August 2021.

That is how early Albay 2nd District Rep. Joey Salceda sees the beginning of an uptick in the Philippine economy.  It is also the month when the global economy begins to shift its focus on recovery.

Everything, it seems, is anchored on vaccination, specifically when crucial countries of the world, if not the world itself, nears what is called herd immunity—the point when the COVID-19 virus stops from jumping from one person to another. 

The Philippines is vigorously ramping up its vaccination rollout.  Optimists in the Duterte cabinet now think herd immunity, or 70% of the population, could be achieved, before the middle of 2022, at the latest.  By July this year, the government expects to secure up to 30 million doses of vaccines—good for 15 million Filipinos.

Prepare for the boom

With recovery a given, Salceda thinks the government should now prepare for the start of an economic boom. 

Two actions must be done: one, release the rules and regulations for the CREATE Law, which Salceda principally authored; and two, open up the economy by removing restrictions or limits on the entry of foreign investments in crucial sectors of the economy.

“Pass the liberalization trio of the amendments to the Public Service Act, the Foreign Investments Act, and the Retail Trade Liberalization Act,” Salceda has asked his colleagues in Congress.

NCR region will recover first

But principal regions, like Metro Manila and Calabarzon, could achieve immunity ahead of the country’s 15 other regions.

The three key regions and their contribution to economic output are: NCR 32.2%; Calabarzon 14.3%; and Central Luzon, 10.4%.

Usually, herd immunity is when 50% of a country’s population is vaccinated. But America’s infectious disease expert thinks 70% is a better benchmark to target.

The old threshold of 50% could work, however.  It counts only the vaccinated population.  That threshold does not reckon with the number of people who have contracted the disease and survived it.  Those people now have natural immunity.

The number of people who got sick with COVID-19 and recovered is relevant in measuring herd immunity.  Metro Manila, or National Capital Region (NCR) produces 32.2% of the country’s total economic production.  

NCR accounts for 39.59% of total COVID cases—512,000 out of 1.293 million reported so far.  Since actual COVID cases are 3x to 4x the reported number, there could be as many two million (4x 512,000) who already have immunity from the virus in Metro Manila.  That  2.0 million is 15% of the capital region’s 12.87 million.

To achieve herd immunity for NCR, at 50%, the government needs to inoculate only 6.4 million.  If you subtract, 2.0 million from that, a more realistic vaccination target for Metro Manila is only 4.43 million.  At current rate of 150,000 vaccinations per day, the government can inoculate all the 4.43 million Metro Manilans in just one month.  This means by August, life, for the people and for business, could be back to normal.

65% of vaccines to Metro Manila

About 65% of the vaccines are allocated for Metro Manila—which means an inoculation rate of 97,500 per day.  At that rate, to vaccinate 4.43 million Metro Manilans, government needs 45 days—or end July 2021 at the latest.   The OCTA Research Group has urged the government to allocate 90% of the total vaccine supply to Metro Manila.

“Simply by increasing the volume of vaccines we send to the NCR, we will be able to decrease the overall caseload of the pandemic,” explained OCTA research fellow Fr. Nicanor Austriaco, OP, last May 2021.

This June and July as many as 10 million vaccine doses will arrive in the Philippines. If half of that, or 5 million, are deployed in Metro Manila, then the national capital can look forward to an unprecedented boom.

Metro Manila, after all, is the biggest contributor to economic production, the biggest employer and is the center for the services sector—which contributes 57.7% of total GDP (or economic production), and the hub for SMEs, which are 98% of all businesses.

Employment increases

From April 2020 to April 2021, the biggest increases in employment were registered by wholesale, retail and repair of vehicles, 3.39 million workers; construction 1.35 million, manufacturing 721,000, and other services, 439,000.  All these sectors are concentrated in Metro Manila.

There are signs COVID is weakening in the country.  From a peak of 10,686 cases in April 16, 2021, daily cases have dropped sharply to below 5,000 a day by early June. As of June 12,  there were 6,583 daily cases. Total deaths were more than 22,000.

The Philippines needs to recover from the pandemic, dramatically and fast.

In the whole of 2020, the economy contracted by a record 9.6% negative growth, the deepest in history.   In the first quarter of 2021, the recession continued, with the economy declining by 4.2%.

According to the World Bank, the Philippines registered the worst growth performance among peers in the region such as Thailand (-2.6%), Indonesia (-0.7), Malaysia (-0.5), and Vietnam (4.5).

“The growth contraction was fueled by weak domestic demand, driven by the combination of containment measures, weak confidence, and rising inflation,” said the bank’s June 2021 economic update.  “Tepid external demand was driven by the sharp contraction in services exports amid lingering restrictions and weak demand for international tourism while goods exports recovered. The public sector was the main driver of growth with an expansionary budget.”

Weighed down by the COVID-19 pandemic, the Philippine economy is forecast to grow at 4.7% this year before accelerating to 5.9% in 2022 and 6% in 2023, the  World Bank has forecast.

Redefining utilities

Salceda’s House Bill 78 seeks to amend Commonwealth Act No. 146, otherwise known as the “Public Service Act” by redefining what is public utility which often refers to “public utilities” in reference to the 1987 Constitution.

The measure removes antiquated provisions of the 1936 law to increase its relevance to contemporary concerns, in the interest of providing the general public with more choices, better services, and lower prices.

This bill also prescribes a 12% cap on rate of return and prohibits income tax as operating expense for rate-determination purposes for public services, including public utilities.

“Consumers often experience high prices and poor quality of basic services in the Philippines, because only a few local players or oligarchs effectively control the market. Competition and foreign investment are inhibited, because limitations that should only apply to the operation of a public utility are usually also applied to all public services,” winces Salceda.

Foreign Investment Act

Salceda wants to amend Sections 4 and 8 of RA 7042, “Foreign Investments Act of 1991”.

HB 1221 seeks to delete the provisions relating to the “practice of professions” from among the items listed under the Foreign Investment Negative List (FINL), and by lowering the minimum employment required to 15 direct employees for a $100,000 foreign investment in small and medium-sized domestic market industries.

The FIA was enacted to attract investment from foreign sources, and in so doing, expand livelihood and employment opportunities for Filipinos.

But two provisions appear to be in conflict with FIA’s objectives. 

 “Practice of all professions” is included in the Foreign Investment Negative List (FINL) under the heading “No Foreign Equity”.

Professions can be practiced by foreigners under reciprocity arrangements. It is misleading to include such professions in the FINL as a nationalized activity.

This effectively discourages foreign professionals, who would otherwise be allowed to practice here by virtue of reciprocity, from coming in and sharing their ideas and technical know-how, contrary to the inclusive policy of the FIA.

 Second, the FIA allows non-Philippine nationals to invest in small and medium-sized domestic market enterprises (DME) with a minimum paid-in capital of $100,000 if they employ at least 50 direct employees.

However, operationally speaking, a $100,000 enterprise, which is only a little over P4.3 million, cannot immediately sustain a labor force of 50 persons.

Hence, there is a need to retain the employment requirement but lower the threshold to a more reasonable number.

Retail trade

Salceda’s HB 1222 sets the minimum paid-up capital and locally produced stock inventory requirements for foreign retail business enterprises and amends RA 8762, otherwise known as the Retail Trade Liberalization Act.

According to Salceda, R.A. 8762 of March 7, 2000, liberalized investment in retail trade and brought down restrictive and delimiting barriers such as allowing natural born citizen who lost his citizenship to engage in retail trade while enjoying rights granted to Filipino citizens.

The law also allows a foreign investor, with a minimum $2.5 million to fully own a retail establishment.  Under 1180, enacted in 1954, a foreigner could not go into retail.

Salceda laments that  almost two decades later, the country’s retail trade investments and job creation capability in this sector remain in the doldrums. The Philippines lags behind its ASEAN neighbors in terms of investment growth in retail. R.A. 8762 has failed to accomplish its objectives.