Asean integration provides green light for PR professionals

In my earlier article, I wrote about how 2015 marks a milestone with the Asean Economic Community (AEC) in place. This will open more regional cooperation and will improve the scale efficiencies, dynamism and competitiveness of Asean members.

AEC will enable easier movement of goods, services (that include public relations and marketing communications), investments, capital and people (that includes you!).  Ultimately, it will offer new ways of coordinating supply chains, or access to new markets for established products.

At the recent HR Summit organized by the Asian CEO Forum, I asked one of the summit panelists on what she thought could be opportunities and threats for communications professionals in the context of this development, Pinky Belizariois, the HR director for Asia Pacific of Oberthur Technologies, a leading electronic and supplies company, and, with a pulse reading on the movement of people in the region, here is what she has to say:

The year 2015 is the year of Asean integration.

What competitive opportunities do you see for Filipino professionals and companies in public relations, communications, marketing and related fields?

So much has been said about the Asean integration and the prospects look like a professional league with novices and amateurs competing with experts: it promotes an equal playing field.  Having said that, any Asean nation can benefit from the technology transfer, integrating the local culture with a regional flair to make it palatable to the greater global arena.

The Philippines is a resilient, flexible and adaptable nation with highly skilled professionals and citizens who cultivate their inherent talent to achieve growth potentials.  Even educational background or the lack of it is not a hindrance to studying, learning and acquiring more competencies to compete and mash up with their regional and global counterparts.

Given the possession of excellent communication skills, an environment for overachievement and the wanton need to excel abroad, we can see more and more Filipinos getting noticed in writing, blogging and creating visual vehicles to support businesses.  Thus, web development, graphic design and content editorials will be a great platform to be recognized.

What threats and difficulties do you foresee?

Government support will be crucial in providing the landscape for enhancing technical educational skills and encourage businesses to flourish with incentives for growth.

It will be inherently difficult to offer courses with a competitive edge over Korean subsidy for foreign education or over the Singaporean educational system, which is already among the top 3 in the world.  We are fast losing our Filipino experts to the growth centers because of the gravy on the train, which of late has been influenced by the amount of skilled work force.

The best is reserved for those who can afford to pay for the elusive American dream.  We lag far behind our compensation and our benefits look incredibly poor compared to the US and Europe and the Middle East.  A days’ rate in Cupertino, for example, is equivalent to a month’s pay in Fort Bonifacio.

Any concrete tips for those seeking greener pastures or expansion in Asean?

The winner in the Asean integration race is the one who can mix culture with price.  It is the name of the game. The prize goes to the company who can adapt easily, pay in a “higher” currency and retain the elusive talent for a good number of years.  The organization must be led with homegrown talent, an Asian who has the tenacity to pursue the growth, perseverance to run after it and the anticipation to change the course of the business when it needs to and where it needs to.

Within a competitive environment for excellence, if you got the right talent in the right company, you will receive the right price.  That is how this game is going to be won.

Any other observations and practical advice?

There is a major influx of foreign workers in Asia and this cuts our growth.  Countries like Singapore and Indonesia have responded by forging stricter rules for foreigners so local talent are getting a foothold.

Asian workers, on the other hand, are usually relegated to low-end jobs, even if a limited few have conquered the global arena as executives or industry leaders. We need more of these people:  highly educated, critically skilled and with the vision of an eagle seeking its prey– determined to win against all others, non-Asians or Asians alike.

We need visionaries, entrepreneurs who are willing to take risks.  We must go out of our comfort zones and invest in honest to goodness R&D, create uniquely Asian products and leave it to the Chinese to copy and paste.  The region would like to see excellence in cooperation between nations and to support partnerships among countries in terms of resource sharing, easing off taxation in collaborative productive work, less politics but more socio-cultural initiatives that foster strong relationships.

PR Matters is a roundtable column by members of the local chapter of the UK-based International Public Relations Association (Ipra), the association of senior professionals around the world. Richard Burgos is a past national chairman of Ipra Philippines and recently returned to the country at the conclusion of a three-year stint as chief of staff of the Office of the Director General of the International Crops Research Institute for the Semi-Arid Tropics based in Hyderabad, India.

We are devoting a special column each month to answer our readers’ questions about public relations.  Please send your comments or questions to askipraphil@gmail.com.

source:  Business Mirror

The ASEAN Economic Community beyond 2015

As we approach the formal establishment of the ASEAN Economic Community (AEC) by the end of the year, now is a good time to consider broader targets beyond 2015. After all, a competitive, sustainable, and inclusive region is a grand and worthy project that deserves careful tending and collaboration.

Calls for mindfulness and dialogue are central to part two of Ernst & Young’s (EY) Trade Secrets series. The report, titled ASEAN Economic Community: The last mile toward 2015 and beyond lists five top priorities for the public and private sectors to consider on the journey to full economic integration.

First is the need for unrelenting focus on implementation and follow-through. This is especially true for initiatives having to do with cross-border flow of trade. Besides tariffs, much can still be done to ease the movement of goods across various Customs regimes.

The ASEAN Single Window, for instance, is a work in progress that is meant to link the 10 National Single Windows and enable the single submission and processing of data for customs clearance and qualification for tariff privileges. ASEAN members will also need to improve on their ports and airports to handle large shipment volumes. Furthermore, ports will need to invest rapidly in automation to minimize human error, save time, and enhance overall efficiency. Above all, continuous dialogue between governments and the business community is recommended to manage change and pave the way for continued reforms.

The second recommended priority is the eradication of infrastructure bottlenecks by considering regional financing and also enhancing public-private partnership (PPP) frameworks.

For ASEAN to be a truly competitive region, infrastructure development is crucial. The Asian Development Bank has estimated that ASEAN requires an annual infrastructure investment of $60 billion annually until 2020. Most private financing of infrastructure projects in ASEAN has been bank-funded, with projects in Malaysia, the Philippines, and Singapore, for instance, being largely supported by domestic institutions. The EY report recommends the development of alternative funding sources such as debt capital markets to address the longer-term capital constraints posed by large-scale projects. Further development of investment and legal frameworks, as well as enhanced disclosure requirements, are essential to develop such bond markets.

In this connection, the report points to some existing initiatives; for example, the Asian Bond Market Initiative (ABMI) was endorsed in 2003 and a new ABMI road map was agreed upon in 2008 to further develop the regional bond markets to be more accessible for investors and users. The Credit Guarantee and Investment Facility was set up under the framework of the ABMI to provide credit enhancement to investment-grade companies in the region to issue bonds in the local currency bond markets. Furthermore, the ASEAN Infrastructure Fund was created in 2011 comprising equity contributions from ASEAN member countries and co-financed by the Asian Development Bank to address the region’s critical infrastructure development needs.

Such financing projects require not only government support but also greater private sector investment and expertise to ensure that infrastructure programs are successfully implemented. Such collaboration is likewise needed in establishing and implementing appropriate PPP regulations and frameworks, as well as building government capacity to manage complex infrastructure projects.

The third priority area is labor mobility, particularly of professionals, that will require careful consultation and collaboration. This is an issue that is recognized in the AEC Blueprint. When investing or expanding in the region, companies may want to use a mix of manpower from headquarters as well as the local work force or have local talent trained elsewhere in the region. In such scenarios, the movement of labor will be critical.

The report notes that ASEAN private and public sector decision makers will have to weigh all sides of the issue to move forward. On the one hand, mobility encourages diversity of experience and access to the best talent from a larger population. On the other hand, developing member states face the risk of brain drain, while schemes to give mobility preferences to ASEAN members could also create an uneven playing field for talent from outside the region.

Just like other priority areas, this issue will require great care as well as continued dialogue because it will certainly be an important part of the longer-term goals to create an integrated region.

The fourth recommended priority is the need to build taxation into the AEC agenda. The global tax environment is undergoing large changes driven by the Organization for Economic Cooperation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) initiative.

The OECD released the 15-point BEPS Action Plan in July 2013. It sets out the organization’s views that weaknesses in the international tax system are underpinned by gaps in the interaction of domestic tax rules of various countries, the application of bilateral tax treaties to multi-jurisdictional arrangements, and the rise of the digital economy with the resulting relocation of core business functions. Recommendations to address these are expected to make the global tax landscape more challenging and, perhaps, uncertain for companies and investors.

The report notes that ASEAN governments would do well to consider having a specific tax agenda as a key workstream for the AEC after 2015 given this looming backdrop. As a group, ASEAN members may be able to speak with a single voice and exert a collective and authoritative influence on future global tax discussions if taxation is highlighted as a key area of discussion.

The fifth recommended priority is financial integration. As this can arguably be one of the most challenging goals for ASEAN members, the report emphasizes the need for careful action to manage the risks of liberalization.

In terms of financial services liberalization, clear and adequate provisions are needed to distinguish Qualified ASEAN Banks. Dedicated attention to monitoring the progress of financial integration is essential. Human resource capacity building as well as legal, tax, and regulatory systems are also critical to support the financial market infrastructure.

In terms of capital account liberalization, the private and public sectors need to be wary of the risk of excess flows of capital that may arise from capital account liberalization. ASEAN members should consider capital controls and macro-prudential regulations to manage such risks.

In terms of the harmonization of payment and settlement systems, there remains an issue where ASEAN members currently adopt varying standards which make regional payment and settlement systems non-interoperable and linkages costly. To resolve this, there will be a need to adopt common best practices and standards.

Among all three financial areas, the report highlights the need to be careful of excessive deregulation as this could create an overly complex banking system with active international banks that are too large and difficult to supervise. Above all, banking services should be developed with an eye to serving the real economy.

All five priority areas will require continued dialogue and deliberation between and among ASEAN members even beyond 2015. Full regional economic integration is truly a complex project. With proactive and sound collaboration between the private and public sectors, there can only be more milestones of success for the AEC.

Cirilo P. Noel is the Chairman and Managing Partner of SGV & Co.

source:  Businessworld

Foreign policy challenges under ASEAN integration, Chinese expansionism

De La Salle University professor and security strategist Renato De Castro presented an important foreign policy challenge before the diplomatic and foreign policy community during the last July 29th Albert Del Rosario Institute roundtable discussions in Makati.

Focused on Philippines-Association of Southeast Asian Nations (ASEAN) relations with China, de Castro set the background for discussing the opportunities and issues that confront the post-Aquino III government.

The context: ASEAN prepares for the 2015 community-building project.

Current chair Malaysian Prime Minister Najib Razak’s statement of the 26th ASEAN Summit in Kuala Lumpur and Langkawi affirmed the progress made by member states in the various sectors of implementing the road map, the Initiative for ASEAN Integration (IAI) and the ASEAN connectivity master plan.

However, current ASEAN integration is taking place against Chinese expansionism in the South China Sea (SCS).

The Diplomat’s associate editor and Asian security expert, Prashanth Parameswaran, probes into the strategic unfolding of China’s “incremental assertiveness” or a “step-by step” process of operationalizing and enforcing its contentious nine dash line policy which began with creeping incursions in the Reed bank in 2009.

Its “reef expansion” activities proceeded with the de facto take over of the Scarborough shoal in 2012; placement of an oil rig in Vietnam’s exclusive economic zone in 2014 and massive land reclamations in 2015.

Centre for Strategic and International Studies senior associate, Bonnie Glaser was more categorical in describing China’s assertiveness in shifting from “rapid island building” in Fiery Cross, Johnson, Subi, Sand cay reefs, etc., to the militarization of reclaimed islands. According to Glaser, islands are now increasingly being equipped with military facilities such as airstrips and materiel for surveillance, monitoring and patrol.

The scale of China’s expansionism is so unprecedented that the transformation of the water features prior and after reclamation is now documented in a dedicated link in the Asia Maritime Transparency Initiative (http://amti.csis.org/island-tracker/).

ASEAN-China relations scholars are in agreement that China’s revisionism of the status quo in the SCS is fast overtaking the ability of ASEAN member states to conclude a Code of Conduct.

Scholars have argued that for the Philippines, the absence of a code may bear negatively on the outcomes of arbitration under the United Nations Convention on the Law of the Sea, especially when submerged islands are reclaimed and “generate” maritime entitlements for the littoral state.

Beyond rules formation, the Code of Conduct will be ASEAN’s “unified position” in dealing with China on the SCS matter. Twice did the ASEAN-Philippines attempt at an immediate passage of a Code of Conduct. First in 1999 as a reaction to Chinese military incursions in the Mischief Reef and second, in 2012, in response to the stand off between Philippines-China naval forces at Scarborough shoal.

History tells us that these failed attempts were reflective of the precarious nature of ASEAN centrality in the face of territorial conflicts with China. On the one hand, it also reveals much of the volatility of China’s commitment to proceed normatively on this issue.

Developments since 2012 have not only indicated the slow pace of ASEAN’s negotiations with China on the code of conduct but they have also ascertained China’s preference for “ambiguity” and dichotomy in approaching politico-security and economic issues and in engaging ASEAN in high and low politics.

Statements of the Chinese Foreign Ministry tell us that China does not see the need to expedite negotiations on the code.

It denies the existence of freedom of navigation issues in the SCS and insists that a regime on dispute settlement will evolve only after many maritime cooperative projects are cultivated between China and ASEAN, as a means of implementing the non binding Declaration on the Code of Conduct (2002). This includes projects on the low politics kind such as seminars/workshops on search and rescue, hotline communication, etc.

Yet, how does one build trust when mistrust has penetrated the high politics side of maritime affairs in the SCS?

A more perplexing question is found in China’s “dual track” approach to the SCS disputes.

China insists that ASEAN cannot assert a regional identity when bilateral conflicts are at stake.

Many ASEAN-China scholars have looked at this as a clearly Machiavellian strategy of divide and conquer. It mirrors a bigger actor’s condescending view of a smaller (regional) actor. In practice, the force behind any regional grouping is a united front. Not to recognize this for ASEAN undermines its role in the construction of a southeast Asian regional infrastructure.

Against what appears as tumultuous relations with China, are foreign policy opportunities in working with ASEAN’s non-claimant yet “interested” states of Singapore and Indonesia. Both have supported an expeditious and early conclusion of the code of conduct.

In addition, they have also argued that the SCS security extends beyond the realm of territorial and maritime disputes and towards non traditional piracy and terrorism that pose a real threat to regional stability.

Managing the outcomes of arbitration, possible joint development of SCS islands, coupled with Enhanced Defense Cooperation Agreement and the Armed Forces of the Philippines’ modernization as “inter-mestic” responses to an expansionist China will occupy the agenda of the next Philippine president. Indeed,the SCS issue shows that it is high time for the next administration to pay more attention to foreign policy.

Alma Maria O. Salvador, is Assistant Professor of political science at Ateneo de Manila University (ADMU).

Daisy See is assistant professor of Chinese Studies at ADMU.

source:  Businessworld

Major Philippine ports ready to meet the challenges and opportunities of Asean economic integration

AS the country’s premier gateways, major ports in the Philippines are vital conduits for the movement of trade and commerce both local and international.

Due to the Philippines’s archipelagic nature, more than 80 percent of the country’s commercial goods are transported via the seas, thus emphasizing the importance of ports in the overall trade picture.

When the Philippines became party to the Asean Free Trade Agreement (Afta) several years ago, it clearly understood the implications, impact and potentials that it will bring to the country’s economy.

Eventually, the Afta was transformed into the more precise Asean Trade in Goods Agreement (Atiga) and Asean Framework Agreement on Services (Afas), which became the heart of the Asean economic community since.

Having outlined a common objective, stakeholders, particularly the Asean member-countries that include the Philippines, needed to adopt a change in their mind-sets or a shift in paradigm in order to take on the needed reforms and meet the requirements on or before the economic-integration deadline set at the end of the year.

While there were initial skepticisms and apprehensions on the capability of the country to adopt the needed reforms and be ready to take on the Asean economic integration, Prof. Federico M. Macaranas, during his presentation to the Center for Futuristics Society at the Asian Institute of Management Conference Center way back in October 2013, believed that the country already has the impetus to make the grade.

Accordingly, some of the strengths of the Philippines going into the Asean Economic Cooperation (AEC) 2015 include governance improvements that resulted in stronger economic fundamentals and investment upgrades; a very strong network of overseas Filipinos which continuously brings information on markets; financing options; transferable technologies, and, most especially, the influx of foreign-exchange remittance.

However, those factors alone, though vital, are still not enough for the Philippines to become contented that it shall be able to meet the seemingly complex, but otherwise basic, requirements of the Asean economic integration.

There are still plenty of things that are needed to be done, including implementing economic agreements committed and signed by the government; dealing with business leaders who seek for protection and preferential treatment, instead of proactively providing solutions to long-term problems; and the Filipino public who must continue to be vigilant with its battle against corruption and inefficiency in the government.

Just the battle against corruption and efficiency alone would be enough to send apprehensions to sky-high levels, given the history of the Philippines and its nearly unending battle with the issue time and again.

The good thing is that the government realizes these perceptions and, thus, knows that the only way to be able to ensure that it is aboveboard in its dealings is to be more transparent, compared to the previous administration; and capitalize on modern technology to move toward computerization of systems and processes.

ENSURING BETTER LEVELS

The lesser government people dealing directly with the public on key transactions, the lesser the opportunities to go the way of corruption. Apart from ensuring better levels of productivity, computerized systems also take out bureaucracy, which has become the bread and butter in the past and the breeding ground of so-called midnight deals or under-the-table arrangements.

Naturally, those who got affected by the modernization and computerization initiatives were the first to complain, disguising it as a crusade for and on behalf of the human work force.

But the Philippine government already knows how to handle the situation, having learned from the countless lessons of the past. It knows and understands that drastic times need drastic measures, although the situation hardly appears to be anything close to drastic actually.

While the conservative and apprehensive businessmen and economists continue to worry about changing comparative advantages, bad environments of doing business, more complex and chaotic global conditions when the Asean economic integration finally materializes, it is obvious that there are also plenty of opportunities in store for the country and the business community. The potentials to tap into the global market without hardly breaking a sweat also lies there. The government understands that, too, that is why it has continuously strived to balance the perception of the key economic players.

In order to further address the challenges relative to the regional economic initiative, the government has started implementing reforms in investment and trade promotion. More than just knowing and understanding the weaknesses or the flaws in the system, it is important that changes and reforms must be adopted, no matter how difficult or analogous to the proverbial bitter pill it may be.

It is obvious that the Philippine government did well with its history lessons following the automation of business procedures in national government agencies, streamlining of procedures across various offices, and making them more transparent and consistent, too. These initiatives, though taking a long time coming, were vital steps to build confidence to the government by both the public and the business sector.

UNIFY VARIOUS INVESTMENTS

Sustaining further its economic thrusts, the government is now seriously working to unify various investment bodies, as well as striving to adopt Philippine Economic Zone Authority operation practices, harmonize incentives and seriously looking into the possibility of changing the 60-40 rule on foreign equity in the country. The Asean economic integration is expected to bring in a significant number of new investors and investments in the country, but the 60-40 equity rule would certainly shun off many, if not all, of them.

The government understands the economic fundamentals to make the Asean economic initiative work to its favor, so it also knows the needed steps to be done to make it happen. While it recognizes the foreboding of some economic players, it has learned to discern which apprehensions are legitimate and needed attention, and which are merely being propelled by vested interests.

Bureau of Customs

As the Bureau of Customs shall play an important role when the Asean economic integration takes effect, the government also spared no time in changing not only the image of the agency, but also its major systems and procedures in order to make it more efficient. It has been known since practically time immemorial that the bureau is the breeding ground of corruption. The government literally waged war against the department just to make sure that it cleanses its image. While there are still remnants of the bureau’s sordid past, the government remains unperturbed and is all eyes and ears.

Its initiative to make the bureau and its personnel toe the line is getting a big boost with the government’s initial efforts to institute a national single window and linking its databases with that of the Customs department in order to improve risk management. The government is now working on instituting automation in areas of Customs operation which are applicable for modernization, thus preventing personnel in dealing with the public in most cases.

EFFECTIVE GOVERNANCE of PPA

In terms of the country’s ports, the government has done a wonderful job, due primarily to the effective governance of the PPA. During the past administration, the goal of the agency was to turn at least 10 major gateways into world-class international ports within a projected time-frame. It appears that the PPA is well on its way of meeting its target and projection toward such end.

The current port administration complemented the lofty target by introducing automation and streamlining processes in the country’s major ports and outports. The initiatives did not only ensure that these facilities will be serving as gateways for people, trade and commerce, they will actually be serving more people and goods at less the time.

There were previous studies detailing some neglected physical port facilities in some key areas of the country, but the PPA has done wonders in turning things around by resorting to the public-private partnership (PPP) project. One perfect example of such partnership clearly in play is in the Manila North Harbor (MNH), the countrys’ biggest domestic port.

From being nearly a run-of-the-mill domestic port, whose importance has been clearly overlooked in the past, the MNH is now fast becoming a model of how PPP can effectively work in the ports.

Having a success story to speak and be proud of, the PPA, under the directive of the Department of Transportation and Communications (DOTC), is now seriously looking into adopting the same scheme toward the development of other outlying ports.

While the PPA may have sufficient resources to turn a good number of ports in the country into world-class gateways, subscribing to the PPP, instead of working all by itself, would build further resources to develop more ports and venture into new port-infrastructure projects in other areas of the country.

There is also a great possibility that, given the status of the Philippines as a maritime country brimming with potentials, the advent of the Asean economic integration may actually bring forth foreign investments in ports, port infrastructure and port operations. Thus, it is imperative that the Philippines needs to review its cabotage policy and lay down the right framework to pave the way for the entry of foreign investments in the country’s port system.

PPA is ready

So the question now beckons, are ports in the Philippines ready for the Asean economic integration? If the question is asked to the PPA and the DOTC, for sure, the answer is yes. If a similar query is thrown to the stakeholders of the ports, it is likely that the answer would be “yes,” with some minor apprehensions.

As for the public, whose general perception of ports is generally based on the facilities it sees in the gateways, as well as the automated systems and streamlined procedures it gets to encounter, it is likely that more than 60 percent would go for the affirmative, with the remaining figures shared among the negative, the undecided and those who could not care less.

For sure, there will be challenges and issues that will also come with the Asean economic integration but with the right systems and infrastructure in place, along with transparent governance, the Philippines will be more than ready to welcome the opportunities that the regional initiative will bring forth to the country and the Filipino people, in general.

source:  Business Mirror

SM Prime eyes Thailand, Malaysia, other Asean markets for expansion

PROPERTY conglomerate SM Prime Holdings Inc. plans to expand into Southeast Asian markets like Thailand and Malaysia to seize the opportunities offered by the forthcoming Association of Southeast Asian Nations (Asean) economic integration.

SM Prime chief financial officer John Ong announced plans to expand outside the Philippines and China during an investors’ conference organized by the Bank of Philippine Islands (BPI).

APART from China, because there is certain affiliation in China, but we continue to accept, we continue to receive invitations in other Asean countries like Thailand and Malaysia. So we continue to entertain those opportunities and we look at synergy,” Ong said.

He said they are looking to expand within the business segments the conglomerate is engaged in, particularly malls and residences.

“We continue to entertain those opportunities. We would definitely entertain [these] and we would be glad to go to other areas in Asean region,” he added.

With the establishment of an Asean Economic Community (AEC), Asean will be characterized by free movement of goods, services and investments as well as freer flow of capital and skills.

Asean groups Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia.

Ong stressed that the expansion plan is not yet factored in SM Prime’s five-year roadmap to double its income to P32 billion by 2018.

The conglomerate allotted P400 billion in capital expenditures until 2018 to grow its office, mall, leisure,HOTEL and residential portfolio by two-fold.

It will construct 26 new SM malls and 20 residential projects in the Philippines and six malls in China. SM Prime will also expand its offices,HOTELS and leisure businesses.

Ong said he expects no change in terms of revenue mix from the current levels, as SM Prime works to double its income.

“We expect that we will continue with the 60 percent revenue contribution coming from our malls, 30 percent coming from our residential and the rest should be coming from our commercial and the hotel and convention centers. In the next four years leading to 2018, we are looking at the same trend in terms of revenues,” he added.

source:  Manila Times

AEC and foreign direct investment

ASEAN received a total of $122 billion in foreign direct investments (FDI) in 2013. The Philippines received $4 billion, or 3 percent.

The European Chamber of Commerce of the Philippines (ECCP) seeks and promotes open international trade, and the creation of an investor-friendly environment in the Philippines as a means to achieve inclusive growth, more specifically, to move to a higher level of sustainable growth through higher local and foreign investments, create more and better jobs and make growth inclusive.

A sustained, major increase in FDI is needed and can only be achieved through economic liberalization policies, lifting of restrictions on foreign investment with the aim of increasing competition, and measures to make it easier to do business.

In this context, two issues were high on our agenda:

1. A less negative Foreign Investment Negative List (FINL); and

2. Amending the restrictive provisions of the 1978 Philippine
Constitution.

Unfortunately, we were recently defeated twice:

1. Malacañang issued the new FINL and, after two years of debate with the National Economic and Development Authority and the Economic Cluster and making recommendations how and where changes could be introduced, administratively and through legislation, it is disappointing to find out that the new FINL is basically as restrictive as the previous one.

2. Speaker Feliciano Belmonte Jr. has been driving Resolution of Both Houses 1 (RBH 1)  for a long time, and local and foreign businesses have supported this important move to amend the restrictive provisions of the Constitution, and to allow more foreign investment to come into the country, needed to create more competition which is good for Juan de la Cruz who will get better products and services at a better price. However, in the last session of Congress before recess, leaders of the House were able to muster 267 lawmakers to attend—needing 217 affirmative votes to approve RBH 1, or the economic Charter change (economic Cha-cha)—but the vote never happened. The question remains whether there was a Palace hand or a lack of affirmative numbers. What is sure is that Belmonte has given up on the economic Cha-cha.

In other words: A bad week for business, a bad week for potential foreign investment, coming at a time where the FDI numbers for the first quarter of 2015 in terms of actual inflows and registration look pretty bad, both falling by about 50 percent.

Given these defeats, what is business now hoping for?

We sincerely trust that the President will finally sign the following
legislation:

• Philippine Competition Act—legislation that will create a level playing field, that is a requirement for potential free-trade agreements with Europe and the Trans-Pacific Cooperation, pushed by the US, and an expected measure for Asean integration;

• Amended cabotage law—we are happy that the Senate version won in the bicam; the legislation will allow foreign ships to transport cargo (containers and bulk) directly to ports in the country, including Cebu, and accept cargo destined for foreign countries;

• Department of Information Communications Technology (DICT)—badly needed to create the required infrastructure for the more and more important BPM/KPM sector, which is also growing fast in Cebu; we are all aware how slow broadband is in this country and how expensive it is compared to competing countries around us; the DICT is also needed to finally get the Data Security Act implemented through the creation of the Data Security Commission, which will create the needed IRR; another  task of the DICT will be to raise the level of protection against cybercrime.

• Tax Incentives and Management and Transparency Act—we still have a number of recommendations that will hopefully be accepted by the bicameral committee; we agree that more transparency is needed but—at the same time—do not want fiscal incentives touched which are badly needed by new investors as the cost of doing business in the Philippines is higher than in competing countries.

As ECCP, we will continue to fight for a level playing field and a competitive business environment, following the battle cry of the Philippine Economic Zone Authority: Red Carpet—No Red Tape!

source:  Business Mirror

Regional integration, capital requirements drive insurance mergers

Mergers and consolidations are becoming a key item to consider for senior insurance executives. According to data from the Insurance Commission, the number of life insurance players has decreased to 31 in 2014 from 33 in 2011. In nonlife, the decline is more apparent, with 70 firms last year compared with 83 in 2011.

One of the major reasons why insurance companies pursue such deals is the higher capital requirement imposed by the Insurance Commission. Currently, a domestic insurer is required to have a net worth of P250 million, which is due to be increased to P1.3 billion by 2022.

This higher capitalization requirement is happening against the backdrop of Association of Southeast Asian Nations (ASEAN) economic integration, were barriers to trade and investment are expected to be liberalized to facilitate entry of investment, improve the competitiveness of insurance companies, and boost economic activity within the region. This is in line with the ASEAN Economic Community’s aim to have a semi-integrated financial market by 2020.

As a result, small insurance companies may not be able to compete with the well-established local insurance firms and the foreseeable entry of more foreign insurance companies. Hence, small players are now encouraged to merge and consolidate in order to meet the minimum capitalization requirement and to sustain their respective businesses.

The Insurance Commission issued Circular Letter No. 2015-11 in March to clarify the rules and regulations covering merger deals. The salient features of the circular are provided below:

1. Domestic insurance companies that are planning to merge or consolidate are required to notify the Commission in writing at least 30 days prior to any board action to approve any Plan of Merger/Consolidation. The Plan must be submitted to the stockholders or members for their approval. Once approved, all policyholders and creditors must be notified within 20 days from the execution of the agreement.

2. The company to be dissolved or absorbed must discharge all its accrued liabilities; otherwise, such liabilities (with the consent of creditors) will be assumed by the absorbing or acquiring company. For policies that are subject to cancellation by the company to be absorbed, the same must be cancelled pursuant to the terms of such policies. Such proof of discharge must be in writing and submitted to the Insurance Commission for review.

3. The Commissioner shall approve or deny the Plan and Articles of Merger/Consolidation based on his assessment of the financial condition of the concerned insurance companies. Once approved, the insurance companies must submit the Articles, including the endorsement of the Commissioner, to the Securities and Exchange Commission (SEC).

4. Once the approval of the SEC is secured, the constituent insurance companies must surrender their certificates of authority to transact insurance business, and the surviving entity (or the newly-formed company in case of consolidations) must secure a new certificate of authority to transact insurance business.

5. All proposed mergers and consolidations must be completed within 12 months from the time of notice to the Insurance Commission. However, requests for extension may be granted if filed before the end of the 12-month period.

The circular highlights the responsibility of insurance firms to inform their policyholders and creditors of any merger or consolidation plan. Policyholders and creditors will this be well-informed of developments, thereby ensuring transparency and protection of public interest. Further, a two-tiered review and approval process by the Insurance Commission and SEC must be undertaken before the unification can take effect.

With ASEAN integration and higher capital requirements looming, it makes sense for small insurance players to combine their resources for sustainability, especially since the insurance industry is considered one of the pillars of our financial system and national development. In addition, the prospect of an expanded cross-border market likewise makes mergers and consolidations attractive for insurance companies seeking a competitive position. This approach enhances the competitiveness of the industry and helps to ensure sufficient protections for the insuring public.

In the race to the finish line, insurance companies do understand that synergy of resources is the way to go. Indeed, size does matter.

Diberjohn P. Balinas is an Assistant Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

source:  Businessworld