and ubiquitous so that it evolved into sands in the wheels of economic progress. Even the public was repelled at the size of government and its extent of intervention in business. Too much of it started to pull in growth and excessive public spending abetted high price inflation. To finance higher public spending, taxes were raised, which undermined business innovation.

President Ronald Reagan had to absorb the pendulum of public trust against government. Business and finance regained public trust after the government committed some excesses in public policy against industry. At the time of Reich’s publication, the transition reversed in favor of government again. Public policy began to shape business and investment again in the US, and might even have been in a bigger way in Europe and Japan. After all, Americans were usually litigious, more suspicious in fact of any form of meddling by public servants.     

This was an ultimate expectation because no less than government action and public money were crucial in resolving the global financial crisis starting in 2008. In the US most especially, without the decisive action by financial authorities, the crisis could have been more prolonged and more debilitating for business and investment. As Reich admitted, the malfeasance in financial services triggered the erosion of public confidence in the Enrons, Adelphias, Global Crossings, Tycos, HealthSouths, Sunbeams, WorldComs, Waste Managements and ImClones of the world. Chartered accountants had admitted some negligence or paid substantial fines without admitting guilt. It cannot be denied that in the aftermath of the global financial crisis, it was reported that every major investment bank had some involvement in defrauding investors who were encouraged to invest in junk bonds.

As Reich disclosed, public opinion stood against business at the time.

The annual Trust Barometer in 2008 showed that only 38% of adult respondents trusted businesses, or a 20-percentage-point decline over a year, the lowest in a decade. Public Strategies and Politico showed that more than two-thirds of their respondents thought business regulations should be tightened.

In the past 20 years, however, it has been observed that business interests and those of society are increasingly becoming more related and more intertwined. Pressing social challenges that range from reduction of carbon emissions in the greater context of climate change; digitalization, financial technology and artificial intelligence; mitigation of poverty, income inequality and justice; financial inclusion and education; credit availability and capital market development, have influenced how private businesses design their goods and services for public knowledge and consumption.

Even in the Philippines, the long-term Philippine vision and aspirations of the Filipino people as appropriately captured in the Ambisyon Natin 2040 blueprint must have served as a long-term template for business and industry. A picture of the future that addresses such question as “Where do we want to be?” Ambisyon Natin 2040 anchors the government’s plans and programs, guided by a group of experts and representatives of the government, private sector, academe and civil society.

It would be most profitable for business and industry to similarly build their business plans around the direction of the general economy until 2040. To be sure, not everything in the blueprint will be put on stream; some will be deprioritized and some will be conveniently forgotten altogether. Some will not even be allocated the budget in favor of some fancy-sounding line items like confidential and intelligence funds, and most recently, the Maharlika Investment Fund.

With the vision of Ambisyon shaped thus, “Filipinos enjoy a strongly rooted, comfortable and secure life,” the way one should grow his business in the next decade and a half should be anchored on the following sectors that are expected to have a direct impact on the fulfillment of the blueprint. They include housing and urban development, manufacturing, connectivity, education services, tourism and allied services, agriculture, health and wellness services and financial services.

It is good that the national blueprint sounded the call not only for foundational literacies such as reading, arithmetic and science, but also for other types of personal competencies like critical thinking, problem-solving, creativity, communication and collaboration — skills many Filipinos today seem to be lacking. Character qualities are also desirable, and they include curiosity, initiative, persistence and grit, adaptability, leadership, social and cultural awareness.

What is key here is whether the requisite learning opportunities could be made accessible to as many Filipinos as possible given appropriate public policy and private sector initiative and support. Institutionalization is only possible when competencies are continuously upgraded, but this will require greater public goods. Incurring democracy deficit therefore subverts whatever learning opportunities are available given limited public funds.

The Marcos politics will make sense only if it adheres both to its Medium-Term Development Plan 2023-2028 and the Eight-Point Socioeconomic Agenda. Perhaps even only substantial, not even complete, compliance with these national economic development blueprints should be strategic enough for the private sector to be motivated and be guided accordingly. The six-year plan is more than a complete program of development covering the areas for economic and social transformation in the context of health, economic, geopolitical, environmental and technology trends and developments.

What is different from the current plan is the inclusion of the legislative agenda, or what kind of legislative interventions will be required to institutionalize the proposed changes to promote health and social development, improve education, establish livable communities, ensure food security, strengthen social protection, increase income-earning ability, modernize agriculture and agribusiness, revitalize industry, reinvigorate services, advance research and development, promote trade and investments, promote competition and improve regulatory efficiency, promote an inclusive financial sector, ensure sound fiscal management, expand and upgrade infrastructure, ensure peace and security, enhance the administration of justice, practice good governance and bureaucratic efficiency, and accelerate climate action and strengthen disaster resilience.

These are a mouthful, but required to advance economic growth on many fronts to make it sustainable and self-sustaining, high and inclusive. Being broad-based is critical to economic resiliency.

For the private sector, the inclusion of result matrices of the development blueprint should make it plain and easy to pursue the implementation of these proposals. There is greater likelihood of success if government support is assured beyond the letters of the blueprint.

The development plan could be meaningful only if the government succeeds in pursuing it within the new medium-term fiscal framework aimed at helping the Philippines attain “a faster, greener and more inclusive growth that will benefit all Filipinos.” In short, what is on the plate of the Philippines’ political leaders is to be able to deliver on both strong and inclusive economic growth and fiscal sustainability — that rare combination of boosting the economy without impoverishing the Filipino people with more taxes and higher public borrowings.

One way of looking at this public-private collaboration is in terms of the private business and industry following up on the government’s success in enacting laws liberalizing the economy particularly through the amendments to the Public Service Act, Retail Trade Liberalization Act and Foreign Investment Act. If convinced, the private sector can respond with higher levels of capitalization and investments in specific economic and financial sectors consistent with public policy and vision.

This synergy was demonstrated recently when industry groups welcomed the amendments to the implementing rules and regulations of the Corporate Recovery and Tax Incentive for Enterprises (CREATE) Act, which clarified once and for all that export-oriented companies, or those located in Philippine Economic Zone Authority or in any special zone, are exempted from paying the value-added tax. Unfortunately, some members of the House of Representatives have this wrong idea that once the CREATE law was enacted, a huge stream of investments would necessarily come. Even the implementing rules have to be thoughtfully and cleverly crafted.

Let the annual budget process also establish the platform for greater collaboration between the government and private sector, and public trust to grow. Private economists and analysts should try and drill down the slogans of the Budget department to find out whether the priorities in the development blueprints are carried over to the budget priorities, and properly budgeted. Civil society could only hope against hope that public spending is excised of unnecessary fat and of opportunities for corruption.

Almost two years ago, we wrote that based on some estimates, corruption or for some, “rent seeking,” could deny us a 6.6% increase in investment to GDP ratio or a 1.65% increase in annual per capita GDP (ES De Dios and RD Ferrer, “Corruption in the Philippines: Framework and Context, January 2000). One year before this publication, we also cited then Deputy Ombudsman Cyril Ramos who computed that the Philippine government had lost about P1.4 trillion in the previous two years, or P700 billion a year, or about 20% of the national budget. With higher levels of corruption over the years and inflation, the numbers could only overwhelm. The cost of doing business in the Philippines is inflated by corruption.

Thus, good governance is critical to restoring public trust and in soliciting private investment here and abroad. It’s something that does not magically appear from slogans or foreign trips, but says a lot about return on investments.   

It would also be useful for policy makers to be cognizant of the various global risks including the more volatile and more fragmented world economy. What we could expect from such setting is the wider amplitude of capital flows that is more destabilizing of emerging market economies like the Philippines. Their governments had resorted to different strategies and policy tools in the past. On this, the International Monetary Fund (IMF) in the past three years pioneered in developing both theoretical and empirical bases for what it calls “integrated policy framework.” This is a systematic analytical approach in selecting the most appropriate policy mix for managing large and unsteady capital flows and preserve macroeconomic and financial stability. The role of monetary, exchange rate, macroprudential and capital flow management policies has to be reconciled with one another as to their impact and challenges.

Our economic managers are challenged to sharpen their analytical tools in making judgment on the nature of shocks, country characteristics and initial conditions. Research on these elements is quite in abundance. Those tools, according to the IMF, are no substitute for economic adjustments, development of deep capital markets, robust corporate and bank balance sheets and of course, strong institutions. Costs and benefits must be weighed, and the uncritical pursuit of new and untested approaches avoided.

All that we are after in strengthening public and private partnerships and growing public trust is to ensure resilient and inclusive economic growth. We have a lot of development blueprints and a long list of tools of analysis and policy options. It’s the human variable that makes those blueprints either workable or simply a pipe dream. It’s the human variable that choosing among the better options becomes cryptic.

Didn’t Sir Isaac Newton say: “I can calculate the motion of heavenly bodies, but not the madness of people.”

Diwa C. Guinigundo is a former deputy governor for the Monetary and Economics Sector of the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, D.C. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.

More firms are integrating ESG principles into their operations, said Roderick de Castro, executive director for the Business for Sustainable Development.

“What prompted this is the global call for a worldwide approach to climate change, the pandemic, and regulators adopting an ESG framework for due diligence and audit,” Mr. De Castro said in an e-mail.

The coronavirus pandemic showed companies how they can improve the social aspect of their operations, he added.

“The pandemic also revealed issues related to gender equality and livelihood programs which companies could further improve on,” he said.

For its part, Aboitiz Equity Ventures, Inc. (AEV) said in its 2022 annual report that it would be focusing on improving its sustainability initiatives through risk assessment and strategy development.

The company has businesses in power generation, distribution and retail electricity supply, financial services, food manufacturing, real estate, and infrastructure.

“As the COVID-19 pandemic risks began to be managed, other risks emerged that shaped the global landscape, including geopolitical tensions that led to soaring inflation and supply chain disruptions. These underscored the importance of a commitment to sustainable business practices,” Ana Margarita N. Hontiveros-Malvar, AEV first vice-president and chief reputation and sustainability officer, said in an e-mail.

“Aboitiz has made strides in making a robust process of group-wide business environmental scanning and scenario planning for risks and opportunities,” she added.

The company is also using data science and artificial intelligence to improve its operational efficiency and reduce carbon emissions by approximately 35,000 tons of carbon dioxide equivalent, she said.

One of AEV’s environmental initiatives is the implementation conservation efforts by preserving water in its communities through watersheds and rehabilitated rivers and estuaries, she said.

The company also spent P521 million to plant 12.44 million trees in 2022, she added.

“The workflows adopted have been designed to keep people at the center of our initiatives, with environmental initiatives balanced to meet long-term social equitability,” Ms. Hontiveros-Malvar said.

AEV also came up with supply chain management strategies for its core businesses.

“ESG risks critical to the supply chain are being reviewed based on supplier compliance requirements that may vary depending on the industry sector where our strategic business units belong,” the company said in the report.

Meanwhile, Filinvest Development Corp., which has businesses in banking, utilities, real estate, and infrastructure, has invested in digitalization, as well as sustainable designs and building practices by creating “people-centric and nature-sensitive” spaces with water security solutions, Filinvest Chief Sustainability Officer Mark Tom Q. Mulingbayan said in an e-mail.

“We strive to operate our business with careful thought about our impact on the Filipino customer and community. Our focus is to strike a balance between serving our customers’ needs and aspirations and supporting local economic development, while being mindful of the environment,” he added.

According to the company’s 2022 sustainability report, it has identified “green, inclusive, and resilient” action areas.

One of Filinvest’s green initiatives is to include energy, water, and resource efficiency in the designs of its buildings and townships.

The company has also committed to allocating at least 60% of its projects for open spaces, with parks and natural waterways integrated into the designs.

“The Filinvest group pushes the envelope to being resilient as part of its strategy to ensure long-term ability to generate value, which defines sustainability,” the company said. 

“We believe in continuous improvement and adaptation to remain competitive in the corporate ESG space. A significant step towards maintaining this mindset is enhancing our sustainability disclosures. Sharing our environmental, social, and governance practices and achievements allow us to build trust among our stakeholders,” Mr. Mulingbayan added.

However, Sustainable Fitch, a specialist ESG unit of the Fitch Solutions group, said in a report that companies tend to highlight only positive things in their sustainability reports without acknowledging the challenges that could affect their plans.

It said the Philippines remains unable to come out with clear details about its ESG and decarbonization strategies.

“A large swathe of people in the Philippines live in poverty and depend on brown-industry jobs to survive, with effective strategies being critical to helping these groups keep up with transition efforts,” the report said.

Business for Sustainable Development’s Mr. De Castro said conglomerates “have enough resources for ESG-related activities as they have economies of scale.”

“Other than that, transformation and change will be difficult because of diversity of interests. Add on to that the existing mental models of leaders and the organization that has to transform as well,” he added. 

Regulators like the Securities and Exchange Commission (SEC) have been introducing policies and guidelines that promote responsible business practices and ESG reporting among companies.

The SEC earlier said it is looking to update its sustainability reporting guidelines to make sustainability reports mandatory for listed companies. — AHH

STRATEGIC maneuvers during crisis times have been truly instructive, especially to boards and leadership teams. In the heat of the recent pandemic, landmark moves included ACEN Corp.’s bold expansion in the renewable energy space (locally and abroad, supported partly and aptly by green financing), Manila Water Co., Inc.’s $500-million sustainability bonds and a strategic alliance with Trident Water Co., as well as Ayala Land, Inc.’s launch of AREIT, Inc., the country’s first real estate investment trust.

While much has been said about large publicly listed corporations, it is equally worthwhile to delve into the story of a moderately sized listed company, Far Eastern University or FEU. This 95-year-old institution demonstrated resiliency and imagination, even as the whole education space, specifically private schools, faced sweeping challenges then that struck at the very core of their business model. Moreover, these began long before the era of COVID-19.

The legislated transition to K-12 starting in 2016 triggered industry-wide, prolonged (five-year) dips in student enrollments. As bottom lines of affected private schools headed south, the law on free tuition for state colleges and universities quickly followed in 2017. These statutory stresses were compounded by the tidal wave impact of technologies and their concomitant methodologies and processes that schools in the country then were just starting to imbibe.

Thus, when the pandemic and lockdowns hit, many private colleges and universities were simply caught off guard. In September 2020, the Coordinating Council of Private Educational Associations of the Philippines (COCOPEA) reported that of 756 schools surveyed nationwide, an overwhelming majority registered 20% to 60% declines in enrollment. A few closures happened. How FEU silently navigated through this backdrop has been an interesting learning journey, which can be dubbed as “lessons not from the classroom.”    

The following ideas are not necessarily novel, but in examining prescriptions for a recovery roadmap, a few applied learnings from the past could contribute to a simple refresher course.

1. Reinvent a relevant, compelling value proposition as a constant process 

A value proposition, defined by “Blueprint to a Billion” as the fundamental benefit delivered to customers, should outlast any financial crisis. Thus, companies should not freeze in a squeeze, and think as much of a rebound even as firefighting is going on. If an organization is starting to think only now about reigniting growth in this economic upswing, it is probably late. Companies should constantly think of staying ahead of the pack, especially as competitors within and outside most industry playgrounds have multiplied exponentially. Technology innovations, pandemic shocks and supply chain gaps have unleashed thousands of fresh or rehashed players, new entrepreneurs and product and service innovators, online or not. “Work-from-home” or “work-anywhere” setups have expanded geographical markets. Industries are being reshaped everywhere and more transformations are likely forthcoming.

Companies could reformulate, repackage, redistribute or even totally revamp their products and services, and those who understand their customers intimately will know the value, functional or emotional, as ascribed by the market. They should also be reading signals and readying for the next wave, the next frontier. More than ever, businesses should protect and enhance the current and potential value benefit — whether in the content or quality, the mode of delivery, the image proposition or the response time. Rethinking one’s fundamental advantage does not stop.

Embracing technology and addressing environmental threats, FEU launched at least three years before the pandemic a leading online learning management system, Canvas, and later added others, both in the academic and administrative spheres. It likewise trained its faculty and students on digital literacy, not without difficulty at first, and set up the support infrastructure as well for both online and blended learning systems.

With keen awareness that students would eventually clamor for the campus experience, the university did not halt school renovations and campus additions either. A senior high school was added in four locations, while construction at FEU Filinvest-Alabang progressed. The Roosevelt schools, acquired in 2016, were also renovated and expanded, and this 90-year-old brand added three campuses to the FEU Group of Schools (now nine school campuses nationwide, plus three joint ventures). And right during the pandemic, key investments were made in the Good Samaritan Colleges in Cabanatuan City and in a nursing school in Brunei, the first foray outside the country.

2. Reprioritize strategic risks as paramount 

“A car has brakes so it can run faster.” Make risk analysis a strategic tool. There will always be opportunities even in downturns. Resist the urge to slash costs or alter the growth path simply to conserve cash, without balancing financials against the more impactful threat of eclipsing a hard-earned business advantage. A blemished brand value or one that is no longer as heavily differentiated will take time to recreate. A financial approach is a crucial leg of any strategy, but it is the business strategy, the overall business model, that drives or dictates the financial strategy, not the other way around. Even in the middle of uncertainties, a company can step on the business accelerator, provided the risk threshold boundaries are drawn. Knowing the danger zones (what is the worst that could happen?) and managing them can unlock game-changing, audacious ideas.

At the height of the health crisis, the COCOPEA survey showed that as of September 2020, about 3 million students in the country had not returned to school. The industry saw layoffs and cutbacks in investments and other expenditures. FEU similarly tightened its cost watch, but understood risks beyond operational or financial, and set its course for a strategy-based expansionary response. 

3. Repower leadership through teams and teamwork

“None of us is as smart as all of us,” goes a saying by global author Ken Blanchard. The big ideas and, more importantly, their coordinated and smooth execution can best happen through effective and motivated teams. The level of confidence also rises dramatically when the key functional units are fully in sync. The one at the helm should possess an ability and feel to choose the right leaders around him or her, to form a cohesive team that can execute well. Execution is key, because a vision stays on paper unless it is carried out in the market.

FEU attributes its mix of new learning modalities (asynchronous remote lessons, fully online or hybrid applications) to each school group designing and implementing its own system approach. From this empowering policy came experimentations, an Innovation Center and a mastery-based individualized learning enhancement system (called MILES) that was developed in-house. FEU continues to reap benefits from an aligned Board and management stewardship and a reinforced faculty and workforce. 

4. Revisit the organization’s understanding of governance themes

Certain governance themes are pervasive and inescapable — artificial intelligence (AI) or machine learning, DEI (diversity, equity and inclusion), climate change and social missions. Make sure that the organization-wide know-how and articulated policies for these fields go beyond what are prescribed in governance manuals.

AI, especially generative AI, and data science, can and should work for us, far more than we can imagine right now. These should be part of boardroom discussions. Gender diversity has demonstrated in certain studies that it can enhance performance in measurable ways, and many have seen it work (including highly respected male champions). Climate impacts have been staring at all of us, with the recent months seeing the hottest temperatures globally, and sea divers witnessing the sad bleaching of valuable corals, even locally. Finally, citizenship duties and social governance must find their way in the business case — improvement only for the balance sheet is not sustainable for the long haul.

Among the happy accolades for FEU, whose board has three female directors, are World Universities of Real Impact rankings (among the top 100 global innovative universities, for three years in a row); the first academic EDGE Green Building certification in the Philippines; and continuing Golden Arrow Corporate Governance awards. Its FEU Public Policy Center remains a haven for socially relevant topics. The university remained profitable all through the extended crisis years. As early as 2022 and continuing through June 2023, its system-wide enrollment, revenues and net income have already exceeded pre-pandemic levels, an unmistakable rebound. 

In a wave of recurring volatility and dynamic movements, businesses should also be constantly reimagining and relearning — unlocking valuable insights, developing fresh knowledge and capabilities, and delivering lasting outcomes.

Sherisa P. Nuesa is a board director of Far Eastern University, Manila Water Co., Integrated Micro-Electronics, Inc. and AREIT. She is also a board adviser of Metro Retail Stores Group and Vicsal Development Corp. and a trustee of the Nextgen Organization of Women Corporate Directors.   

Her past directorships include Ayala Land, Inc., ACEN Corp. and ALFM Mutual Funds Group. She also served as chairman and co-founder of the Justice Reform Initiative, and as director of the Institute of Corporate Directors and the Financial Executives Institute of the Philippines (Finex). She was awarded the ING-FINEX CFO of the Year for 2008.

THE micro, small, and medium enterprise (MSME) and startup ecosystem is becoming more attuned to the need for adaptability and sustainability by assigning more weight to lean, efficient operations, industry experts said, noting that the realignment of priorities is becoming more pronounced as tough times loom.

“With so much global uncertainty, everybody is back to their conservative stance,” Dan I. Siazon, co-founder and senior vice-president of venture capital firm Kickstart Ventures, Inc., told BusinessWorld. “The challenge is to go beyond that and seek opportunity.”

The Asian Development Bank (ADB)  reported that 73.1% of Philippine MSMEs faced a sharp drop in domestic demand and operational standstills due to the quarantine imposed at the onset of COVID-19. While businesses continue to deal with the tail end of the crisis, new challenges have emerged in the form of supply chain disruptions caused by the Russia-Ukraine war, as well as surging oil and food prices.

“Many businesses are under pressure to address cost management, pricing dynamics, supply chain diversification, and alternative ways to be creative and productive,” according to Rosemarie B. Ong, chairman of the Philippine Retailers Association (PRA), who also cited the impact of the adverse inflationary environment.

“They don’t want to pass on the costs to the price-sensitive consumer, while maintaining profitability,” she added.

These enterprises have recalibrated to recognize the need for transformation appropriate for the times, reimagining workflows and offerings to become more sustainably competitive. From leveraging e-commerce platforms to implementing automation, MSMEs have embraced technology as a key enabler of an efficient resurgence.

“There is an awakening,” according to Jason Christian Gaguan, co-founder of market insights startup Agile Data Solutions, Inc. and assistant vice-president for commercial at SM Supermalls, referring to MSMEs and startups. “I’m excited about it because everyone now is starting to innovate, which is good for the ecosystem.”

“What we’ve seen now is as we go back to normal and embrace new technology, it’s really more of adapting,” Ms. Ong said on the MSME recovery. “So they can leverage new avenues for their marketing and sales (to become more efficient).”

MSMEs are the backbone of the economy — accounting for 99.58% of all business establishments, 63% of the workforce, and 40% of gross domestic product, according to the Philippine Statistics Authority (PSA) and the Department of Trade and Industry (DTI). Small businesses created 5,461,731 jobs and generated P2.09 billion in sales in 2021.
According to the 2023 World Competitiveness Yearbook of the International Institute for Management Development (IMD), the Philippines was 52^nd out of 64 economies, down from 48^th in 2022. This year marked the sixth straight time the Philippines was in 13^th place out of 14 economies in the Asia-Pacific. The yearbook’s ranking of business efficiency put the Philippines at 40^th, from 39^th last year.

The Philippines dropped two places to 59^th out of 100 the countries in the 2023 edition of the Global Startup Ecosystem Index compiled by research house StartupBlink. With a score of 2.469, the Philippines remained the seventh-worst scoring country in the Asia-Pacific.

How do MSMEs and startups innovate and compete while in survival mode? Where should their focus be directed while dealing with the dynamic environment?

BACK TO BASICS
Ms. Ong said MSMEs are starting to explore more local sourcing instead of relying on imports as a means of lowering costs.

“Many domestic suppliers are being supported to create a resilient supply chain,” Ms. Ong said. “(MSMEs) are performing this balancing act of managing their expenses while continuing to grow revenue.”

In these conditions, scaling down has become a plausible option for some. The former growth mindset has had to be dialed down in favor of sustainability, according to social entertainment and livestreaming platform kumu.

“We had to adjust our growth expectations and ambitions to a timeline of three to five years instead of 12 to 18 months,” according to Rexy Josh L. Dorado, co-founder and president of kumu. “This required focusing on cost optimization, scaling back infrastructure, and finding a pathway to profitability.”

A reassessment of strategy becomes necessary to keep up with the market, as investment wanes in Southeast Asia after an uptick in 2021, according to Deal Street Asia and Kickstart Ventures. The first quarter of 2022 racked up about $5 billion in deals, down from a peak of $8 billion in the fourth quarter of 2021.

“We had record fundraisings in 2021, and things were looking good in the Philippines, ” Mr. Siazon said. “The next year, we were on our way down. And not just in the Philippines.”

“As the threat of the recession looms, people put their money in safer investment vehicles,” he added, as businesses rethink their core needs.
“Profitability — that needs to be the goal right now, the true north,” according to Brian P. Cu, chief executive officer and co-founder of hyperlocal e-grocery platform SariSuki. “The degree of freedom given to a startup today is much smaller than what was given last decade where money was cheap and interest rates were low.”

Mr. Gaguan noted that incentive- and discount-driven business models have begun exiting the scene, due to the unsustainability of a pure focus on growth. Resiliency and self-sufficiency have become the hallmarks of successful businesses.

“For all the previous excitement generated by ‘sexy metrics’… startups now are becoming more proposition-oriented, which I think is a good direction,” Mr. Gaguan said. “And smaller startups have a chance at getting funded.”

“It’s no longer just a story of selling fantastic growth at the expense of basic financials,” Mr. Siazon said. “Generally, growth used to be sustained by throwing money at things — the topline grows, but your margins don’t make sense.”

“That expectation has changed. The unit economics must make sense now,” he said, adding that businesses need to go back to the basics like product-market fit and a realistic profitability and self-sufficiency time frame.

“Competitiveness is achieved by just getting the basics right. If you get the basics right, you’re already far ahead of your peers,” he said.

DIGITAL TRANSFORMATION
Digital transformation continues to open up new ways for MSMEs and startups to be viable, but they also raise some concerns.

With full implementation by 2030, digital technology could create up to P5 trillion in economic value, equivalent to about 27% of GDP in 2020, according to a study conducted by global tech advisory firm Access Partnership and commissioned by Google. This requires the Philippines to embrace digital skills training and education, accelerate digital adoption and innovation, and tap opportunities for digital trade.

The pandemic “forced everybody to learn how to use their mobile apps. Nothing like a life-death crisis to really burn things into your system,” Mr. Siazon said, noting the increased adoption of e-commerce and e-wallets.

President Ferdinand R. Marcos, Jr. said in his second State of the Nation Address that digital payments accounted for 42% of retail payments made in 2022, putting the central bank in position to achieve its target of a 50% digital share of payments by this year.

“As digital wallet usage became much more prevalent, a strong base has been put forward,” Mr. Siazon said. “It also helped B2C (business to consumer) businesses. Online businesses thrived.”

According to the GoDaddy 2023 Data Observatory, 62% of Philippine small business respondents make up to half of their annual revenue from online sales channels.

“In just the past months of 2023, there has been a 117% year-on-year surge in the number of sellers joining our platform,” TikTok Philippines said of the growth of its Shop feature. “Notably, within the same timeframe, there was a 53% year-on-year increase in sellers achieving breakeven status, who are poised for more long-term success.”

Building community viewership through more creative campaigns is being touted as a new sales model for businesses, especially those engaged in shoppertainment. The segment is projected to be worth over $1 trillion globally by 2025, according to the Boston Consulting Group.

Social media algorithms and more democratized data analytics have also paved the way for making it easier to operate a small-scale businesses, which can move faster than larger competitors. “Data analytics empowers MSMEs to make well-informed decisions due to real-time insights and fast reactions,” Ms. Ong said.

“The difference between a big company and a startup lies in execution. Even though they have the budget, big companies move a little slower,” Mr. Gaguan said. “As a small team, we can immediately listen to our customers and change.”

While e-commerce is all the rage, technology is often taken for granted or overestimated, according to SariSuki. “A lot of the communities that we work with — simply pinning their address on a map, they don’t know how,” Mr. Cu said. “So we had to make it as simple as possible.”

Understanding the user demographic and having a good product manager become key to leveraging technology while also making it easy to adopt by stakeholders. Digital literacy initiatives must be pursued to grow the channel.

“It’s a hard thing to do — to have tech adoption be done by a startup,” according to Manuel Florencio A. Mejia IV, chief commercial officer and co-founder of SariSuki. “There’s desire. You just need to tap that desire.”

The ultimate technological hurdle might be artificial intelligence (AI), which presents both a threat and an opportunity.

The global AI market is expected to top $407.0 billion by 2027, with a compound annual growth rate of 36.2% during the forecast period of 2022-2027, according to analytics firm MarketsandMarkets. “This large TAM (total addressable market) leads us to believe that there is significant opportunity for growth and profitability in AI technology,” Brian Dy, head of research at Kickstart, said.

Anna Irmina B. Navarrete, co-founder and president of Kickstart, noted the importance of skepticism when assessing TAM, as there are many data providers available online for such information. “It is very easy to look and be impressed,” she said.

“We must also look at the direction of growth and the trends surrounding the market,” she added, noting that the technology tends to go through a “hype cycle” during which the belief spreads in its potential to revolutionize the world.

Mr. Siazon noted that AI should encourage more efficient business workflow and further exploration of its applicability beyond the initial “hyped” fields to arrive at a more sustainable level of doing business.

“Over the long run, there’s also an opportunity to liberate people who may otherwise be stuck in that kind of role to explore other potential areas where human creativity cannot be matched by AI,” he said.

“We hope that in a country full of creative talent like the Philippines, they can employ that to expanding their creative abilities. Maybe introduce new areas for people like us to invest in, as well as new industries where the country can excel.”

AFTER stagnation throughout the years of the coronavirus disease 2019 (COVID-19) pandemic, hotels around the country are showing optimism for the hospitality industry, with some developers about to open, or have just opened, new properties. Meanwhile, established hotels are retaining pandemic-borne safety practices, as well as utilizing online and remote capabilities that became a necessity during the worst days of the pandemic.

When the first lockdowns were announced in March 2020, several hotels evacuated guests to conform to government lockdown policies. After the initial evacuation, some hotels were used as quarantine facilities for health workers and repatriated overseas Filipino workers (OFWs). The Chroma Hospitality group, under the Filinvest Hospitality Corp., offered its facilities for this purpose. The Chroma Hospitality group includes the Crimson Hotels in Mactan, Boracay, and Alabang, as well as the Quest Hotels in Clark, Tagaytay, and Cebu. They are slated to open a new property in Baguio either late in 2024 or early in 2025.

“The pandemic has taught us to be resilient,” said Carmela Bocanegra, vice-president for Sales and Marketing for Chroma Hospitality in an interview with BusinessWorld. “Even during the pandemic, all our hotels were open, actually, because we were serving the OWWA (Overseas Workers Welfare Administration),” she said. “We had to be flexible with our rates, help each other, help the government. Iyon ang bumuhay sa amin eh (that’s what enabled us to live).”

To this day, they still apply the sanitation practices made a necessity by the pandemic, such as the frequent handwashing (they have dispensed with masks). She said that they had internally published a cleaning manual that was different from their normal cleaning operations from before the pandemic. New rules include holding rooms for a few hours after their cleaning before handing the keys to the next guest, as a health and safety precaution.

George Reynoso, director of Rooms for Diamond Hotel Philippines (a hotel which was also used as a quarantine facility, according to the website of the Bureau of Quarantine) sees a vestige of the pandemic in the continued requests for quarantine accommodations. “At the start of this year, we no longer accommodated quarantine guests even if we still had a number of requests,” he said in an e-mail to BusinessWorld.

THINGS ARE LOOKING UP
Both the Diamond Hotel and Chroma Hospitality use 2019, the last year before the lockdowns, to gauge their performance. Mr. Reynoso said, “Occupancy, rates, and profits have not reached what we achieved in 2019 because international tourism is not the same as pre-pandemic times, but the hotel’s performance is still better than what we expected.” Ms. Bocanegra gave a similar answer, saying, “The international market is not yet 100% there, but slowly, it’s coming in… We compare it to the last normal year before the pandemic, 2019. We’re almost there. That’s our gauge… of course, we’re targeting bigger than that.”

She added that the properties in resort locations (as opposed to the city-based hotels) are doing better at reaching their 2019 targets. “The domestic market is really full throttle. It’s there; they’re traveling, and they’re going places.”

This can be seen in the Discovery Hospitality group’s newly opened property in Samal Island in Mindanao, Discovery Samal. Situated on six hectares of land, the resort offers luxury accommodation as well as a convention center that can seat 1,200 people. “From the point of view of sales, foreign travelers are now coming back, and also the revenge of the domestic travelers,” said Dianne Santos, director of Sales for Discovery Samal.

Ms. Santos noted that since the pandemic, they have used more video conferencing tools for practical reasons, such as touring the property virtually. “Not a lot of people can go to Samal and the property… now we can do virtual tours,” she said. “Before, it wasn’t a thing.”

Melco Resorts and Entertainment’s property in Manila, City of Dreams, consists of three hotels: the Hyatt Regency Manila, Nobu Hotel, and Nüwa Manila. Of these, Nüwa is also on the Bureau of Quarantine’s list of accredited quarantine facilities. Geoff Andres, property president of City of Dreams Manila told BusinessWorld in an e-mail, “With our operations in full swing, the occupancy of all City of Dreams Manila’s three hotels are in the high 90s, back to pre-pandemic levels. Our F&B outlets, ballroom, and entertainment venues such as DreamPlay are also performing remarkably.”

GOING ONLINE, UPGRADING
Mr. Andres detailed the recognitions they received for the safety and health measures they had undertaken during the pandemic: “We instituted stringent sanitary measures during the pandemic. These efforts enabled us to be Safety Seal-certified by the Department of Tourism, which also presented us with the Safe Travels stamp of the World Travel and Tourism Council. Our three hotels were also recognized by international hygiene experts for the initiatives we undertook.”

City of Dreams Manila also concentrated on placing many of their services and operations online. “We also focused on digitizing and streamlining processes in operations, harnessing technology in our supply chain procurement systems, and using technology to make our products, services, and reservations more accessible to our guests, such as the use of the dynamic Melco app,” said Mr. Andres.

Other improvements to their operations include sourcing sustainable ingredients for their restaurants, a reduction in the use of single-use plastics (through the installation of a glass bottling and water filtration system and replacing food and beverage containers and utensils with sustainable alternatives). “As we sustain the initiative, we are currently reaching about 30-40% waste reduction and waste diversion,” he said.

Meanwhile, The Diamond Hotel has implemented some structural changes: they have improved their heating, ventilation, and air-conditioning (HVAC) system (“already installed so we have better ventilation and air exchange rates,” said Mr. Reynoso). He added, “We installed vents in all bathroom doors so that the increased ventilation will cover the entire room.”

The Diamond Hotel has also retained the use of online facilities, which became necessities during the pandemic when person-to-person contact had to be reduced. These include contactless web check-in and check-out, and more options for online payments. “The hotel also continues to capitalize on its existing e-commerce website — Diamond Online Shopping Site, with offers to further expand the food take-out operations and by developing creative online marketing strategies to engage existing and potential customers,” said Mr. Reynoso. He also pointed out that the website has been operating since 2015, “which made it easier to transition to online selling of Diamond Hotel’s culinary specialties since the restaurants (were) not allowed to operate on full capacity (during the lockdowns).”

These same practices extend internally, with Mr. Reynoso saying, “Options for meeting on-line/off-site instead of face to face are still valuable even if there is renewed interest in holding meetings face-to-face.”

KEEPING EMPLOYEES
On the subject of workers, Ms. Santos said that in her previous job (prior to joining the Discovery group), she performed the task of three people due to layoffs, resignations, and the like. “Now, what I see, it’s really hard to look for people now, because they have the option to work from home. People now are looking for that kind of arrangement. People are moving to a hybrid work arrangement, which is hard for hoteliers like us (who cannot) work from home. We really have to be onsite to be with our clients and guests.”

As for City of Dreams Manila, the property won the Work Here, Work Happy award from the Forbes Travel Guide in 2022.  Initiatives to help workers during the pandemic included giving financial assistance through paid leaves from April 2020 to December 2021 to those unable to work; giving bonuses and providing in-house accommodations, full meals, and vitamins to workers who were required to work during community quarantines; and providing assistance for colleagues’ vaccination needs, including offering two-way limo services for pregnant employees.

Mr. Andres added, “We took the pandemic as an opportunity to further train colleagues through our own learning academy called Melco Absorb, where various courses and programs are continuing and available non-stop. Qualified managers were also enrolled in ECornell courses for free. We promoted colleagues and prioritized internal over external hiring.”

“I think it’s an industry problem, until now,” said Chroma Hospitality’s Ms. Bocanegra, reporting resignations and reshuffling at work. “We’ve had some problems there, but I wouldn’t say it’s really that much.

“The way to do it is just really be more competitive. Instead of thinking of the negativities, we just have to move forward and look for more people. Encourage more fresh graduates, and training — in our properties, training and mentoring are very important. I think that’s where we should move forward.”

TECHNOLOGY has allowed retailers to survive the pandemic while boosting their operations to meet changing consumer behavior. From supermarkets to restaurants, the retail industry has embraced advances in e-commerce, positioning businesses for further growth.

“The sector heavily leveraged various technologies. Retailers integrated user-friendly websites, mobile applications, and secure payment gateways to enhance the customer experience and facilitate seamless transactions,” Rosemarie B. Ong, Philippine Retailers Association (PRA) chairperson, said.

“These adaptations have not only helped retailers survive during the pandemic but have also positioned them for long-term growth and success in the post-pandemic era,” she added.

The shift to e-commerce channels ensured faster transactions and better customer experience.    

“Retailers recognized the importance of reaching customers virtually and established robust online platforms to cater to the growing demand for digital shopping experiences,” Ms. Ong said.   

Beyond the pandemic, retailers have moved forward by using technologies such as artificial intelligence (AI), virtual reality (VR), and the Internet of Things (IoT) to ensure profitability in the coming years.

“Local retailers are actively embracing cutting-edge technologies to enhance their business operations and improve efficiency. AI is used to analyze customer data and behavior, enabling personalized offerings and targeted marketing. VR, like virtual dressing rooms, is transforming the retail experience,” Ms. Ong said.

“Additionally, IoT devices are modernizing supply chains and logistics, ensuring efficient product delivery. By staying at the forefront of technological advancements, retailers aim to remain competitive and drive innovation in the industry,” she added.    

Eric Teng, president of the Restaurant Owners of the Philippines or RestoPH, said the local restaurant industry turned to technology as a result of the pandemic.   

“We have new applications that restaurants use all the time like customer service apps and menu apps. There is also AI,” he said. “It is a new way of doing business, a new way of getting information.”

“Technology will affect many of the reasons why we travel since travel is one of the things that tell us where we eat because when you’re out of [your] home, you eat in the restaurant. That is travel mobility. That is very important with regard to the food industry,” he added.   

Data from the Philippine Statistics Authority (PSA) showed that the gross value added in retail trade reached P713.40 billion in the first quarter, up 16% from P615.66 billion a year ago.   

CHANGING CONSUMER BEHAVIOR
Dennis G. De Jesus, country head for the Philippines of global e-commerce solutions provider Anchanto, said the e-commerce sector has the potential to grow even after the pandemic following the change in consumer behavior.

“The potential for e-commerce growth is still there because in terms of our experience and consultation with the retail players, what they are saying is that there has been a change in the behavior for a lot of the consumers because they were exposed to the convenience of online shopping during the pandemic,” Mr. De Jesus said.   

“That particular experience stuck with them and the behavior has suddenly shifted into an omnichannel type of buying behavior wherein they now have the decision and access to buy the things that they need at an online or a physical store. Customers have redefined their buying behavior and pattern before making a purchase decision,” he added.   

Mr. De Jesus added that the easiest entry for small businesses to e-commerce is via the leading online marketplaces.   

“Anyone can sell in Lazada, Shopee, and Zalora. There is no hurdle at this point in time. Right now, there is no barrier to entry. I don’t think it is a challenge for small businesses to embark on e-commerce initiatives,” Mr. De Jesus said.   

The Department of Trade and Industry, citing data from British consulting firm GlobalData, is expecting the e-commerce sector to sustain its growth with a projected annual increase of 15.8% in transaction value from 2022 to 2025.   

It estimated e-commerce transactions to reach P495.2 billion or $9.7 billion by 2025, higher than nearly P270 billion recorded in 2021.   

Laurice Padlan-Obana, Kantar Philippines Worldpanel Division Consumer and Shopper Insight director, said in a media briefing that Filipinos still prioritize value and convenience when it comes to shopping, as shown in the company’s Shopperscope 2023 report.

She said it is important for shops to make their customers feel that they are spending their money wisely.

“Promotions should be offered. The specific kind of promotion that tops their preference would be the price off/discounts,” Ms. Padlan-Obana said.

“Now that people are out and about, when they speak about convenience, they also talk about access,” she said.

She said people also talk about longer store hours and nearness to other facilities, which are not necessarily their home. The location should be accessible to public transport and near other stores they visit, she added.   

Filipino consumers are now prioritizing ease of shopping when buying in local shops, Ms. Padlan-Obana said, citing organized shelves and visible promotions.

“Shopping is already more purposive and [customers] don’t want to waste a lot of time going around the store, at least for a majority of the Filipinos,” she added.   

RECOVERY PROSPECTS
Meanwhile, PRA’s Ms. Ong said local retailers are cautiously optimistic about the future of the retail sector.   

“Despite facing challenges such as rising inflation and shifts in consumer spending patterns, the local retail industry remains focused on growth and aims to regain the momentum seen before the pandemic,” Ms. Ong said.   

“Retailers are open to adopting multiple strategies and leveraging different channels to navigate potential headwinds and seize emerging opportunities,” she added.    

RestoPH’s Mr. Teng added that the local restaurant industry is already back to normal following the effects of the pandemic.   

“For the restaurant [industry], it’s actually back to normal. There is not much memory of the pandemic, although all the protocols became habits. People sanitize and wash their hands. As far as the comfort of people to go out, they are already back. We want normalcy back and we got normal back,” Mr. Teng said.    

He added that the government should push for stability in the food supply to avoid disruptions.   

“Generally, we need more stability in everything. If things keep changing left and right, that’s very hard for businesses to grow. We hope that there is more stability with regard to the food supply,” Mr. Teng said.   

This year, there have been shortages of either vegetables or major commodities, which have caused disruption, but restaurants have remained focused on recovery, he said.    

“We just have to deal with it. The only important thing that we learned was that even through the worst crisis, the world survived, the food industry survived,” Mr. Teng said.   

“We went through it and right now, just like any other crisis, after that, it is recovery,” he said. “When it happens, we hope we’re prepared for it but we will focus on the normal.”

Steven T. Cua, Philippine Amalgamated Supermarkets Association president, said supermarkets made adjustments after the effects of the pandemic.   

“As the pandemic slowly released its hold on the economy, supermarkets began sprucing up their merchandise, rationalized merchandise selection, worked on offline sales as online sales receded, and relied on innovative marketing to take the lead in enticing the market back into its doors,” Mr. Cua said.   

However, supermarkets have been slow in employing the number of personnel they used to have before the pandemic.

“Just visit your favorite supermarket and count the percentage of checkout counters existing compared to pre-COVID days, as well as the percentage of those retained open to service customers. To this day, I see retailers opening only 25% to 66% of retained counters even during rush hour,” Mr. Cua said.   

Mr. Cua urged the government to address the rising inflation as prices of grocery items have surged.   

“Inflation is one issue the government has to address before it leads to a state of stagflation, which is a deeper hole to get out of. Retail should find relief if prices become more stable and people have jobs and salaries to avail of commodities,” Mr. Cua said.   

“Additional taxes, increase in salaries, higher power costs, low demand all add up to inflation. Opportunities will be plentiful once the economy relatively stabilizes,” he added.   

Beyond the pandemic, local supermarkets should prepare for the “The Big One” or a magnitude 7.2 earthquake on the West Valley Fault, he said.   

“What we have to prepare for is ‘The Big One’ just in case it arrives even if it doesn’t during our lifetime. Retain the lessons learned from COVID-19 and always be vigilant of future shocks like this tsunami of a pandemic,” Mr. Cua said.   

Mr. Cua added that the government should focus on assisting various industries to support the growth of the retail sector.    

“The government should provide incentives for the manufacturing industries to invest, reinvest, expand and flourish. This provides employment and fuels a consumer-driven economy. Look after the needs of industry for power and water, physical infrastructure. Get the farmers who supply fresh produce more informed, inclusive and empowered to enjoy the fruits of a growing economy,” he added.

THE post-COVID opportunities in healthcare are becoming apparent in fields like digital transformation and wellness, industry officials said, while at the same time highlighting the challenges posed by labor shortages and cybersecurity threats.

TECHNOLOGICAL CHANGE
The Medical City (TMC) finds itself at various levels of digital transformation, according to Dr. Eugenio F. Ramos, president and chief executive officer (CEO) of TMC, which operates a flagship complex, four provincial hospitals, and over 50 clinics. 

“We are getting into AI (artificial intelligence) in ECGs (electrocardiograms) and in echocardiograms. We are doing AI in our mammograms,” he said in Zoom call in July. 

These facilitate the efficiency of the process, he said: “The machine and the radiologists concur… AI is based on numbers. If it has gone through millions, then you can see it becomes really accurate.”

Ambulance company Lifeline 16-911, for its part, is likewise investing in AI-assisted dispatching systems.

This “will allow for a zero-response time to emergency cases, by allowing us to guide the callers in providing effective first aid to patients while the ambulances are en route,” Michael H. Deakin, president and CEO, said.

“Post-pandemic, we have to prepare ourselves in terms of how to get the right data, and how to make use of that data in making decisions,” Mr. Ramos of TMC said. “Sometimes, the decisions may not be the best decisions, but those that are quick and helpful to the most number of people.” 

PANDEMIC FINDINGS
Disaster preparedness and recovery planning served the company well during the pandemic, according to Lifeline 16-911’s Mr. Deakin.

“(We) regularly worked on various scenarios and an updating of skills — even before the pandemic,” he said in an e-mail. “When the pandemic hit, we were fully prepared to activate our protocols… without any downtime.”

Emergency medical service companies can expand by offering home services, thereby reducing the need to go to hospitals, he pointed out.

“Looking ahead, we are hoping to establish a national system that facilitates seamless interactions between the government and private sector for better crisis response in the future,” Mr. Deakin added.

American Bio-Clinical Laboratories, International (ABC Labs, Int’l.), on the other hand, has found that not committing too heavily to a future of extensive coronavirus disease 2019 (COVID-19) testing turned out to be the right decision.

Malacañang lifted the COVID-19 test requirement for incoming visitors on Oct. 25, 2022. Earlier that year, local government units started lifting their test requirement for fully vaccinated travelers.

Riding on the trend would have been good for business, said Geoffrey L. Beldua, ABC Labs, Int’l’s general manager.

“In retrospect, ABC Labs Manila made the right call not to push Covid testing as we were still in the preparation stages during the peak of the pandemic,” he told BusinessWorld.

“Post-COVID recovery negatively affected diagnostic centers focused on COVID testing alone,” he said in a July 27 e-mail. “An exit strategy should be in place as the trend is expected to die down eventually.”

PREVENTIVE HEALTH
One opportunity that has emerged from the wake of COVID-19 is the greater focus on preventive health and wellness, according to Cholo A. Tagaysay, CEO of KonsultaMD, a 24/7 health hotline service.

“Twenty percent of Filipino consumers who care about wellness expressed intent to spend,” he said in an e-mail, noting interest in supplements, health insurance, and preventive healthcare.

“Despite price increases, the majority are still willing to pay a premium,” he said.

Mr. Tagaysay also noted that the proliferation of wearable devices will enable remote consultation and the monitoring of vital signs such as blood pressure and heart rate.

“The focus on wellness, lifestyle, and wellbeing is the bigger market, actually,” Mr. Ramos said. “People have become more health literate, have started to assume more responsibility over their own health.”

This requires the healthcare industry to take advantage of the shift from disease management to disease prevention, Mr. Ramos said.

The Universal Health Care Act (Republic Act No. 11223), “if successful, [would help] Filipinos be more productive,” Mr. Beldua said.

“However, this should also be supplemented by other programs, such as employment opportunities, so that the cycle of capability and contribution to society can be completed,” he said. 

The law, passed in February 2019, grants full health coverage and prescribes complementary reforms to the health system to minimize the financial hardship arising from health emergencies.

A December 2022 study by the Philippine Institute for Development Studies found that members of the national health insurance program still pay out-of-pocket for medical services despite the law on universal healthcare.

CYBERSECURITY CONCERNS
An attendant challenge to any technology-driven enterprise is cybersecurity.

“A lot of opportunities are present in connected healthcare through telehealth,” Mr. Tagaysay said. “Opportunities for data and remote monitoring by syncing outpatient and inpatient records are possible.”

“But we also see challenges in cybersecurity, data ownership, and legislation,” he added.

Nearly half (47%) of Southeast Asian organizations succumbed to ransomware which held hostage crucial data, according to a report by IBM Corp.

The average cost to recover sensitive information illegally obtained by hackers rose 6% to a record $3.05 million in 2023 in Southeast Asia, the report found.

Healthcare continues to experience the highest data breach costs of all industries, IBM said in its Cost of a Data Breach Report 2023. Such costs rose to $10.93 million in 2023, up 8.2% from a year earlier.

On Aug. 1, President Ferdinand R. Marcos, Jr. said he was looking into improving the Philippines’ cybersecurity defenses and digital connectivity.

“We have to keep up. We are always looking for additional capability when it comes to all these communications, especially with the problems of cybersecurity,” the President said in a meeting with a satellite company.

LABOR SHORTAGES
Labor poses a major challenge in healthcare, health service providers said.

“The biggest risks for the emergency medical services these days is the shortage of nurses and EMTs (emergency medical technicians) who are leaving the country,” Mr. Deakin said.

“If not addressed carefully, this trend could result in drastic increases in healthcare service prices locally and exacerbate the brain drain as talented nurses leave the country,” he added.

Between 2020 and 2022, 29% of Lifeline’s staff were recruited overseas each year. Most have been moved to the Middle East, Europe, the UK, and Canada.

Lifeline stems the flow by paying for the training and university courses of future employees at the high school level.

“We have to give them more reason to stay, other than giving them a decent salary,” Mr. Ramos said. “Empower them with better chances of mobility as far as careers are concerned.”

“A lot want to stay,” he added, even “the younger ones. They are excited to travel, but… they want to eventually come back.”

UPSKILLING teachers and taking advantage of new technologies remain top priorities for the Philippine education sector as the country transitions out of the global coronavirus pandemic, according to education experts.

The pandemic forced many schools to invest in up-to-date equipment to allow teachers and students to work more efficiently, said Maria Ella Calaor-Oplas, an economics professor who specializes in human capital development research at De La Salle University.

“Investment in online collaboration platforms is also important to facilitate online classes and efficient learning experiences for teachers, administrators and students,” she said in a Viber message, citing the need for teachers to be trained on how to conduct classes online.

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Universities have adopted online platforms as one of the primary modes of learning even as schools returned to in-person classes.

Ms. Oplas said the private sector and government need to upgrade the country’s network infrastructure to ensure reliable and fast internet.

The Philippines ranked 83^rd out of 140 countries in June for mobile internet performance, with a download speed of 26.98 megabits per second (Mbps), according to global network testing firm Ookla. The speed was below the global average of 42.92 Mbps.

As schools continue to introduce new online tools such as artificial intelligence (AI), it may also pose risks to the integrity of the learning process, Ms. Oplas said.

“AI may be dangerous especially when students at the primary and secondary levels start using it,” she said. “It does not allow students to develop critical thinking,” she added, citing new web-based applications teachers use to detect AI-generated inputs in schoolwork.

“Education institutions have learned a significant insight into the role of artificial intelligence as a catalyst for enhancing the efficiency and efficacy of the learning process,” Ms. Oplas said.

Crafting AI policies in education should help countries “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all,” according to the United Nations Educational, Scientific and Cultural Organization.

Turnitin Philippines, an online plagiarism detection and educational feedback company, has partnered with local universities to upskill teachers in using AI to help them grade papers online.

In a July report, the Asian Development Bank (ADB) said the Philippines should use education technology to bridge the skill gap or risk job losses due to rapid technological advancements.

It said 20% of the Philippine workers face a “high risk of losing their jobs” due to automation.

Raymond Basilio, secretary-general of the Alliance of Concerned Teachers (ACT), said the education sector needs to do something about the outdated skill training programs for public school teachers.

“Nothing much has been done to equip teachers to remedy the learning loss caused by the pandemic,” he said in an e-mail. “To address the learning loss, the government must consider overhauling the curriculum because it is the major culprit of learning loss.”

Students in the Philippines and Indonesia are more than a year behind in their learning because of the pandemic, McKinsey & Co. said in a report published in April last year.

A quarter-million Filipino students moved from private to public schools in 2020 and 2021, as many parents lost their jobs, according to the Education department.

Data from the ADB showed that 21% of children from middle-income countries who are of school age by 2030 will not learn basic primary-level skills.

It cited the need for the Philippines to develop the technical and vocational education training sector to increase workers’ competitiveness.

‘NO MAGIC WAND’
The Philippines had a learning poverty rate of 91% and a learning deprivation rate of 90.4%, among the highest in Southeast Asia, according to a 2022 report by the World Bank.

“We learned during the pandemic that our schools and systems must be ready with mitigating measures or alternative programs that can be used during times of calamities or emergencies,” Mr. Basilio said.

The Department of Education needs more than a trillion pesos ($17.6 billion) next year to pay for teachers’ salaries, benefits and school supplies, ACT Teachers’ Party-List Rep. France L. Castro said in June.

The higher budget would allow the country to comply with a United Nations standard for education to account for at least 6% of economic output, she said.

Under the proposed 2024 national budget, the education sector will get P924.7 billion, 3.3% higher than this year.

“More seminars, training programs for teachers and other forms of capacity building should be conducted and learning modules must be updated to make them more effective educational tools,” Renato B. Magtubo, chairman of the Partido Manggagawa labor group, said in a Viber message. Schools should also invest in faster WiFi connectivity and tablets for students.

International Labour Organization (ILO) Director-General Gilbert F. Houngbo has urged the government and local employers to boost investments in education and equip teachers with modern skills to address youth unemployment.

The World Bank said in February that millions of children around the world could lose up to 10% of their future average yearly earnings due to learning setbacks caused by the coronavirus pandemic.

George T. Barcelon, president of the Philippine Chamber of Commerce and Industry, said improving Science, Technology, Engineering, and Mathematics (STEM) programs could help bridge the skill gap in the workforce.

“We encourage the use of new technologies to help our young develop new skills and for our students to go up the global value chain,” he said by telephone. “Platforms such as YouTube could provide broad learning access to our young.”

Mr. Barcelon said improving proficiency in the English language should be prioritized to produce more employable students. “The command of English is important for our students since a lot of reading material is in that language.”

Last year, the Philippines placed 22^nd out of 111 countries in the 2022 English Proficiency Index by Education First.

The country got a score of 578, which is considered high, second in the Asia-Pacific region after Singapore.

Mr. Barcelon said the Philippines lacks good teachers who are proficient in STEM fields, adding that performance-based salary increases could attract more capable people to the profession.

“The country needs to have a program that provides proper training for teachers and wherein we rate them on standards based on meritocracy,” he said. “There is no magic wand that we can wave to solve the losses we incurred in the education sector. The best we can do is address the gaps.”

AMID the country’s move towards the greater use of renewable energy is a need to strike a balance between maximizing the mining industry’s contribution to the economy and minimizing the impact on the environment.

The Department of Environment and Natural Resources (DENR), the agency responsible for the conservation and proper use of the country’s environment and natural resources, said it wants mining companies to go beyond compliance.

“We have complete regulation but beyond regulations, what we are trying to do with this current administration is to go beyond compliance,” DENR Undersecretary Carlos Primo C. David told BusinessWorld.

“What if you can do better than what is prescribed by law? The improvement should be continuous, and this is what we want to commend some of the companies — if they are able to do that,” he said.

Mr. David said that among the programs being implemented by the department is the monitoring of mining activities using its geospatial database office.

The geospatial database allows the agency to map and monitor the country’s natural resources, including ongoing mining activities and reforestation initiatives by using satellite imagery.

“The government has the responsibility for that,” he said. “DENR handles or manages both sides — environment and natural resources development. It seems that it’s always in conflict with each other but it doesn’t have to be.” 

The world’s surging demand for renewable energy has enabled the mining industry to thrive even during the pandemic.

Critical minerals such as nickel, cobalt, and copper are seen as vital for creating electric vehicles (EVs), their large-scale batteries, as well as wind and solar farms.

According to the Mines and Geosciences Bureau (MGB), up to 470 applications are awaiting approval for the exploration of minerals such as copper, chromite, nickel, and cobalt, as of April 2023.

“The covid pandemic showed that the mining industry is one of the more resilient sectors and was in fact a key source of US dollar inflows for the country,” said Martin Antonio G. Zamora, president and chief executive officer of Nickel Asia Corp.

Nickel Asia is the Philippines’ largest producer of lateric nickel ore and the only nickel company with processing plants.

The mining industry’s gains come as the Philippines aims to strengthen green initiatives to accelerate decarbonization.

The country has committed to reduce greenhouse gas emissions by 75% by 2030 and has pledged to help limit global warming to less than two degrees Celsius under the Paris Agreement of the United Nations Framework Convention on Climate Change.

At the same time, consumers’ shifting attitudes towards mobility have propelled the growth in the demand for nickel, a key ingredient in lithium-ion batteries used in EVs.

Global EV sales increased by 43% to 3.24 million units in 2020, data published by Sweden-based consultancy EV-volumes.com showed.

For 2023, it projected global EV sales to reach 14.3 million, up 36% from 10.52 million in 2022.

“By the end of 2023, we expect 40 million EVs in operation, counting light vehicles, 73% are BEVs (battery electric vehicles) and 27% PHEVs (plug-in hybrid electric vehicles),” it said.

Global Ferronickel Holdings, Inc. President Dante R. Bravo said the outlook for nickel remains bright primarily because of the accelerating growth of the EV sector.

“Although an oversupply in the nickel market will likely persist until 2026, deficits are expected from 2027 onwards,” he said.

Intergovernmental organization International Nickel Study Group estimated the global demand for nickel to increase by 11% to 3.22 million tons in 2023.

The Philippines saw a slight increase of 1.13% to P132.21 billion in metallic mineral production value in 2020, driven by improved nickel volumes, data from the MGB showed.

In 2022, the value surged by 31.73% to P238.05 billion on the back of higher nickel prices and robust metal production.

The nickel group accounted for 49.39% of the total output value at P117.58 billion. This came as the price of nickel went up to $11.86 per pound from $8.35 per pound.

“This strong performance can be attributed largely to the contribution of TVI Resources Development, Inc. (TVIRD) located in Zamboanga del Sur and OGPI in Nueva Ecija,” the MGB said.

Kaycee Crisostomo, communications and marketing director of TVIRD, said new technologies emerged as mining companies now use dry stacking technology to store filtered tailings — the silty and sand material left once the metals are extracted. This is an alternative to building tailings storage facilities.

“The country’s vast natural resources provide opportunities for TVIRD to explore and harness renewable energy sources to support its decarbonization targets and pursue a climate-resilient future for its communities,” he said.

The company plans to build solar power plants to augment the power requirements of its mine sites in Surigao del Norte and Zamboanga del Sur.

Global Ferronickel’s Mr. Bravo said nickel presents a compelling outlook due to the “global shift to smart and sustainable cities, which require technology and materials made from minerals such as nickel.”

In the three months to March, EV sales in the country totaled 2,535, according to the Electric Vehicle Association of the Philippines (EVAP).

EVAP President Edmund A. Araga said the launch of new EVs by Audi, Porsche, Jaguar, and BYD in 2021 paved the way to get the interest of the high-end market.

“We believe that another roadmap for the mining industry is needed,” he said, citing the “tons of opportunity” that can be gained.

He said it is essential to work with the government to make sure that the plans will roll out along with standardized policies to protect the country.

The opportunity ahead includes an estimated $1 trillion in untapped reserves of copper, gold, nickel, zinc, and silver.

The Philippines has 30% of land area identified for potential mining resources, only 1.4% of which are active mining sites, the MGB said.

In a bid to boost the industry, the DENR in 2021 lifted the four-year-old ban on open-pit mining for copper, gold, silver, and complex ores.

Meanwhile, Philippine mining companies have explored processing to transform mineral products into higher-grade materials.

“TVIRD has learned from experience that precious metals like gold and base metals like copper can and should be processed in order for the industry to benefit from the added value of semi-finished products,” Ms. Crisostomo said. Philippine mining companies have also explored processing to transform mineral products into higher-grade materials.

“TVIRD has learned from experience that precious metals like gold and base metals like copper can and should be processed in order for the industry to benefit from the added value of semi-finished products,” Ms. Crisostomo said.

For Mr. Bravo, the industry needs support from the government to attract investments by simplifying the processing of permits and tax structure, and bringing down power costs, among others.

“Mining should be given the necessary support from the government to grow responsibly and sustainably,” he said.

TWO recent events — the pandemic and the Russia-Ukraine war — have forced the energy sector to look at renewables not just as a clean power source but as an indigenous resource less susceptible to logistical disruptions.

For decades, conventional energy sources such as coal and natural gas have dominated the country’s energy mix. But after the two disruptive events, the government had to reshape its strategy for the country’s energy security.

The Philippines’ energy sector is now looking at renewable energy (RE) and new green technologies not just for power supply sufficiency but also to accelerate the country’s target of a just energy transformation.

“While the pandemic brought about a drop in demand for power, the Russia-Ukraine conflict, on the other hand, reminded us of the volatility of the commodities market that underpins our current energy system,” said Joseph Lacson, chief investment officer of Aboitiz Power Corp. (AboitizPower).

“The spike in global prices on coal, as one example, compelled AboitizPower to seek means to run our plants at even greater efficiency so that we could continue delivering on our mandate of a secure, affordable energy supply,” he added.

The listed energy company of the Aboitiz group has set a goal of 50:50 renewable energy and thermal capacities by 2030. It has set a target of building an additional 3,700 megawatts (MW) of renewable energy that will grow its capacities to 4,600 MW by 2030.

“AboitizPower is the largest, diversified RE platform in the Philippines and we have ambitious plans to invest even more in RE in the coming years. New technologies such as offshore wind, floating storage, battery systems, provide new means in which to achieve those activities but they come with corresponding risks and unknowns,” Mr. Lacson said. 

To date, AboitizPower has around 3,962.25 MW of attributable net sellable capacity. The company placed its renewable attributable net sellable capacity at 928.42 MW.

INDIGENOUS RESOURCES
The country’s energy sector is seen to have abundant potential in the renewable energy field considering the vast untapped indigenous resources.

As of end-2022, renewable energy accounted for 22.13% of the country’s power mix, with coal still dominating the power generation with a 59.57% share.

Since the pandemic, the government has set a target to increase the share of renewables to 35% by 2030 and 50% by 2040, which forces companies to rethink their strategies.   

The strategy includes looking for energy sources and technologies to complement the fuel powering their plants. Those with ambitious RE targets are seeing the need to include battery energy storage systems.

“We have to ensure that renewable energy is complemented by energy storage systems as well as other sources of power and technology,” Energy Secretary Raphael P.M. Lotilla said during the BusinessWorld Insights forum on July 26 at the Shangri-La hotel in Bonifacio Global City.

Mr. Lotilla said the government is placing renewable energy as the key to attaining security, sustainability, and affordability of electricity prices.

For clean energy provider First Gen Corp., other technologies are needed to support the intermittency of renewable energy.

“Their variable and intermittent nature though necessitates that we match them with more grid capacity and storage to account for the fact that they’re not there when night falls or on cloudy and windless days,” Federico R. Lopez, chief executive officer of First Gen, said.

First Gen is aiming for 13,000 MW by 2030, of which about 9,000 MW will be the share of renewables.

He said renewable energy will not only help deliver the country’s energy requirements but will also accelerate the country’s sustainability goals by helping reduce greenhouse gas emissions.

First Gen, through its subsidiary FGEN LNG Corp. is one of the seven proponents of liquefied natural gas (LNG) terminals in the Philippines.

LNG, despite the volatility of prices in the market, is being put forward as a key to addressing the country’s energy needs due to the expected depletion of the Malampaya gas field.

“Our efforts remain focused largely on helping to reduce the carbon intensity of the electricity grid and then ultimately to decarbonize it.  We’re making it our mission to shepherd the energy transition to Net Zero,”  Mr. Lopez said.

The Malampaya gas field is the Philippines’ only indigenous source of natural gas. Its supply is expected to decrease next year. Currently, Malampaya gas is fully contracted to First Gen’s natural gas power plants with a combined capacity of 2,011 MW or 20% of Luzon’s energy requirements. 

Aside from LNG and renewable energy, First Gen is also looking at other emerging technologies that can also offer baseload energy supply.

“Of course, over time, we must look toward repowering our natural gas facilities with green fuels like hydrogen as these become more feasible, or they can be decommissioned outright before 2050,” Mr. Lopez said.

“As such, there is a need for a low carbon emission fuel like natural gas to act as the bridge fuel that’s technically more suited for complementing the variable nature of renewable energy,” he said, adding that the company will also focus on setting a net-zero emissions target.

AboitizPower’s Mr. Lacson said the company acknowledges that RE needed to be complemented by other technologies and traditional sources of power.

“AboitizPower’s overall targets remain the same. To deliver energy security, affordability and reliability in a sustainable manner, we aim to expand and have a 50-50 mix in our generation portfolio between thermal and renewable energy in the next 10 years,” he added. 

Meanwhile, Manila Electric Co. (Meralco) said that it is looking at “long-term” solutions in reshaping the company’s strategy from the impacts of the pandemic.

Manuel V. Pangilinan, the company’s chief executive officer and chairman, said the power distributor is eyeing nuclear power and gas to meet the country’s energy demands.

He said that while the company is also rolling out its plan to venture into other emerging green technologies, Meralco is setting its plan on nuclear power and conventional sources like gas because it can provide the country’s needed supply.