‘Economy is strong, reforms good for business; it’s time to buy stocks’


The Makati Business Club, known for its “complicated” sentiment with the current Duterte administration, received a good low down from a maverick Lower House Rep. Joey Sarte Salceda, who as legislator has been able to swing sides from whoever is in the administration, and still emerged with his credibility, intact.

Other than being entertaining, Salceda’s presentation was candid and straight before a group of skeptical Makati-based businesses whose members include the country’s biggest conglomerates.

The country’s top stock analyst before turning politician was MBC guest speaker recently. In his speech, the Albay congressman made the following assurances: The economy is in good shape; CITIRA is good for companies; and the rule of law is sacred in this country.

On the economy, Salceda said, “If I were in your shoes, most of companies in this country are cash cows, it is really time to buy,” said Salceda as he showed how stocks have broken the head and shoulders already while the peso is trading in a range ₱50.40-₱51.40 to the US dollar.

The reforms being undertaken by the government have not even been discounted in the market because all that are considered concerned about politics.

According to Salceda, the government is addressing the three pillars to improve the country’s competitiveness. These pillars are infrastructure (lower power cost, faster internet), tax reform (CITIRA) and ease of doing business.
All these are aimed at getting that elusive A credit rating.

To achieve this, Salceda highlighted the 12 reform bills, mostly authored by the chair of the House Committee on Ways and Means.

Of the 4 packages of the Duterte administration’s Comprehensive Tax Reform Program, Package 1 or the TRAIN Law was already passed. Package 2 or the CITIRA is facing strong opposition from businesses especially investors under the Philippine Economic Zone Authority, but he expects its passage soon as the Lower House is ready to adopt the entire Senate version just to pass the bill, which he said has caused the country to lose $12 billion in foreign direct investment in the past two years.

“Given how much uncertainty the delay has caused, speed now overrides policy detail,” he said.

CITIRA seeks to reduce gradually the corporate income tax (CIT) to 20 percent from the current 30 percent by 2030 but will remove the juicy perpetual 5 percent tax on gross income earned to PEZA locators.

“The House and Senate versions are broadly aligned, with some concessions on the Senate side,” said Salceda.

Both Houses have agreed on enhanced deductions on depreciation allowance of qualified capital expenditure, addition of up to 100 percent for research and Development and training, 50 percent for labor expense, 100 percent for countrywide infrastructure development or 50 percent deduction on power costs, 50 percent for reinvestment allowance to industry, 50 percent for domestic manufacturing (buying local) input expense, enhanced net operating loss carry-over for five years, exemption from customs duty on imported capital equipment, raw materials, and spare parts.

“There is a complete, unmitigated bias for countryside development, that is clear message, get out of Metro Manila,” he told the businessmen.

Salceda said that CITIRA addresses longstanding issues of structural fairness and efficiency in the tax system, and creates jobs with lower CIT even before any disruption in fiscal incentives.

CIT rate in the country is the most uncompetitive at 30 percent against Indonesia and China at 25 percent, Singapore at 17 percent, Cambodia, Thailand, Vietnam at 20 percent and Laos and Malaysia at 24 percent.

He assured that business will not lose a single peso because of CITIRA. With performance-based incentives, CITIRA gradually proposes superior incentives for firms with desirable behavior. “In other words, if you do good for the country, you will do well in the country,” he said. CITIRA, he said, injects vitality in the private sector with unprecedented investment in all CIT-paying firms.

Those that will qualify under the CITIRA are economic activities listed under the Strategic Investment Priorities Plan (SIPP), which accounts for 65 percent of GDP. SIPP also grants incentives to those that export 70 percent of production, and 50 percent power cost reduction.

“We are pro-incentives, but we don’t like giveaways. That is why we want a corporate tax system that is performance-based, targeted time-bound and transparent.

“Overall, CITIRA will create more and better jobs, facilitate more efficient public spending, create more investments, and improve the quality of lives in the short and long run.

“CITIRA will be a new era for investing in the Philippines,” he said.
Complementing the CITIRA in bringing in more FDIs are the reforms on economic charter change, amendments to the Public Service Act (PSA), the Foreign investments Act, and the Retail Trade Liberalization Act.

From the current 25, the PSA amendments will reduce to only 3 the restricted services– electric power distribution, electric power transmission, and water pipeline distribution sewerage pipeline system. All the rest will be open to foreign equity participation.

Singapore and Cambodia, the least restrictive countries to FDI in ASEAN continually experienced an upward trend in FDI growth. The Philippines has consistently performed worse than Vietnam since 1990. Vietnam began to overtake the Philippines in 1990, following the tight constitutional restrictions.

As he continued, Salceda addressed the unspoken rift between the President and the big business.

According to Salceda, there are only four issues that concern big business – EO 13 (Gambling Rationalization) June 2017 against PhilWeb Corp., Water Concession Agreement (Dec. 2019) of Manila Water Company, Inc. (Ayala Corp.) and Maynilad Water Services Inc. (Metro Pacific Investments Corp. and DMCI Holdings, Inc.), franchise renewal of Catholic Bishop Conference of the Philippines and ABS-CBN Corp.; and PSALM on SPPC (Ramon S. Ang), the price is based on EPIRA or IPPA.

Salceda stressed that what transpired in the corporate side only magnified the rule of law in the country. “Basically, it is all about rule of law,” Salceda pointed out.

“By and large, Congress and all institutions of democracy are there and contracts are still honored only the Philweb franchise but which is a non-issue at all,” he said as he asked MBC members if there are other big firms that have been hurt by the President or it is just a perception.

“The rule of law in this administration is the law. Contracts are still honored and if there are certain things that are not in the contract we still follow the judicial processes,” he said stressing that the CBCP was renewed so there is no reason that ABS-CBN franchise will not be renewed while the Ramon Ang issue of PSALM is actually just a question of interpretation.

“So, if looking for a liberal space in this administration, there is,” he said.

But he also acknowledged the challenges like inefficient government bureaucracy, inadequate supply of infrastructure, and corruption as the most problematic factors for doing business based on the World Economic Forum.

Addressing the MBC’s political leanings, Salceda shared a chart that showed MBC sentiment in the past administrations starting Marcos with “anti” and followed by “strong pro” with Corazon Aquino and “pro” Ramos but “anti” ERAP. MBC was “pro” Gloria Arroyo during her first phase as president but ended up “anti” in her second term. MBC returned to “strong pro” for PNoy. With the Duterte administration “it’s complicated.”

Salceda even went on to share another chart that showed Duterte has the least crony of all the past administration. “You can question the chart, but after Udenna (Dennis Uy), who?,” he asked. He dubbed administration cronies as paramount business groups that achieve significant increase in their assets in their footprints of the economy.

“I would say he (Duterte) broke it. He has the least, he has only one crony if at all,” he said.
But, he projected of more cronies to emerge in the market in the next election because of what happened to the Ayala group. He said businesses will definitely turn into politics. Already, prominent business groups have closer relationships with politicians.

He said the Villard Group has NP with 43 in the House and 4 in the Senate, Enrique Razon has NUP with 62, Ramon S. Ang has NPC with 24. Manuel V. Panglinan is embedded in LAKAS.

The analyst said he always count because “What you cannot count does not matter.”

On more sensitive political questions, Salceda struggled to keep his mouth shut but hastened to add, “I carve my own role in this whole political economy, I am really poor in politics, but I win.”

Overall, he said, “We have a president who is doing all the right things in terms of economic policies.”

With all these, Salceda noted of the “coming-of-age of the Philippine economy” with solid macro economic fundamentals, improving standing in the international community with BBB+ credit rating, improving fiscal position, lower debt and reduced interest payments leading to more socioeconomic spending.

“Philippines is on the cusp of upper-middle income status,” he said noting of gross national income per capita of $4,173 according to the World Bank. Poverty incidence level is falling. The BIR tax effort, the best predictor of economic growth is growing.

With infrastructure contribution of 5.2 percent of GDP, theoretically the Philippines should be growing between 11-12 percent.