Speech of Secretary Ramon M. Lopez
Franchise Asia Philippines 2018
18 July 2018
Ladies and gentlemen, good afternoon!
So, let me begin by, of course thanking the PFamily that is spelled PFA-mily, for inviting me once again as you know I have been here every year, no absence, I make sure I attend if you invite me. And I make sure that I am always here and avoid foreign trips because we always avoid foreign trips nowadays. And of course, I would like to congratulate the PFA family for really bringing to a higher level the franchise discipline, the franchise community here in the country. And it is now referred to as the “Franchise Hub in Asia”. So a lot of big learnings, [and] every year is always a record to be here, in terms of attendees, and you always call it I think it’s a bigger number of attendees this year. There’s a lot of business matching, networking, and I’m also pleased to know that you have now this Asian Institute of CFE, Certified Franchise Executive. I am very happy to learn that it is really on different level. So congratulations, once again.
Next week, Monday, would be our president’s day for the State of the Nation Address. And definitely, our president would be giving a lot of accomplishment. Some of those have been detailed out in the weekly SONA, in the State of the Nation Address Forum. One of the stories includes inclusivity and shared prosperity for our countrymen and this is really a part of 10-point socio-economic agenda of our president.
And you know, we are happy to always say that your franchising group, or your franchise community is a big partner in this endeavor. Our president, his particular attention is to give support for the franchise, especially the PFA group because you provide investment, you provide jobs for our people and to our president, what is close to his heart is really to uplift the lives of the Filipinos. To make their lives more comfortable and now you do that. Of course there are employment opportunities.
And I guess with that heart, you can say that it’s good to always refresh ourselves with numbers that gives a good scenario for our economy, the state of our economy. In 2017, with 6.7% going into the first quarter of 2018, we sustained that and we have had higher increase of 6.8%. And the different story is now that 6.8% is stacked up by solid sectors. Foremost among these would be sector is the Manufacturing sector that used to be at the 3% growth is now leading with 8%. Services continued to be at the high rate of 6.7% in other words, the one sector, recovers the other sector who will choose to be the running force in the economy which is the service center, and this is where the retail services is part of, continues to show a very good rate. And the other sector, the Agriculture which is used to be in the negative territory, is now in the positive territory, gaining 3.5% last year and 1.5% in the first quarter of this year.
The Philippines, among our peers in Asia, our country’s growth rate makes it the third fastest growing economy after China and India. This confirms with our country’s standing as one of the best performing economies in the region. The IMF (International Monetary Fund) latest world Economic Outlook database noted that our economy is the 39th largest economy in the world, 15th in Asia, and 5th in ASEAN. And as one of the emerging markets, our economy is the 6th richest in Southeast Asia by GDP per capita values. And you see, these per capita numbers are also increasing, suggesting also a growing economy and of course growing little fast to be specific.
With this, really experience a get-to-feel growing economy. We can sense that from all your branches. I am sure many of you growing double digit in the revenues. Tama ba? I heard some of you guys are earning 20% on the revenues. And this also shows that as the economy grows, there are a lot of people picking out. I have been receiving criticisms as I made that statement a couple of days ago. They said that it’s funny that I connect picking out with economy growth but that’s the reality. We go to a more developed economies and you see a lot of people in and out and it was less of this occurrence, in our earlier years when our economy was not growing this fast. And just to back it up with data and that statement is of course, based on some data, the statistics shows if you look at the GDP there is this personal consumption expenditure line and that’s broken down into the different sectors that boxed out the PCE or the personal consumption expenditure. One sector there will be the restaurants and basically the eating out. And it’s been growing the high single digit ranging from 7-10%. The last number showed 8%. So it shows 8% is higher than the overall GDP growth of 6.8%, so it means it is higher than the average growth that we have. It shows that there are more and more people eating out. Those who used to used to on a regular basis eats at home, will find it easier eat in a fast food area. Fast-food restaurant. And those eating the fast-food restaurant will eventually level up, upgrade take up to a maybe a casual dine in, and those in the casual dine-in will probably now be eating in the eat-all you can type restaurants and so on and so forth until they move on to the fine dining, and that’s the reality.
You see, greater number of Filipinos really taking up, even in the goods. You know, the mass rates goods, the FMCG. I was in that industry for the longest time and you can see people also taking up so you have cheaper brands or mass based brands and people taking up to more expensive and more premium brand along the way. So that’s the way it is. That’s the reality. So I guess, the critics should look at the numbers and you know, it will be explained to them that there is basis to these statements.
More on the economic growth, ADB (Asian Development Bank) reported that the Philippines is now experiencing the “Golden Age of Growth”, a period of high and sustained economic growth. They further said our domestic demand and our infrastructure program will fuel growth for the next few years, projecting our economy to grow by 6.8% and even higher than that for 2019.
PricewaterhouseCoopers (PwC) projected that the Philippines will become the 24th biggest economy. So in an earlier report, I mentioned about the number 50 something and now going to about 24th biggest economy in the world by 2030, and the 19th by 2050. So a lot of good indication, in fact, just this afternoon, on the way here, we got the latest rating. And we’ve just been giving us a stable outlook and they retain that stable outlook. So that’s good news. Of course, a few months ago, SMP leveled up our penetrative from stable to positive. And acronym over there is SMP. So that’s not the meaning of SMP, from stable to being positive These are the good indicators that we’re doing the right things, the reforms are there, they are being recognized they are and the good growth. There are some issues I know about inflation but they see this is as temporary issue part of growing economy, that the inflation that we were hitting now is of course trigged by external factors. And no attribution, and if ever, a minimal attribution to the recent reforms we are doing specifically the tax reform, more commonly known as TRAIN.
The positive outlook of our country can also be seen in terms of investments. You know, FDI (Foreign Direct Investments) inflows continue to register good numbers, should we say record numbers. From about 7.9B USD in 2016 to 10.2B USD last year in FDI. Moving into the first quarter of this year, there is also a 43% growth in FDI, that’s foreign direct investment [rather] the actual investment remittance to the country.
For our Board of Investments also, we have set a 50-year record since Board of Investments was established. Last year, we exceed 600B PHP, that’s better. And this year, January to May, we hit 19% growth. And if you look at January to June, I don’t want to specify the report but it is closer to about 28% growth. We are seeing a higher and faster growth for even to January to June of this year.
This growth can be attributed to the country’s sound macroeconomic fundamentals, solid optimism, business confidence, consumer confidence and many other things. And of course, part of this is also attributed to what we call priming activity and this can be seen in Build, Build, Build wherein the government is committed and it is already starting with the infrastructure development program that allocates 5% growing up to 7% of GDP for infrastructure development. And this has never been seen before. We have been under spending in infrastructure. We have been spending only 1-2% in the past decades. And that’s the reason why we have to catch up in terms of investing in infrastructure. And there are 75 infrastructure projects approved in the pipeline and over 35 have been approved and have started the process of bidding. This program will enhance the country’s investment, environment and competitiveness as we build infrastructure in over the logistic costs and of course it can create more employment for those workers that will be part of the Build, Build, Build program. And again, giving them employment will add more Peso in the economy, in the system. And with low rate of this cost. Basically we’re helping in the competitiveness of the country.
Meanwhile, our department with the other agencies, specifically Department of Finance (DOF) as we work on TRAIN 2. And to us, the tax reform part two is also an important ingredient in this tax reform. Never have you seen DTI and DOF working closely in the past administration and every time, they talk about incentives. One thing I must clear with all of you is that the tax reform part two that we are having does not talk about the removing the fiscal incentives for those that are in different areas of activity. That’s the reason why DTI has been supporting this. In fact, the incentives will be enhanced from what is limited to an income tax holiday incentive, there will be other incentives more relevant to many start-up sectors or start-up businesses that will be registered. It will now include even accelerated differentiation, will include net loss carrying over or even double deduction on your currently and daily expense. All of these incentives can be enjoyed by firms that were pre-registered.
Of course, part of this, is also counting the number of years that wanted to be on incentives. We basically rationalize what is now being given as perpetual settle incentives like corporate tax rate. For example, in the Philippine eco-zones registered in PEZA, but no other countries given in any way the perpetual incentives. There has to be rules and we have agreed with that principle. Being economies by training, it makes sense to have all these limited number of incentive. Because of the other side of the picture, as you rationalize the incentive, more sectors, more companies will enjoy because those are registered will now enjoy lowering of the corporate income tax rate. ‘yun ng kapalit po noon. Rationalize this part so we can have general lowering. There is much companies in that side defense. From 30%, the tax rate for corporation will now make a bigger account to 25%. There is always a trade off, but it’s more of leveling the trade, and making incentives more relevant with more performance-based time count and focus. The law will make sure business support mechanisms will be definitely more performance-based, and will benefit companies that are really putting in more investments and creating more jobs. Instead of a continuing set of incentives even though the companies are no longer in the investing or adding employment, that is the rationalization being done.
Let me now go on to another development that will benefit your sector and that is with reference of the Ease of Doing Business (EODB). Recently, the president signed Republic Act 11032 that assures and works on Ease of Doing Business. The highlights of this will be in all your transactions in the government. In applications, permits, anything that would be in line with the fault line services of government can now be a limited passing number of processing time. Three days for simple transactions, seven days for complex and 20 days for highly technical transactions. So if you have experiencing problems in getting permits whether at the national government agency or typically will experience that also in LGUs (Local Government) getting Mayor’s permit and other permits. I guess those days are quote-unquote numbered. And they are numbered also because in this law, it is a harsh law actually. It is a two-strike policy. The first strike the first offense there will be a six-month suspension of the employee’s concern. The second offense is termination, forfeiture of benefits, penalty or fine of 1-6M PHP and six months of imprisonment. It is a criminal act. So it is really a difficult law or a harsh law. Of course, we kid around,baka wala nalang matirang trabahador sa gobyerno or marami nang mag-resign. O baka first offense, ‘mag-resign na ako baka ma-hit ko ‘yung second offense’’. But that’s really a challenging and difficult law but it is written to install disciple into the system. That act covers having a Citizen’s Charter wherein all the requirements will now be listed. So that the government agency cannot tell you after submitting all the requirements, ‘eh, you still lack of one requirement. You need another document. Submit this’ and everytime you back and another document lacking. They will keep you coming back and of course, in the end, maybe they are just waiting form of corruption. That is the difficult part. Now it will be listed in the website of the Citizen’s Charter, all the documents will be there and there will be no reason for the office, the government office to reject your application. In other words, they have to accept that and process it within the prescribed number of days. Hindi na pwede yung pag-submit mo, may kulang pa rin pababalikin ka, may kulang pa pababalikin ka.
So, the IRR is now being drafted by, I think October [because] that’s 90 days since signing. The IRR will be finished and the concentrations are now being undertaken. Then today, is just the beginning. Basically, they want to see a one form type of application so what we are doing now is making an inventory and put out of all forms needed by SCC, BIR, the mayor’s permit, the construction permit and hopefully, will do that in one form. Submit that, fill it out online, submit it, and in a few minutes you get assessed, you pay via PayPal or PayMaya or whatever payment system and you get to print the business permit. Just give us a few months, hopefully before the end of the Duterte Administration I will promise you that this is something that we will deliver, an online registration system that will give you the processing within minutes. And we are now actually having a design, actually a design workshop. It’s like in the business sector, we have the zero case budgeting assuming there is no form to fill out. If you will give me a form that will just list down all the information field you could give and that settled information field is the one will be needed by these different offices. Fill it out, be accessed, pay and then approve. That’s the ultimate goal. That’s the new mindset that we are seeing. To talk about mindset, that is the mindset we are receiving also as in the EODB. It has to be a leaping type of mindset that will allow us from where we are now to hopefully the top 20% in the competitiveness index because our source has been improving yearly. Even last year, we have improved our score. But the other countries improved much more that is the reason why our dropped last year. So everybody’s improving. We have to improve much faster than them that is why we have to leap forward. And by leaping we have to infuse it in your system.
Just a government direction, in terms of industry development, in summary, we were working also on Inclusive, Innovative, Industrialization Strategy or the I3 Strategy. It is only just ensuring that the industry sectors, including the franchise community which I know you are already into, because without innovation, you will never survive or even grow. Inclusive innovation, industrialization strategy is the one we must give into. And part of the ensuring an I3 Strategy, is indication of our industries will be competitive. And I must also tell you that there are policies that would affect competitiveness of industries. One is foreign exchange. I’ve often mentioned that foreign exchanged is schemed to building a big production base. A production base that will also lead us to a net exporting base, a net exporting country by having market based foreign exchange. It is important if the currencies are deprecating, don’t think of it really is a bad thing. It is really benefitting our economy because exports will be promoted if you protect the local, domestic industry, we will protect the manufacturing industry because the foreign exchange will be a natural protection to all the imports that are coming in. it will promote local manufacturing and build more export production base for us to be net exporter in the future. And for all of us, for you in the retail industry, it will prime out also the domestic economy, our OFW brothers and sisters will now have more Pesos for every dollar that they earn and even in the IDBP sector, and many other sectors that are dollar rating so there will be more money in the system and it will definitely prime the consumption steadily. Having a competitiveness exchange rate is not that bad. It is actually benefitting our country.
The other thing is that we also make sure, especially for you in the operations of retailing, as well as in the manufacturing, that your inputs, they are always be competitive in pricing so that you will also be competitive. And what do we mean by that? For example for inputs like sugar. And then we go into that particular item because has been increasing in prices nowadays and it is because the sugar production is not in very good this year and the bottom-line, you can see it also in the prices. The prices of sugar, locally, have been reaching 3,000 pesos per 50 kilogram pan. In the world market price, is less than half of that. Lumaki ‘yung gap. About 1,300 to 2,400, so all those manufacturing sugar user in the sector are at a disadvantage right now. So, what is the solution? The solution is to allow importation and the good thing is that the Department of Agriculture has actually allowed the importation of sugar. That is the good news. But the bad news of course is it has been limited to the sector, the planters, the miners, the takers. And why should it be limited in this sector? Why don’t we allow the sugar using industry to import their requirements so they could benefit from the lower cost input? So that their industry will be more competitive? So that’s an issue. And at the end of the today, if you add in all of these costs, additional fees on any sugar in partition, when it guess to the retail, even to the supermarkets, or to the palengke, ang mahal na ng sugar. You get sugar from 50 pesos close to 60 pesos or even more 65 esos per kilo. That is also a reason why some of the basic commodities, like sugar, prices have been really going up. So it is not good for the consumers, it is not good the manufacturing industry.
Let me go on to another issue. This is not an issue, but this time, is an opportunity. I’ve mentioned in my earlier talk I think it’s in the PRA or Philippine Retail about the opportunities in Halal. I understand some of the franchisors and brand owners are now opening up in other countries in Brunei, Malaysia, and other countries predominantly Muslims, Indonesia also. So in Halal industry, there is a huge opportunity there and we encourage you to top that market. and the good thing is that Halal opportunity really offers tremendous market size of 3.2T dollars and even locally, assuming a one percent of that world market size is just about 30M dollars so it is also huge number for the country alone. And this is not limited to food. It also covers personal care, cosmetics, also covers I think even clothes and even restaurants, hotels, resorts, and we need opportunities there. If we have those in our system, in our economy, we can imagine an influx of more tourists who are Muslims who really wanted to go to the Philippines but their problem is there are no restaurants to go to. Wala pa silang mapuntahang restaurant or resort or there are, konti lang. it’s just a few of them so it will be very important for us to look into this market. To build our Halal capability so that we can eventually also export and be part of a very big Halal market. And good thing with Halal, it has positive attributes attached to it. It is considered as a way of life it should be highly attached to a religion so we imply this positive. It’s pure, it’s clean. It’s permissive. Those are positive attributes attachment of Halal. Even Singapore that is not a Muslim dominated country, and I remember our special traders by then who is here but now based in China, brought a huge deal account grocery, a supermarket that selling only Halal. And Singapore is only about 10% of their population who are Muslims and yet they’re making it as a selling proposition already, a positioning for some retailers. We recognize also the potential in Halal.
Moving on, population and inflation, our country’s investment situation is also a perfect match with our country’s young population with average age of 23.1 years old. And now with lower unemployment rate from 6.6% to 5.5%, you can expect that for many more years, we will have sustainable growth in our consumer base. So again this is a positive indicator for our retailing and franchising group. I mentioned earlier the kind of growth we are having and in a way of happening with the lowering of tax rate for personal income tax, the increase in the number of Filipinos that will be covered by the exemption and therefore they will now have a higher take home. There is about I think 12M pesos added into the system. With the salaries from workers who are in the Build, Build, Build, with the savings from pre-education and tertiary education, health benefits and all that in total, the estimate is about 32B pesos added into the system per month. So imagine that this is really happening and to the certain extent somehow driving out the prices also. And that’s the reason why despite there is a 5.2% inflation rate, the latest SWS survey shows that the Filipinos, in general, are feeling extra rich, in other words, they have more money in their pockets or maybe in the statement there they feel less poor. Because I think that is the reason because they have more money in their pockets. I know this might attract more criticisms after this talk but that is the result of the survey. Don’t blame me. The higher take home pay will make one a bit richer. The estimate is if you have one month extra every year, it’s like a one month bonus every year. That’s the kind of tax saving you’re getting under the TRAIN 1. So higher take home pay. If you’re earning 50,000 per month, you have 50,000 extra income for a year because of savings. You earn 21,000 the same. 21,000 for the year.
And then let me just go to the MSME development just to highlight the point that the franchising group has been a partner in Micro SME development in entrepreneurship development. For so many years, we appreciate your vital role in Micro SME development and thank you for that. And many of you are mentoring, many of you are being mentors in the DTI program, SME teaching and seminars nationwide. Together with our other partners sa Go! Negosyo, Philippine Marketing Association, dahil po doon maraming salamat sa inyong pagtulong sa amin and as you know we now have about 890 negosyo centers and please fill out more the negosyo centers with mentors. Maraming tayong pwede gawing place nationwide. It’s almost one for every two municipalities already. And that number keeps on growing.
So in ASEAN region, Philippines has shown, it’s the best destination for international franchises with the latest number of 2,000 brands and about 200,000 franchise units as noted by the recent International Franchise Association Convention. The country ranks 7 and 8 globally in terms of the number of franchise brands and franchise units. So congratulations. Kayo ang “Franchise Hub of Asia”.
Our local brands have also crossed borders, and maybe even more with 20 brands penetrating Southeast Asia, Middle East, and North America. That’s why we like to thank everyone here today for their continued support in making the Philippines the “Franchise Hub of Asia” and actually we have here, I see in the room a lot of our commercial attachés consider DTI as your partner in bringing your brands abroad. Actually, prior to this convention, I think late last year when we have the planning, I could pass our team, Foreign Trade Service the commercial attachés and Special Trade Representative to mainstream Philippine brands. A lot of business development activities are happening. They contract many meetings but and today we want to measure that in terms of the number of brands that have been mainstreamed whether these are manufactured goods, so the local Philippine brands that would be in the grocery shelves or franchise Filipino brands that would definitely be in the mainstream market. Everytime we go to these countries, we are very happy to see PH brands in the malls or everywhere in the mainstream market in those countries. And what do I do everytime I see them? I take a selfie and I show and send it to you. I am sure many of you are doing that and I am proud to see Philippine brands abroad. So palakpakan natin ang mga Filipino brands that are reaching the world market.
Our foreign trade service will be your teammates. And everytime we were in abroad and would like to meet companies, franchisees that will be your potential partners abroad. Please make use of them. We will continue to do more investment roadshows inviting you to join us. I think September we have a plan to go London so that we can meet the investor community but at the same time we would like to invite you to join us present opportunities that you can offer them as well as meeting also the Filipino community there and the opportunities that you can offer to the Filipino community. Many of them I’m sure would like to assure to have their own businesses back home, either through their relatives or in preparation for their eventual return to the country. So we would like you to join us in London.
So let me conclude by saying that of course now is the perfect time to invest in the PH it is always perfect more today than yesterday. Diba parang kanta. Not as much as tomorrow. So, I’m sure our President, is your greatest supporter for two reasons: number one, for his better half, to Madame Honeylet Avaceña who owns many franchises and I know si Madame has been helping her as well and her team. Even before bago pa naging President si boss. And the second reason is again, was mentioned earlier, the franchises, your franchises create jobs that alleviate our need and make life more comfortable for the Filipinos. So, with that, we encourage you to join us in the nation building and just always stay with us as we bring the Philippines to become economic partner of the world.
Maraming salamat po at magandang gabi sa inyong lahat.