Sunday, September 30, 2007

Comelec Commissioner Abalos resigns!

TV is currently saying Comelec chair Benjamin Abalos has resigned from his post. He probably wanted to have more quality time with the ZTE guys. Lol! Why not? Brokering for private and foreign interests is more profitable than serving government, which is a thankless job. haha! The joke now is that after his resignation from the Comelec, Abalos now is a full time "commissioner."

For some background info on the the controversial NBN-ZTE deal, you may read the following:

The NBN-CEP mess: Neda is part of the problem
Technical questions on DepEd’s cyber education project
Senate inquiry demolishes DOTC’s justification for NBN
Let’s junk the NBN-CEP deals

Friday, September 28, 2007

In the company of Libya, Iran, Burundi and Yemen

IS the Philippines as corrupt as Libya, Iran, Burundi and Yemen? We flinch at the suggestion, but Transparency International said we are indeed as corrupt as these countries based on their latest ranking in the 2007 Corruption Perception Index. This ranking seems to “validate” the perception that the Philippines is probably the most corrupt in Asia.

We think we know the reason—and that is the Philippines continues to be among the world’s most difficult places to do business in, based on the recent study by the International Finance Corp. (IFC) and the World Bank (WB). In this study the WB ranked us 133rd on the ease of doing business, a serious deterioration from the 120th we had in 2006, the reason for which is that the Philippines didn’t implement any business reforms this year.

The IFC-WB report said that among the 10 areas included in the study, the country had the lowest rank in “closing a business,” where it is pegged at 147, “starting a business” (144), “protecting investors” (141), “paying taxes” (126), “employing workers” (122) and “enforcing contracts” (113). The areas where the country had a higher ranking are in “getting credit” (97), “registering property” (86), “dealing with licenses” (77) and “trading across borders” (57).

The report shows that in most aspects of doing business, we have been penalizing entrepreneurs and business managers. And what would a business person do when faced with such artificial barriers as bureaucratic red tape and unnecessary barriers to economic activities? What will that person do, especially when he is facing delays and the deadline for delivery of goods and services to his clients is approaching? He would surely be tempted to bribe his way, and bribery corrupts the entire government procedures and processes, destroys institutions and ultimately shatters a country’s capability for development.

That’s the whole point here: the government has been maintaining a huge bureaucratic tangle that has been a barrier to progress. And scoundrels in government have been holding on to that precisely to extract “rent” or unearned money no different from the gangster’s “tong” from hapless citizens. And in this case, it’s the State itself that has institutionalized rent-seeking, a “tong” on its own people who are going to pay with their taxes, direct or indirect.

We don’t lack examples of this. The controversial national broadband network (NBN) and cyber education projects are humongous examples of these rent-seeking practices that have been destroying the economic and social fiber of our republic. The tales of bribe offers and bribe-taking, the story about a top election official apparently brokering for foreign interests for a broadband deal, and the supposed involvement of no less than the husband of the President in the controversial deal enforce public perception of this rent-seeking behavior permeating our bureaucracies.

The North Rail project, the fertilizer scam of Joc-joc Bolante and the “Hello Garci” controversy, which also smells not just of vote-rigging but wholesale bribery, are also among the recent examples.

And why, despite all those investigations at the Senate and House of Representatives, do we continue to have all these huge scandals? It’s because of the continuing lack of reform.

When the WB released the same report a year ago, the government responded that it will undertake serious changes to ease barriers of entry and exit of business to spur higher economic growth. But nothing has happened, so our ranking even deteriorated. Apparently, there is a resistance within the current administration and the bureaucracy to undertake reforms because some people high up are making so much money, courtesy of the people’s taxes. If Joey de Venecia’s accusations about bribery involving Comelec Commissioner Benjamin Abalos, bolstered by another claim by former socioeconomic planning director general Romulo Neri, are true, then people will easily conclude that the current administration wants to retain the tangle of stifling regulations and opaque policies simply to collect “tong” from the general public.

Given this reality, Congress—especially the Senate—should therefore step into the picture and initiate reforms. While sorting out the NBN mess, it should carefully look into possible measures that would streamline the National Economic and Development Authority and the processes and procedures that would make the approval of programs and projects more transparent. The Senate should extend its investigation, or do a separate one, into the ways to simplify business procedures in this country so that scoundrels in the bureaucracy would be prevented from further eroding the economic and social fiber of this country.

(note: wrote this as editorial for BusinessMirror, 28 Sep 2007).

Tuesday, September 25, 2007

The NBN-CEP mess: Neda is part of the problem

By the time I got to the office 1 pm today, everybody knows that former Neda director general Romulo Neri has admitted being offered a P200 millon bribe by Comelec Chair Benjamin Abalos (which he denied) during the hearing on the controversial NBN deal at the Senate. That's a bombshell! But let me put it here that Neri himself is part of the problem why we have this mess. You may read my op ed piece I wrote for BusinessMirror today (26 Sept 07) below.

ON Monday the acting director general of the National Economic and Development Authority (Neda) said the suspension of the national broadband network (NBN) and cyber education program (CEP) deals is going to “affect investor confidence” in the Philippines.

Certainly, it will. But it’s not because legislators are investigating these controversial deals forcing President Arroyo to back off from a very hot rotten potato.

It’s because this recent brouhaha involving more than $800 million seems to prove the point that the government of President Arroyo doesn’t seem to learn the value of prudence after nearly getting toppled by popular unrest following the “Hello, Garci” and North Rail controversies and the fertilizer scam. Walang kadala-dala! in local parlance.

It’s unfair for acting Neda chief Augusto Santos to blame, even impliedly, the “lack of investor confidence” in the Philippines on the Senate investigation against the NBN and CEP deals. The determinants of investor confidence are many, the least among them being the government’s continuing failure to provide adequate infrastructure and its inability to pursue crucial economic policy reforms.

This is quite obvious if we look at the national income accounts: in the last three years, investments by the private sector on durable equipment in real terms have been miniscule.

Yes, we have been growing quite decently in the last several years—courtesy of dollar remittances. But jobs in greater numbers are not created because firms are not yet building more factories, upgrading their plants and equipment, or putting up orchards. These are the types of investments that we need to address joblessness, especially for those who can’t speak English to qualify for call centers.

And why is this so? It’s because since August 2004 the net satisfaction rating of President Arroyo has been in the negative. More people are not happy with the way she runs the affairs of the State despite the very obvious effort she puts into the job and her work ethic. More people simply don’t trust her mainly because of the continuing stream of accounts of corruption and misdeeds in high places, the latest being the controversies that have entangled the multimillion-dollar NBN and CEP deals with the Chinese government.

In the Philippine context, a perennially negative trust or satisfaction rating for the presidency tends to create uncertainty. It’s so hard for business managers to make long-term decisions when the ruling party sits on a house of cards ready to collapse anytime another political scandal bursts.

And certainly, corruption is a great turnoff to investors. Yes, there are “political noises,” but it’s the ones that are coming from the executive, and not somewhere else.

The Palace is making it worse by employing tactics like gag orders or the latest apparent attempt by Malacañang to spirit out of the country former Neda chief Romulo Neri to prevent him from being grilled by the senators, only to retreat at the last minute, apparently sensing the huge outcry against so blatant a scheme.

To be fair, Palace officials explained later that it wasn’t President Arroyo but Foreign Affairs Secretary Alberto Romulo who wanted Neri to come along because they will meet with Millennium Challenge Account (MCA) officials in New York, and Mr. Neri as ex-Neda chief is familiar with the MCA. But still, the damage to public trust was done.

If there’s one agency that can’t escape blame in these controversial deals, it’s the Neda itself. It acts as the secretariat of the Investment Coordination Committee (ICC) and has enough chances to see to it that projects proposed by line agencies are aboveboard.

Such huge projects usually go through the scrutiny of the Neda technical staff before being tabled at the ICC technical board. Then, they go through another round of discussions at the ICC Cabinet committee before they are set for approval by the Neda board, headed by no less than the President.

So in effect, Neda, as an institution of governance, has at least four chances to correct possible anomalies in the process of coming up with a proposal as the NBN.

The real problem with Neda is that it has been quite timid to play its role. In the discussions regarding the NBN and CEP, all the Neda did—according to sources within the organization—was determine whether or not these projects were “consistent” with government goals.

Did Neda officials bother to check the economics of the project, its costs and benefits, its technical feasibility and the possibility that it was overpriced?

Neda officials were not even bothered by the fact that there was no way it could determine whether or not it was bloated. They simply assumed that the proponents—bureaucrats from the Transportation department and Education department—submitted their proposals in good faith like angels. They simply assumed that a “government-to-government deal” is legally sound without ascertaining the true costs of the projects through economic measures such as open bidding.

It’s possible Neda failed to do its job for lack of technical expertise. In the last two Senate hearings on the NBN, the proponents (specifically Transportation Secretary Leandro Mendoza and his assistant secretary Lorenzo Formoso) could not provide enough justification for the NBN in financial and technical terms.

The hearings proved what professors from the UP School of Economics had said all along—that the project didn’t undergo any decent feasibility study. There was no honest-to-goodness numbers crunching. Grilled by senators, Transportation officials couldn’t answer even the most trivial details (like the cost components of government telecommunications expenditures) on the “savings” that the supposed NBN could bestow on the country’s coffers.

Apparently, the Neda technical committee assumed that the Transportation department’s numbers on the projects’ cost and benefits, as well as their economic rationale, were accurate.

Assuming that Neda indeed lacks technical expertise on the technical and economic nitty-gritty of NBN and CEP, the best thing it could have done is open the process to public participation and debate. It should have been transparent since the inception stages of the two projects by giving all the details of these projects to the media. Had it done that, the country could have been spared this wrenching political process.

Monday, September 24, 2007

Technical questions on DepEd's Cyber Education Project

THE “suspension” of the controversial national broadband network (NBN) and the cyber education project (CEP) probably signals that these deals with the Chinese government are dead.

They should be. It was obvious right after the second day of hearings that there is no way the government could justify these deals in financial, technical and moral terms. The continuation of the hearings will probably confirm peoples’ suspicion all along—that they are all questionable deals attended by anomaly and corruption.

On the NBN, there was actually no need to “suspend” it because the Supreme Court had already issued a temporary restraining order. But the “suspension” from Malacañang signals a political retreat for which there is no recovery. It’s a political gambit hoping that the anger and frustration the people feel about this anomaly would somehow dissipate.

Not only should the senators continue to sort out the whole NBN mess; they should also examine the whole package more closely.

The CEP’s propagandists are saying that the project suffered collateral damage from the NBN brouhaha. We don’t think so. The CEP also carries many of NBN’s original sins: no competitive bidding, lack of transparency and no independent technical evaluation. And it involves an even bigger amount: $500 million, which we are going to pay in the next 20 years.

If the NBN is a shark, therefore, the CEP is a probably a great white shark!

Make no mistake about it: we are not against an Internet-based education per se. We believe that the country needs to upgrade its educational system and Internet-based education, or something to boost distance learning would help.

Of course, in a list of priorities, it’s also a question whether or not a satellite-based network should prevail over basic issues like teacher training, curriculum reform or providing the basic things like books and classrooms. But this question is secondary to the bigger issue of whether or not the CEP had also been tainted by bribery.

Analysts think this way because the CEP came to the signing table in China on April 21 despite many unresolved issues. Even the technical working group (TWG) from the Department of Transportation and Communications (DOTC) had been stressing all along that the CEP suffers from many technical questions. One such issue is the “overlaps” between the NBN and the CEP that would cost the government billions of money.

On February 13 the joint National Economic and Development Authority-Investments Coordination Committee (Neda-ICC) and Neda-Cabinet group meeting in Malacañang agreed to “sort out” this issue. On February 28 the DOTC TWG released its report, saying the CEP suffers from the following problems:

1. The system will use satellite communications (SatCom) which is expensive. SatCom may not be a long-term solution and will require high operating expenditures;

2. It’s a huge infrastructure for a single user, a waste of valuable government resources;

3. The operating capability of the Department of Education (DepEd) is at issue since its core competence is in education and not satellite communications. According to the report, the DepEd “cannot change-manage to become a technology provider as it is beyond its core competence;”

4. The DepEd needs connectivity but could achieve the same not through the Internet but through an Intranet. This option is achievable through a less-expensive network configuration; and

5. The CEP, to establish its own broadband system, is directly overlapping with the NBN.

And the recommendation? It makes sense to have a single backbone for government VOIP, e-governance and e-learning. The DepEd may implement its e-learning programs using the NBN “as provider for its transmission requirements instead of building its own backbone using satellite communications.”

In the March 26 ICC-Cabinet meeting, Lorenzo Formoso, DOTC assistant secretary, himself admitted that there is an “overlap” between the NBN and the CEP projects and that the two are going to be “underutilized.” Then-Neda Director General Romulo Neri supported Formoso, saying the cost of the overlap would reach P4 billion to P5 billion.

In the same meeting Formoso expressed reservations about the CEP, saying that the satellite technology to be used by the CEP “has not been widely used as a main transmission mode given cost-related considerations.”

So why did the government push through with the project despite reservations among the technical guys and the Cabinet?

The minutes of the March 26 meeting says: “Secretary Neri noted that the Chinese government’s position [is] that the NBN and the cyber education project be treated separately. He added that while the Chinese Embassy, in a letter, has expressed readiness to show flexibility should DepEd and DOTC reach an agreement, Secretary [Jesli] Lapus has already indicated his preference that the CEP network be dedicated to education. Secretary [Leandro] Mendoza, he shared, has also expressed readiness to remove schools as part of the NBN project design.”

That statement seems to mean that despite serious reservations from the Cabinet and the technical guys, the CEP and the NBN should proceed because the Chinese government wanted them as separate projects; Lapus wanted his CEP badly no matter what; and Mendoza also wanted his own NBN—all with no bidding and no transparency. It’s a classic quid pro quo “for the boys” deal that would make a few bureaucrats happy at the expense of taxpayers who are going to suffer a higher debt burden in the next 20 years.

Yes, the Senate investigation should continue. It should give an equally critical look at the CEP and let the ax fall on those who deserve it.

Saturday, September 22, 2007

GMA "suspends" NBN

The latest report from TV said President Arroyo has “suspended” the NBN project. What that “suspension” means remains to be clarified. What is certain is that NBN is beyond salvage and the president really has no option but to back off this controversial deal conceived by the dirty rotten scoundrels. The whole deal, as shown during the Senate inquiry could never be defended morally, financially, and technically.

NBN down, CEP next?

Thursday, September 20, 2007

Senate inquiry demolishes DOTC's justification for the NBN deal

This whole NBN thing, according to DOTC, is all about “security” and “savings.”All these justifications were blown away in today’s hearing (September 20) at the Senate.

When questioned by Senator Noynoy Aquino, Assistant secretary Lorenzo Formoso himself admitted that given time and resources, anybody can hack any system, including that of the NBN.

Well, the national security issue is really crazy. The truth is that government has been using private networks for its e-mail and other communications needs since time immemorial, but “security issues” was never a problem. It has never been a problem during the time of President Fidel V. Ramos, a former general who probably appreciates “national security” more than anybody else in the DOTC. Besides, if “national security” were an issue here, then wouldn’t it be riskier to entrust government’s information to a foreign state? Unless they’re saying a foreign government is trusted more than the Filipino private sector.

In our midst today are huge multinationals owning sensitive intellectual property, including patents and trade secrets worth billions of dollars greater than the Philippine GDP. Yet these MNCs never felt compelled to build their own separate fiber-optic backbone. Imagine a situation where everybody lays down fiber-optic cables for “security reasons.” Wouldn’t that be the ultimate “spaghetti sa ibaba,” underneath our soil and the seas?But private firms do have their own private and secure network, not by having their own separate physical backbone, but by buying capacities from existing privately run backbones—PLDT and Telecphil. For instance, it’s not uncommon for these huge firms to use Telecphil facilities for their Philippine operations while connecting to the PLDT backbone for their fiber-optic link to their headquarters in the US. And security has never been an issue because there are a thousand and one ways of securing them.

Senator Roxas also did a good job at demolishing the “cost justification” of the DOTC. Formoso said government will save P4 billion, but also admitted that he doesn’t know how much is the cost component for government calls outside the NBN system, meaning we are actually not going to save money at all.

In truth, it was President Arroyo herself who clarified that the bulk of those communications expenses by government are accounted for by mobile- phone calls, and government officials are going to continue using the facilities of the telcos. Recent advertisements by the DOTC indicate that government will even continue relying on existing private Internet providers despite the NBN. The DOTC says that government agencies will save through NBN’s voice-over-internet calls among themselves. That is true, but they are not saying something crucial: the government will still have to pay the telcos when it has to call outside of the NBN backbone.

And then Formoso also admitted, when questioned by Senator Zubiri, that the technology would be obsolete after ten years while we taxpayers are going to pay for it in the next 20 years!

I could only see that as this Senate hearing continues, this whole NBN deal will be in tatters. What could you expect, these whole NBN deals have always been based on myths and falsehoods.

Please see related posts
Let’s junk the NBN-CEP deals
Philippines’ NBN: government porn at broadband speed?
NBN: A backbone of waste and shame

Wednesday, September 19, 2007

Let's junk the NBN-CEP deals!

What’s in these controversial national broadband network and the cyber education project deals with China that’s keeping Malacañang from junking it?

By the way things are unfolding, it appears that the costs—political, social and economic—vis-à-vis their supposed benefits to the government and the people, are just too enormous. These projects are not worth the troubles and sufferings that it will cause the Filipino people and the Republic.

The political costs are just too staggering. The people know that they are going to pay more than $800 million (P37 billion) in the next 20 years for projects of dubious benefit to the country. Hence, pushing through with the project would only polarize the people further, setting us for another round of ruinous political instability.

More political storms might yet sweep the ruling party off Malacañang, thus causing uncertainties. Or worse, we might wake up soon seeing some adventurous elements in the military attempting another coup in the guise of “saving the Republic.”

The economic costs are just as tremendous. In the second quarter this year the Philippine economy grew by 7.5 percent after several years of growing within the relatively decent 5-percent to 6-percent band. The employment outlook had actually improved to register a 7.4-percent jobless rate after hovering at 8 percent in the last several years.

That trend means that the Philippine economy has actually started to produce gains for the ordinary man on the street (although many would say that they could still not feel it).

At the start of the year, Filipinos were actually hoping that the economy is going achieve a momentum based on the common expectation that the ruling party, seeking a good “legacy,” would be inclined to behave well in the last three years of the Arroyo administration. We may have to kiss this encouraging growth trend goodbye should the government insist on pushing through with the controversial deal.

Why? Political instability will turn off potential foreign investors. Uncertainty will force local companies to wait for 2010—when a new President is elected—before making any significant business decisions, implying that we won’t be able to produce more jobs that are sorely needed to address mass poverty.

The government, especially the executive branch, will be distracted from pursuing programs and projects needed for development. Public investments are going to be wasted as the exigencies of political survival are likely to be the main determinant in decision-making.

A lot of questions were raised following the bombshell of a testimony exploded by businessman Jose de Venecia III.

Did government officials, including Elections Chairman Benjamin Abalos, Transportation Secretary Leandro Mendoza and former

Socioeconomic Planning Secretary Romulo Neri take the money that was reported they got? What’s an Elections top official like Abalos doing in the business about broadband? And why is the President’s husband, supposedly a private citizen, involved in the deal? Did he also benefit from the supposed bribes? What’s Malacañang’s role in this mess?

Answers to these questions and possible denials by government officials in the now-unfolding top-rating Senate hearings will only spur more questions and speculations until it swamps the very halls of Malacañang. And it will only be Malacañang’s fault because from the very start—from its inception until this very moment—the involved officials really tried to hide the truth from the public, the same public who is going to shoulder the burden of paying the humongous loan from China.

The only solution is to junk those deals. That’s the only way the government can lessen the political and economic impact of this raging controversy. The deals are not worth the agony the people are going to suffer. Junking it now while the Senate is investigating the issue is the only sensible way to go.

It’s the only sensible option available to us—unless, of course, Joey de Venecia’s allegations about bribery are true. Because if indeed government officials in high places, especially the dwellers of Malacañang, did take the money, we are in deep trouble. It means the government is going to ram those sleazy deals down our throat at all cost. These officials are going to tough it out because the deals have become their private or personal wealth that we have guaranteed with our taxes in the next 20 years.

But we, the ordinary Filipinos, are not only going to pay it with our taxes. We are also going to pay it with our national sovereignty, or whatever is left of it. Because from now on, the threat of China’s exposing the people in high places who are involved in bribery would likely force these government functionaries to kowtow to Beijing.

We should not wonder, therefore, if in the next three years, these Philippine officials would behave like Chinese lapdogs.

The signs are not encouraging at this stage. A day after de Venecia’s testimony, Transportation Secretary Mendoza assured Beijing that the deal would push through—at all cost.

A new loyal subject sucking up to a new master?

(Note: I wrote this piece as editorial for BusinessMirror, 20 Sept 2007)

Tuesday, September 18, 2007

Apec should get real

Sadly, hopes that Apec would provide a valuable arena in which to pursue the goal of open markets for trade and investment have fizzled. As the trade agenda has weakened, interest in Apec around the region has waned, and some nations have turned their attention to other regional or bilateral agendas.—Edward B. Lincoln, Brookings Institution, Washington DC, December 2001

The conclusion of the meeting by Apec leaders about two weeks ago was pure ho-hum that it didn’t even merit any story from prominent newspapers like Wall Street Journal. It was as if the meeting didn’t happen at all. The International Herald Tribune online did banner the story in its Asia-Pacific section, but the article said it as what the meeting really was a junket for politicians that “fizzled into an inconclusive end.”

The ministers actually managed to come up with some vague statements on climate change, energy security and a code of conduct on corruption. But observers read these statements with a yawn as these simply highlighted the lack of tangible progress on trade and investment liberalization, the raison d’etre of the organization.

The last Apec summit should be a big disappointment for many who see it as a possible forum for resuscitating the Doha Round of trade negotiations that gave so much promise to the developing world.

Apec actually played that role when the Uruguay Round of trade negotiations under the General Agreement of Trade and Tariff (GATT) was sputtering due to the continued resistance of the European Community to subject agriculture to the trade-reform effort.

When Apec economies, however, issued the Bogor Declaration on November 15, 1994, calling for Asia-Pacific free trade starting 2010, Europe noticed and started softening on the draft agreement in agriculture, leading to the conclusion of the Uruguay Round of Trade Agreement (Gatt) in Marrakesh, Morroco, in 1994. That day, developed economies promised to do away with trade and investment barriers by 2010 and the developing economies by 2020.

In 1997 Apec members decided on the acceleration of the removal of tariffs on information-technology products, a landmark agreement that was eventually adopted by the World Trade Organization (WTO).

Since then, however, Apec started to drift into irrelevance as it has started moving away from its economic thrusts, especially after 9/11, when America’s attention shifted to the “war on terror.”

Some analysts, however, have been saying the problem lies in the structure of Apec itself, especially on how it does its business.

One such weakness is Apec’s belief in “open regionalism.” It means that members of Apec are supposed to eliminate barriers to trade and investments on a “most-favored-nation” basis, meaning that members and nonmembers alike benefit from the trade reform.

Economists would love this concept, but it appears to be naive since other countries wouldn’t have the incentive to offer concessions in return since they enjoy free-rider benefits. Let’s face it, even the most ardent admirer of free trade thinks like a mercantilist when it comes to trade talks.

Compounding this problem is its adoption of the principle of “concerted unilateralism. Under the WTO, countries negotiate concessions from each other. In Apec, members are supposed to voluntarily remove investment and trade barriers through individual action plans (IAP).

The results have been that most IAP simply echoed their commitments with the WTO, with no real tangible results except annual photo-ops of presidents and prime ministers wearing national costumes of the host country.

It has become a social club where leaders are not supposed to tax each other’s patience with real demands for real reforms in trade and investments, an annual masquerade ball that is fast drifting into irrelevance. Proof of this is the growth of the bilateral free-trade agreements between and among Apec members, a process that has undercut the influence of Apec as an economic forum.

Solution? Experts like Alan Oxley from Monash University think the economic grouping should now have a new mission focused on “growth and productivity.” That is certainly a laudable objective, but such a thrust would simply undermine further Apec’s relevance.

If its members want to remain relevant, it should stay within its core objective of promoting trade and investment liberalization, where growth and productivity are certainly assumptions.

It should consider reforming its ways of doing things and adopt what Edward Lincoln and Kenneth Flamm (analysts from the Washinton DC-based Brookings Institution, a think tank) consider as “open reciprocal regionalism.” Members should start negotiating among themselves, and the benefits of trade reform should accrue to all who reciprocate such reforms.

This way Apec could achieve three things. First, members would get serious in preparing their trade and investment-liberalization action plans. Second, the group would be able to address the free-rider problem inherent in its current setup. And third—who knows, Europe and the rest of the world might yet be interested in reviving the stalled Doha Round.

And why not? Apec certainly has the pull for it accounts for more than half of world trade and counts among its members the world’s largest and fastest-growing economies, including the US, Japan, Australia, Korea, Taiwan, China and India.

All Apec needs to do now is get real.

Thursday, September 13, 2007

The looming talent crisis in the Philippines

‘Brain drain” is a reality that the Philippines has to deal with squarely. And we should deal with it now.

As we have discussed in our recent five-part series on the issue, brain drain has gone mainstream, affecting all sectors of the economy, especially hospitals, airlines, mining, manufacturing, information technology, the performing arts, journalism, the armed forces, aviation, weather forecasting, hotels, advertising and accounting. It has negatively affected both the public and private sectors.

Name any profession these days, and chances are one could immediately hear complaints about companies finding it too hard to find or retain “the right people” for the simple reason that the best ones are leaving for better-paying jobs abroad. It has become a major headache among private companies and even a greater problem within government bureaucracy.

Gone are the days when employees are expected to stay with the company for the rest of their lives. These days, employees, especially the highly skilled ones, are in constant search for employers that can give them the best working environment, the best pay package, the best experience, and training that could even enhance their skills—companies that could give them the excitement of doing “the next big thing.”

With the rapid flow of information, national borders have become meaningless—more so because Filipinos, having imbibed the culture of both the East and West by virtue of our historical experiences, could easily adapt in any cultural environment.

Make no mistake about it, the trend toward greater global labor mobility is not just related to the personal decisions of individual employees and the greater ease to travel beyond national borders. The corporate world has also contributed to this trend.
In the ’80s, “corporate downsizing” became the trend as companies tried becoming “lean and mean” to cope with global economic slowdown and greater global competition brought about by the emergence of “newly industrializing economies.” Suddenly, the old labor-management ethos of “lifetime employment” and “company loyalty” vanished as hundreds and thousands of workers lost jobs across the globe.

Recent literature on labor migration says the term “brain drain” is old-fashioned given the mounting evidence for brain gain and “brain circulation,” a phenomenon described by AnaLee Saxenian, dean of the University of California Berkeley School of Information, as the tendency for skilled migrants to return to their native lands as entrepreneurs and bridges for investments and technological diffusion while maintaining their links with the US.

This is certainly an emerging trend in Ireland, Israel, China and India, and to a limited extent, the Philippines.

But we continue to call it “brain drain” because the diaspora of skilled professionals from the Philippines is likely to get worse before it could get better. The push and pull factors are strong as ever.

On the one hand, the continuing tales of corruption in high places (the latest of which involves the national broadband deal and cyber education project with the Chinese government), low pay and the continuing perception of lack of appreciation by many company managers of local talents, especially in areas like the medical profession, are among the major push factors.

On the other, demographic transitions (more people getting old) in countries like the US, Europe, Australia and Japan, and growing expenditures for health facilities in Middle Eastern countries, are forcing governments in said countries to open their labor markets to Filipino medical professionals (mostly nurses, doctors and medical technicians).

High crude prices are enriching the Gulf States, translating to a flurry of investments in commercial centers, oil rigs and platforms, thus attracting thousands of construction workers, architects, engineers and managers.

And more important, in this age of the knowledge world, even governments are actively seeking talents across cultures, hoping to maintain their economic edge. The governments of the US, Singapore, Canada, New Zealand and Australia are actively recruiting from all over the world, including the Philippines.

All these trends are beneficial to skilled professionals and technical people. The skilled ones now have more options in life. But soon these trends are going to hurt emerging industries that are dependent on the supply of skilled labor, like outsourcing, finance and mining. Give it three years, says one corporate executive, and skilled workers would really be a real problem, unless the private sector and the government could cook up policies to address the problem.

The Philippines is a democracy. We can never stop people from seeking happiness beyond our borders. The only way the country can effectively address the problem, therefore, is by raising the supply of skilled labor for both the local and global labor markets.

Wednesday, September 12, 2007

Who's next?

Hey, our courts could actually convict a president! That's great! Who's next?

Talent war hits the Philippines hard

By David L. Llorito, with Jesse Edep & Louise Francisco (Researchers, BusinessMirror)

When the management of Fairchild Semiconductors, a global electronics firm, offered industrial engineer Manuel Villa, 32, a management job in Singapore three years ago, he didn’t hesitate to grab the offer. Not only was the pay great—five to six times higher than what he is earning in the Philippines—moving to Singapore, he believed, could also open doors for future career advancement.

“The No. 1 factor [for my decision] was exposure—the opportunity to work and be trained in a different culture, in a headquarter-corporate level setting, which should open a lot of other doors for me in the future,” Villa explains. “It will greatly help my marketability should I decide to pursue a position in our US office or other companies, either in Singapore, other countries, or even back home in the Philippines.”

Fairchild has multiple operations in the region, including South Korea, Penang in Malaysia, Suzhou in China and Cebu in the Philippines. Since most of the sites are in Asia, the company decided it was time to set up a regional office.

“Singapore is the central and best location. A group was formed, by picking out specific individuals already working for the company, to form the pioneer team. I was one of those picked and endorsed from the Cebu site,” boasts Villa.

Villa is a typical beneficiary of what human-resource experts describe as the intensifying global “war for talent,” as companies—both local and foreign—fight tooth and nail for skilled workers all over the world. And while the stiff competition for talents is benefiting Filipino professionals, private companies are concerned that the loss of local talent would hamper the competitiveness of the domestic economy as companies find it hard to match the offers from multinationals.

A growing concern
In a study by Grant Thornton International released by the accounting firm Punongbayan & Araullo (P&A), 43 percent of Philippine companies picked the scarcity of skilled labor as the “major roadblock” to their expansion plans. Last year, only 15 percent of Philippine companies complained of the same problem.

With the steady exodus of the country’s best and brightest, it was only a matter of time, the study warned, before local businesses would begin to show signs of strain over the brain drain.

“The results this year clearly reflect the problem that employers across industries are experiencing, which is the draining of our local talent pool,” says P&A’s managing partner and chief executive Greg Navarro. “Even in the accounting practice, we are struggling to compete with foreign firms that see the Philippines as a good resource for highly trained, English-speaking certified public accountants.”

Indeed, official statistics from the Philippine Overseas Employment Administration shows that the country has been practically bleeding talents. Since 2000, the Philippines has been sending an average 79,000 professional and technical workers, 500 managers, 4,000 clerks and 70,000 production workers a year, many of whom are college graduates.

Within the same period, 10,000 nurses have left the country each year for Saudi Arabia, the United Arab Emirates, the United Kingdom, Ireland, the US and other destinations. On average, close to 13,000 caregivers, many of whom have nursing backgrounds, have left the country annually, many of them going to Taiwan, Israel, Canada and the United Kingdom. Japan and South Korea were the favorite destinations for performing artists, averaging 55,000 a year, while IT workers have been leaving at the rate of 300 a year to countries like Saudi Arabia, the US, Malaysia, Singapore and the United Arab Emirates.

The actual deployment of IT workers should be higher as most of them who are now working in countries like Singapore and Malaysia were directly recruited by their would-be employers. Others simply packed their bags and applied directly to companies. It’s so easy to do so because Singapore, being a member of the Association of Southeast Asian Nations, does not require visas from travelers from the Philippines.

“There are many Filipinos here [in Singapore], especially the professionals, middle-income class,” says Villa. “They are into IT and other fields as well, like management, restaurants and hotel-related, engineering, and logistics. Besides domestic helpers, I have met Filipinos working as waiters, department-store personnel, clerks, engineers, managers, academicians, church workers, airline personnel and others more. The Filipino population here has already reached 120,000, and still rising.”

Affecting all sectors
Analysts used to think that the diaspora of professionals only affected a few sectors of the Philippine economy, like seafaring, aviation, engineering, construction and nursing. But in the last three years, it has started to affect almost every sector of Philippine society. The Philippines is sending journalists to Singapore, Saudi Arabia and the United Arab Emirates; engineers and oil-rig workers to Nigeria, Russia and the Gulf states; speech and physical therapists to the US; and mining engineers and geologists to Australia and China. There are now Filipino accountants in Silicon Valley in California, and some are heading for Australia.

According to the Personnel Management Association of the Philippines (PMAP), industries suffering from high turnover rates these days include pharmaceuticals, banking, consumer goods, hotels and restaurants, electronics and semiconductors, and telecommunications and computers. About 33 percent to 59 percent of employees leaving their jobs in these industries, according to a PMAP survey, went abroad.

“In just 12 months, we lost about a dozen human-resource officers to other companies,” says a human-resource officer for a pharmaceutical company.

Even the public sector is increasingly being affected by the war for talent. The country’s weather bureau and the Mines and Geosciences Bureau are losing weather forecasters and geologists to the private sector here and abroad. The Department of Science and Technology (DOST) is hard hit as well. Sources from the DOST reveal that out of almost 3,000 scientists with PhDs in various scientific disciplines, almost 500 have already left the country in the last few years.

Even the military has not been spared from this phenomenon. Sources from the Philippine Army say the Australians are currently recruiting Filipino soldiers.

“They [the Australians] know that Filipino soldiers are well-trained in the different occupational specialties—infantry, cavalry, armor, signal, engineer, etc.—which makes them competent and efficient and can communicate or verbalize very well,” says an Army officer who doesn’t want to be identified. “The Armed Forces of the Philippines is using American military doctrines, and it is compatible with Australian military doctrines.”

The military officer adds that the Australians are luring Filipino soldiers with citizenship offers. Filipino soldiers are also being recruited because of their exposure in asymmetrical warfare or counterinsurgency operations. “For several decades, our soldiers have been fighting the NPA [New People’s Army], secessionists and terrorist groups. The Australians do recognize this Filipino talent,” the officer says, adding that Filipino soldiers who once served as United Nations peacekeepers “established connections during their tour of duty and after they retire or resign, they join the US or UN as civilian contractuals.”

Peter Goellnicht, principal migration officer of the Australian embassy here in Manila, however, denies that Australia is recruiting soldiers from the Philippine Armed Forces. In an interview, however, he admits that he is aware of “a couple” of former Filipino soldiers who were granted visas on the strength of their professional qualifications as soldiers.

Drivers of the global talent war
Noel de Luna, country manager of Mercer Consulting, a global human-resource company, attributes this increasing competition for workers in the Philippines to demographic changes in the US and the Asia-Pacific.

“There’s a war for talent out there because China is growing so fast and its population is aging,” says de Leon. “Japan also has an aging population. If you look at the demographic profile, its working population has been going down since five years ago. But the trend about rising demand for skilled workers is really Asia-Pacific-wide.”

In a region-wide survey by Mercer Consulting this year, de Leon reveals that 50 percent to 77 percent of companies in Japan, South Korea, China, Hong Kong, Taiwan, Singapore, Malaysia, Thailand, Indonesia, Vietnam, Australia and New Zealand have expressed hiring intentions even as many of them are experiencing double-digit attrition rates.

“And where are they going to get new talents? Naturally, many of them would recruit from the Philippines,” says de Leon.

Besides demographic factors, the larger forces of globalization seem to be the bigger explanation. In a paper entitled “Global Competition for Skilled Workers and Consequences,” Manolo aAbella, a Bangkok-based labor-migration expert formerly connected with the International Labor Organization, says that the raging war for talent results from the growth of global supply chains as liberalization of trade policies has made it possible for transnational companies to move production to cheaper locations.

“The emergence of these global production structures have been everywhere, accompanied by greater movements or transfers of technical and managerial personnel,” says Abella. “Another important development has been the growth of informal as well as flexible forms of employment, opening markets for foreign workers willing to enter occupations or sectors abandoned by natives.”

Still another factor is the rapid expansion of the knowledge economy and the demand it has created for a ready supply of young IT professionals, he adds.

According to economist Dieter Ernst, senior research fellow of the East-West Center based in Honolulu, the trend towards “downsizing” among American firms, is also a major factor. Ernst explains that because many American companies operate on a very lean staff, they have to scramble for specialized skills once demand from buyers shifts to new products that require new technologies.

“For many high-tech companies, competing for scarce global talent has become as major concern,” says Ernst. “As a result, global sourcing for knowledge workers now is an important global manufacturing and supply chain strategies. The goal is to diversify and optimize a company’s human-capital portfolio through aggressive recruitment in global labor markets.”

But what’s adding fire to the global talent war is that countries, especially those suffering from low population and labor-force growth, are engaged in systematic recruitment in response to the growing skills scarcity. The US, Canada, Australia and Singapore are among the most aggressive.
Canada and Australia have been offering permanent residence and citizenship as incentives for skilled migrants. Through its H1-B visa, Americans have been luring IT workers to Silicon Valley. Middle-East countries like Saudi Arabia and the United Arab Emirates have been giving temporary admission to skilled engineers, welders, pipe fitters, accountants, journalists, and advertising people from the Philippines and other Asian countries. Australia has also been using its universities as “academic gates” for attracting skilled migrants from all over the world.

Singapore has an office, Contact Singapore, that actively recruits talents from all over the world, offering incentives to would-be immigrants to become permanent residents and eventually become citizens.

“The government does encourage permanent residents with good standing to stay,” says Villa. “They extend all of the basic services they offer to their citizens, including medical services, wherein the social system will help you pay only a fraction of the medical costs. There are tax exemptions—tax rebate payouts—if the government performs well and has a budget surplus.”

Winners and losers
Certainly, skilled workers like Villa are the main beneficiaries of this global competition. Because of the increasing scarcity of talents, vulnerable companies are upgrading pay scales for their skilled workers in an effort to stave off staff piracy from other companies.

Patrick Marquina, an associate consultant for Watson Wyatt, a human-resource firm, notes that this year, 148 companies in manufacturing, business-process outsourcing, banking and other industries operating in the Philippines have raised their pay scales by an average of 9.21 percent, almost three times over the country’s inflation rate. Rising pay scales, Marquina explains, are particularly high in outsourcing and IT-related businesses.

Mercer-Philippines, another human-resource outfit, confirms the trend in a similar survey. Floriza Molo, information product solutions business leader, said 180 companies involved in the consumer, computer and telecommunications, pharmaceutical and other industries have, in the past year, increased their pay scales by an average of 8.13 percent and forecasted an 8.34-percent pay hike in 2007.

“In the Philippines, the scarcity of skilled workers has led to continuous increase in compensation and benefits for all the industries,” says Molon. “Though most companies remain conservative in giving increases, overall national competitiveness has driven local companies to compete with multinationals to be more aggressive in terms of base pay and giving premium to the employee.”

Analysts and corporate executives are worried that the continuing diaspora may hurt the country’s prospects for development. A critical mass of native people, Abella explains, is necessary to create new knowledge and technologies that are essential for progress.

“Experience has richly shown that human capital, rather than natural-resource endowments, is the key to economic development,” says Abella. “The current competition for the highly skilled has naturally raised alarms that it will further aggravate the problems of developing countries in creating a critical mass of professionals and technical workers needed to raise productivity.”

Sunday, September 09, 2007

From OFW to Pinoy Expat: analyzing the Malu Fernandez controversy

Global talent has never been more mobile, thanks to changes at the national, regional and international levels which have eased their flow across borders. Many countries, developed as well as developing, have designed policies and programs to attract talented people as students, temporary workers and immigrants.Gerry Rodgers, Director, International Institute for Labour Studies, International Labor Organization

Ex·pa·tri·ate (n): somebody who has moved abroad; a citizen who has left his or her own country to live in another, usually for a prolonged period.—
MSN Encarta Online Dictionary

WHY don’t we discard the term “OFWs” and use “Filipino Expat” instead?

“Filipino expat” is a neutral term used by most countries in the world, and free from the harsh and bitter narratives that characterized the evolution of the descriptor for the hardworking overseas Filipino.

The use of the term OFW (overseas Filipino workers)—and the social narratives behind it—may have gone out of date, and may account for why the blogosphere blazed in sheer hatred and venom when a certain Malu Fernandez denigrated Filipinos working abroad and typologized class stratification in Philippine society in terms of Jo Malone-versus-Charlie/Axe.

It’s possible that many OFWs now are wearing Bulgari or Gucci or Poison by Christian Dior or Chanel No. 5, hence the global moral outrage. In fact, what the matapobres in this world failed to realize is that the composition of expatriate Filipinos working abroad has slowly but surely undergone a profound transformation.

For decades we were sending many unskilled workers all over the world, after those heady days of the ’70s when the cream of our construction workers were tapped by Saudi Arabia and other Middle Eastern countries to build their infrastructure.

But then there was the wave of entertainers, mainly to Japan, and the domestic help—with many of the unskilled ones going to the Middle East and many of the college -graduate types, such as teachers—landing in Asia (primarily Singapore and Hong Kong) and Europe (Italy and Spain).

Unfortunately, besides the downside of labor export in terms of losing some critical skills for nation-building, the past decades were also littered with stories of abuse, primarily because of labor systems that were skewed in host countries. It was only in recent years, thanks to pressure from multilateral organizations, that host countries have worked more closely with labor exporters like the Philippines to substantially reform their work and wage systems.

These days, the share of skilled professionals (including those in the health field, such as nurses), technicians, managers, investors, engineers and accountants, among others, to the overall number of people leaving for work abroad are rising—partly owing to a deliberate, initially criticized state policy early this year to set floor wages for deployed domestic help in a bid to prevent labor importers from targeting uneducated, hence easily exploitable, workers.

Hence, if one looks at the distribution of Filipino expatriates abroad, one wouldn’t be surprised to have workers wearing varied types of fragrances, from the cheapest to the most expensive, befitting their economic status. .

This observation may find resonance in the fact that nearly half of the buyers of condominiums and properties in the prime areas of Makati and Fort Bonifacio, as well as in cities outside Metro Manila, are expatriate Filipinos. Why is the property sector on the upswing these days? Why are bookstores, boutiques and gadget shops selling expensive stuff proliferating? It’s the money from expatriate Filipinos. There is no longer any basis for the matapobres to look down on expat Filipinos anymore. Not that they were ever justified to do so anyway.

The typical narrative about the OFW is Angelo de la Cruz, that scrawny desert-truck driver begging for Philippine officials to bring the troops home so his captors would spare his life. It could also be Flor Contemplacion, the maid convicted for murder of a fellow Filipino maid in Singapore.

Their narratives—even when they were still called OCWs or overseas contract workers—are stories of privation and hopelessness, tales that particularly recurred during the ’70s and the early ’90s. From the perspective of the media covering the Philippines and even from many among us, the term OFW has come to be associated with images of despair and backwardness.

These narratives, however, have started to get obsolete since the late ’90s as more and more Filipino professionals and skilled labor are joining the global labor markets. Horror tales of maids getting raped are still there, but stories about successes of professionals abroad has also become prominent.

For every story about abused maids, there are several others about hotshot engineers, doctors, nurses, information technology professionals, accountants and bank managers making it big in the global scene. It’s now a mixed picture, one that won’t fit into the simplistic Jo Malone-versus-Axe class struggle format of Malu Fernandez.

There are many reasons for this phenomenon that goes beyond the usual Filipino-as-economic-refugee thesis. A significant part of this new trend is caused by global dynamics.

For instance, demographic change in advanced countries has prompted rising demand for medical and other professionals, and the Filipinos responded to this opportunity quite well. High crude prices brought riches to oil- and gas-producing countries. They are recycling these petrodollars in exploration and development, as well as the construction of rigs and oil platforms, and are hiring an increasing number of Filipino engineers, architects, geologists, mining engineers and skilled construction workers. That explains the double-digit growth of remittances each month in the last three years.

The rise of the knowledge economy is probably the most important factor. Global companies operating from Asia to Africa have realized that in this brave new world, competitiveness requires smart employees with good ideas in between their ears. Making money now is more about applying ideas to produce value; and it’s so easy to achieve that goal by bringing together critical masses of bright heads from various cultures. To produce graduates with “the global culture,” universities across the globe are recruiting professors from different countries to ensure “cultural diversity.”

It’s not only companies that are massively recruiting people; some countries, in fact, consider it part of their “national interest” to recruit people from various cultures. Countries like the United States, Canada, Australia, Singapore and New Zealand are among the most aggressive recruiters.

The world has changed—courtesy of globalization—and it’s making much of our biases, assumptions and perspectives about Filipinos working abroad obsolete. It’s time for us to appreciate and acknowledge this trend.

(Note: I originally wroted this piece as editorial for BusinessMirror, 10 Sept 2007)

Saturday, September 08, 2007

Journeys and reminiscences

I can’t just shake off these flashes of memories and images (from the Jefferson Fellowship) throbbing in my mind lately, so I captured them in a poem. Some good things never last but their imprints in our consciousness usually stay forever.

Excuse the stillness of Manoa’s nights

For in her depths I dreamed of heights

Unspoiled by the spells and slights

By sea-nymphs’ songs and liliths’ cries

Excuse those lazy Caltrain rides

Through the valley of hearts desires

For from her mighty brains flows forth

Furious torrents that charm men’s hearts

Excuse the dusts raining down from Beijing skies

For on her plains and glorious mountains stand

Imperial gardens and stone walls grand

Waiting for the fiery dragon’s rise

Tuesday, September 04, 2007

Myths and lies about the NBN and CEP

FINANCE Secretary Margarito Teves recently told reporters the controversial national broadband network (NBN) and the Cyber Education project (CEP) deals with China are under review. The NBN contract, according to Teves, is far from perfect.

Indeed, the Department of Finance (DOF) should review them thoroughly and with great transparency because, if these deals push through, Filipino taxpayers are going to pay for them in the next 20 years. The amount is huge: $829 million in all, covering $329 million for the NBN and another $500 million for the CEP, for projects with dubious technical and economic merits.

“Far from perfect” is an understatement. Those deals have always been suspicious. They seem to possess most, if not all, indicators of anomaly, and the government has not explained properly the deals to the public. In fact, government agencies like the Department of Transportation and Communications (DOTC), which has been enthusiastically pushing the deal, and the National Economic and Development Authority (Neda), have been obfuscating the issue. The myths and lies thus far spawned are simply adding to the confusion.

At least three major myths or lies are easily detectable.

Myth number 1—DOTC officials say it’s the best deal the government could ever have. It will save the government bureaucracy close to P4 billion in government expenses on communications, including landline calls, cellular-phone calls and Internet connections.

DOTC officials say the NBN and the CEP deals are the most technologically superior vis-à-vis the proposals offered by competitors Filipino-owned Amsterdam Holdings Inc. (AHI) and the American firm Arescom. DOTC officials say AHI’s offer is limited to the urban areas while Arescom is satellite-based, which is supposedly expensive to maintain.

In truth, it was President Arroyo herself who clarified that the bulk of those communications expenses by government are accounted for by mobile- phone calls, and government officials are going to continue using the facilities of the telcos. Recent advertisements by the DOTC indicate that government will even continue relying on existing private Internet providers despite the NBN. The DOTC says that government agencies will save through NBN’s voice-over-internet calls among themselves. That is true, but they are not saying something crucial: the government will still have to pay the telcos when it has to call outside of the NBN backbone.

Right now one would never know the true worth of the NBN, because there are just too many unknowns. From the original amount of only $135 million (Arescom’s offer), the amount has inflated to more than $800 million after the government spun off the CEP from the original NBN component. Besides, both supply deals were not subjected to either a Swiss challenge or international bidding, so there’s no chance of knowing the real score.

And if indeed, a satellite-based technology as proposed by Arescom is obsolete and expensive, why did the government agree for such technology to be used in the other controversial cyber twin, the CEP? The fact is that the DOTC’s technical working group has always proposed a single backbone for both the NBN and CEP and has opposed satellite-based technology.

Myth number 2—The NBN will address the “digital divide.” This is Neda’s line, a dig at the private telcos, which officials say make money by concentrating their operations in the major cities but neglect the countryside. Neda officials say the NBN is a perfect foil to this trend.

In truth, the NBN won’t address the digital divide. The backbone the NBN is going to build will be used solely by government agencies, including about 50 percent of the barangay halls. Yes, barangay halls, but not the barangay residents! Residents in remote barangays will have to wait for the rollout of private telecoms before they can even fantasize about flying in the ethereal realm of the digital world.

And myth number 3—The government needs a dedicated state-owned and controlled Intranet and separate backbone for “national security” reasons. The government, DOTC officials say—and echoed by Neda—has to own and control that backbone so that neither a snoop nor a malevolent hacker could do mayhem.

This argument is really the craziest. The truth is that government has been using private networks for its e-mail and other communications needs since time immemorial, but “security issues” was never a problem. It has never been a problem during the time of President Fidel V. Ramos, a former general who probably appreciates “national security” more than anybody else in the DOTC. Besides, if “national security” were an issue here, then wouldn’t it be riskier to entrust government’s information to a foreign state? Unless they’re saying a foreign government is trusted more than the Filipino private sector.

In our midst today are huge multinationals owning sensitive intellectual property, including patents and trade secrets worth billions of dollars greater than the Philippine GDP. Yet these MNCs never felt compelled to build their own separate fiber-optic backbone. Imagine a situation where everybody lays down fiber-optic cables for “security reasons.” Wouldn’t that be the ultimate “spaghetti sa ibaba,” underneath our soil and the seas?

But private firms do have their own private and secure network, not by having their own separate physical backbone, but by buying capacities from existing privately run backbones—PLDT and Telecphil. For instance, it’s not uncommon for these huge firms to use Telecphil facilities for their Philippine operations while connecting to the PLDT backbone for their fiber-optic link to their headquarters in the US. And security has never been an issue because there are a thousand and one ways of securing them.

If there’s one agency that should be crazy about having a “secure network,” it should be the Department of Interior and the Local Government (DILG). The truth, according to sources from Neda, is that the DILG was never enthusiastic about the project, and this is why Arescom’s proposal, initially offered to the DILG, went nowhere. According to Neda sources, DILG officials thought the backbone was not their priority, thus giving DOTC officials the opportunity to disregard Arescom and endorse ZTE to the Neda Investment Coordination Committee.

The two deals could also be examined on transparency, governance and economic issues—something the professors of the University of the Philippines School of Economics have done extremely well without any reply from either the Neda or DOTC. The DOF should cover all these issues before even thinking of approving the deals.

We dare the DOF to make its own review open to the public.

(Note: I wrote this as an editorial piece for BusinessMirror, September 5 2007)

Please see also related posts
Philippines’ NBN: government porn at broadband speed?
National Broadband Network: a backbone of waste and shame
RP needs Freedom of Information Act to curb corruption

Monday, September 03, 2007

The numbers are real but Malacañang should stop politicizing the GDP!

IT was not prudent of government to hold the press conference announcing the latest gross domestic product (GDP) figures in Malacañang.

The announcement politicized the whole process—more so because the announcement was made by the President who, for all her work ethic and passion for reforms (“I’d rather be right than popular”), is, sadly, the wrong messenger as the surveys consistently show her as an unpopular Chief Executive. The medium is the message, so to speak.

She now faces another round of post-midterm-election political troubles with the reopening of the “Hello Garci” controversy and the possible congressional investigation into the national broadband network deal with the Chinese government. Thus, whether she likes it or not, the GDP show in Malacañang was, from the start, bound to be cast as plain political opportunism.

Of course, there’s no incentive for the ruling party to work for progress if it couldn’t have the luxury of claiming credit for the economy’s gains. But it should do it with finesse, as past administrations did. Given the need to free the national accounts from partisan political dynamics, previous Philippine presidents in recent memory (Marcos, Aquino, Ramos and Estrada)—and most leaders of democracies worldwide—had the keen sense of refraining from making a spectacle out of the regular releases of such normally neutral and boring sets of numbers.

“Are you saying the National Statistical Coordination Board [NSCB] people are liars?” said the visibly irked President when a journalist signaled incredulity over the surprising number.

That scene on national TV may have raised questions on the veracity of the GDP figure, an unfortunate incident in a supposedly academic briefing.

The President was right to feel upset that people might doubt the hardworking number crunchers of the State, given the high degree of professionalism that has marked the work of people in the NSCB and the agencies it closely works with. But she was wrong in thinking the doubt is driven by malice; it’s just that, having politicized a routine job of reporting the income accounts, she had invited suspicion for the work of these people.

Expectedly, the opposition immediately linked the President’s negative popularity rating with the GDP figures, saying: “If the economy is doing well, then that means that our national officials are performing well. But why is it that Mrs. Arroyo has a poor trust rating?”

That was sad because as a democracy—at least we pretend to be—people here are supposed to believe more in their official statistics than their political leaders. The credibility of statistics, together with other important institutions, is very critical in the functioning of a system. Citizens, business people, investors, entrepreneurs and planners make decisions based more on official numbers, which should remain untainted, than the pronouncements of politicians.

President Arroyo simply could have continued with the tradition of having the GDP announced by the NSCB in a neutral venue. And then issue her reaction from the Palace; then she’d have every right to glory in it from her perch.

Having said that, we are inclined to believe that the recent GDP and gross national product (GNP) figures are real.

One thing we should be proud of as Filipinos is the fact that our statistical system, specifically the one preparing the national accounts, has remained neutral—even in the time of the dictator Ferdinand Marcos, who was once accused of dressing up the balance of payments numbers, but never the national accounts.

Yes, the economy has been growing the last several years. The industry sector bounced on the back of a surging construction and mining sector.

The services sector also grew—on the strength of transport, storage and communications (more people buying cellular phones and sending SMS); trade (despite the strong peso); real estate (more people buying condos); and private services (courtesy of the outsourcing industry). There are signs of these trends in the last several years, including the ever-frequent mall “sales.”

The usual question is where do the people get the money? And the usual answers: remittances, outsourcing and call centers, electronics and semiconductors, and other new growth drivers like mining and construction.

Note the huge difference between the GDP growth rate (7.5 percent in the second quarter, 7.3 in the first half)—that accounts for goods and services produced, exchanged and paid for within the country’s borders—and the GNP (that’s the GDP plus or minus the contribution of Filipinos working abroad), which grew 8.3 percent in the second quarter and 8 percent in the first half.

It shows the bigger contribution of OFW remittances as a growth driver. From the expenditure side, the national accounts says personal consumption expenditure contributed 4.75 percentage points, followed by merchandise exports (2.56 percentage points), and construction (1.57 percentage points).

That means that as usual, the country’s improving growth rates have really more to do with the globalized sectors of the economy (primarily labor migration and foreign trade)—a trend that New York Times analyst Thomas Friedman calls “the revolution from beyond”—and less with what’s Malacañang doing or not doing.

This trend means two things. First, there should be no basis for that spectacle in Malacañang. The proper credit goes to overseas Filipinos and exporters, despite the “strong peso” and Malacañang’s inability to address their plight. Second, it would also be unfair to dismiss the GDP figures as inconsequential to the country’s economic life, for they are real gains delivered by real people—exporters and OFWs.

The only real questions now are two things: first, whether or not it’s sustainable; and second, whether or not it’s the kind of growth we want to pursue.

It’s possible to maintain the growth momentum—assuming the external environment remains favorable (robust global economy). It’s actually possible to grow primarily on the strength of the services sector as shown by India.

But it may not be the most desirable kind of growth. Services-driven growth essentially benefits urban dwellers. The benefits flow to the well-off first before they trickle down to the wretched classes. The example again is India: its 8-percent growth rate since 2002 essentially accrues to a million information-technology workers out of a billion Indians, while many, many are suffering from what N. Ram—editor of Chennai-based The Hindu newspaper—calls “mass deprivation.”

We desire more inclusive growth, something that harnesses the potentials of the farms and the factories, besides the call centers, banks, mines and telecom firms. That’s not yet in our GDP figures—especially not with lackluster results on capital formation (business people are not yet buying new machines and office equipment!)—an indication that business confidence in the Philippines’ long-term prospects has yet to be fully restored.

(Note: I originally wrote this as editorial for BusinessMirror, 4 September 2007)

Sunday, September 02, 2007

Promises and pitfalls of biofuels

Like any innovation, increased production of energy crops has the potential to exacerbate socioeconomic inequalities by concentrating benefits on the well-off. It can lead to deforestation, a loss of biodiversity, and excessive use of fertilizers and pesticides, thereby degrading the land and water that poor people depend on. Policymakers must take care to ensure that biofuel production is managed and regulated in a way that avoids these pitfalls.—Joachim von Braun, director general, International Food Policy Research Institute, International Conference on Biofuels, July 5 and 6, 2007, Brussels

THE other day former agriculture secretary and now director general of the International Crops Research Institute for the Semi-Arid Tropics (Icrisat) William Dar advised the government to consider the interest of the rural poor in the drafting of plans for the local biofuels industry.

It’ s a timely reminder, obviously based on a valid concern. With the rising prices of fossil fuels, biofuels might just emerge as a huge industry here, and it might be tempting for huge agribusiness giants and industrial processors to push aside the rural poor in the production of feedstocks, such as corn, sugar cane and sweet sorghum, through large-scale and mechanized plantation agriculture.

“It”s simple to do it that way, but it ignores the social and environmental consequences, which could be devastating,” warned Dar, himself a distinguished agricultural scientist. “Markets run on profits, not on social consequences.”

We couldn’t agree more.

The Philippines actually doesn’t run out of success stories in agribusiness and industrial crops production. In the last 30 to 40 years, the Philippines, particularly Mindanao, has been one of the best and most successful producers of pineapples, bananas, asparagus, mangoes, rubber trees, oil palm and cut flowers, among many others, this side of the Pacific.

The only problem is that most of these economic activities are done mainly by large agribusiness firms, rich local entrepreneurs and relatively well-off farmers, thus exacerbating rural inequality. That explains why poverty, especially rural poverty, continues to be a serious problem in this country.

Certainly, producing biofuel feed- stocks is economically and socially promising. These are labor-intensive activities that could help address rural joblessness. It seems to be a picture-perfect business activity that could provide extensive linkages between the farms and industry, thereby benefiting a broader segment of society.

It’s almost like a super sniper’s bullet scoring several hits with just one well-aimed shot: more jobs for farm and upland dwellers, higher incomes for farmers, more jobs for workers in processing plants, reduced reliance on imported fossil fuels, thus contributing to the improvement in our balance of payments, and a cleaner environment. But experts say there are pitfalls that we need to address before we could even think about bringing down those plans to the ground. And the first of them is stakeholder participation.

Are we going to do this like we did with other agribusiness endeavors? If we go business-as-usual, if we don’t factor in social-equity considerations, it’s likely that Dar’s fears about the benefits of biofuels feedstock production accruing largely to the well-off are going to be repeated again.

This is because this new business is going to require extensive access to innovative technologies and markets for producers to be successful. These are factors that are always not available to upland dwellers and marginal farmers, making them miss out on so many potential economic benefits.

And yes, we mentioned access to innovative and proven technologies because our farmers might just end up planting all sorts of feedstocks, only to find out the ones they have invested their sweat and blood in are not needed by the processors.

The government has lately been trumpeting glorious hallelujahs about the virtues of jatropha without even conducting serious research and development efforts about this crop. No less than officials of the Philippine Council for Agriculture, Forestry and Natural Resources Research and Development and Dar himself have lately been warning the government about it, but it seems their wise voices are not getting across.

What sorts of feedstock provide the highest energy yield? What areas in the Philippines are suited for what type of feedstock? What sorts of agronomic practices are necessary to ensure sustainable and economical yield? Are there opportunities for intercropping with existing perennial crops like coconuts? Are there adequate rural infrastructures to support and make such feedstock cost effective? Are there geographic factors to be considered to ensure economic viability? These are some of the many questions that our government planners need to consider before they could even start talking to farmers and upland dwellers.

Failing to study these questions, the government might just end up creating confusion and even more economic problems.

For instance, there’s a danger that in the rush to produce feedstock, we might end up encouraging farmers to shift away from food production. We might end up having plantation-style agribusiness systems for feedstock that would require massive doses of fertilizer and pesticide, thus defeating the biofuel’s supposed earth-friendly purposes.

The worst scenario could be the massive conversion of upland forests for the production of feedstock to the detriment of biodiversity and the watershed areas.

(Note: I wrote this piece as editorial for BusinessMirror, September 1 2007).