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MANILA, Philippines – Rappler’s guide to what was big in business in 2011 spans major deals, new appointments, investigations and face-offs between Arroyo and Aquino appointees. We point out what is important and what to look out for in 2012.
#10. Friendly neighbors
China and the Philippines tied their purse strings together, setting a target of $60 billion in two-way trade by 2016.
Historically, it has been the Philippines and America who have shared a cozy relationship. Yet shifting economic tides are increasing the importance of the Philippines’ ties with China.
China, including Hong Kong, stood as the Philippines top trading partner, with $16,157.4 billion in shared trade, according to the 2010 national census data.
Whereas America has often relied on military muscle in international relations, China relies on soft power, such as international trade and investment, to spread its influence.
With the countries signaling that they will buy and sell even more from each other during President Aquino’s state visit in 2011, it will be necessary to keep investors happy on both sides going forward. That may mean finding solutions to difficult disputes, like the one over contradicting claims to the Spratly islands, or more likely agreeing to look the other way as more deals are inked. In 2012 we will have to watch how President Aquino walks the delicate tightrope.
#9 PAL’s labor woes
PAL or Philippine Airlines’ labor relations turned nasty following a deal to outsource about 2,600 jobs.
Outsourcing is common in the airline industry as the business requires massive sums to operate successfully.
One seemingly controversial aspect to this deal was that the jobs were outsourced within the country to local companies. Sky Kitchen Philippines Inc was contracted for catering, Sky Logistics Philippines Inc. for airport services and SPi GLobal Holdings Inc. for call center operations. Local outsourcing still counts as outsourcing but feels unfair to some laid off employees.
Other locals and sometimes the former employees themselves were offered the same job with fewer benefits and a lower monthly pay. On one hand, PAL needs to save money to counteract losses from rising fuel prices and stay in the airline game. On the other hand, workers say the government should uphold workers’ rights when up against corporate giants.
Before Christmas, PAL claimed it has since recovered from the impact of its outsourced employees’ efforts to block catering services in the past months. PAL has further lost its market share of the domestic market to Gokongwei-led Cebu Pacific Air, and news on the reported buy-in of diversifying conglomerate San Miguel Corp broke before the New Year.
Whether a changing of hands among owners of beleaguered PAL will appease restless workforce is what corporate and aviation watchers will have to watch in 2012.
#8 Food fest
A couple food companies gobbled each other up this year.
In a P800 million deal, Pancake House Inc. took not just a slice but the whole pie as it acquired Yellow Cab Food Corp. The pizza chain expanded the reach of Pancake House, which has a portfolio of mid-market restaurants and food chains, by an additional 82 outlets, putting the group near the 300 store-mark at end-2010.
Fastfood giant Jollibee Corp grew again in 2011 after it included Burger King in its diversified food portfolio. Jollibee bought 54% of chain operator for P65.5 million in a move to get a foothold in the premium price segment, which Jollibee anticipates will grow as Filipino’s standard of living increases.
In a bid to further rationalize its business, it sold a coffee chain and entered into a joint venture with a Vietnamese firm for a 50% share in the operator of coffee shops in Vietnam, the Hard Rock Cafe franchise in Macau, Hong Kong and Vietnam and the Pho 24 restaurant chain which operates in more than 5 Asian countries.
As in any other enterprise, the thirst for growth and appetite for risks and returns drive the food business. In 2012, consolidation and opportunities here and abroad will likely remain the industry’s theme.
#7 Delayed PPP
The promises of public-private partnerships, or PPP, on big-ticket projects were put on hold as the Aquino government pursued basic governance checks.
President Aquino’s economic policy was meant to fueled by large-scale infrastructure projects, created through joint venture setups between the government and businesses. His PPP program had earmarked 10 big projects for 2011, yet only the smallest — the P2 billion Daang Hari road project — has been successfully bidded out.
Shortfalls in spending exacerbated the country’s lack of quality airports, roads and train systems. The Aquino administration underspent the Arroyo administration for the first seven months of the year, only hiking up spending near the end of the year. Even with that hike, the government is unlikely to meet its 2011 target deficit of P300-billion or 3% of GDP.
Yet the Department of Transportation and Communications (DOTC) has promised infrastructure projects will move full steam ahead in 2012 with Secretary Roxas saying in a statement that the projects are using a “deliberate, well-thought of, and step-by-step approach.”
The President said he would slot P140 billion towards infrastructure projects starting in January and recalibrate processes. President Aquino doesn’t seem to want a repeat of 2011 underspending and Filipinos shouldn’t either.
#6 No peace
The decision to collect taxes on ten year old zero-coupon PEACe bonds, Poverty Eradication and Alleviation Certificates, exposed another rift between the Arroyo and Aquino administrations.
In 2001, the Arroyo government took in P10 billion from selling PEACe bonds, promising investors that they would pay them P35 billion a decade later and that the PEACe bonds would not be subject to the 20% final withholding tax.
Critics of PEACe bonds haven’t proven that they are illegal but there are nagging criticisms that rules were relaxed since the bonds carried the unpleasant mix of money, family, politics and influence peddling in the name of the poor.
The Treasury was supposed to pay the bondholders that were due in 2010, but the Bureau of Internal Revenue (BIR) said it would collect the 20% final withholding tax, which was scrapped as part of the bonds’ sweeteners 10 years ago.
Then the Supreme Court took a role in the tax-related dispute when the justices, most of them appointees of former President Arroyo, issued a temporary restraining order to halt collection of the whopping P4.9 billion tax.
At the crux of the matter are two issues. The first is is that the government has been nursing a budget deficit for decades, perennially plugged by borrowings. The second is whether the government can keep its promises to investors since government-issued bonds are supposed to be a sure bet.
#5 Tax evaders and smugglers
The name-and-shame campaign of the Aquino government went full blast.
One of those charged by the Bureau of Internal Revenue (BIR) was the former president’s son, Juan Miguel “Mikey” Arroyo, and his wife for allegedly failing to pay taxes amounting to P74 million. As part of its revitalized Run After Tax Evaders (RATE) program, the BIR said the Arroyos substantially understated their income in three3 taxable years (2004, 2006 and 2007) and failed to file tax returns at all in 3 other years (2005, 2008 and 2009).
Based on a BIR investigation the Arroyos accumulated motor vehicles, stock shares, jewelry and houses in Lubao, Pampanga and Quezon City between 2004 and 2009. Through their lawyer, the Arroyo couple denied any wrongdoing.
BIR has been racing after tax cheats and successfully collecting more revenue this year. In the first 11 months of 2011 revenue collections have jumped 13.13% from last year. By the end of November the government was already 89% of the way to its P1.41 trillion target for the year.
President Aquino has promised no new taxes in 2012, which makes collection efforts for current taxes even more important. The government is especially keen to make sure doctors and other professionals pay their proper taxes, a hope the President trumpeted in his State of the Nation Address so it would be wise for workers not to skip filing their taxes in 2012.
#4 Economic managers
Members of Aquino’s economic team went through several changes in 2011.
Amando Tetangco Jr. was asked to delay retirement in June 2011 and continue his stay as the governor of Bangko Sentral ng Pilipinas for another six years. Under Tetangco’s watch, the Philippines was largely unscathed from financial shockwaves from rich countries, most of them host remittance-sending OFW, and key trading partners. The BSP kept policy rates in check to keep the foreign exchange and inflation rates stable.
The corporate regulator also saw changes at the top when former Securities and Exchange Commission chief Fe Barin retired in March. After litigation expert and ex-ACCRA law firm senior partner Teresita Herbosa took over in April, reforms were pushed, including the minimum public float for companies listed in the stock exchange and term of independent directors in company boards.
In June, the president’s former running mate, Manuel “Mar” Roxas, took over the helm of the Department of Transportation and Communications after Jose “Ping” De Jesus resigned due to a reported disagreement with the President Aquino over retaining a subordinate.
De Jesus had recommended suspending Virginia Torres of the Land Transportation Office and a known shooting buddy of the President to allow for a deep probe into a dispute between her office and its information technology systems provider, Stradcom Corporation.
The resignation of De Jesus affected the rollout of some infrastructure projects, including airports and rail systems that are under the flagship public-private partnership program of the Aquino government. Roxas decided to review these projects and introduce new strategies for these crucial and long-gestating projects.
Former tourism secretary Alberto Lim, a supporter of President Aquino in the presidential race and the reported “breaker of bad news,” also left the Cabinet in 2011.
Lim got a lot of flak when subordinates introduced a new tourism brand that lifted parts of its logo from Poland’s. Lim was also not in good terms with members of Tourism Congress, a group of tourism stakeholders formed to implement a new tourism law.
Aquino named advertising expert Ramon Jimenez Jr. as Lim’s replacement. Jimenez aided Aquino’s election campaign and is a marketing consultant for the Ninoy and Cory Aquino Foundation.
#3 Worst airport, bad design
The government was shamed into fast-tracking a P1.2-billion renovation plan for NAIA 1, Ninoy Aquino International Airport Terminal 1, after the international airport was declared one of the worst in the world for a snooze on the blog, “The Guide to Sleeping in Airports.”
The blog cited the long lines, lack of running water in the bathrooms, structural flaws and theft. To boot, CNNgo.com later named NAIA 1 one of the world’s most hated airports.
Transportation Secretary Roxas has responded to the challenge by saying the government will work harder to improve the 30-year-old airport. The pressure is on for Roxas to do a good job not only because he is a new appointee but also because he decided to shelve the pro-bono design renovation plan of internationally renowned designers Kenneth Cobonpue, Budji Layug and Royal Pineda.
The year 2012 is when the final plans will be approved for the wilting structure. NAIA needs to be outfitted to handle increased traffic in the coming years since the plan to make Clark the main international airport is tied to the development of the North Rail project, which is bogged by legal and diplomatic, as well as financial and technical, issues with China.
So travelers will be spending time in NAIA for the next several years. As Roxas said to Manila Bulletin, “We have to spend money because we’re here for another five to seven years before the transfer to Clark.”
#2 Big business and state-owned bank
One of the Philippines’ richest men, Roberto V. Ongpin, a trade secretary under the Marcos regime and a close personal friend of former President Arroyo’s husband, is being investigated. The Senate is probing an allegedly illegal behest loan and questionable share deal between Ongpin-led companies and state-owned Development Bank of the Philippines (DBP).
The transactions happened in Nov. 2009, when Ongpin-led firms purchased the bank’s own shares of mining company Philex using over P500 million funds borrowed from DBP. The two camps valued the shares at P12.75 a piece, then turned around only a month later to sell the same shares to the group of businessman Manuel Pangilinan for P21 per.
While the two earned fat and fast profits, the legislators still have to turn up evidence of stock manipulation and insider trading after five senate hearings.
Senator Serge Osmeña who is conducting the probe on the deals said, “There’s going to be great resistance in this country because insider trading is a way of life.” The hearings will test just how far the country will go to ferret out supposed wrong doing where influence, power and government is involved.
#1 Telecommunication behemoth
Philippine Long Distance Telephone Company (PLDT) was always a big player. This year it became the undisputed leader in the local telecommunications industry after completing a P69.2-billion share-swap to acquire Digital Telecommunications Philippines Inc. (Digitel), the third largest player.
Since getting in touch with business partners or family members in any of the archipelago’s 7,100 islands, or with loved ones in many parts of the world, this is Rappler’s top business story for 2011.
Not only did the marriage of the two companies create a behemoth that now corner over 70% of the local market, it also made history for being the biggest corporate deal in the Philippines.
Fears of a return to monopoly were heightened as that put Digitel, the market changer for offering bucket or unlimited phone plans Filipinos love, under the influence of PLDT.
Before the local phone market benefitted from the entry of non-PLDT investors, PLDT customers’ woes were ‘legendary’. Up to the early 1990’s the average wait for a phone line was a staggering 3 years.
PLDT was forced to improve its service and products after former president Fidel Ramos deregulated the industry. Hopefully the giant has learned from the past.
Undoubtedly mobile phone companies need to be vigilant about keeping up customer standards. At the same time the public will have to stay alert.
We hope you check back with us and these storylines in 2012. – Rappler.com