Bernardo M. Villegas
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How Soon the Economic Recovery? (Part 2)

          The GDP growth for the whole of 2021 will be lackluster at 4 percent, lower than Government’s expectations.  Gross Domestic Product (GDP), however, is an average of the growth prospects of the different sectors and industries of the national economy.  For example, the latest breakdown we have of growth performances of the various sectors and industries of the Philippine economy was for the first quarter of 2021.  Final figures for the second quarter are still expected sometime in August.  In the first quarter, GDP declined by -4.2 percent.  The sectors comprising the economy, however, had different growth performances.  According to the Philippine Statistical Authority (PSA), construction took a beating of -24.2 percent.  Other services declined by -38.0 and Real Estate and Ownership of Dwellings dropped by -13.3 percent.  These were some of the hardest hit among the economic sectors.  The story, however, is different for some more fortunate industries.  Human health and social work activities predictably expanded a robust 11.7 percent.  Just think of all the hospital and diagnostic services that millions of Filipinos needed during the pandemic, not to mention all the medicines people had to buy both for curative and preventive reasons.  The Government had to spend billions of pesos for poverty alleviation.  Another sector that benefited from the pandemic was Public Administration, Defense and Compulsory Social Activities grew at 7.5 percent; Information and Communication at 6.3 percent; Finance and Insurance at 5.2 percent.  Electricity, steam, water and waste management grew by 1.9 percent while manufacturing barely managed a positive growth at 0.5 percent.

    The point I want to make here is that even if the so-called macroeconomic outlook still looks bleak for the next 12 to 18 months, there are sectors that will recover faster than others.    Existing and would be entrepreneurs should focus a lot of attention on these fortunate sectors that have in a way benefited from the pandemic for one reason or another. For example, the sunniest of the sunrise sector, as mentioned earlier, is that of the OFWs who literally have saved the day for the country by continuing to increase their remittances to the country, despite the close to 500,000 of them who had to return home because they lost their jobs.  As an editorial that appeared in The Inquirer wrote, OFWs remitted $33.2 billion in 2020, just 0.8 percent lower than the pre-pandemic figure of $33.5 billion.  Without this equivalent of some P1.6 trillion (40 percent of the government’s budget of P4.1 trillion for 2020 and eight times the P200 billion “ayuda” that targeted the poorest of the poor and those displaced by the lockdowns) GDP would have certainly dropped by double-digit rates. Considering the great benefits conferred by the OFWs, the government, the business sector and civil society should put their hands together to make it easier for the returnees to find jobs or start their own businesses in the Philippines.  The first thing is to make sure they really have the priority to receive the anti-COVID vaccines.  They should be helped to retool, reskill or upskill themselves, especially in the construction sector that is suffering from acute shortages of workers.  There should also be forward looking programs that will equip new and potential OFWs among our younger workers for the post-pandemic rise in demand among the developed countries for health workers, teachers and IT personnel.  These training programs should include language courses in Japanese, German, Spanish Korean and Mandarin, among other languages, to cater to the countries that are hardest hit by the demographic crisis.

         Needless to say, the digital sector has been the greatest beneficiary of the pandemic which required almost every phase of daily life to go online.  Both large and small, existing and prospective enterprises should use the pause in economic activity during these pandemic months to take seriously the process of digitalizing their respective businesses.  Although brick and mortar retail stores will not disappear, even the smallest retailer should be ready to sell whatever goods it has partially through digital means.  This reminds me of the famous founder of UNILAB, Joselito Campus, who started his business in a small “botica” in Tondo.  That drug store was known for having, despite its small size, a complete stock of all the medicines needed by the typical consumer.  If he did not have a certain item, from his knowledge of the inventories of all the drug stores within reasonable distance from his store, he would ask the customer to wait and he would bicycle to the store where he knew the item was available.  He would purchase the item and bicycle quickly back to his store and deliver the product to the waiting client.  Delivery by bicycle is not the innovation of the e-commerce.  The innovation is in the possibility of ordering goods through your smart phone.  The sector designated by PSA as Information and Communication grew at 6.3 percent while the whole economy was declining at 4.2 percent.  This could mean that when GDP starts growing again at 6 to 8 percent, the whole digital sector can grow at double-digit rates.

    I only wish that we do not mistakenly believe that we can successfully deliver quality education in our public schools while prolonging the so-called blended system of learning.   We have to go back to face-fo-face classes at the basic education level in the public schools as soon as practicable because the vast majority of the pupils do not have the wherewithalls, especially internet connections, required by online learning.  On the other hand, especially in the professional services sector, Work from Home will be a permanent institution. Already some of the largest banks in the world have announced plans to allow staff to work from home or in “near-home” locations to reduce the office footprint and commuting.  Among them are the Swiss lender UBS, HongKong Shanghai Bank (HSBC) and Standard Chartered, as reported by the Financial Times (June 28, 2021).  In the Philippines, the very likely normal combination desired by most professionals will be three days in the office and two days at home.  This trend will continue to bring high growth to the digital sector in which the telecom, information technology and media sectors are merging into one super industry.

         In the retail trade, which declines as a result of successive lockdowns, there are outstanding examples of innovative thinking during the pandemic that will guarantee a quicker recovery as the Philippines reaches herd immunity sometime towards the end of 2022.  There are those in this sector who have a positive mind set and have not been discouraged by the massive closures of the largest retail outlets in the United States and elsewhere.  They are convinced that in the Philippines, which is just  reaching  the status of an upper-middle income economy, the vast majority of consumers from the C, D, E levels will still prefer to see and touch the products before buying.  E-commerce will be predominantly for the A and B households.  There is also the practice of consumers from the lower income levels, who constitute the majority, of combining shopping with spending leisure time with family and friends in the malls (that is why it is called malling).  Owners of large malls need not fret that they will become extinct.  The Filipino masses consider malls as a combination of a market place, a public park, a “feria” and a place for religious worship!

         An example of this positive thinking about the future of brick and mortar stores  can be found in the case of the Merry Mart Group headed by entrepreneur Edgar Sia II who introduced the famous Mang Inasal stores to the Philippines and has now diversified into real estate through Double Dragon.  Recently he announced that his Merry Mart Group will be putting up 100 branches all over the country. These branches will be comprised of the MerryMart Store, MerryMart Market, MerryMart Grocery, MerryMart Wholesale and Dark Groceries. In an interview with Amy Remo of The Inquirer, Mr. Sia explained the rationale for his bullish plan of expansion:  “We see the brick and mortar relevance over time to be more on the non-discretionary side like grocery and pharmacy due to its business model of low double digit margin.  (This) makes getting non-discretionary items cost higher if these were to be delivered.  In effect, the consumers will have to pay for convenience.”  I agree that only the A and B households, which constitute only about 14 percent of the consumer market,  will be willing to pay the higher price that will be required by online purchases, especially for the daily necessities such as  food and beverage, personnel care, pharmaceutical products, school supplies, clothes and shoes, and similar items.

         This ever-innovating entrepreneur also has highlighted the importance of warehousing in markets where the digital and physical dimensions of the retail trade have to complement one another.  The Merry Mart Group is currently constructing CentralHub warehouse complexes in different parts of the country.  The plan is to locate the MerryMart Wholesale Centre in all the CentralHub complexes in various provinces. The Group is also introducing what are called MBOX smart lockers, a revolutionary system of self-service lockers similar to post office boxes that are accessible 24/7 in which customers can collect and drop off packages at their convenience at minimal or no additional cost.  People expecting delivery are notified of package arrival through SMS or app notification.  This innovative approach to logistics will enable couriers to deliver multiple parcels to one secure location, thus saving time, reducing cost, minimizing failed deliveries and reducing traffic and carbon emissions.  Much ahead of all other sectors to recover is, therefore, the supply chain or logistics industry which will never look the same after the pandemic.  I am sure there will be other very innovative solutions to combining the physical and digital aspects of retailing that business people like Edgar Sia II will introduce, showing once again that crisis is always a breeding ground for new engines of economic growth. The lesson to be learned from the Merry Mart Group is that real entrepreneurs do not waste their time asking when the economic recovery will happen.  They make the economic recovery happen.  (To be continued).