Economy 8 MIN READ

Business groups see a better year, but challenges abound

January 5, 2023By BusinessWorld

LOCAL business groups are expecting a better year for their respective sectors despite the global economic challenges that may hinder the country’s growth prospects.

Ebb Hinchliffe, American Chamber of Commerce of the Philippines (AmCham) executive director, told BusinessWorld via mobile phone interview that the overall sentiment in the group is that 2023 will be better than 2022.

“On a positive side, the expectation is for interest rates to remain steady or possibly decrease in 2023, which would be positive for investment and growth. Overall sentiment is 2023 will be better than 2022,” Mr. Hinchliffe said.

Despite the overall positive sentiment, Mr. Hinchliffe said that other AmCham members remain “cautiously optimistic” for 2023 due to possible challenges that might be faced by recently approved local policies.

“Most see 2023 as a continuing recovery mode and recognize some risk and concerns that could dampen the business climate. These include possible legal challenges to the Public Service Act (PSA) and renewable energy implementing rules and regulations (IRR) allowing 100% foreign ownership. Challenges lead to uncertainty and uncertainty leads to a wait-and-see situation. Other concerns are the possibility of a recession, higher energy cost, and high inflation,” Mr. Hinchliffe said.

“Most of AmCham businesses saw a good 2022 as they emerged from the pandemic,” he said, adding that most are also cautiously optimistic for 2023.

The Philippine government early last year amended the PSA to allow companies in sectors such as telecommunications, airlines, railways, and shipping to be fully owned by foreigners. These sectors were previously covered by the 40% foreign ownership limit under the 1987 Constitution.

In November, the Energy department issued a circular that amended the IRR of Republic Act No. 9513 or the Renewable Energy Act, which now allows renewable energy projects to be fully owned by foreigners.

However, Mr. Hinchliffe said that other recently passed measures would also entice more foreign direct investments into the Philippines in the new year.

These measures include the amendments to the Foreign Investment Act (FIA) and Retail Trade Liberalization Act (RTLA), Republic Act No. 11697 or the Electric Vehicle Industry Development Act (EVIDA) and Republic Act No. 11904, or the Philippine Creative Industries Development Act (PCIDA).

The amendments to the FIA and the RTLA seek to entice more foreign investments, while the EVIDA aims to boost local demand for EVs, and the PCIDA seeks to boost local creative industries to help economic recovery.

“The recent passing of pro-business legislation would also make 2023 a good year for [an] increase in foreign direct investment (FDI),” Mr. Hinchliffe said.

Rosemarie B. Ong, Philippine Retailers Association (PRA) president, said in a mobile phone interview that local retailers are “cautiously optimistic” for 2023 due to economic challenges.

“The Philippine retail sector is cautiously optimistic about the prospects for [2023]. As it is, retail is doing good and strong with the holiday spending and the easing of coronavirus disease 2019 (COVID-19) restrictions. We see the return of the customers in stores and return of traveling,” Ms. Ong said.

“However, we also have new challenges that we are experiencing now that dampens the full retail recovery such as the inflation, which is seen to be continuing to increase even in the incoming months to 2023,” she added.

Latest figures from the Philippine Statistics Authority (PSA) showed that the country’s headline inflation reached 8% in November on the back of higher food prices, higher than the 7.7% posted in October and 3.7% in November last year.

To counter surging inflation, the Bangko Sentral ng Pilipinas hiked interest rates by 50 basis points, bringing its policy rate to 5.5%. Rates on the overnight deposit and lending facilities were also increased to 5% and 6%, respectively.

Amid guarded optimism, Ms. Ong said that the PRA is hoping that 2023 would allow local retailers to recover from the effects of the COVID-19 pandemic.

“Despite the gloomy and uncertain outlook of global economies for next year, we hope that 2023 will still allow businesses to have opportunities to grow and recover amidst the economic volatility,” Ms. Ong said.

“With the current inflation rates and the supply chain disruptions we experience now, business growth might slow down a bit next year. However, we are still hoping that growth will still be continuous in 2023,” she added.

Ms. Ong said that the PRA is confident that the Philippine retail would be able to adapt to the economic challenges.

“For retailers to stay afloat amidst these foreseen challenges, we have to be prepared in rethinking or re-strategizing new ways to operate our business, especially under this new normal. We have already done it during the pandemic, and we are confident that Philippine retail will continue to adapt and innovate as we surpass these new challenges,” Ms. Ong said.

Steven T. Cua, president of the Philippine Amalgamated Supermarkets Association or Pagasa, said via mobile phone message that the supermarket industry is expected to recover in terms of sales in 2023.

“Assuming that COVID-19 is relatively contained and new variants can be tamed, Pagasa foresees some rebound in sales for the supermarket industry in 2023. This can be greatly accelerated if government tempers unnecessary regulations and helps develop the different industry sectors by stabilizing conditions in the economy,” Mr. Cua said.

“Expansion plans put on hold by those in retail, food, construction and tourism are slowly coming to fruition as the economy opens. We see growth slowly building up to pre-pandemic levels,” Mr. Cua said.

According to Mr. Cua, a resolution of global economic headwinds such as Russia’s war on Ukraine will help the growth of the local supermarket industry.

“An end to the conflict between Ukraine and Russia would signal a good start. Expectations of continuous supply of raw materials and intermediate goods would be encouraging. Increase in disposable income per capita would be good for employment and entrepreneurship,” Mr. Cua said.

Mr. Cua added that a stable power supply and improved logistics would also help boost the local supermarket sector.

“Unhampered production of fast-moving consumer goods (FMCG) due to ample power supply and cheaper rates, more orderly traffic even as we invest in infrastructure for public transport and thoroughfares, stable peso versus the dollar, decreasing prices for fuel and imported basic raw materials — all of these would augur well for a better economy in 2023,” Mr. Cua said.

However, Mr. Cua said that issues seen to affect the local supermarket industry include corruption and unclear government directions for industry and the economy.

“The industry is slowly climbing there as the cough of COVID-19 clears. We believe 2022 is better than 2021. It could be better if we don’t have to be derailed by luxurious prices of sugar, onions and others which in most economies are basic goods in the market,” Mr. Cua said.

“Government has to set the favorable economic conditions for balanced growth in the various industries,” he added.

George T. Barcelon, Philippine Chamber of Commerce and Industry (PCCI) president, said that it is still too early to predict the outlook of the Philippine business sector in 2023.

“It is too soon to tell. Let us wait a bit longer,” Mr. Barcelon said in a mobile phone message.

Meanwhile, British Chamber of Commerce Philippines Executive Director Chris Nelson said that he is optimistic about the local business sector’s performance in 2023.

“The first thing I’d say is that you can clearly see that the Philippine economy has reopened. That is very important because the consumer is very important to the Philippine economy. It is a consumer-driven economy, therefore opening up the economy will be a support to the gross domestic product (GDP) growth,” Mr. Nelson said.

“The Philippine economy is always driven by consumers. Obviously, retail is going to be a factor. What the Philippines need to continue to improve is on the export side and supporting infrastructure,” he added.

Mr. Nelson added that the country should finalize its participation in the Regional Comprehensive Economic Partnership (RCEP) trade agreement to improve the country’s business environment in 2023.

“We need to see RCEP through because this allows the Philippines to trade with a huge trading bloc. It is just a reinforcement that the Philippines is an important market and a gateway to Southeast Asia,” Mr. Nelson said.

The RCEP, which is touted as the world’s largest free trade agreement (FTA), took effect on Jan. 1, 2022. The participating countries include the 10 members of the Association of Southeast Asian Nations (ASEAN), Australia, China, Japan, South Korea, and New Zealand.

However, the Philippines has yet to finalize its participation in the RCEP after the Senate was unable to give its concurrence in the previous Congress due to concerns related to the absence of safeguards for the local agriculture sector.

Former President Rodrigo R. Duterte ratified the RCEP in September 2021 and has been awaiting Senate concurrence before formally participating in the FTA.

The concurrence of the RCEP is now pending at the Senate Committee on Foreign Relations. The Trade department is expecting the Philippines to finalize its participation in the RCEP by the first quarter of 2023.

President Ferdinand R. Marcos, Jr. gave his approval to the RCEP after saying early in his administration that the FTA should be reviewed to ensure that the local agriculture sector is ready for the further opening of trade.

Among participating countries, the Philippines and Myanmar are the only remaining countries that have yet to finalize their participation in the RCEP. – Revin Mikhael D. Ochave, Reporter

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