The first quarter numbers are rolling in and it is not pretty; and that is with only 15 days of quarantine. Wait till the Q2 figures come out with the full COVID regalia.
Jollibee reported a loss of PHP 2.1 billion, a 253% reversal from a profit in the same period last year. It is cutting its capital expenditure by 63% or PHP 9 billion. Jollibee has 3,317 stores in the Philippines and employs 90,000 people. Jollibee is a bellwether for consumer demand.
Pilipinas Shell lost PHP 5.5 billion in the quarter compared to a PHP 2.3 billion profit in Q1 last year, a swing of PHP 7.8 billion. Shell is an indicator of the economic movement of goods and people.
Meralco reported a 4% drop in industrial sales, a measure of manufacturing activity.
NEDA announced the economy lost PHP 1.1 trillion in the first 45 days of the quarantine. It predicted the economy would double that loss for the year.
The same carnage is being reported across the corporate landscape. A businessman who spent 35 years building his manufacturing and distribution business to a PHP 6 billion enterprise with over a thousand employees; is considering permanently shuttering his doors. Another with over 200 retail outlets will close some 50-70% of his stores. He will keep the rest until December of this year to leverage the Christmas season after which he will review his options. The quarantines together with the new social distancing measures make the business unsustainable.
The big malls are giving their tenants a 3 month rental reprieve. They are waiving the fixed rent and charging only 5% of sales to encourage stores to remain open. They are concerned a mass closure of outlets will make the malls look like a ghost town and destroy the shopping experience.
Banks are carefully reviewing their client exposures. They do not want to be the last one holding the bag.
Foreign analysts predict the Philippine economy will be the slowest to recover among our neighbors because of the severity and length of the lockdown and the modest stimulus being applied.
September of this year will be the next reckoning date for the economy. By that time we should know, hopefully, what the health and quarantine picture looks like, how many businesses are still standing and whether the Government still has any money. The next three months will show modest recovery even under GCQ as businesses run down their inventory, fill their excess capacity and adjust to the new health protocols. Few are talking about expanding.
Businessmen understand the health imperatives of COVID but they do not totally understand the policy responses from Government. They wonder if the Government fully appreciates the extent of the damage to the economy or what is needed to salvage it. They do not know whether the President has a sense of the crisis or was it simply a turn of phrase or a moment of levity when he announced that he will personally guarantee loans to the small ”carinderias” and sell the Cultural Center as a last resort.
They do not understand why the authorities have forgotten that workers cannot work if there is no public transport.
They do not understand when the NEDA head reports the crisis is ‘a temporary setback” and there will be a V-shaped recovery. As a perspective, Singapore is spending almost 20% of its GDP on stimulus and yet believes its recovery will be gradual. We are spending, depending on definition, an equivalent of between 0.80% and 7.7% of GDP.
They do not understand how the NEDA’s stimulus numbers stack up, why, for example, the BSP loans to the Treasury are included when it is double counting. Are we fluffing up the stimulus package?
They do not understand why despite the evidence and the clamor of the majority of Senators, the private hospitals, the media, the front liners, the medical practitioners; the President continues to hold on to a DOH Secretary who has not delivered nor is accountable for the supposed overpricing of medical equipment.
They do not understand why the BSP Governor refuses to depreciate the peso when it would be a relief to our much beleaguered OFWs, would boost aggregate demand and make our foreign investments, tourism and exports more competitive with our neighbors. This is the same Governor who has seemingly called out Trade Secretary Mon Lopez for not doing enough to attract foreign companies relocating from China; and DOF Secretary Dominguez for being measly with his fiscal stimulus.
The BSP Governor’s stance of letting the market determine the exchange rate may be ideologically pure and arguably speak to the soundness of his monetary policy; but is not appropriate in this time of crisis. The current peso strength is due to temporary flows like reduced imports from slow growth, not to the underlying robustness of the economy. It could be due to the dollar proceeds from our recent USD 2 billion bond offering which is a loan, not a permanent inflow to the country.
Businessmen do not understand why our economic managers are betting so largely on tax incentives, “the country’s biggest stimulus program”, to revive an economy whose problem is not supply side but demand destruction. Businesses thank the DOF for the 5% reduction in corporate income taxes but wonder if the timing is appropriate or meaningful to promote investment. The reduction will be implemented in July and reduce our tax collection by PHP 43 billion this year. Should not the tax relief be deferred to next year and instead give the PHP 43 billion to the 23 million families desperate for assistance? The tax reduction will only benefit companies that are currently profitable and we know there are not many of those. Again, businesses do not make investments primarily on the tax rate. The profitable companies could well use the tax savings to increase dividends or pay down debt none of which will stimulate the economy.
The extension of the NOLCOs or net loss carryovers is not meaningful if businesses do not expect to survive the next few years.
In a weird and confusing development, PEZA which oversees foreign investment in the Special Economic zones has criticized the new tax “incentives” under CREATE as has the IT and Business Process Association of the Philippines. Was there any inter-agency and private sector consultation? Will CREATE complicate rather than simplify the tax regime by allowing for greater discretion and potential tax arbitrage?
Two days ago the President acknowledged the COVID numbers were “not so bad” pala. The private sector had been saying this all along but was being drowned out by the IATF experts. Which brings us to a core problem. The IATF has tasted regulatory absolutism and is enjoying it. As they say once on your lips forever on your hips. The quarantine has been eased but only after pressure and considerable damage to the economy. The regulatory mind set remains even under GCQ. The next IATF scare tactic, the “second wave of COVID”.
Business has remained silent afraid of the repercussions from speaking up. They will vote with their wallets and their feet. We could wake up and suddenly find very few people home. This silent divide between the private sector and Government is unhealthy as we move forward.
To their credit, our economic managers have in the last weeks reached out to the business world by presenting their plans if not necessarily taking in suggestions. By rallying the private sector to its cause, Team Sonny could strengthen its voice at the Big Table which is presently dominated by the health officials.
Anecdotally we note the absence in the last few IATF Presidential briefings of the DOF Secretary or his representative. Is this his choice or the President’s? It would not be a good sign if it reflects the power dynamics at the IATF. For everything that is said of them our economic managers are well meaning, honest and hard working, often the only adults in the room. It would be worrisome if they were to lose their voice in this critical period of our Republic.