Bernardo M. Villegas
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Next Six to Twelve Months (Part 2)

             What will happen to inflation in 2022?  I expect inflation to slow down from the high of 4.5% in 2021 to about 3.5% in 2022.  World oil prices are expected to go down below $70 per barrel as the global economy slows down again because of lockdowns being re-imposed in both Europe and the U.S. as the Omicron variety is spreading very rapidly, although there are less hospitalizations and deaths.  The shortage in food supplies resulting from the super-typhoon Odette can be minimized through more liberalized importation of the strategic food items like rice and pork.  Also, it is expected that starting the first quarter of 2022, the Central Bank will follow the example of many countries like the U.S. that are already tightening money supply by raising the interest rates by one or two basis points.  It is expected that the policy rate next year will increase from 2% to 2.50% by the end of next year, thus mopping up the excess liquidity that could result from election-related spending and billions of pesos that will have to be spent in rebuilding the infrastructures and houses destroyed by Odette.

           Among the measures that Romeo L. Bernardo, former Undersecretary of Finance, enumerated in his columns in the Business World entitled “The First 365 Days,” the ones I believe will be given the highest attention by the next Administration are those that have to do with enabling more Foreign Direct Investments in strategic industries.  My reason is pragmatic.  The next Administration will have no alternative but to depend heavily on foreign equity investments because we have exhausted our ability to borrow during the pandemic.  We have reached dangerous levels of debt-to-GDP of over 80% and fiscal deficit to GDP over 8%.  We have to start repaying some of these borrowings.  Our Build, Build, Build program will be endangered if we cannot attract FDIs the way Vietnam has been doing in the last five years.  Thus, I think that there are three legislative acts, that if not passed by the present Administration before the May elections, will be passed within the second semester of 2022. 

           These laws are the amendments to the Public Services Act, amendments to the Foreign Investments Act and amendments to the Retail Liberalization Act.  As much as I, too, would like the Regional Comprehensive Economic Partnership (RCEP) to be ratified by Congress, I am afraid such will not happen in the next six to twelve months because of strong objections from the farming sector.  There will have to be more debates in the next Government on this controversial issue.  As Mr. Bernardo recommends, once these bills are ratified, the Executive branch should create the Inter-Agency Investment Promotion Coordination Councill (IPCC) to integrate all promotion and facilitation efforts to encourage foreign investments including “foreign investment promotion and marketing plan.”  As regards the Retail Trade Liberalization Act, the DTI-BOI should formulate implementing rules and regulations (IRR) consistent with the legislative objectives of the amendments to the law.  All these are doable in the first few months of the next Administration.

           In his prognostication of what could happen starting 2022, economist Andrew Masigan in his column also in the Business World entitled “Industry drivers 2022 – 2030” gave a clue to what will surely happen in the next six to twelve months.  This refers to the construction sector which grew at 7 % during the third quarter of 2021.  For the next six to twelve months, construction will clearly be an engine of growth considering what he identifies as very favorable trends for both public and private construction: “a housing backlog of 12.4 million homes; the need for 368,600 square meters of new office space until 2025; the government’s continued push towards infrastructure development; and $14 billion to be spent on modernizing logistics supply.”  Andrew, who is a graduate of one of the executive education programs of the University of Asia and the Pacific, is right in being bullish about the construction sector both in the short term and the long run.  In fact, even in the last months of the Duterte Administration, construction will lead in growth because of the intensification of the Build, Build, Build program, especially in the countryside.  Such a focus on rural infrastructure will be given even a greater push considering what have to be done in the six regions that have especially suffered from the ravages of Odette.  Despite the lower credit rating the Philippines has at the moment because of the huge amounts of borrowing during the two years of the pandemic, these rehabilitation works resulting from the typhoon can be well funded by Official Development Agencies (ODAs) as well from the calamity funds and unspent parts of  the budgets in 2021 of several agencies.  His reference to modernizing the logistics supply is also right on because of the expected permanent shifts provoked by the pandemic towards e-commerce.  The sixty percent of the consumers who belong to the A,B,C households will now permanently order most of their requirements online, which will require a lot of investments in warehouses, cold storage, delivery vehicles and other logistical facilities.

           I also agree with Mr. Masigan on our being able to depend on the mining industry to generate much needed foreign exchange to prevent large deficits in our balance of trade.  I am referring to the mining industry that is taking full advantage of the prevailing high prices of copper and nickel of which we have large deposits.  As he pointed out, the Philippines is blessed with the world’s fourth largest reserves of copper with some 4.1 billion tons, and the world’s fifth largest cache of nickel with 298 million tons.  We, however, are not maximizing the benefits from these natural endowments because of man-made obstacles.  Fortunately, the Government recently removed   the ban on open pit mining.  We should follow up this very positive move by doing something about the erratic behavior of some LGUs who can often override national government policy, and about the zonal ban on mining which at times can be unreasonable.  I have first-hand knowledge of these obstacles since I am the Chairman of the Benguet Corporation that is involved in both nickel and gold mining.  Despite these hurdles that mining firms have to make, 2021 has seen significant improvements in the profits of mining companies because of the great dependence of Industrial Revolution 4.0 on products such as EV batteries, computers, smart phones, and other digital devices which cannot be manufactured without the raw materials from these mining operations.

           Finally, most economists talking about the next six to twelve months mention food and agribusiness, health and wellness, low-cost and economic housing, the digital sector and informal and non-formal education as the sunrise industries.  These are the sectors that will follow a V shape in the impending economic recovery.  In contrast, those who will take longer to recapture their pre-pandemic growth rates are foreign tourism, formal tertiary education, high-cost residential units, commercial malls, public entertainment, luxury consumer items and motor vehicles. These will have a L-shape recovery.  For comments, my email address is