Infrastructure lack still concern of businesses

MANILA, Philippines - Inadequate infrastructure, volatile exchange rates, the possible rescinding of incentives, strict labor rules, and political instability are business leaders’ top concerns for 2009. These issues were highlighted in an informal BusinessWorld poll of business chambers and industry groups bracing for a continued economic slowdown. Leaders of 11 groups were interviewed, particularly the Philippine, American and European chambers of commerce, the Makati Business Club (MBC), and the Federation of Philippine Industries (FPI). Also polled were the Philippine Exporters Confederation, Inc. (Philexport) and industry groups representing the country’s top merchandise exports: electronics, furniture, processed food, handicrafts, and jewelry. Heads of garment industry groups could not be reached for comment. The most commonly cited concern was the need to build more power plants, roads, and railways, plus port upgrades, with businessmen saying such are vital to lower production costs and keep the Philippines competitive amid a global downturn. In the wake of a worldwide financial crisis that has left major economies in recession, the World Bank, Asian Development Bank, and the International Monetary Fund have forecast Philippine growth of just 3-3.5 percent this year, versus an expected 4-4.5 percent in 2008. “Building and maintaining infrastructure with a major emphasis on energy and transportation [is needed]," European Chamber of Commerce of the Philippines (ECCP) Executive Director Henry J. Schumacher said. Offering a response to the crisis, the government has promised various infrastructure projects this year in a pump-priming effort, announcing a P300-billion outlay and agreeing to shoulder half of a P100-billion stimulus with the private sector. New expressways and the development of passenger railways are among those eyed for funding. Projects such as the southward extension of LRT Line 1 and new power sources in Visayas and Mindanao should also be considered, American Chamber of Commerce of the Philippines, Inc. (AmCham) legislative committee Chairman John D. Forbes said. “LRT 1 will go down into Cavite and we have so many factories there and many workers ... [and] we hope to see new power projects so we can prevent rolling blackouts," Mr. Forbes said. Philippine Chamber of Commerce and Industry (PCCI) President Edgardo G. Lacson concurred, saying that without new power sources, high electricity rates would undermine the country’s competitiveness. “[We need] well-built roads and ports to lower transportation costs and make movement of goods faster. In terms of manufacturing costs in our operation, [transportation expenses] make up 15 percent," Chamber of Furniture Industries of the Philippines President Roxanne F. Aquino said. Her sentiment was shared by Semiconductors and Electronic Industries in the Philippines, Inc. Chairman Arthur J. Young, Jr., Philippine Chamber of Handicraft Industries, Inc. Executive Director Ajun L. Valenzuela, and Philippine Food Processors and Exporters Organization President and PCCI Vice-President for Agriculture Roberto C. Amores. Post-harvest facilities and testing laboratories must also be put up to boost productivity and access to foreign markets, Mr. Amores added. Aside from infrastructure, the volatile exchange rate was also commonly cited, with industry groups saying it is hard to retain foreign buyers when prices keep getting adjusted. The value of the peso versus the US dollar seesawed from a little over P40 to as high as P49 in 2008, central bank data show. It ended the year at P47.52. Exporters will be most comfortable if the dollar stood a little over P50, Philexport President Sergio R. Ortiz-Luis, Jr. claimed, while Guild of Philippine Jewelers, Inc. President Mia S. Faustmann said, “If it were stable, we won’t have to keep changing our prices." Mr. Young said, “We understand the reasons why the government doesn’t want to interfere, but the recent up and down [movement] of the currency is confusing." “The [electronics industry’s] biggest issue is the credit crisis in the US, [our major market]. Our wish is that consumer confidence comes back," he added. Investment incentives by way of tax perks was a hot topic as well, with business groups saying these are needed to spur production and help firms cope. Policymakers remain divided on the issue. A bill seeking to streamline incentives still hasn’t been passed by the House of Representatives as a proposed phase-out of the income tax holiday remains a sticking point. “There has been debate with the DTI (Department of Trade and Industry) on one side and the DoF (Department of Finance) on the other [regarding tax holidays]. The period of uncertainty should come to an end. We have to look at strategic industries and provide tax holidays beyond the six-year limit," the ECCP’s Mr. Schumacher said. “[We need] more and continued government assistance through funding and incentives ... and lower taxes for imported raw materials," the furniture chamber’s Ms. Aquino said. FPI President Jesus L. Arranza and the jeweler guild’s Ms. Faustmann also noted that national and local governments must simplify tax policies to prevent double charging and also to make it easier for firms to comply. Aside from incentives, funding for promotion efforts is also needed as exporters seek alternative markets, the handicraft chamber’s Mr. Valenzuela said. “[The government must] encourage more to buy Filipino products," he added. Mr. Arranza concurred, saying: “We urgently need the IRR (implementing rules and regulations) for Administrative Order 227 which requires government offices to give preference to locally-produced products." Business leaders—particularly Messrs. Schumacher, Valenzuela, and Young—also called for flexible labor rules. The Employers Confederation of the Philippines has called for the temporary suspension of a provision in the Labor Code which prohibits lowering the amount of benefits an employee receives. The Joint Foreign Chambers, meanwhile, plans to stage talks with the Labor department, labor groups, and firms on options such as job rotation, forced leaves, and shorter work hours to avert layoffs. “Labor policies must ... not take away from the competitiveness of our industries," Mr. Young said. Business leaders also expressed concern over the country’s political stability amid an upcoming election and plans to amend the Constitution. The House’s plans to amend the charter have been met with protests, with some claiming the move is designed to allow President Gloria Macapagal Arroyo to extend her term. But others, like Trade Secretary Peter B. Favila, have pointed out that charter change is needed to amend limits on foreign ownership of land which is said to deter investments. The PCCI’s Mr. Lacson said plans to change the Constitution should be dropped “because it is divisive" and Makati Business Club Executive Director Alberto A. Lim said charter change was a major concern. The FPI’s Mr. Arranza, for his part, said: “I don’t buy the proposal to change just the economic provisions [of the constitution]. Investors come to make money. Profit is what propels them." He added, “I hope we can come up with a foolproof election process [for 2010] so there won’t be suspicion that will disturb confidence in the system." For this year, however, preparedness will make all the difference, according to PCCI Chairman Emeritus Donald G. Dee. “I don’t we should be fearful ... It’s like a typhoon. When you know that it’s coming and you have prepared for it you can face it with confidence and I think we did take the necessary preparations already," he said. - Jessica Anne D. Hermosa with a report from Don Gil K. Carreon, BusinessWorld