SMEs urged to improve business strategies, innovation

The Economic and Research Institute for ASEAN and East Asia (ERIA) has urged small and medium enterprises (SMEs) to improve their business strategies and innovation activities in order to benefit from the internatonal product networks (IPN).

Dr. Dionisius Narjoko of ERIA told a recent forum organized by the Philippine Instittute of Development Studies that innovative SMEs have better chance to participate in IPNs, noting that promoting innovation is crucial considering these networks and sustainable development.

Narjoko underscored the importance of integrating these companies, especially the labor-intensive ones, with IPNs in achieving the ASEAN SME development and inclusive growth.

“SMEs in IPNs are less financially constrained, and have better access to financial sources. They get lower interest rate on loans; they have better cash flow,” he noted.

IPNs would also lead to the successful development of clusters, attract more foreign direct investments that can create more technology spillovers, and boost a firm’s technological and innovative capability.

But while these SMEs can benefit more from these networks, Narjoko expressed concern about the significant threat of survival.Narjoko said building technological capability is one way to boost a firm’s competitiveness. To boost SMEs in ASEAN, there is also a need to strengthen the regional institutional arrangements for supporting SMEs.

Exporters hit prohibitive licensing fee for labor subcontractors

The Philippine Exporters Confederation (Philexport) has raised a concern of a government decision to regulate labor contracting and subcontracting.

“We laud the objectives and benefits of regulating contractors to curb fly-by-night operators and protect the principals,” said Philexport president Sergio R. Ortiz-Luis, Jr. in a letter to DOLE Sec. Rosalinda Baldoz.

However, a main harmful issue raised by Philexport is the prohibitive licensing and registration fee of P25,000 to legalize  the operations of labor contractors and subcontractors of parts of a bigger company’s production system.

The fee should be reduced to a more reasonable P1,000 since most members of PHILEXPORT  are micro, small and medium enterprises  that already face so many obstacles to becoming more competitive, Ortiz-Luis argued. 

The issue on labor sub-contracting became a national controversy when many contractors from security guard agencies, providers of messengerial and janitorial services and at least one retail chain were found to have violated Philippine labor laws.

The issue has become too hot, several congressmen and senators have filed bills in both houses of Congress seeking to criminalize labor-only sub-contracting.

Subcontracting practice is only common in the construction business before the globalization of trade set in during the early nineties.  It has grown to become a common practice worldwide and is now known as “outsourcing” of parts or components of a product or a company’s non-core service like customer relations or sales. In the country, it created the business process outsourcing industry.

In the exporting segment of the domestic economy, outsourcing  has become a competitive weapon practiced by the giants and smaller exporters from ship-builders to handicrafts and furniture-makers. To meet big orders on time, the bigger exporters have enlisted smaller enterprises to manufacture parts. Example is the leg of a table which is later assembled into a complete product.

Phiippine manufacturing up 4.7% in May

The Philippine manufacturing industry has sustained its growth in May as shown by the 4.7 percent hike in the value of production index (VAPI).
The National Statistics Office (NSO) reported in its monthly integrated survey of selected industries a slowdown in production values in furniture and fixtures and publishing and printing.
However, a three-digit increase in production values were exhibited by transport equipment and footwear and wearing apparel sectors, registering a growth of 128.8 percent and 121.8 percent, respectively.
On the other hand, on a monthly comparison, VaPI grew to 4.6 percent in May 2012, showing an improvement from its previous month’s decline of 9.6 percent. This was contributed by 18 major sectors, with two-digit increase in footwear and wearing apparel (23.1%), fabricated metal products (20.0%), machinery except electrical (14.7%), petroleum products (13.4%) and leather products (12.5%).
On a year-on-year basis, Volume of Production Index (VoPI) likewise posted a minimal increase of 3.1 percent in May 2012. This was accounted for the three-digit growth in production output of footwear and wearing apparel (124.7%), transport equipment (118.2%) and furniture and fixtures (103.4%).
On a month-on-month basis, VoPI recovered as it posted an increase of 4.9 percent in May 2012 from the previous month’s drop of 9.1 percent.
Among the 16 major sectors that reported increase in production output, five major sectors significantly contributed to the growth — footwear and wearing apparel (23.1%), fabricated metal products (22.2%), petroleum products (19.2%), machinery except electrical (13.8%) and leather products (12.5%).

TESDA gets US$3-M grant from KOICA

The Korea International Cooperation Agency (KOICA) will provide US$3 million grant to fund the renovation of existing training center facilities and construction of new buildings for the  Technical Education and Skills Development Authority (TESDA).

KOICA resident representative Kim Jinoh and Sec. Emmanuel Joel Villanueva signed an agreement for the Phase II Project of Upgrading and Enhancement of Training Programs of the Regional Training Center – Korea Philippines Vocational Training Center (KPVTC) in Davao City.

The RTC-KPVTC Davao, a well-known TESDA managed vocational training center,  will be establishing an integrated training provision to respond to the agri-mechanization thrust and manpower requirements of Davao and Mindanao Region  promoting a value proposition of KORPHIL — Key Organizational Response for the achievement of Productive and Healthy Industries and Liberating employment.
The grant would also cover  two incubation centers, a multi-purpose hall, a Korean Language center, the provision of equipment, training of Filipino officials and staff in Korea, and the dispatch of Korean experts for the transfer of operational skills at the center.
“The Phase II Project of KorPhil Vocational Training Center that will rise is Korea’s way of continuously helping replicate our success in socio-economic development in the Philippines,” said Jinoh.

Philippine economy to grow 5% in 3rd quarter

The Philippine economy is expected to grow by 5 percent in the third quarter of the 2011, fuelled by the sustained growth in the industrial sector, government spending and remittances from overseas Filipino workers (OFWs).
FMIC and UA&P Capital Markets Research noted that with more favourable developments for the rest of 2011, the strong growth in China and the US and the easing euro-zone crisis has also contributed to the GDP growth.
“Given the stable inflation rate and the external positive developments, the monetary board would no longer in­crease the key policy rates and reserve requirement for the rest of 2011. It may even favor easing in the wake of an expected weaker global economy,” says FMIC-UA&P.
Exports would likely turn positive again in the fourth quarter, while OFW remittances will continue its robust growth for the rest of 2011 and eventually reach a yearly average of 6 to 8 percent.
FMIC-UA&P expects the foreign exchange rates would have a firmer bias again starting in November due to dollar remittanc­es and portfolio investment flows into the country.
“We see long-term rates sustaining their downward trend, ranging within 5.5 to 6% yield. The latest fiscal stimulus package announced by the government seems to contain only minimal new spending apart from what is already in the budget. As such, we do not see it push yields higher nor threaten the benign inflationary environment.”
In the near term, FMIC-UA&P forecasts the local equities would continue to be driven by risk events from the US and the euro-zone.
“Local earnings season kick-off may lead the market higher. We think a short-term rally can occur although we continue to guard against complacency.”

Philippine economy grows 3.4% in 2nd quarter

The Philippine economy posted a modest growth of 3.4 percent in the second quarter of 2011.

Socio-economic Planning Sec. Cayetano Paderanga, Jr. said the growth was below the government’s
forecast of 4.5 to 5.5 percent, the private analysts’ average projection of 4.9 percent and some international organizations’ average outlook of 5 percent in the second quarter.

Paderanga noted that growth was driven by the strong rebound of the agriculture sector (7.1%), particularly sugarcane, palay, and corn, and the modest expansion of the services sector, primarily financial
intermediation, real estate, renting and business activities, and other services subsectors.

On the expenditure-side, growth was spurred by household and government consumption, constrained by surges in world oil prices, triple disasters in Japan, the slow recovery of the US and European economies, the
social unrest in the Middle East and North Africa (MENA) region, and adverse weather conditions, which negatively affected the fishing subsector.

Paderanga stressed that the second quarter growth in 2011 was expected to have been lower than the growth in the same period last year due to tapering off of the base effect and the absence of growth drivers in the second quarter of 2010, such as election-related spending and the stronger than expected
global economic recovery.

He noted that the 2.8 percent contraction in net primary income mainly due to the lower net compensation as overseas Filipinos (OF) remittances grew by only 1.4 percent in peso terms, resulted in a 1.9 percent growth in gross national income (GNI).

With a second quarter gross domestic product (GDP) growth of 3.4 percent and a revised first quarter GDP growth of 4.6 percent, the first semester GDP growth for this year is 4 percent.

To attain the 7 to 8 percent growth target for 2011, the economy needs to grow by at least 10.0 percent in the second semester, said Paderanga.

Paderanga is optimistic that prospects for the second half of 2011 are better than the first half’s performance.

He expects agriculture production will be supported by the strong prospect for palay production.

The Bureau of Agriculture Statistics has projected a 6.2 percent  growth for palay in the second half of 2011.

Sec. Paderanga said the manufacturing sector would be buoyed by the food manufactures, while  real estate and private construction would continue to remain upbeat given the bright prospects in the property market particularly the office, residential, retail and hotel-leisure submarkets.

“Other services and trade will be supported by inbound tourists, the number of which is expected to rise, on the average, by 6.3 percent in 2011.  Mining is expected to benefit further from high metal prices in the world market.”

Business sentiment has improved in the third quarter of 2011 as public construction and government services are likely to pick-up due to the accelerated spending plan of government, said Paderanga.

On the demand side, Paderanga expects household consumption and investment will remain as the growth drivers.

“Household consumption will get a boost from the employment creation program, the continuing implementation of the conditional cash transfer program for the lower income deciles, the modest inflow of remittances, and the still well-anchored inflation expectations.”

“Investments will continue to register positive increases given the bright outlook in the expansion plans of firms across the industry subsectors,” he added.

Romulo Virola,  director-general of the National Statistical Coordination Board (NSCB)  noted that the 3.4 percent growth in the second quarter of 2011 was less  than half the booming 8.9 percent growth in

He partly attributed the modest growth to the fragile recovery of the Philippine trading partners and the European debt crisis which affected most economies.


Filipino companies urged to set up first Pinoy supermarket

The Philippine Small and Medium Business Development Foundation (PHILSMED) has urged Filipino companies to establish the first Pinoy supermarket that will offer a variety of local made products.

Philsmed president Mina Gabor said after setting up the stop in Metro Manila, this can be expanded in other areas in Luzon, Visayas and Mindanao.

“The supermarket showcases everything that is made in the Philippines from broom stick to match stick. When this is established, there is a place we can say if one wants to buy local made products,” Gabor said during the 21st Buy Pinoy Exporters Fair.

At present, businesses are located in different places. Thus, buyers especially the tourists have difficulty finding and buying Philippine-made products.

Gabor, also the president of the International School for Sustainable Tourism, noted that the domestic market and tourists are big markets they should tap.

“You should not forget that the returning Filipinos we call ‘balikbayan’ are huge markets. Our products are not yet ready; these should be packaged so it would be easier to carry,” she added.

Apart from local and foreign tourists, Gabor said entrepreneurs need to develop more products for the young market. This market refers to individuals aged 50 and below.

Sergio Ortiz-Luis, president of the Philippine Exporters Confederation, Inc. (PHILEXPORT), said they will study into the viability of the proposed Pinoy supermarket.

Official development assistance reaches $8.31 billion

The Philippine  official development assistance (ODA) loan commitment  totalled US$8.31 billion as of June 2011, lower than the same period  last year at $8.84 billion.
The National Economic and Development Authority (NEDA) said the US  8.31 billion was used to fund 68 project loans worth US$7.27 billion and 7 program loans worth US$1.04 billion.
Of these loans, five were closed during the period, while 66 are ongoing and four are yet to be made effective.

The NEDA noted lower levels of absorptive capacity for the period, with lower disbursement and availment rates compared to the first semester of 2010.

Disbursement rate is the loan amount’s level of disbursement against the annual target, while the availment rate is the loan amount’s cumulative utilization according to a multi-year schedule.

From January to June, the disbursement rate in 2011 was 66 percent, compared to 87 percent last year, while the availment rate was 71 percent, compared to 82 percent last year.

The NEDA-Project Monitoring Staff (PMS) said  the low disbursement performance was due to procurement, financial, and other issues like suspension of contract and the national government-local government sharing scheme.

“The substantial decrease in the disbursement performance may be attributed to the low financial erformance of some China loans and other sources-assisted projects,”said NEDA.

These projects include the Northrail Project Phase I Section I, with US$400 million net commitment and implemented by the Philippine National Railways; the Second Cordillera Highland Agricultural Resource
Management (CHARM) Project, with US$26.6 million net commitment and implemented by the Department of Agriculture; and the Local Government Unit (LGU) Investment Programme II, with US$9.72 million and implemented by the Department of Interior and Local Government.

The three loans are extended by China, the International Fund for Agricultural Development and Germany, respectively.

“The North Rail Project only disbursed US$ 16.69 million out of its US$ 180.59 million target for the year due to contract suspension issues, while the last two cited projects did not make any disbursements yet in
2011,” said the NEDA-PMS report.

Thirteen ongoing loans have disbursement rates below 50 percent as of June 2011. However, the number
is lower compared to the figure as of March 2011, which had 15 loans.

“The decrease in the number of projects with low disbursements maybe attributed to the fact that those in the said category in the first quarter have disbursed more in the second quarter of 2011,” the report

Three ongoing project loans, excluding newly effective and those in the start-up stage, did not disburse due to low demand of subproject and prolonged processing of withdrawal application.

These projects are the LGU Investment Programme II, the Second CHARM Project and the Health Sector Reform Project.

Meanwhile, the NEDA-PMS report said that the biggest ODA donor as of June 2011 is the Government of Japan-Japan International Cooperation Agency (GOJ-JICA), with a share of 31.69 percent of the total ODA commitments, followed by the World Bank with a 23.75% share. China came third with a share of 13.73 percent and fourth was the Asian Development Bank with a share of 8.77 percent.

Intensive industry development, more focused incentives

The Philippines will pursue an intensive industry development and offer a more focused incentive package to attract more investments that would enable exports to post an annual growth of 16 percent with $109.4 billion revenues in 2016.

Margarita Songco, deputy director general of the National Economic and Development Authority (NEDA), said this strategy
is included in the Philippine Development Plan (PDP)  2011 to 2016, highlighting the role of export industry and services in achieving an inclusive growth.

“The export sector will not only serve as catalyst of growth but also help the country overcome the challenges of inclusive growth,” Songco said during the second-quarter general membership meeting of the Philippine Exporters Confederation, Inc. (Philexport).

Songco identified these key industry areas as the business process outsourcing (BPO), electronics sector and agribusiness and forest-based industries.

These also include other high-growth potential industries such as homestyle products, wearables, motor vehicle parts and components, garments and construction and related materials.

Songco said the government would partner with the private sector in undertaking measures to harmonize the educational system with the changing needs of the industry, for training and opportunity building, and to expand the development of
“Next Wave Cities”.

On the other hand, the electronics sector, the country’s top dollar earner, will continue to be supported with high-level investment missions, integration of the electronics industry and the establishment of human competencies throughout the value chain.

Songco said the Philippines would also enhance efforts towards attracting new players in the potentially competitive sub-industries such as solar cells, growing capacity in integrated circuit (IC) design together with the country’s collaboration with Taiwan.

The agro-based export products would also be expanded through inbound business matching, international promotional events, compliance with international standards, and development of higher value-added products for exports.

“The government will also be vigilant in nurturing industries that post potential in domestic and export market demand, job generation, utilization of local talents, and creativity and maximization of the total value chain,” she noted.

In these high-growth potential industries, aggressive export promotion through international trade fairs and initiatives to increase market access will be pursued.

Apart from focusing intervention in these key areas, Songco said the PDP 2011-2016 has also identified other strategies crucial to increasing the country’s exports revenues.

These are moving-up the value chain to double exports, strengthening the national brand or identity awareness, pursuing cluster development and increasing market access.

“The government will initiate and mplement a national branding and marketing campaign to promote the Philippines not only as an investment site and tourist destination but as a producer and supplier of quality world-class products and
services,” she added.

Songco explained that the industry cluster program would link different industries and strengthen collaborative networks
among them.

Industry clusters would ensure that top export products or revenue streams are sustained through the development of
value chains down to the provinces and municipalities.

Philippine economy to grow better in 2nd quarter

The Philippine economy as measured gross domestic product (GDP) is likely to grow better in the second quarter of the year compared to the first quarter as exports growth would recover, according to the FMIC and UA&P market research.

The report expects investments to continue rise, and the government would spend more in the second quarter than it did in the first quarter.

Inflation is likely to remain within the 4.5-4.7% range for the second quarter due to stable rice and other food prices and the more than 10% fall in crude oil prices on May 5.

The report also expects tax revenues to slow down in the second quarter particularly for the Bureau of Customs on account of lower oil prices and peso appreciation vis-à-vis year ago levels.

Monetary policy is unlikely to change given our view that the headline inflation rate will not accelerate sub­stantially in the second quarter.

The peso will be volatile with a slight positive bias but will be subject to the changing and complex external en­vironment, the report added.