Government and Taxes: February 2023

Friday, February 17, 2023

BWorld 583, Ten trends in global and Philippine energy

* BusinessWorld February 6, 2023.
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Some developments on the energy front in early 2023, both global and national.

1. Oil and gas prices are now lower than during pre-war Ukraine. Comparing prices last week with Feb. 23, 2022 or a day before Russia invaded Ukraine, Dubai crude is $11/barrel cheaper and WTI crude is $17 cheaper. It’s the same trend for EU gas and US natural gas prices.

2. Coal prices have significantly cooled down. From a peak of $458/ton in 2022, it was down to only $245 last week. Since about 58% of total power generation in the Philippines is from coal, this is good news.

3. E-vehicle prices are rising and charging them is more expensive than using gasoline. The price of lithium, the main material in producing batteries, is higher than the pre-invasion period, twice the peak price in 2021 and six times the peak price in 2019. Electricity prices in Europe last week were about twice the peak prices in 2019. Peak prices in 2022 were 6-20 times higher than peak prices in 2019 (table 1).

4. Continuing threats of blackout, spot market price control. It has now been 32 years since the big blackouts of 1990 to 1991 in the Philippines and the possibility of occasional blackout remains. See these recent reports in BusinessWorld: “DoE expects 12 yellow alerts in Luzon grid” (Jan. 10), “Still no agreement on Ilijan gas supply — DoE” (Jan. 12), “ERC reviewing secondary price cap after DoE cites potential to unlock investment” (Feb. 1).

Government price control in the electricity spot market is wrong and should be removed. Frequent price spikes are indicators of thin reserves, and power distributors and consumers are willing to pay higher just to avoid blackouts. When price control kicks in too often, it will discourage investment in more peaking plants. The most expensive electricity is no electricity. Candles and more expensive generator sets are bad alternatives.

5. Rise in subsidies to off-grid islands and provinces. Island-provinces like Palawan, Mindoro, Masbate, Marinduque, Batanes, etc. rely on big gensets by the National Power Corp. (Napocor) small power utilities group (SPUG) and private producers. Since generation via oil gensets is expensive, off-grid consumers are subsidized by on-grid consumers through the universal charge for missionary electrification (UC-ME) in our monthly electricity bill. See these recent stories in BusinessWorld: “Napocor to cut service to SPUG areas due to high diesel prices” (Jan. 19), “Universal charge hike proposed to sustain off-grid power services” (Jan. 30).

Current UC-ME is P0.178/kWh and Napocor is asking for P0.15 more. If approved, it will become P0.328/kWh. The UC-ME should go, off-grid provinces should use small coal or gas plants or small modular reactors to have cheaper electricity and will not need subsidy. Note also in table 2 below, Napocor is earning P2-3 billion a year.

6. Obstinate San Miguel petition at ERC and CA. San Miguel Corp. units South Premiere Power Corp. and San Miguel Energy Corp., the administrators of the gas plant in Ilijan, Batangas, and the coal plant in Sual, Pangasinan, respectively, sought a rate hike at the Energy Regulatory Commission (ERC) in August. ERC rejected the petition in September. San Miguel went to the Court of Appeals (CA) the following month. Last month, the appellate court’s 13th Division gave South Premiere a writ of preliminary injunction, suspended the power supply agreement between South Premiere and Manila Electric Co. to allow them to negotiate. But the court’s 16th Division rejected a similar injunction motion from San Miguel Energy. Both cases will be consolidated at the 13th Division, and if South Premiere and Meralco agree to increase the price, it will go back to the ERC again. Terminating the power supply agreement does not seem to be the least cost for the public.

See these reports in BusinessWorld: “Meralco to start sourcing 670 MW from spot market” (Jan. 26), “ERC says court denied hold order vs its ruling in Sept.” (Jan. 27), “Competitive power rates sought after court move on supply deal” (Jan. 30) and “ERC looks to high court amid suspended power supply deal” (Feb. 6).

7. San Miguel Energy and South Premiere earned, not lost, in 2021. San Miguel said it had losses of P15 billion from units South Premiere and San Miguel Energy. Data from BusinessWorld’s Top 1000 Corporations in the Philippines 2022 showed they earned P5.34 billion and P4.5 billion, respectively (table 2).

Meanwhile, South Premiere or the Ilijan gas plant is on economic shutdown. So far, there seems to be no investigation for anti-competitive behavior. Ilijan must run on liquid fuel, expensive diesel and generation companies have to obey the must-offer rule in the spot market. The plants have to run.

8. NGCP was the most profitable among energy players, perhaps in the whole country. Its net income over gross revenue ratio from 2017 to 2020 averaged 45.7% (table 3). Two things here — high profitability while the country suffers from persistent yellow-red alerts yearly, up to now, and NGCP is the sole private nationwide monopoly system and network operator.

NGCP has a big asset base but must do certain investments stipulated in its franchise. The high profitability possibly comes from not investing in the committed asset base, which was the basis for its transmission rates. It’s like not having a firm contract for ancillary services that should significantly augment power reserves, and long-delayed transmission lines to avoid power congestion in certain areas and where supply is available to areas where they are needed.

There is an ongoing fourth regular review and fifth regulatory reset of NGCP at the ERC. ERC should look at these profitability figures.

9. Nuclear energy is becoming more acceptable in the Philippines. See these recent reports in BusinessWorld: “Energy dep’t designates RE, nuclear as 2023 priorities” (Jan. 2), “Philippines in nuclear push as power crisis looms” (Jan. 24). Uranium prices in the table above show they don’t swing wild unlike Europe electricity prices that rely increasingly on intermittent wind and solar power.

10. Persistent calls for expensive electricity via carbon pricing and taxation. The International Monetary Fund (IMF) is tone-deaf to the plight of Philippine businesses and households as it continues its irresponsible and corrupt lobby to impose carbon pricing and taxation in the Philippines. See this report in BusinessWorld: “IMF says carbon pricing may raise $7-B revenues” (Jan. 4).

In this period of high inflation, more expensive electricity, transportation and other commodities are the least that we should aspire for. People can’t be serious if they blame CO2 — the gas that we humans and animals exhale, the gas that plants and crops use to produce their own food via photosynthesis — as causing less and more rain, less and more flood, less and more cold, fewer and more dogs.

Meanwhile, the Ruperto P. Alonzo lecture series will kick off at 3 p.m. this Wednesday, Feb. 8 at the UP School of Economics. It is free and open to the public. The topic is “29 years of BoT law and the way forward.” The speaker will be Cynthia Hernandez, executive director of the PPP Center. The three discussants/reactors are Roderick Planta, assistant secretary for investment programming at the National Economic and Development Authority; Vaughn Montes, director at Rizal Commercial Banking Corp.; and Paul Imperial, vice-president for Structuring and Regulatory Affairs at Aboitiz InfraCapital, Inc.
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Macroecon 21, Tax revenues, PH outstanding debt

Latest revenue numbers from the cash operations report (COR) of the Bureau of Treasury. Bureau of Customs (BOC) has P789 billion already by November 2022.

Yogi Ruiz became Acting BOC Commissioner last July 25, sworn in by PBBM July 20. So BOC collections from August to November can be attributed to his leadership, it's high, P75 B/month and up. Although BOC collections started rising since March 2022, with record high P83.6 B in July.

Previous record highs in BOC collections were P643.6 B in 2021 and P630.3 B in 2019. The P862 B in 2022 (so December collections were P73 B) was really high. Partly due to the leadership of Yogi Ruiz. Now that he has been replaced by Bienvenido Rubio, the latter must show good performance, high collections of P75 B to P85 B a month.

Meanwhile, outstanding public debt in 2022 was P13.42 trillion, domestic P9.21 trillion + foreign P4.21 trillion. Plus guaranteed debt of P399 billion, total public debt was P13.82 trillion.

Notice the big jump in public debt in 2020, 2021, 2022, average P2 trillion a year.

Outstanding actual debt + guaranteed debt, it's P8.22 trillion in 2019, P10.25 trillion in 2020, P12.15 trillion in 2021, and P13.82 trillion in 2022.

Three ways to drastically cut this huge debt burden.

1. Cut spending, streamline the bureaucracies, cut some subsidies, reform government pension especially by military and uniformed personnel (MUP).
2. Better tax administration, collect more from existing tax rates; or raise new taxes.
3. Large scale privatization of government corporations, land and other assets.
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Thursday, February 16, 2023

BWorld 582, Ten things about the military and uniformed personnel pension system

* BusinessWorld January 30, 2023.
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Continuing the “Top 10” economic issues being discussed in this column, this 8th installment will tackle one huge elephant in the room, the ever-rising taxpayers’ burden which is the military and uniformed personnel (MUP) pension system.

Here are 10 issues that Philippines taxpayers and public finance researchers should consider.

1. Government civilian personnel contribute for their future pension, MUP do not. Government doctors, nurses, teachers, engineers, agriculturists, etc. Accept the additional deductions from their monthly pay that go to the Government Service Insurance System (GSIS), the MUP do not. Taxpayers pay for active service MUP salaries and other compensation, then when they retire, taxpayers again have to pay for their pension — and the scheme is egregious.

2. The amount is huge, P65 billion/year a decade ago, P130 billion this year. In an article written a decade ago by Benjamin Diokno (now Finance Secretary), “Military Pension,” (BusinessWorld, Aug. 13, 2013), he observed and presented the numbers (see Table 1).

“The uniformed personnel of the AFP, the DILG, NAMRIA and the PCG [Armed Forces of the Philippines, Department of Local Government, the National Mapping and Resource Information Authority, and Philippine Coast Guard] have to rely on direct appropriations by the National Government. Why? Because the military’s pension fund collapsed a long time ago as an aftermath of the Asian financial crisis and the financial mismanagement of their respective retirement funds.”

3. MUP pensions are up to 88% of base pay of active soldiers, policemen. The share of MUP pension/base pay averaged 66.5% in 2019-2021, then jumped to 88% in 2022. In contrast, the civilian personnel pension/base pay averages only about 1.3%. Including various allowances, hazard pay, etc., MUP pension/total compensation averaged 34% in 2019-2021 then jumped to 44% in 2022.

4. MUP in active service already get generous pay, averaging P335 billion/year in 2019-2022. In Table 2, “Other compensation common to all” includes longevity pay, subsistence allowance, relief allowance, mid-year bonus, year-end bonus, and others.

“Other compensation for specific groups” includes combat duty pay, combat initiative pay, hazardous duty pay, lump-sum for filling of positions MUP, others. And “Other benefits” include terminal leave, retirement gratuity, and PhilHealth contributions, others.

5. MUP under DILG have larger base pay than the Armed Forces of the Philippines-Department of National Defense (AFP-DND) but have lower pensions than the AFP. From 2021-2023, the average base pay of MUP in the DILG was P106 billion/year while base pay in the AFP-DND was P62 billion/year. But the pension of MUP in the DILG was only P55 billion in 2021, lower than the P67 billion pension in the DND.

6. The AFP pension is larger than base pay of active soldiers. In 2021, the pension in the AFP-DND was 112% of base pay while the Philippine National Police (PNP) pension was 50% or one half of base pay of active policemen. The average for all MUP was 70% of base pay (Table 3).

7. An AFP pensioner can get P191,000/month for life. Consider these two recent columns in BusinessWorld: “The Game of the Generals” by Amelia H. C. Ylagan (Jan. 22, 2023) and “Dealing with a looming military pension crisis” by Victor S. Limlingan (Oct. 18, 2022).

Ms. Ylagan wrote, “A retired (full) General can get lifetime pension of up to P190,975.88 per month, computed on 85% of highest base pay plus longevity pay for the maximum number of years served. (The pension lowers as the rank lowers, with the lowest, Brigadier General, still getting about P100,000 per month pension or close to this.)”

Mr. Limlingan wrote, “The GSIS actually did an actuarial study of the financial impact of absorbing the military and estimated that this would involve assuming P9.6 trillion in unfunded liabilities, clearly beyond the financial capacity of the GSIS. And so the problem looms… Our Congressional Planning and Budget department estimates that if no reform is undertaken, the National Government will need P800 billion for the next 20 years.”

8. The Development Budget Coordination Committee (DBCC) of previous and current administrations rang the bell on MUP pension. The DBCC — a.k.a. the “economic team” composed of the heads of the Department of Finance (DoF), the Department of Budget and Management (DBM), the National Economic and Development Authority (NEDA), and the Bangko Sentral ng Pilipinas (BSP) — of both of the Duterte and Marcos Jr. administrations raised the alarm bells on this huge fiscal burden. Consider these reports in BusinessWorld:

“Gov’t facing P9.6-trillion bill for military pension obligations” (Feb. 2, 2021),

“Economic managers back military pension reform” (June 16, 2021),

“GSIS deemed stable despite AFP pension risk” (Dec. 5, 2021).

From the Dec. 5 report: “An actuarial study by the Department of Finance concluded that the creation of a retirement fund solely for military and uniformed personnel will require an additional P45 billion annually.”

9. Suggested Reform No. 1: All MUP in active service should contribute to GSIS. Among the important reforms advocated by the DBCC and other concerned groups is that the MUP should pay for their own retirement pension. And there is no need to create another agency to handle this — GSIS can handle civilian pension and MUP pension. I say “amen” to this. The MUP pension should not come from taxpayers again as they are already over-burdened. Think of the P2 trillion/year of new borrowings for three years, 2020-2022, the taxpayers will ultimately pay for that.

10. Suggested Reform No. 2: Scrap, abolish the indexation of pensions on salaries of the incumbent, not the retiree. As Mr. Diokno wrote in 2013, “Well, during the final months of the Fidel Ramos (FVR) presidency, he approved what I consider to be the most generous pension system for the military in the entire world. While the common practice is to base the pension benefits on the highest salary (usually the last) of the retiree, under the law approved by Mr. Ramos, the pension is based on the salaries of the incumbent. Absurd but true.”

Again, I say “amen” to this reform. I admired and praised former President FVR’s handling of the economy — see this column’s piece, “The Post-SONA Economic Briefing; FVR’s economy” (Aug. 1, 2022) — but such admiration is now diminished. But if he was alive today, I think he would be among the reformers who would call for the scrapping of this egregious scheme.

I hope that MUPs in active service in various departments and agencies will not resist these two reforms. Their motto, to “serve and protect,” should refer more to the public and taxpayers, not to themselves and their future pensions.

I also hope that the public and other media also begin to discuss the elephant in the room. The amount is so huge. People were scandalized by the Education department’s laptop overpricing scandal in the previous administration, estimated at P0.96 billion. And rightly so. But the MUP pension, like the P153 billion in 2022 budget, should have not been there in the first place and it is a huge hole in taxpayers’ pockets.
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Wednesday, February 15, 2023

Agenda One News, Part 9

Today I was interviewed again by Cito Beltran, host of the famous daily tv program, "Agenda" in One News channel, Cignal TV. Topic was about the new Bureau of Customs (BOC) Commissioner Bienvenido Rubio. He was sworn by President BBM last week and started office last Monday. Here are some reports about him.

BoC agenda puts digitalization front and center (February 13)
https://www.bworldonline.com/economy/2023/02/13/504678/boc-agenda-puts-digitalization-front-and-center/

Diokno backs new Customs chief Rubio
byJulito G. Rada (February 13)
https://manilastandard.net/news/314305084/diokno-backs-new-customs-chief-rubio.html

New BOC chief vows to sustain gains, curb smuggling
By Ferdinand Patinio (February 13)
https://www.pna.gov.ph/articles/1195105

Lacson tagged Rubio ‘BoC bagman’ (February 13)
https://tribune.net.ph/2023/02/13/lacson-tagged-rubio-boc-bagman/

This is my 9th interview at Cito Beltran's show. Cito is a veteran TV host and his program "Agenda" runs Monday to Friday 8-9am at One News, Cignal TV. He is also a respected columnist in Philippine Star, his articles appear every Monday, Wednesday and Friday, https://www.philstar.com/authors/1804831/cito-beltran.

Cito expressed his skepticism of the ability of Mr. Rubio to have clean leadership of the BOC based on the expose of Sen. Ping Lacson that Mr. Rubio is a "bagman" of BOC. At first I discussed some numbers about BOC -- revenue collection in 2021 was P643 B, jumped to P862 B in 2022, P200+ B increase in just one year. This never happened before, not even P100 B increase in a year. This year the DOF set a target for BOC, P901 B. I said that based on very good performance last year, the DOF should raise the revenue target for BOC to P1 trillion this 2023.

I mentioned smuggling, Mr Jess Aranza of Federation of Phil. Industries (FPI) estimates smuggling at P250 billion a year -- oil smuggling, cigarette smuggling, car smuggling, etc. -- the revenue losses of the government. Of which about P25 billion/year from tobacco and cigarette smuggling alone. Cong. Joey Salceda estimate is P30 billion/year of revenue losses from tobacco smuggling, former Cong. Koko Nograles estimate is about P31 billion/year. My own estimate is P36-49 billion/year. So just reducing tobacco smuggling by half would mean at least P15 billion/year of additional revenues to the government.

There is huge need for revenues to reduce the public debt stock. New borrowings were about P700-P800 B/year in 2017-2019. By 2020, new borrowings was P2.5 trillion, then P2.2 trillion in 2021, then about P2.1 trillion in 2022. So the new BOC leadership should focus on (1) higher revenue performance, (2) control smuggling, (3) have digitalization towards trace facilitation, and (4) raise the morale of BOC people because many of them are perceived by the public as "Lacoste" or greedy crocs.

DBM Secretary Amenah Pangandaman said DBM has allocated P3 B for BIR and BOC for their digitalization set up and upgrades.

Cito asked me what info I have gathered about Mr Rubio, a case filed at the Ombudsman, I said I asked many friends from UP, even two retired military friends, and I found out that almost all of them have nothing to say about the man, he is relatively an unknown. Meaning if he's a bad or corrupt official then he is not a notoriously bad one because his bad acts are not well highlighted. If he's a good official then he is starting with no political and moral baggage.

So far Mr. Rubio has the endorsement of President BBM and DOF Secretary Ben Diokno. He should put up a really good performance in his first few months and show that he can deliver higher collections to the government, meaning he can minimize leakages and smuggling. Otherwise, negative media reports, Senate investigations can get hotter and he can be replaced soon.

Anyway, the interview this morning is here, starting at time 37:22, https://www.youtube.com/watch?v=eKOpycke2aE.

Thanks again, Cito, your staff for the opportunity to explain some important numbers and the challenges facing the BOC, DOF.
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See also:
Agenda One News, Part 6, August 31, 2020
Agenda One News, Part 7, February 07, 2022
Agenda One News, Part 8, October 21, 2022.

Thursday, February 09, 2023

BWorld 581, 10 trends in GDP and trade in 2022 and 2023

* BusinessWorld, January 26, 2023.
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The Philippine Statistics Authority (PSA) released today two important reports, the 4th quarter — and hence, full year 2022 — GDP, and December — and hence, full year 2022 — trade data. These are the trends that we see.

1. GDP growth in 2022 is 7.6% led by investments and household consumption. On the demand side, household consumption has the biggest share, 73%, of GDP or gross domestic product (a monetary measure of the market value of all the final goods and services produced and sold in a specific time period), and it grew 8.3% last year. Investment has a 24% share of GDP and it grew 17%.

2. Government’s share in GDP is rising. In 2016-2017, the share of government consumption was only 11% of GDP — it went up to 15% in 2022. Since government spending is financed by taxes and borrowings, this means that current and future taxes and debt payment will increase, not flatline or decline.

3. The Services sector, led by trade and finance, is growing fast. On the supply side of GDP, the services sector is now 61% of GDP and it grew 9% last year — good! The industry sector and manufacturing have modest growth (see Table 1).

4. Agriculture’s share continued its decline. Its share is now below 9% of GDP and growth remains anemic at 0.5%. As discussed in this column last Monday, “Ten themes in development economics (and the Ruperto Alonzo lectures),” the growth of corporate farming is much faster than overall agriculture. What the sector needs is more corporate agribusiness, and more land consolidation to have economies of scale.

5. High expansion of imports despite the peso’s depreciation. Total merchandise or goods imports increased a great deal, from $117 billion in 2021 to $137 billion in 2022. The peso/US dollar average exchange rate last year was P54.48/$1 vs only P49.25/$1 in 2021. The Philippine economy was humming with both domestic and imported goods despite the higher exchange rate.

6. Exports have increased marginally, with the US and Japan as the top destinations. Merchandise exports in 2022 reached nearly $79 billion, with $23.4 billion going to the US and Japan alone. Germany remains the number one trade partner but its share to total exports and imports is declining.

7. Indonesia became a huge imports partner. Merchandise imports from Indonesia in 2021 were worth $8.45 billion, and jumped to $13.2 billion in 2022. Must be the higher value of coal imports, even if the quantity did not increase much.

8. Illicit trade in consumer items needs to be watched. For instance, the excise tax for legal cigarettes has increased from P55/pack in 2022 to P60/pack in 2023, and will further rise to P63/pack in 2024. Smuggled and illegal cigarettes, alcohol, other consumer goods will become cheaper options. Government revenues will suffer while certain government officials will amass wealth for themselves by allowing and facilitating the entry of illicit smuggled products.

9. The decelerated growth of 3% in China implies some migration of investments to ASEAN. Among the fastest-growing economies in the world in 2022, three were from the ASEAN — the Philippines, Malaysia, and Vietnam. The Philippines economic team — the departments of Finance and Budget and Management, the National Economic and Development Authority, and Bangko Sentral ng Pilipinas — will be busy entertaining more domestic and foreign investments expanding here.

10. Europeans suffer decelerated exports while East Asians kept their momentum. Expensive energy for Germany, the United Kingdom, France, etc. means less competitive merchandise exports for them. The Philippines needs to join the pack of export powerhouses of the ASEAN (see Table 3).

This column projects a 7-7.5% GDP growth in the first quarter of 2023. I will explain the basis for this projection in the coming weeks.
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Deindustrialization 10, Net zero, ESG and carbon tax

A number of reports using the term "deindustrialization" in Europe late last year.

Europe’s descent into deindustrialisation
Philip Pilkington 30 September 2022,
https://www.spectator.co.uk/article/europe-s-descent-into-deindustrialisation/

Europe’s non-ferrous metals producers call for emergency EU action to prevent permanent deindustrialisation from spiralling electricity and gas prices (9 pages)
September 2022
https://eurometaux.eu/media/qnhn5k30/non-ferrous-metals-ceo-letter-on-energy-crisis-06-09-2022.pdf

Europe risks deindustrialization as soaring energy prices prompt corporate shutdown, exodus
Source: XinhuaEditor: huaxia 2022-10-06
https://english.news.cn/20221006/1abe4e909b8949d0a84f14d7437f37b2/c.html

Europe facing gas insecurity, 'uncontrolled deindustrialization' through 2025
Tom DiChristopher 13 Oct 2022
https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/101322-europe-facing-gas-insecurity-uncontrolled-deindustrialization-through-2025

The Deadly ‘De-Growth’ Craze
Stagnant societies eventually slide into oppression, chaos, anarchy and ruin.
Andy Kessler Oct. 30, 2022
https://www.wsj.com/articles/growth-world-economic-forum-sustainability-poverty-investment-esg-climate-protectionist-trade-energy-11667077994

Europe May See Forced De-Industrialization As Result Of Energy Crisis
By Irina Slav - Nov 03, 2022
https://oilprice.com/Energy/Energy-General/Europe-May-See-Forced-De-Industrialization-As-Result-Of-Energy-Crisis.html

Energy crisis chips away at Europe's industrial might
Clara Denina and Sarah Mcfarlane. November 3, 2022
https://www.reuters.com/business/energy/energy-crisis-chips-away-europes-industrial-might-2022-11-02/

EU to backtrack to de-industrialization due to energy crisis
By Al Mayadeen English 4 Nov 2022
https://english.almayadeen.net/news/economics/eu-to-backtrack-to-de-industrialization-due-to-energy-crisis

Essential Geopolitics: Will Europe's Energy Crisis Accelerate Deindustrialization?
Dec 6, 2022
https://worldview.stratfor.com/article/essential-geopolitics-will-europes-energy-crisis-accelerate-deindustrialization

Analysis: The hardest part is yet to come for gas-hoarding Europe
By Susanna Twidale, Marwa Rashad and Emily Chow 20 December 2022
https://www.reuters.com/business/energy/hardest-part-is-yet-come-gas-hoarding-europe-2022-12-19/

Worst of Europe’s Energy Crisis May Be Yet To Come
By Irina Slav - Jan 03, 2023
https://oilprice.com/Energy/Natural-Gas/Worst-of-Europes-Energy-Crisis-May-Be-Yet-To-Come.html

Around 40% of German companies expect output decline in 2023, IW institute says
9 January 2023
https://www.reuters.com/world/europe/around-40-german-companies-expect-output-decline-2023-iw-institute-2023-01-09/

Reduced support on energy costs ‘will kill off small firms’
9 January 2023
https://www.thetimes.co.uk/article/reduced-support-on-energy-costs-will-kill-off-small-firms-qt2bqxc5s

UK becoming less attractive for investment, manufacturers warn
By Andy Bruce 10 January 2023
https://www.reuters.com/world/uk/uk-becoming-less-attractive-investment-manufacturers-warn-2023-01-09/

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See also:
Deindustrialization 7, Other Europe, Sept-Oct News, November 08, 2022
Deindustrialization 8, Germany, Oct-Nov reports, November 30, 2022
Deindustrialization 9, Net Zero and Degrowth, Oct-Nov. reports, December 10, 2022.

Friday, February 03, 2023

BWorld 580, Ten themes in development economics (and the Ruperto Alonzo lectures)

* My article in BusinessWorld last Jan. 23.
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Economics is the study of the proper allocation of limited resources given unlimited wants. Development economics is a branch of economics that focuses on developing countries’ social, economic, and fiscal allocation of resources.

The University of the Philippines School of Economics (UPSE) has three academic programs — undergraduate, MA, and PhD — and the Program in Development Economics (PDE). The last was created in the mid-1960s and designed for mid-level technical staff of various government agencies. It is applied economics with theoretical background like marginal cost curves, production possibility frontier, etc.

After finishing my AB Economics in UPSE in the 1980s, I went back to the school in the ’90s to study PDE when I was still working at the House of Representatives. Here are among the important themes in the course that I can remember and our teachers then.

1. In macroeconomics: GDP and consumption formula. GDP or gross domestic product, is the sum of household consumption (C), Investment (I), and Government consumption (G) net of exports minus imports (X-M). In formula form: GDP = C + I + G + (X-M). C is the largest part of GDP — in the Philippines it is about 67% to 70% of GDP. It is the sum of autonomous consumer spending (a), marginal propensity to consume (b), and disposable income (Yd). Or C = a + bYd. I will discuss more of this when the full year 2022 GDP will be released by the Philippine Statistics Authority (PSA) on Jan. 26. My teacher was Prof. Ruperto P. Alonzo (RPA, RIP).

2. In microeconomics or household and firm level study: the role of marginal pricing. Profit is optimum when the marginal (or extra) revenue (MR) is equal to marginal cost (MC), or MR = MC. A basic application of this principle is when a firm employs only 15 workers, not 14 or 16 or more. Because having only 14 workers means MR can still be increased while having 16 workers or more means MC is higher than MR and the company can lose money. Government social spending and tax revenues are dependent on people having jobs and companies paying taxes and not losing money. My teacher was Prof. Manny Esguerra, a former National Economic and Development Authority (NEDA) Undersecretary.

3. In math economics: linear functions like C = a + bYd. Then integral calculus and differential calculus are used to derive marginal costs and pricing. There is lots of math and Greek equations in economics, really, part of mental exercises to prepare students for quantitative and objective analysis. My teacher was current UPSE Dean Joy Abrenica.

4. In econometrics: doing regression models to help predict something. Projections for future GDP, inflation rate, interest rate, international trade, etc. are often done via simple or complicated econometric models using many tools of statistics. My teacher was former UPSE Dean Orville Solon.

5. In development economics: the role of agriculture in rural modernization. There are many policies in this subject but among the prominent ones are agricultural lending and agrarian issues. My teacher was Prof. Arsenio Balisacan, now NEDA Secretary.

I want to use the recently published BusinessWorld Top 1000 Corporations in the Philippines 2022, looking at companies in Agriculture, Fishery and Forestry (AFF), and compare them with the overall AFF output in GDP. Companies in the AFF sector are doing well, and revenues were rising even during lockdowns of 2020 and 2021. But overall performance of AFF in GDP is low or negative (see Table 1).

This implies that the non-corporate AFF was doing badly, lacking economies of scale and the financial discipline to withstand big disruptions like the prolonged lockdown. There is a need to move towards land consolidation and more corporate farming.

6. In public finance economics: fiscal discipline to control the budget deficit and public debt. The most basic formula is Revenues (taxes, fees, privatization, etc.) less Expenditures equals Budget balance, surplus, or deficit. My teacher was Prof. Benjamin Diokno, now the Finance Secretary. The relevant numbers on the Debt/GDP ratio of many countries, the Philippines’ revenues, expenditures, deficit and borrowings were discussed in this column’s piece, “The Top 10 fiscal and monetary news stories of 2022” (Dec. 26, 2022).

7. In project evaluation economics: policies and strategies to improve success and positive impact of projects. Both public programs and private enterprises. My teacher was Prof. RPA.

I want to use data of the UN Conference on Trade and Development (UNCTAD) and World Investment Report (WIR) 2022 on non-finance multinational enterprises (MNEs). These companies are into manufacturing, real estate, energy, mining, etc. and use heavy computations on project finance and evaluation. There are no Philippine companies in the UNCTAD’s Top 100 MNEs in developing countries, so I inserted the top five Philippine companies from the BusinessWorld’s Top 1000 2021 report. To convert the Philippine Peso to the US Dollar, I used the average exchange rate of P49.62/$ in 2020 (see Table 2).

8. In monetary economics: the role of monetary policies in price stabilization. This is heavily used now in many countries, as central banks raise their interest rates to help discourage people from high spending and save more of their money, and hope to fight very high inflation that way. Our Dean that time was Prof. Felipe Medalla, now Central Bank Governor.

9. The role of public-private partnership (PPP) in infrastructure and economic development. This has an important role in controlling the budget deficit and public debt, which heavily uses tools and concepts in project finance and evaluation. And this is the topic of the first PDE Ruperto P. Alonzo (RPA) Lecture Series. The Executive Director of the PPP Center, an engineer-economist, PDE alumna, and student of RPA, Cynthia Hernandez, will be the speaker and she will discuss “29 years of BOT (build-operate-transfer) law and the way forward.” She will have three reactors, from government, a private infrastructure company, and an LGU official. This will be on Feb. 8, Wednesday, from 3-5 p.m., at the UPSE auditorium.

10. The role of a bright, friendly and warm teacher. Prime example is Prof. “Ruping” RPA. In the words of his loving wife, Zorayda Amelia “Mel” Alonzo, Sir Ruping “was a dedicated teacher, both to his children and students and even to me and other people he touched during his lifetime. He wanted people to excel to the best of their abilities not only for themselves but for the country, that they may be positive contributors to the welfare of the Filipino people especially those who have less in life. Shy and often silent in the company of new acquaintances, he lost this shyness in the classrooms and lecture halls while he imparted his knowledge, beliefs and advocacies to his students in the decades he spent as a teacher and professor at UPSE.”

So readers, I hope to see you at the lecture on Feb. 8 — which is also Sir Ruping’s 75th birthday — at the UPSE auditorium, UP Diliman, QC.

To get the latest edition of the Top 1000 Corporations in the Philippines, go to https://bworld-x.com/ or contact BusinessWorld’s Circulation department at 8527-7777 locals 2649 or 2650 or e-mail at circ@bworldonline.com.

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers.
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Free trade 72, Illicit products and prohibitions in government

Public finance and health.

This brand is 40/pack retail, obviously illicit. Saw this in Bugallon, Pangasinan the other day, some tricycle drivers puffing and the packaging has no graphic health warning, soI asked them.

Excise tax alone in 2023 is P60/pack (P55 in 2022, P63 in 2024). So the cheapest legal cigarettes should be around P95/pack, maybe P25 for the manufacturers, P10 for retailers/tindahan and DOF gets P60.

For this P40/pack brand, maybe P20 to manufacturers/smugglers, P10 for retailers, P10 for government protectors (police, LGUs, etc), DOF gets zero.

And since it's very cheap, there will be more smoking, not less. So the health NGOs and activists, DOH, WHO, other anti smoking groups and doctors are deluding themselves that as tobacco taxes rise, smoking incidence declines. For legal tobacco yes, but for illegal smuggled tobacco, no. Lots of puffing and smoking happening. And criminal smugglers and their government protectors are laughing their way to the banks.

"Strict enforcement" vs smuggling and illicit products is never done because some or many government enforcers and LGUs themselves benefit from more smuggling. If they enforce the law, they get zero for themselves, get only their salaries bonuses. If they allow smuggling, they get extra say P10/pack and still get their salaries bonuses.

If you're corrupt in government, you don't have to steal like project overpricing or have many ghost employees. You just declare many prohibitions. Bawal drugs, bawal prostitution, bawal jueteng gambling, bawal smuggling, etc. Then you allow them all, in exchange for big money, quick money.
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Thursday, February 02, 2023

BWorld 579, Ten revenue facts about Top 1,000 corporations

* My column in BusinessWorld last January 16.
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Continuing this column’s “Top 10” series, in this 5th installment I will discuss the recently published BusinessWorld Top 1000 Corporations in the Philippines 2022. For the purpose of brevity, I will limit the data and discussions here to the Top 25 companies: 19 conglomerates and six non-conglomerates but huge firms. I extend the data back to 2015, so 2015-2021 or seven years. Here are some interesting points:

1. In the Top 10 conglomerates, three are from the SMC group. These are the parent company San Miguel Corp. (SMC), Petron, and San Miguel Food and Beverage and their respective subsidiaries. Four, if you include Top Frontier Investment Holdings, Inc. because Ramon S. Ang of SMC is a major investor, along with Iñigo Zobel and others. The gross revenues of Top Frontier and SMC are almost similar through all the years covered.

SMC had gross revenues of P1.06 trillion/year in 2018 and 2019, and after the pandemic drop of 2020, slowly recovered to P0.98 trillion in 2021. SMC Food and Beverage is back at P300+ billion in revenues, and SMC Global Power is back at P140 billion, but Petron is below P500 billion.

2. The Sy family has two conglomerates in the Top 10. These are SM Investments Corp. and BDO Unibank and their subsidiaries. They are the second richest business power in the Philippines after SMC.

3. MPIC also has two conglomerates in the Top 10. The Metro Pacific Investment Corp. (MPIC) has Meralco and PLDT and their subsidiaries. Meralco remains the biggest company in the Philippines in gross revenues, but as a conglomerate it is only No. 4. Meralco alone had P309 billion in revenues in 2019 and P292 billion in 2021.

4. Ten other conglomerates are in the Top 20. Ayala, Aboitiz, and Gokongwei/JG Summit had gross revenues of P245 billion to P276 billion in 2021. They are followed by Lucio Co/Cosco, Ty/GT Capital, Lucio Tan/PAL, Tan Caktiong/Jollibee, Andrew Tan/Alliance Global, Dennis Uy/Phoenix, and Lopez/First Phil. Holdings.

5. Six non-conglomerates have revenues equivalent to those conglomerates ranked Nos. 11-20. These are Pilipinas Shell, Philip Morris Fortune Tobacco Corp. (PMFTC), Mercury Drug, Toshiba Philippines, Nestlé Philippines, and Philippine Associated Smelting and Refining Corp. (PASAR).

6. The Top 1,000 corporations’ revenues comprise perhaps half of the Philippines’ GDP. There are some double-counting in revenues, like Meralco’s gross revenues include the generation charges that it collects from consumers and gives to the generation companies (gencos) and which are reported again as revenue by these gencos. So the Top 1,000 revenues/GDP reached 71% in 2018 (See Table 1). If this double counting is corrected, perhaps 50% of GDP is the appropriate ratio.

7. There was revenue contraction among the Top 1,000 corporations in 2019-2020, but revenue growth in 2021 was much faster than the GDP’s nominal growth in 2021. There was a huge uptick of 24% revenue growth vs only 8% GDP nominal growth.

8. In net income, high profit conglomerates in 2021 were PAL, SMIC, SMC, BDO. They have net incomes of P43 billion to P61 billion. These are followed by Ayala, Aboitiz, PLDT, Alliance, and Globe with net incomes of P24 billion to P36 billion.

9. Non-conglomerates with high profits in 2021 were PMFTC and Nestlé Philippines. PASAR was a huge loser in 2020-2021.

10. SMC Global Power’s SMEC and SPPC had net incomes in 2021 of P5.34 billion and P4.5 billion respectively. But SMC said they suffered losses of about P15 billion from its units South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC), the administrators of the gas plant in Ilijan, Batangas, and the coal plant in Sual, Pangasinan, respectively.

The good news here is the fast recovery of revenues by the Top 1,000 corporations in 2021. The results of the Top 1,000 revenues in 2022 will be released in November or December this year.

This column projects that full year 2022 real GDP growth is about 7.8%, and nominal GDP growth is about 10%. From this, the projected Top 1,000 revenue growth is about 15% over 2021, or about P15.5 trillion in revenues in 2022.

It is important that the government should continue economic liberalization and mobility liberalization — no more lockdown whatsoever, no more mandatory vaccination and boosters, and save public funds for infrastructure and not on health alarmism.

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Rese arch Consultancy Services, and Minimal Government Thinkers.
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Inequality 42, Exclusivity is good

A good arttcle by a friend and fellow BusinessWorld columnist, Jemy Gatdula,
"Stop encouraging mediocrity by calling it inclusivity" (January 26, 2023)
https://www.bworldonline.com/opinion/2023/01/26/501151/stop-encouraging-mediocrity-by-calling-it-inclusivity/

He wrote there,

"the equalization of opportunity is a societal objective worth striving for. The equalization of outcome, however, is a fool’s errand...

“Think about it: what actually is wrong with inequality? That some have more than others? But that will always be the way of the world: some are more talented, smarter, more hard working, and — most importantly — luckier.” (See Trade Tripper by Jemy Gatdula, “Inequality is not the problem. Poverty is,” June 2017)."

Agree 100% with Jemy there.

And this DIE -- diversity, inclusivity, equality -- fine. But people should not force it on other institutions and organizations. Once it becomes mandatory mandatory (lockdown, vax, masks,...), excellence will die and mediocrity will prevail.

Exclusivity is good, inequality is beautiful.

Good example are tollroads. Tricycles, bicycles, small motorcycles, kuliglig, kariton, etc. are excluded, prohibited. Motorists are behaved, they travel faster and safer.

In public roads where cars and kariton and motorcycles mix up, travel is slower and less safe.

Land consolidation and corporate farming is beautiful. Good example is Del Monte pineapple plantation. Thousands of hectares, profit-oriented with good pay and compensation to workers and shareholders, everyone happy. If agrarian reform and forced land disaggregation and redistribution is forced there, it will become marginal farming, agribusiness excellence will die and agri mediocrity will prevail.
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See also:
Inequality 39, Capitalism and its detractors, October 03, 2019
Inequality 40, Real minimum wage is zero, May 15, 2021
Inequality 41, WB's report on poverty and inequality in the PH, November 25, 2022.