August 10, 2005 Waterfront Cebu City Hotel and Casino by pas31212

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           August 10, 2005
Waterfront Cebu City Hotel and Casino
                                              T A B L E                                                                                                                                                   O F                                                                                C O N T E N T S
          ECONOMIC FORUM 2005
Opening Address                                                   ○               ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○           ○           ○           ○           ○           ○           ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             2
                                                                                      Atty. Jesus B. Garcia Jr.
                                                                                      President, Sun Star Publishing Inc.

Session 1             ○           ○           ○           ○           ○               ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○               ○               ○               ○               ○               ○           ○           ○           ○           ○           ○           ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             5
                                                                                      Examining Microeconomic Figures
                                                                                      and Cebu’s contribution to the
                                                                                      National Economy
                                                                                      Augusto Santos
                                                                                      Secretary, National Economic and
                                                                                      Development Authority

Session 2                 ○           ○           ○           ○           ○               ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○           ○               ○               ○           ○           ○           ○           ○           ○       ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             22
                                                                                      Cebu as a Market and Investment
                                                                                      Destination
                                                                                      Napoleon Nazareno
                                                                                      President and CEO, PLDT and Smart
                                                                                      Communications Inc.

Session 3                 ○           ○           ○           ○           ○               ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○           ○           ○           ○           ○           ○       ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             31
                                                                                      Investment Climate, Productivity
                                                                                      and Regional Development
                                                                                      Dr. Ernesto Pernia
                                                                                      Professor, UP School of Economics

Discussion Forum                                                              ○               ○               ○                   ○                   ○                   ○                   ○               ○                ○                ○                ○                   ○               ○               ○               ○           ○           ○           ○           ○           ○           ○           ○       ○       ○   ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             45
                                                                                      Investing In Cebu: Signposts for
                                                                                      Success

Shipbuilding                      ○           ○           ○           ○               ○



                                                                                      Roberto Aboitiz
                                                                                                      ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○           ○           ○           ○           ○           ○        ○      ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             46
                                                                                      Chairman, Aboitiz Group of
                                                                                      Companies
Academe
                      ○           ○           ○           ○           ○               ○               ○                   ○                   ○                   ○               ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○           ○           ○           ○           ○           ○           ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             53
                                                                                      Fr. Roderick Salazar, SVD
              ○       ○           ○           ○           ○           ○               President, University of San Carlos
                                                                                      ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○           ○           ○           ○           ○           ○       ○       ○       ○       ○       ○
                                                                                                                                                                                                                                                                                                                                                                                                                                                             57
Exports
                                                                                      Agustin Palao
                                                                                      President, Philexport Cebu
ICT
      ○   ○       ○       ○           ○           ○           ○           ○               ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○       ○           ○           ○           ○           ○           ○       ○       ○   ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             65
                                                                                      Lawrence Hughes
                                                                                      Chairman & CTO, InfoWeapons
Franchising
                              ○           ○           ○           ○               ○               ○               ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○               ○               ○               ○           ○           ○           ○           ○       ○           ○           ○       ○   ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             70
                                                                                      Virgilio Espeleta
                                                                                      Chief Operating Officer,
                  ○       ○           ○           ○           ○           ○
                                                                                      Julie’s Franchise Corporation
                                                                                          ○               ○                   ○                   ○                   ○                   ○                   ○                ○                ○                ○                   ○               ○           ○               ○               ○           ○           ○           ○           ○           ○       ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             74
Tourism
                                                                                      Robert Lim Joseph Jr.
                                                                                      Chairman, NAITAS & Travel
                                                                                      Cooperative of the Phils.

Business Statistics
                                                                              ○               ○            ○                   ○                   ○                   ○                   ○                   ○                ○                ○                   ○               ○               ○               ○               ○               ○           ○           ○           ○       ○           ○           ○       ○       ○       ○       ○

                                                                                                                                                                                                                                                                                                                                                                                                                                                             77
     A word from the Publisher
        The Journals now available cover the
Sun.Star Economic Forums of 2004 and 2005 -
the first two forums undertaken by Sun.Star
Publications Network.
        Each journal aims to document the speeches
and other comments made at the forums — for
history as well as current use.
        The more immediate purpose is for the views
expressed and data given at the forum to help
captains of business and industry steer their
companies in placid or turbulent economy.
        Newspaper reports cannot give more than the
barest essentials of the day’s story. Business
leaders, planners, and students can turn to the
Journals for more information. Not all forum
speakers had prepared speeches or didn’t depart
from prepared text. Thus, for these Journals, we
had to seek help from transcriptions of tapes and
outlines of unwritten speeches. A few speeches
didn’t use graphs or PowerPoint materials were
not available, so we had to use other visual props.
        Despite limitations, we believe the reader will
still find the Journals a rich source of knowledge
and information from the learned Forums speakers.
        Which goes with Sun.Star’s purpose of the
annual Forum: for the leaders of business and
industry to benefit from one another’s wisdom and
help promote the community’s economic well-
being.

     JESUS B. GARCIA JR.
                                Opening Address
                                Jesus B. Garcia Jr.
                                P r e s i d e n t , S u n S t a r P u b l i s h i n g Inc.




           W    elcome, all of you, to the Sun.Star Economic Forum! We will
situate where we are now since this is the second economic forum so that
we can have a better understanding of what the forum is really all about.
Last year we mentioned or even questioned the relevance of
macroeconomic figures as guides for attaining and maintaining prosperity.
You see, macroeconomic figures are aggregates. They are just totals,
averages, and statistical figures. They do not tell us where wealth is
created.
           It is our desire now and every year to unpack these macroeconomic
figures and make them relevant to Cebu and the neighboring region. Our
first speaker will do that unpacking. It will be about Cebu’s contribution to
the national economy and what the country has done for Cebu.
           Today, this year, we will have a diatribe against macroeconomic
policy. Macroeconomic policies in our country are general in nature, but
every place is specific and particular. Every place has a different business
composition. The macroeconomic policies of the country would be in need
of some adjustments. The ancient Greeks saw this very well when they
invented the idea of equity. Since laws are general while specific places

 2
                                                  Opening Address

are particular, there have to be adjustments to the general rule in order to
make it more applicable, more appropriate, and more relevant to a particular
situation. Hence, they coined the word equity. That is part of Sun.Star
Economic Forum’s objective. We would like to propose equitable
corrections or modifications of national policies so that these national
policies can be more relevant to Cebu’s business climate.
        Another thing that we will discuss and which I think will be a
continuing theme for Sun.Star Economic Forum is what one economist
says is the secret to growth. She said, J. Jacob said, that city economies
develop by grace of innovation and expand by grace of import replacement.
        I’ll just make two very short examples. One is innovation. The
example given is of 3M, which started with just hauling sand to clean
industrial complexes. Later on, there was demand and they started making
sandpaper for sanding, very crude. From just having abrasives, they now
have adhesives. They developed their adhesive and abrasive business to
a very great extent that they now make adhesives for computer discs and
the like. It was this innovation that made 3M great, made the US great.
The place where they grew also became great.
        The example of import replacement, I think, is more relevant
because that has been always a buzzword that we have to replace imports
because importing needs so much dollars. Since we need to import, we
have to make our exports more than our imports. The problem is that it
was viewed again as a national project.
        Import replacement is done in cities. I think the reason Cebu is
dynamic is because it is doing import replacement. It has been doing
import replacement of consumer goods. I would wish to suggest perhaps
that we should now try import replacing producer and capital goods. One
example is India. There are so many expired patents for capital goods like
printing presses and the like. These can now be produced here and then
sold to local producers so that we can import replace again. I think that
one of the weaknesses of Cebu’s economy is that we have not been

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SUN.STAR ECONOMIC FORUM 2005

producing much of producer goods. These are the things that we will focus
on during the forum. Again the idea of the forum is that there should be
synergy among Cebu businesses.
        For example, the fashion accessories businesses are now into
electroplating. I know of some companies that are stamping spoons and
forks and cutlery. So perhaps we can now start producing silver-plated
cutlery. There could be dynamic interchanges or cooperation among
companies in Cebu. Perhaps nobody has taken the initiative to see how
company A plus company B can produce a new product C, or how company
A and B plus a new company D could produce product X. That kind of
dynamic thinking is what we would like to happen in the Sun.Star Economic
Forum. So it is not about macroeconomic figures. It is really about providing
a guide for businessmen; providing them good information to aid their
planning.
        Now the forum will be institutionalized. Already we have enlisted
the assistance of the academe. All the big universities in Cebu and big
colleges are with us. We also have the support of big companies to co-
sponsor with us, as well as the support of the rest of the private sector
and the government.
        In the long run, we will be advocating policy changes that are
relevant for Cebu. So we welcome you to this forum. Thank you for sharing
and supporting our vision - it’s all about Cebu. Thank you.




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                                      S e s s i o n        1



                                      Examining
                                      Microeconomic
                                      Figures and Cebu’s
                                      contribution to the
                                      National Economy
                         Sandra Manuel in behalf of    Augusto Santos
                         Secretary, National Economic and Development Authority


     M       aayong Buntag sa atong tanan! My boss, Secretary Santos,
can’t make it today so I am representing NEDA in his behalf. I have been
invited by Sun.Star to make a presentation on the contributions of Cebu to
the national economy, but first a little story before I start, if you love stories
as I do. When Sun.Star assigned us this task to make the presentation,
little did I realize what a task it would be. I had two of my staff do nothing
more than concentrate on this for the past month. They went out to different
agencies and interviewed a lot of people. We realized very soon that it was
difficult to extract figures for Cebu. We do have a lot of data for the region
but very little for Cebu, so this is what I will share with you today.
       I would like to apologize for using regional aggregates for some of the
indicators in my presentation. Since the provincial breakdown of this,
especially for Cebu, is not available, allow me some degree of latitude for
extracting Cebu’s performance from that of the region. My presentation
will cover the following topics.
       First, I will present a very brief profile of Cebu province and describe
briefly the physical characteristics, demography and economic structures
of the province. Second, I will discuss Cebu’s contributions to the national
economy and this is the main part of my presentation. I will highlight the
industries where the province has made a significant difference and finally
                                                                                  5
SUN.STAR ECONOMIC FORUM 2005

I will show you Cebu’s role in achieving the medium term Philippine
development plan targets.
      I have decided to present a short profile of Cebu for the benefit of
those who are not familiar with this. Cebu is located at the heart of the
Philippine archipelago. It is composed of 167 island and islets and has a
total land area of 5,088 square kilometers. The three largest islands of the
province aside from mainland Cebu, are Mactan, Bantayan and Camotes.
In population, the province accounts for 4.4 per cent of the country’s total
population, based on the last census in the year 2000. In the region, Cebu
is home to more than half of the people in Central Visayas. For those not
familiar with Central Visayas, it is composed of the four provinces of Cebu,
Bohol, Oriental Negros and Siquijor. Within the province of Cebu, Metro
Cebu, which consists of Cebu City, Mandaue City, Lapu-Lapu City, Talisay
City, Compostela, Liloan, Consolacion, Cordova, Minglanilla and Naga, is
where most of the people reside. In fact, half of the population of the province
lives in Metro Cebu.
      With a total population of over 3.3 million, Cebu holds the record as
the most populous province in the country. It outranks the provinces of
Negros Occidental, Pangasinan, Bulacan and Cavite in terms of population.
In fact, if we compare the population of Cebu to Metro Manila, it is one
third that of Metro Manila, so I am already mentioning one big contribution
of our province to the nation, that is our population. However, it is debatable
whether we should be proud of that or not.
      In terms of population growth, Cebu is among the slowest growing
provinces in the country with a growth rate of 2.4 per cent for the decade
1990 to the year 2000. It is outranked by 24 other provinces in the country.
Right now I think there are 79 provinces all in all. So this is not surprising
considering that studies reveal that Cebu is a net out migration area.
      Cebu plays an important role in the development of the country. While
Central Visayas is the fifth biggest contributor to the country’s total domestic
production, the bulk of the economic activities in the region, especially
from industry and services is concentrated in Cebu, notably Metro Cebu. It
is estimated that 80 per cent of all industrial and services output in the
region is accounted for by Cebu province. This estimate is based on the
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                                                              S e s s i o n   1

assumption of a strong correlation between power consumption and
economic activity in the industry and services sector.
      Cebu province accounts for 50 per cent of the total power consumption
of the entire Visayas grid. The Central Visayas manufacturing sector
accounts for 47 per cent of the total Visayas gross value-added (GVA) in
manufacturing. The Central Visayas services sector accounts for 49 per
cent of the total Visayas GVA in services, thus that 80 per cent I mentioned
could even be an underestimate. Based on the 2004 estimates of the
Gross Regional Domestic Product (GRDP) of our region, the region’s total
output reached Php 80.5 billion or around 7.1 per cent of the total production
in the country. Services accounts for around 58 per cent of our total output,
industry accounts for 30 per cent, while agriculture accounts for only 12
per cent. This is where we differ from the economies of other regions.
Other regions are dominated mainly by agriculture, ours is dominated by
services.
      Central Visayas is the fourth biggest contributor to the country’s
industrial output. The region’s industrial output in 2004 was estimated at
Php 24.1 billion and accounted for 6.3 per cent of the country’s GVA in
industry. This is surpassed only by the industrial output from Metro Manila,
Calabarzon and Central Luzon. Considering that the bulk of the region’s
industrial output is from Cebu, we can then easily surmise that the province
is also among the biggest contributors to the country’s industrial GVA.
(See Figure 1.)
      The next slide shows you some of the important manufacturing
industries in Cebu, like furniture, fashion accessories, gifts, toys, housewares,
electronics and semiconductors. These are also the top export products of
the province. Another important industry in the province which is fast gaining
prominence worldwide is the shipbuilding industry. This young industry started
only in mid-1990 but has already become an important dollar earner for the
country. Later, in my presentation, I will talk more about the performance of
the shipbuilding industry in Balamban, Cebu.
         Central Visayas accounted for 8.7 per cent of the total services
output in the country in 2004. Its share in the GVA for services is the third
biggest, next to the share of Metro Manila and Calabarzon. With Cebu
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 SUN.STAR ECONOMIC FORUM 2005


                                 Figure 1




hosting most of the service-oriented industries in the region, we can assume
that our province accounts for a big proportion of the region’s output in
services. (See Figure 2.)

                                 Figure 2




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                                                           S e s s i o n   1

      Service industries that support tourism are important to Cebu’s
economy. Most of the country’s shipping lines are based in Cebu. These
include WG&A, Sulpicio Lines and Gothong Lines, which ply the Luzon,
Visayas, Intra-Visayas and Visayas-Mindanao routes. Major airline
companies like PAL, Cebu Pacific, Air Philippines, Asian Spirit, SEAIR,
Silkair, and Cathay Pacific also have flights to and from Mactan-Cebu
International Airport (MCIA) connecting the Visayas and Mindanao area
to major cities all over the country and the world.
      As a premier commercial and services center, Cebu, particularly Metro
Cebu, is host to various shopping centers, educational institutions and
financial institutions that cater not only to the needs of the people in the
region but also of people from other provinces in Southern Philippines.
Let me just very briefly go over some of our contribution to human capital
formation, since we talked of educational institutions.
      Our statistics for enrollment indicate that for the academic year 2001-
2002, we ranked second after NCR in maritime education, with a 20 per
cent share of the total enrollees. We rank second after NCR in law and
jurisprudence with a 13 per cent share. We also rank second after NCR in
medical and allied disciplines, with 15 a per cent share. We rank third in
engineering and technology enrollment with an 11 per cent share, and
third in natural science enrollment with a seven per cent share.
      Among the new service-oriented industries in Cebu are the call
centers, the business process outsourcing and other IT-enabled services
industries. As of October 2004, there were already about 10 call centers
operating in the province, employing at least 3,000 people. There is also a
proliferation of ICT enterprises in the province. Cebu, which has over 30
Internet Service Providers (ISP), is reputed to have one of the highest
densities of Internet users in the country.
      Allow me to use the GRDP growth rate of Central Visayas to describe
how the region and Cebu in particular faired compared to other areas in
the country in terms of economic growth. At 7.2 per cent, the GRDP
growth rate of Central Visayas is the fourth highest in the country. Among
the sectors, services, which are basically dominated by Cebu, posted
the highest growth at 8.3 per cent. This is followed by industry, which
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SUN.STAR ECONOMIC FORUM 2005

posted a 6.1 per cent growth and agriculture with a 4.9 per cent growth.
(See Figure 3.)
      Now let me discuss some of the areas where Cebu has made
significant contributions to the economy. I will be presenting to you
indicators in exports, tourist arrivals, investments and revenue generation.
For exports, I will be using the regional data to estimate the contribution
of Cebu to the total export earnings of the country. My source, however,
has assured me that the value of exports from the province approximates
the total value of exports in the region since 98-99 per cent of the total
exports in the region are accounted for by Cebu. Export declarations
data show a hefty 20.9 per cent increase in the value of exports between
2003 and 2004. The value of exports in 2004 reached US$ 4.2 billion.
During the first quarter of 2005, exports value had already reached
US$ 999 million.
      Cebu is one of the leading exporters in the country. The export industry
is one of its economic strengths. Since 2002, the province’s share to the
total export earnings of the country has been increasing. From only 8.8



                                   Fi g u r e 3




10
                                                            S e s s i o n   1

per cent in that year, exports from Cebu now account for approximately
10.5 per cent of the total value of exports in the country.
       In terms of export growth, Cebu performed better than most of the
other areas in the country. The continued growth of exports in the province
can be attributed to the efforts of Cebuano exporters to diversify their
products and markets. Exporters of homegrown products such as furniture,
fashion accessories, gifts, toys, housewares have diversified their product
designs to create a market all year round. Along with exporters of electronic
products, these exporters are fighting the fight of global competition.
       Exporters of food products, though, have to be supported with facilities
to meet global market standards. The Cebuano mango, for example, is
not yet acceptable for foreign markets. For the entire country, it is only the
mangoes from Guimaras that are accepted abroad. We have to do
something about this. We do have plans, though, to put up an irradiation
facility to address the problem.
       The top export products of Cebu province are electronics, other
industrial goods, furniture, electrical equipment, garments, marine products,
gifts, toys and housewares, processed food, fashion accessories and
vehicle parts. The first three mentioned products are mainly produced
inside the Mactan Economic Zone (MEZ). The major markets for Cebu
exports are Japan, USA, Hongkong, Indonesia, China, Belgium, Singapore,
Korea, Hungary and Russia.
       The presence of economic zones in Cebu has helped sustain the
growth of exports in the province. Exports from the economic zones
accounted for more than 50 per cent of the total exports of the province. Of
the nine proclaimed special economic zones, six are located in Metro Cebu.
The remaining three are located outside the Metropolitan area, specifically
Danao City, Balamban and Bogo.
       Aside from the nine proclaimed economic zones, there are other
economic zones already being developed and registered with PEZA. Most
of these are being developed for IT-related enterprises. Employment in
Cebu’s economic zones increased by 15 per cent between 2003 and 2004.
There was also an increase in the number of locators in the economic
zones from 159 in 2003 to 171 in 2004. I heard that MEZ Phase 1 is
                                                                            11
SUN.STAR ECONOMIC FORUM 2005

already full and Phase II, I think, is already full. Now they are applying for
expansion. (See Figure 4.)
     More than 50 per cent of the employment in the economic zones is
accounted for by MEZ 1, which has over 100 locators. The MRI economic
zone in Danao City, which hosts Mitsumi Cebu, Inc., a manufacturer of
electronic parts, is another important employer in the province. Mitsumi
Cebu is one of the largest single manufacturing facilities in the country in
terms of employment, employing around 18,000 workers. That is the last
one in the table there. That is only a single locator compared to the first
one, which is MEZ 1 & II that has many locators. So you can see that MRI
Economic Zone is really a large employer.
     So how significant are the economic zones in Cebu in terms of
generating employment and earning dollars for the country? Economic
zones in Cebu account for 7.7 per cent of the total number of workers
employed in economic zones nationwide. Exports from Cebu’s economic
zones also account for 8.9 per cent of the total economic zones exports. If


                                      Figure 4




12
                                                         S e s s i o n   1

we look at the growth rates, they would suggest that economic zones in
Cebu performed much better than most of the economic zones in other
parts in the country in terms of generating employment and dollar earnings.
(See Figure 5.)
     In 2004, employment in Cebu’s economic zones grew by 15 per cent
while employment in other zones nationwide grew by only 12 per cent on
average. The same is true for export value. Value of export from Cebu’s
economic zones grew by 46.7 per cent in 2004 but value of export from
the other economic zones in the country grew only by 10.8 per cent.
     Let’s go now to the West Cebu Industrial Park, a big economic zones
in the western part of Cebu. I would like to highlight this because the
shipbuilding industry is now becoming a very important industry in our
province, aside from being especially unique to Cebu. It is also one of the
high value-added industries being promoted by the government. The export
of ships and Catamarans from West Cebu Industrial Park in Balamban
has been continuing. Seven bulk carriers were exported in 2004. The

                                     Figure 5




                                                                         13
 SUN.STAR ECONOMIC FORUM 2005

shipbuilding company Tsuneishi Heavy Industries has built and exported
5-7 ships annually since the year 2000.
       Catamarans have also been exported by FBMA Marine Babcock,
another shipbuilder in the West Cebu Industrial Park. This company has
been manufacturing passenger Catamarans and high-speed ferryboats
for clients in HongKong, Korea, United Kingdom, and the Netherlands as
well as for a local shipping company, Aboitiz Transport System Corporation.
One of the latest vessels manufactured by the company, as you may have
seen in the last Sunday issue of the Inquirer, is among the world’s most
advanced state-of-the-art passenger ferries called the Vlieland. This three-
deck ferryboat, which was delivered just this May, has all the comforts of a
luxury hotel.
       Like other exporters, the shipbuilders have also made some efforts to
diversify their products in order to sustain demand. Offhand, let me mention
the expansion plan of Tsuneishi Heavy Industries which will start building
container ships with the capacity of 10,000 to 15,000 dead weight tons. The
export of bulk carriers from the West Cebu Industrial Park has been
consistent since 1997. The recent completion of the second bigger slipway
in this Balamban shipyard will enable the company to expand their production
and employment capability. It will increase its capacity from exporting seven
bulk carriers a year to fourteen bulk carriers or roughly one bulk carrier every 42
days. With the operation of the second slipway, Tsuneishi also expects to
increase its workforce to about 5,000 employees.
       Let’s now go to tourism. This is another of Cebu’s economic strengths.
Cebu’s advantage over other tourist destinations in the country can be
summarized as follows:
       1) It is strategically located, making it a favorite jump-off point for
satellite destinations in the Visayas-Leyte-Samar-Dumaguete and Siquijor
and Mindanao islands, as well as Cagayan de Oro and Surigao del Norte.
       2) It has an international airport with direct flights to and from other
major cities in the country and Asian countries. Its proximity to East Asia is
one distinct advantage of Cebu over other ASEAN destinations. Flight time
from Japan, Hongkong and Singapore is only four hours, two hours and


 14
                                                            S e s s i o n    1

three hours, respectively. Compare this to the five hours and three hours
flight time from Japan and Hongkong to Phuket, Thailand and particularly
the 10 hours flight from Japan to Bali, Indonesia.
      3) Our third strength is that we have resort and convention facilities.
      4) We may be widely known in the overseas tourist market. My original
speech here says it is widely known but I changed it to may be. Why? If
you were present during the recently held Regional Tourism Congress, we
had a resource person from Bali who said he had to check all over the
Internet and could not find a website for Cebu. So that is why I changed it
to may be.
      5) Our fifth strength is that Cebu is relatively peaceful and secure.
      This next slide shows the volume of tourist arrivals in various
destinations in the Philippines that are known both domestically and
internationally as beach-oriented and convention destinations. Here
we try to compare the volume of tourist arrivals in Cebu with that of
Batangas, Boracay, Davao and Palawan. (See Figure 6.)
                                     Figure 6




                                                                            15
SUN.STAR ECONOMIC FORUM 2005

      Among them, as can be clearly seen from the graph, Cebu occupies
the top position in terms of tourist arrivals. Total tourist arrivals in the
province hit the one million mark in 2004. Among the destinations outside
Luzon, Cebu can claim to be the leading resort and convention destination.
One concern that we have to address though is the shortage in hotel
accommodations especially during peak seasons.
      Although growth rates of tourist arrivals in Cebu has not been as high
as that of the other tourist destinations, this has been consistently increasing
in the past three years. (See Figure 7.)
      Between 2000 and 2001, the decline in tourist arrivals had also been
moderate compared to that of other destinations that registered negative
growth such as Manila and Palawan. Cebu has been consistent in capturing
the foreign tourist market. Since 2000, our share of the total foreign tourist
arrivals has not gone lower than 15.5 per cent. Japanese and Korean
nationals are the top travel markets of the province.
         Let us now go to investments. Cebu is the predominant destination
of direct foreign investments. The location advantage of the province is

                                      Figure 7




16
                                                              S e s s i o n   1

attractive to foreign investors. The combined value of our BOI and PEZA-
registered investments doubled from Php 2.0 billion in 2001 to Php 4.2
billion in 2004. In the first quarter of this year, combined value of investments
registered with BOI and PEZA reached Php 1.7 billion which is already 85
per cent of the total value of investments for the entire year of 2001. (See
Figure 8.)

                                             Figure 8




 Sources: BOI and DTI Region 7 compilation


         Let us try to compare Cebu and Central Visayas. Cebu accounts
for the bulk of BOI-registered investments in the region. In 2002 and 2003,
all investments that were registered with BOI were for projects located in
Cebu. However in 2004, although 10 of the 12 projects that registered
with BOI were in Cebu, these had lower project costs than two projects in
Oriental Negros. (See Figure 9.)
         You can see that especially for the years 2002 and 2003, the
share of Cebu is 100 per cent of the total investments for the entire region.
However, for 2004, it went down drastically to 3.19 per cent. Why? It was
only because there was this big energy project in Negros, costing around
Php 2.6 billion. So, our share of investments comparatively went lower. If
you talk of the number of projects, 10 out of the 12 projects for the whole
region still went to Cebu.


                                                                              17
 SUN.STAR ECONOMIC FORUM 2005


                                                           Figure 9




  Sources: BOI and National Statistical Coordination Board


      The next slide shows that for the last four years, BOI-registered
investments in the province have been relatively small in scale. Since 2001,
the value of investments in Cebu has barely reached one per cent of the
total value of BOI-registered investments in the country. (See Figure 10.)
         Now let me show you how economic zones in Cebu fare in terms of
attracting investments vis-à-vis Subic and Clark. In 2003, total investments
in Cebu’s economic zones were almost double the investments in Subic.
                                                           Figure 10




Sources: BOI and National Statistical Coordination Board


18
                                                          S e s s i o n   1

In 2004, investments in Cebu’s economic zone still surpassed the
investments in Subic and Clark. Most of the companies that invested in
Cebu were into the following: electronics, furniture, fashion accessories,
industrial products, hotels and tourism-related activities, food processing,
and IT-enabled services including business processes, outsourcing and
call centers. (See Figure 11.)
                                   Figure 11




      Aside from Cebu’s economic predominance, the province is also one
of the biggest sources of government revenues in the country. This is the
ranking of BIR collections for the year 2004. Let me just qualify, however,
that the figures here do not give us the complete or accurate picture since
we have large taxpayers in Mindanao who pay their taxes here in Cebu.
And we also have large taxpayers based here in Cebu who pay in Metro
Manila because that is where there corporate headquarters is located.
This is one area where we had a lot of difficulty gathering data just for
Cebu. (See Figure 12.)

                                                                          19
SUN.STAR ECONOMIC FORUM 2005

                                     Figure 12




      Cebu also accounts for almost three per cent of the total Bureau of
Customs collections and at least 15 per cent of the total collections of
other national collecting agencies. By other national collecting agencies,
we refer to the Bureau of Fire Protection for the Fire Code Tax, Bureau
of Immigration and Deportation for the Immigration Tax, Department of
Environment and Natural Resources for the forest charges, and the Land
Transportation Office for the motor vehicle tax. Being the center of
economic activities in the South, Cebu plays a critical role in the
achievement of the development target set forth by the present
administration. (See Figure 13.)
         Towards the end of my presentation, I will mention some of the
major projects that are expected to push up exports, investments and
tourism in the province and to sustain the growth of Cebu’s economy.
      Cebu is being positioned as an international tourism hub that will serve
the tourism and travel industries in the Visayas and Mindanao as a means
to attain the five million foreign arrivals target for by the end of 2010. As


20
                                                         Session        1

                                    Figure 13




targeted in the Medium Term Philippine Development Plan (MTPDP), Cebu
tourism and travel industry players have started working with the Department
of Tourism, its allied agencies, and the local government to support this
strategy. We are known for our entrepreneurial skills as well since Cebuanos
are in the forefront of efforts to develop home grown businesses and small
and medium industries that generate export earnings and employment.
         (The transcription of Sandra Manuel’s speech is incomplete.)




                                                                         21
                                   S e s s i o n       2



                                       Cebu as a
                                       Market and
                                       Investment
                                       Destination

                          Napoleon Nazareno
                          President and CEO, PLDT and Smart Communications Inc.


        M    r. Sonny Garcia, Mrs. Gina Garcia-Atienza, distinguished
speakers and panelists, ladies and gentlemen, maayong buntag kaninyong
tanan! When Gina invited me to speak in this forum, the first thing I asked
her was, why me? She replied, “It is because you’re a Cebuano who has
spent many years in the corporate world. We would like you to share with
us your thoughts on how we can make Cebu a more attractive place to
invest in.”
         This is not an easy task to take on given that businessmen and
women tend to be very shy. This is especially true in times of good when
they are making money. Business people stay quiet. When they see a juicy
investment opportunity, they become even more quiet. So going by that
standard, I should stop now and sit down. However, that’s the old way of
doing business. In today’s globalizing economy, sharing information is one
way of generating more wealth all around. So in that spirit let me contribute
a few thoughts on this interesting subject.
         It’s been more that 30 years since I’ve left Cebu after I graduated
from the University of San Carlos. The changes in the city and province
since then are very visible. For example, I remember that the engineering
campus in Talamban where I finished my mechanical engineering course
seemed so remote from the city back then. Today, I could get lost there.

 22
                                                         S e s s i o n     2

There are so many subdivisions, schools, malls, shopping centers and
other commercial establishments sprouting all over the place. I also
remember that where this hotel now stands used to be part of the Lahug
airport. During summer we would fly kites here. I remember that clearly
because this place is just about 10 minutes away from my parents’ home.
That’s how Cebu looked like before.
         The question now is how will Cebu look like 30 years from now?
How will people live and work? What businesses will drive the economy
and create jobs and wealth for our people? This is why it is quite helpful to
go through visioning exercises from time to time. From experience, golfers
know how this works and you can ask Jess Alcordo. To execute the perfect
swing, you need to visualize in your mind how it is done. Same thing in
business. We need to see with our imagination the impact of attaining our
business objectives. In this regard, Cebu enjoys a big advantage. You
already have a well-articulated vision of what you want Cebu to become.
         Business and government leaders have said repeatedly that they
want Cebu to become a center for information and communication
technology (ICT) business. Information and communication technology, of
course, is not the only game in town. Furniture, light manufacturing, tourism,
trading, financial and other service businesses will continue to generate
substantial revenues for the province. However, ICT-based industries will
provide the cutting edge for future growth.
         For the purpose of my presentation today, let me focus on this
topic. Information and communication technology is the logical choice for
Cebu. You already have the infrastructure, particularly in transportation
and communication. You have 39 colleges and universities that produce
some 135,000 graduates a year. This is the educated work force so vital
for achieving that vision. Moreover, local governments are very supportive.
Finally, the spirit of entrepreneurship and innovation is very much alive
among Cebuanos. Furthermore, this vision is aligned with powerful global
forces at work.
           For many years now, ICT has been one of the most dynamic
industries powering the world economy. In recent years, this has been


                                                                          23
 SUN.STAR ECONOMIC FORUM 2005

complemented by the rise of outsourcing as a worldwide trend. In the
Philippines, this has manifested itself most visibly in the rapid rise of the
contact center business better known here as call centers. The growth of
the outsourcing sector has been truly impressive. Total industry revenues
jumped from US$ 350 million in 2001 to US$ 1.65 billion in 2004. Half of
the outsourcing sector’s revenue, about US$ 864 million, was generated
by 37 call centers. Medical transcriptions accounted for another US$ 480
million or about 30 per cent of the total.
          Some recent studies paint a very bright future for outsourcing in
the Philippines. According to a study by BNP Paribas Securities, outsourcing
will dislodge telecommunication as the Philippines top moneymaker over
the next five years. BNP Paribas said that by 2110 outsourcing businesses
by call centers would earn up to US$ 10 billion a year. Another study by
XMG, a Manila-based research and advisory firm, states that the Philippines
will surpass India by 2008 as home to the world’s largest call center industry.
By that time, XMG estimates that call centers will generate US$ 3 billion a
year in revenues. (See Figure 1.)

                                      Figure 1




24
                                                         S e s s i o n     2

          It is vital that we come to grips with the growing importance of
outsourcing. This is not just a fad. It is a fundamental shift in the way the
world works. Its significance is vividly described in the fascinating book
titled “The World is Flat: A Brief History of the 21st Century” by the veteran
journalist Thomas L. Freedman. By declaring the world is flat, Freedman is
saying that the worldwide web, computers, smart software, and cheap
broadband communications are leveling the global playing field.
          Quoting a leading Indian techno-industrialist, Freedman writes that
in the first decade of the 21st Century, these technologies have created a
platform where intellectual work, intellectual capital, could be delivered
from anywhere. It could be disaggregated, delivered, distributed, produced
and put back together again. This creates a whole new dimension of
freedom in the way we do work. This means that countries like India, China,
Ireland, South Africa and the Philippines, can now compete in the global
knowledge business as never before. Inevitably, a large share of these
businesses will relocate away from developed countries. In the case of the
Philippines, we are seen as the best emerging location for call centers.
However, the bulk of the industry remains centered in Metro Manila.
          Cebu is the major hotspot for outsourcing. We already have 14
call centers in the province. We also have other more high-value outsourcing
operations being undertaken here. My friend, Nol Dimatali, cited the case
of a Cebu outfit that is doing the engineering and design work for the
interiors of foreign motor vehicles on an outsource basis. Can you imagine
that? Though Cebu is clearly well placed to take advantage of the
outsourcing boom, it cannot escape the painful dilemma that plagues the
industry as a whole. As many of you know, it is getting harder and harder
to find qualified people for our fast growing call center businesses.
          Today the success rates of call center recruitment efforts range
from a low of two to three per cent to a high of three to five per cent. That
means, only two to five of every 100 call center applicants are actually
hired. That is a very low rate and I can attest to that since our subsidiary e-
PLDT needs to fill 5,000 seats by the end of the year. Our major problem is
recruiting people to man our seats. Recruiters now go far outside Metro
Manila and Metro Cebu to scour the provinces for applicants. We already
                                                                           25
SUN.STAR ECONOMIC FORUM 2005

have gone to Iloilo. We have several call centers in Iloilo. It’s now about
200 seats to go up to 500 seats in the next year and a half. We have gone
out of Metro Manila for this.
          As a result, competition for call center agents is fierce. Poaching
is rampant. However, the country as a whole suffers. It cannot fully exploit
opportunities to create jobs and set up other opportunities. Two years back,
expectations were that the Philippines would have 100,000 call center jobs
by 2005. Since then estimates have been lowered to about 80,000 for this
year. That is roughly one-third that of India’s.
          Here we have a painful irony. The problem is not our inability to
create jobs but it is the inability to fill them. It is our failure to educate
people and prepare them for jobs. A few simple calculations will show how
big the problem is. Let’s assume the hiring rate is three to five per cent of
applicants. Apply that rate to the 380,000 or so college graduates that the
country produces yearly. Five per cent would amount to 19,000. That’s the
number of hirable college graduates. That is way below our requirements.
          Call center companies are now working directly with colleges and
universities in various parts of the country to fill this yawning gap. Many of
them are helping schools develop courses that would better prepare
students for careers in outsourcing. They are also offering short remedial
courses for graduates wishing to apply for call center jobs. These measures
will help fill some of the gaps. But, from a broader perspective they are
just half measures. The big questions are these: How do we, as Filipinos,
face squarely the challenge of taking full advantage of the opportunities
that are within our reach? How do we keep this chance at progress from
slipping through our grasp again? How can we, in Cebu, contribute to this
effort? How do we come to terms with the fact that the world of the 21st
Century is indeed flat and will become flatter still?
          There are many ways to answer these questions. Let me focus on
two initiatives. One is a simple pragmatic solution to our immediate shortage
of qualified people. The other is rather longer term, and more audacious
in scope. The first way to get out of our current predicament is to simply
move up the outsourcing value chain. The call center business is maturing.
To keep growing, we need to complement call centers by moving into other
 26
                                                         S e s s i o n      2

fields of outsourcing such as accounting and finance, software
development, engineering design services, and computer graphics
animation. The kind of jobs being outsourced is bewildering in their variety.
Some are no-brainers.
           A case in point is medical transcription, one of the earliest forms
of outsourcing. In this business, you transcribe the medical records of
U.S. hospitals then send them back to the U.S. before the doctors get back
to work the next morning. Our share of this business is growing fast. Yet, it
is still very small compared to the potential market size. Other opportunities
are not so obvious. For example, there is a Philippine company that reviews
the lease contracts of cell sites of U.S. carriers. Getting U.S. lawyers to get
such contracts will be irrationally expensive. Outsourcing this work to
Philippine lawyers to dot the I’s and cross the T’s of these documents
makes perfect sense.
           Take note, these jobs do not require the communication skills that
are in such short supply. As a result, more people will be eligible for such
jobs. Just remember how many inarticulate, underutilized lawyers and
accountants we have. We are not talking here about simple keyboarding
or data entry. This business requires the use of skills and knowledge such
as payroll and expense account management. More important, this requires
a change in culture. We need to educate our people to work in a global
context.
           In the emerging outsourcing businesses, you can actually end up
working for a boss who is thousands of miles away and you don’t even
have to go to a call center office to do this. With the new technologies now
available, you can work from your home. Already as I speak, we are rolling
out on a blanket basis, wireless broadband installations in Cebu. I think we
have already covered Minglanilla to Danao. So maybe you do not know
this, but the air you breathe is already broadband. All you need is broadband
Internet connection which we at PLDT and Smart are making increasingly
available and affordable. Old people don’t like the idea but the young get
excited about this.
           The challenge now is to let the world know more systematically
that we have the capacity to handle this kind of work and we have the
                                                                            27
SUN.STAR ECONOMIC FORUM 2005

people who can work in a genuine global context. This is already happening
now in various parts of the country. You have, for example, Advanced
Technology and Systems, which has offices here in Banilad, Cebu City
and in Makati, Metro Manila. It is a Japanese software company that makes
web-related software, printer micro-codes and develops device and mobile
device drivers. Employment in this company has grown 50 times since it
started in 1992. Its major clients are IBM and Toshiba. Their sales have
grown 20-30 per cent yearly during the last three years. Indeed, moving
up the market can be done. It is being done in various places in the country
including Cebu.
         At this point, let me go back to the question Gina posed to me at
the very beginning. How can we make Cebu an attractive place to invest
in? There are two ways to answer that question. We can keep doing things
the conventional way. This means going about the usual trade and
investment promotion activities, incentives and the like. Please don’t get
me wrong. This kind of spadework is necessary to promote investment
growth. However, in the flat world of the 21st Century, you also need
something wild and adventurous that will lift us to a higher plane of
development. To achieve that, we need to think out of the box. It may be
something that at first glance seems a bit outrageous.
         Here I get to my second point, about a need for longer-term, more
strategic initiatives. What do I mean? Here’s an example. The Governor of
the State of Maine in the United States, Mr. Andrus King, announced his
vision for the State. He wanted the people of Maine to be known as the
most digitally literate society on earth. To help achieve that, he struck a
deal with Apple Computers. The State bought iBook laptop computers for
all 36,000 seventh and eighth grade students and teachers in all the State’s
public schools.
         The impact was immediate and dramatic. The iBook computers
sparked higher order thinking skills, collaborative learning and self-paced
learning. Attendance and grades went up. Discipline problems went down.
The kids became engaged, animated and involved. Learning, most of
all, became fun. Governor King was understandably pleased. He said


 28
                                                       S e s s i o n      2

that this program has delivered the highest impact for the lowest cost of
any government program I’ve ever seen.
         I imagine some of you are saying, “Well, that’s fine for a rich
country like the United States but that’s not relevant for the deficit-ridden
Philippines, or for provinces like Cebu. It does not make sense to give
laptops to high school students.” Well, not really or at least not anymore.
Just before he resigned, former Education Secretary Butch Abad told
me about a recent conversation he had with MIT professor Nicolas
Negroponte. Negroponte said the people at MIT were busy with a really
exciting project. They have designed laptop computers that will cost just
US$ 100. That’s just Php 5,600 or cost similar to a cell phone. They had
finalized the specifications and were in the process of bidding out
production to interested contract manufacturers.
         Suddenly, handing out laptops to students and teachers does
not look so ridiculous anymore. It’s very much like equipping every student
with a low-priced cell phone. There are many benefits from such an
investment. Instead of the government spending billions of pesos printing
and delivering textbooks, for example, students can download e-books
into their laptops over the Internet.
         Let me be clear about this. I am not saying Cebu should do the
same thing. I am saying, however, that we need to develop a similarly
bold and imaginative approach aimed at rapidly raising the digital literacy
of our people. In today’s world, innovation powered by knowledge and
information is so important. Quantum leaps in education are the key to
attracting the investments needed for sustained prosperity. Such an effort
will take a concerted effort by Government, colleges, universities, and
private companies.
         We already have such partnerships in place. Several initiatives
to promote computer and Internet literacy are already being rolled out.
This includes programs by Smart and PLDT. This gives us a good starting
point. What we need to do is to aim higher and to pursue these programs
even more aggressively.



                                                                         29
SUN.STAR ECONOMIC FORUM 2005

        Let me close on this final point. If any place in the country has a
chance at making such audacious initiative work, it would have to be
Cebu. Cebu is large enough to contain all of the elements needed for
success. Yet it is small and compact. Compact enough to keep things on
a manageable scale. Cebu has the opportunity to take the lead in paving
the path to the future. PLDT and Smart are ready to do their part. We
should not let this one slip through our grasp. Thank you and good day.




 30
                                   S e s s i o n      3




                                     Investment Climate,
                                     Productivity and
                                     Regional
                                     Development

                         Dr. Ernesto Pernia
                         Professor, UP School of Economics


              Potentials and Prospect for Development.


        P   erhaps you can characterize my presentation as focusing
on constraints and weaknesses that have to be overcome to advance
Cebu to achieve the potentials and possibilities that were mentioned by
Mr. Nazareno. You see that Sun.Star is throwing its intellectual light on
Cebu and Region 7 but that’s probably an understatement because as
you know, the intellectual and moral influence of Sun.Star extends far
beyond Region 7.
         These are the contents of my presentation. I will first define what
investment climate means. Next I will explain the link between investment
climate and economic growth. Then I will go on to some international
comparisons. The way I arranged my presentation is to start with
international data, going down to national then to provincial data.
         It is useful to have a perspective to begin with—a context within
which Cebu can be situated. It is also useful to have some benchmarks
against which Cebu’s performance can be compared. Another usefulness
of a broad perspective is that there is such a thing as a fallacy of
composition. Often the perception of foreigners of the country as a whole
is brought to bear on individual parts of the country, even the better

                                                                        31
 SUN.STAR ECONOMIC FORUM 2005

performing parts of the country. So rather than say “Fallacy of Composition,”
it is more apt to say “Fallacy of Decomposition.” We need to be conscious
about the national weaknesses of the Philippine economy since it has
some bearing on pockets of good performance including Cebu. After the
international comparisons, we look at Cebu more specifically.
          Here we have some premises. Private sector development is the
key to a country’s long-run growth and poverty reduction through steady
increases in investment and productivity. Private sector development is
very important because if the private sector in the Philippines were bigger
and stronger, political instability would not matter so much. For example, if
we look at the US economy, the private sector there is very well developed
and very strong. Political noises here and there do not really influence the
performance of the economy because it is private sector driven.
          The problem with the Philippine economy now is that private sector
is still weak. That is why we need a better investment climate. Hence,
broadly speaking, investment climate is the policy and institutional
environment that influences the risks and returns to investment. More
specifically, there are three components of investment climate. First, macro-
fundamentals are important. These include social and political stability,
macroeconomic stability, openness of the economy, and existence of
competitive markets. Second, there must be quality governance and
institutions. There must be a good regulatory and legal system, well-
functioning financial sector, flexible labor markets rather than rigid labor
markets, and skilled labor force. Third component is the availability of
infrastructure like roads, power, water and telecommunications.
          (See Figure 1.) This slide shows that countries with better
investment climate have had higher rates of capital formation and capital
accumulation. There is the Philippines, not a stellar performer, relative to
the other countries like China, Singapore, and Thailand. Even Indonesia
has been performing better than the Philippines in terms of investment
climate and capital formation or capital accumulation. This tells us that
higher rates of capital accumulation have fueled productivity and economic
growth in the different countries. There is China which has been booming
for a long time already as well as other countries.
 32
                                                            S e s s i o n   3

                                      Figure 1




        (See Figure 2.) In the 1980s, the Philippines had a period of
economic contraction and GDP per capita growth rate was negative. In the
1990s it became positive. It just about made up for the contraction in the
1980s. The outcome of this is that GDP per capita currently is not too
much different from GDP per capita of the early 1980s. The Philippines
practically stagnated during the 1980s and 1990s with just a little
improvement.
        (See Figure 3.) This is a measure of economic performance. This
is output per worker or labor productivity. You can see that it started high in
1981, went down, stagnated there and went up just a bit settling at about
Php 34,000 to Php 35,000 per worker in 2003. If we compare that to the
Php 38,000 to Php 39,000 per worker annual output in 1981, then there
has practically been a stagnation of labor productivity in the Philippines.
        (See Figure 4.) This slide shows that the Philippines appears least
favorable in terms of wage rate and labor productivity. This violet bar
represents daily wage rate in US dollars and the lines there represent
                                                                            33
SUN.STAR ECONOMIC FORUM 2005

                         Figure 2




                         Figure 3




34
                                                            S e s s i o n   3

                                      Figure 4




labor productivity. There we see that wage rate in the Philippines has
been much higher than labor productivity. This has been a major cause of
inflation. Inflation in the Philippines is higher than in other Asian countries.
This shows that Malaysia had high daily wage rates but also high labor
productivity. So there is no problem there. For the other countries, the wage
increases more or less followed the pace of productivity.
         (See Figure 5.) This shows that the Philippines, with the lowest
GDP per capita growth rate in Eastern and Southeast Asia, also had the
slowest poverty reduction rate. The green bar is GDP per capita growth
rate in the 1990s. The lighter bar is annual poverty reduction rate. This
explains why poverty in the Philippines remains substantial with 33 per
cent of the population below the poverty line. Compare this to the progress
that has been achieved in other Asian countries.
         Now I’ll talk about different measures of investment climate. One
is entry and exit procedures. This refers to the ease or the facility with
which firms can start a business as well as the ease of closing down a

                                                                            35
SUN.STAR ECONOMIC FORUM 2005

                                       Figure 5




business when the market becomes unfavorable. That is important. The
ease of entry and exist should be there for businessmen to be able to start
or close down a business depending on the dictates of the market.
         (See Figure 6.) How does the Philippines fare? This bar here
represents the difficulty of starting a business while that bar is the difficulty
of hiring and firing labor. For this graph, the lower the bars, the better.
India, of course, has been noted to have difficulty in hiring and firing labor.
The Philippines follows India while the rest appear to be better in terms of
starting a business and closing down a business and firing labor when the
firm cannot afford them anymore.
         Another measure of investment climate is regulatory burden and
corruption. Regulatory burden seems pretty heavy though the red tape
seems less torturous in the Philippines compared to other Asian developing
countries.
         (See Figure 7.) This is the burden of regulation: too much regulation,
too many signatures to acquire to get a license or to get goods to go

 36
           S e s s i o n   3

Figure 6




Figure 7




                           37
SUN.STAR ECONOMIC FORUM 2005

                                    Figure 8




through Customs. For example, the information I have is, in China it takes
about six days to get goods cleared through Customs, in Thailand it takes
about 11 days and in the Philippines it takes about 22 to 30 days. That is a
deterrent to doing business. However, red tape appears to be surprisingly
low in the Philippines, because as explained in the next slide, red tape
appears to be shortened by bribery.
         (See Figure 8.) This is irregular payments. This is bribery. These
are pretty high in the Philippines and are similar to Bangladesh. Here, the
business cost of corruption has to do with government officials making
inspections of business firms. Again, we rank pretty high in terms of the
business cost of corruption.
         (See Figure 9.) Infrastructure is another measure of investment
climate. What we find is that dissatisfaction with roads, water and power
appears common in these countries. These are the countries here. These
are the percentages of countries reporting poor infrastructure and services.
These clusters of bars here have to do with public roads and public works,
 38
                                                         S e s s i o n   3

                                    Figure 9




telephone service, power, water, postal system. And the bar with the P is
the Philippines. Notice that there are a lot of complaints about roads but
relatively few complaints about telephone service. I think telephone service
and telecommunications have improved considerably. This happened partly
when Atty. (Jesus B.) Garcia (Jr.) was Secretary of Department of
Transportation and Communication (DOTC) when they deregulated the
telecommunications industry, electric power, and etc.
         (See Figure 10.) Okay, this is energy cost. Jess Alcordo will
probably verify these numbers. These are US cents per kilowatt/hour. The
Philippines appears to have the highest power rate among the four ASEAN
countries.
         (See Figure 11.) This slide is on fixed line and mobile line
subscribers per thousand persons. The Philippines doesn’t fare too badly
on this score but it lags far behind Malaysia. This is the Philippines. Many
other countries are lagging behind the Philippines. So this is one positive
area as far as the Philippines is concerned.

                                                                         39
SUN.STAR ECONOMIC FORUM 2005

                         Figure 10




                         Figure 11




40
                                                             S e s s i o n    3

          Let us now look at investment at the sub-national level. What we
have here is a survey of firms located in the Philippines’ principal industrial
centers: Davao, Cebu, Calabarzon, Metro Manila, Clark, and Subic. The
survey included small, medium and large enterprises and covered macro-
productivity or technical change, technological advance, labor productivity,
investment rate, employment growth and sales growth. These are the results.
The results of that analysis tend to corroborate the macro-level observations
we have seen before.
          Investment climate as indicated by red tape, corruption,
infrastructure shortages, access to finance, labor market flexibility is crucial
to business performance in terms of productivity, investment rate,
employment growth and sales growth. In addition, business characteristics
that critically matter to performance include export orientation because
that allows a firm a wider market as well as workforce quality and capacity
utilization. The higher the capacity utilization of the factory, the better it is.
There is also research and development spending which are critical to
business performance.
          We did some analysis of census data on the provinces and regions
to validate the survey data. This is what we found. Labor productivity and
economic growth are positively and strongly influenced by the quality of
roads, potable water coverage, electrification and telecommunications. And
then, investment in educational facilities in the provinces also mattered
critically. But so does party affiliation of local officials with the sitting
President. You will notice that, you know, GMA the President is getting a lot
of support from local officials because they have been benefiting from their
affiliation with the President. The release of money to Local Governments
is faster and easier when local officials are of the same party or are affiliated
with the National President.
          In contrast, clan membership of elected officials (or political
dynasty), which is conducive to corruption, is negatively associated with
provincial productivity and economic growth. Furthermore, dependency
ratio resulting from high birth rates has a negative and significant effect on
labor productivity. Reflecting on what we call the adverse saving and capital
shallowing effect, the heavier the dependency burden, the lower the saving
                                                                              41
SUN.STAR ECONOMIC FORUM 2005

rate per family. Capital shallowing is when available capital becomes spread
more thinly over a fast growing labor force.
         (See Figure 12.) These are comparative productivity levels or
output per worker. This is Cebu at Php 39,276. This is Rizal. These are
the provinces around Metro Manila. Certainly they benefit from proximity
to Metro Manila. This is Rizal, Laguna, and Cavite. This is Metro Manila’s
labor productivity. This is the national average. Cebu is higher than the
national average but lags behind these provinces near Metro Manila. It
has the highest labor productivity in Central Visayas but it lags behind
these provinces that are proximate to the National Capital Region. That
is how different labor productivity is across provinces. We have data for
all the provinces also but I am not going to show them because there
are too many.
         We also did simulation. What if? So if poorly performing provinces
could upgrade their investment climate, particularly infrastructure, to a level
at par with Metro Manila, for example, productivity and growth increases
                                     Figure 12




 42
                                                          S e s s i o n   3

would range from 62 per cent to almost 200 per cent. If the poorly performing
provinces are able to upgrade their investment climate to that of Rizal,
Cavite, or Laguna, improvements would be on the order of 56 to 60 per
cent. For example, Cebu province’s productivity would increase by 60 per
cent if it had the infrastructure of Metro Manila. Bohol and Negros Oriental’s
productivity would improve about a 100 per cent – would double.
           What are the implications? While Cebu is about 60 points behind
Metro Manila in infrastructure, it lags only about 7 to 8 per cent behind
Rizal, Cavite or Laguna and these provinces have inherent advantage of
proximity to Metro Manila. So besides improving infrastructure Cebu could
enhance its competitiveness and attractiveness to investments by making
the regulatory system simpler and more transparent. That would also
minimize red tape and corruption. Getting licenses, getting permits, getting
goods cleared through Customs should be made faster. There should be
fewer signatures to obtain on the part of businessmen, less hassle, in
other words.
           Facilitating access to finance is also important. Improving labor
market flexibility is very important. When labor unions are militant, very
militant, then some businesses have no choice but to close down because
they are just running red ink for a long time. Labor market flexibility has to
do with flexible wages also. Since wage rigidity can be a major cause of
unemployment and low productivity, it becomes a cost to business. The
rule of thumb is that wage increases should move in pace with
improvements in productivity. If wage increases go ahead of improvements
in productivity then it’s going to lead to inflation and probably the closure
of businesses in the long run.
           You know, I tried to think very hard about potential areas for
investment in Cebu. These are the things I could think of. I did not include
here shipbuilding and the fashion accessories industry because I just heard
about them this morning. We should include them there. These are just
some possibilities and maybe we can discuss any or some of them some
more. (See Figure 13.)



                                                                          43
 SUN.STAR ECONOMIC FORUM 2005

                                      Figure 13




         Let me conclude. I only have a minute to conclude. These are my
closing remarks. Policy and institutional reforms are needed at the national
and provincial levels to make the Philippines internationally competitive
and to redress regional and provincial inequalities. It is in the self-interest
of private sector businessmen to cooperate fully in policy reform efforts
such as reducing corruption and improving infrastructure through public/
private partnerships, or just private investments going alone. Ultimately
the investment climate is the responsibility of everyone, Government, private
sector and the wider citizenry. Thank you.




 44
                    Discussion For um


              Investing In Cebu:
            Signposts for Success.

Speakers:


   1. Roberto Aboitiz - for Shipbuilding
         Chairman, Aboitiz Construction Group


   2. Fr. Roderick Salazar, SVD – for Academe
          President, University of San Carlos


   3. Agustin Palao – for Exports
         President, Philexport Cebu


   4. Lawrence Hughes – for ICT
         Chairman & CTO, InfoWeapons


   5. Virgilio Espeleta – for Franchising
          Chief Operating Officer, Julie’s Franchise Corporation


   6. Robert Lim Joseph Jr. – for Tourism
         Chairman, NAITAS and Travel Cooperative of the Phils.




                                                                   45
                               Shipbuilding
                               Roberto Aboitiz
                               Chairman, Aboitiz Construction Group



        A   tty. Jesus Garcia Jr., Mrs. Gina Atienza, distinguished guests,
ladies and gentlemen, maayong hapon! I have been asked to tell our story
– the shipbuilding story of Cebu and of the Philippines in 10 minutes. I will
do my best.
         The challenge of every enterprise is to put forward a road map for
success in commercial and in organizational terms. One aims for product
and service excellence in a global competitive environment. This must be
planned with a clear understanding of contextual dynamics in the country
and in the marketplace.
         The Philippine Government has put in place fundamental incentives
to encourage investors. We have the PEZA, Department of Agrarian
Reform, DENR, and Philippine Reclamation Authority as well as local
governments working to accommodate and encourage investors. The
external factors required the lowering of shipbuilding cost so as to gain
market acceptance and retain margins.
         Our story is the story of the partnerships to promote success — a
serious intent to take advantage of the potential both parties saw in investing
in the Philippines and a deep trust that it would succeed. Tsuneishi, or THI


 46
                                                         Discussion Forum

for short, has so far invested US$ 110 million or Php 6.1 billion in the
Balamban shipyard in Western Cebu. The first phase was set up to build
53,000 dead weight ton vessels. Its second phase, which started in 2005,
can build 100,000 dead weight vessels. These are called Panamaxes, the
largest size vessel capable of going through the Panama Canal. Its third
phase, to be completed in January 2006, will build for the first time pure
truck and car carriers. It builds world-class ships and launches one every
42 days. Since we started, we have built 50 ships of this class that sail the
oceans of the world. We have increased our production capability to build
Panamaxes. And in January 2006, we laid the keel of the first pure car and
truck carrier — the first built in the Philippines and one which requires high
precision in fabrication and assembly.
         FBMA, which is the other shipyard, on the other hand, was
established to build fastcrafts with an initial investment of US$ 15
million or Php 840 million. The combined investment of these two
yards in Balamban total Php 7.2 billion in an area whose economy
eight years ago was based mainly on coconut and rice production.
Today Tsuneishi has already exported ships worth Php 67.6 billion.
(See Figure 1)
         Our success and reputation allow us to maintain an order backlog
of two years. In short, we have booked orders for two years ahead. FBMA
has to date exported Php 4 billion worth of ships. Our ships in service
are in the UK, Holland, Korea, Hongkong, Australia and Philippines.
These are a few examples of the ships that we have built and exported.
This one was recently put in service in Holland in July of this year —
the largest, most luxurious ship built by us so far and valued at US$ 50
million. These are examples of RORO passenger utilitarian ferries that
accommodate cars and passengers. They are currently under a rebuild
program at the yard.
         We have been selected by Lockheed Martin to build these
specialized ships for service in the Gulf of Mexico which are capable of
maintaining a smooth ride in heavy seas of up to three meter high waves.
In economic terms, these two yards performed as follows: since 1994,


                                                                          47
SUN.STAR ECONOMIC FORUM 2005

                                     Figure 1




they registered a combined export value of US$ 1.3 billion or Php 72
billion. We are now the third largest exporter in the Central Visayas for
this year and will move up on the list with the expanded operations. (See
Figure 2 and Figure 3)
         We have provided opportunity for thousands of individuals that
have acquired very high-level technical expertise and skills. We have over
6,000 team members, majority coming from Balamban. We have an annual
payroll of over Php 510 million in an area that relied on coconuts, rice, and
marginal fishing as a means of livelihood. Balamban will soon become a
city. (See Figure 4.)
         In the short period of eight to ten years, a lot is possible. A lot
can be achieved when serious partnerships are formed between
government and private sector enterprise. These benefit the community
beyond payroll and taxes. They provide much needed direct intervention

48
           Discussion Forum

Figure 2




Figure 3




                        49
SUN.STAR ECONOMIC FORUM 2005

in education, housing and community development programs. So, our
story is a story of what can be achieved when a serious plan is pursued
with vision, trust and above all determination.
           Government’s role is simple enough. Create a fair, stable
environment to allow investors a planning horizon. Our country must stand
out when choices are being made by investors. The private sector looks
for advantage. It must determine the best option over the long term for the
investment.
           In this process of national development, investments from abroad
are critical in accelerating economic change. There is a matrix common to
all advances in civilizations, and these include capital that drives economic
result. It must be available at a competitive cost and thus be able to support
the venture. However, capital sourcing requires trustworthiness at the
borrower level and country level.
           Industries that will lead and grow in this decade are those that
stand out. Differentiation is simply staying ahead of the commodity
                                    See Figure 4




50
                                                        Discussion Forum

classification. Technology and service excellence have been the single
most important drivers of change. Simply put, constant innovation and
productivity are critical in determining corporate life and competitiveness.
          It is good to be a market leader in your domestic economy. But
more momentum, size and stability come when your products and services
have a global reach and influence. Think global, act local.
          When all is in place, companies will compete not with products
and services alone but with people and processes. The human resources
factor is where the Philippines can and needs to excel in. Stories abound
of the excellent level of productivity achieved in properly led Philippine-
based organizations. And there should be no doubt about the preferred
standing of our overseas workers: seamen, construction workers,
caregivers, teachers, and engineers.
          If it costs Php 500,000 of investment to provide one job, think of
the level of capital investment needed to gainfully employ our rising
population. The challenge before us is clear and simple. Leadership at all
levels must unite in this one view. We have to put in place the necessary
policies and management style to announce to the world that we are serious
about the development of our nation, the Philippines.
          As we do this, we ask our partners in Government, media, and
the church to dovetail their interests and power to this same goal. Put
the country first. Build and not destroy. Dream and not fester in conflict.
This is our story, ladies and gentlemen. In a short period of eight years,
much can be achieved in our country. We ask what’s gone wrong. I
think if you open your TV sets for the early afternoon or the late evening
news you’ll get a picture of where much of our energy is being spent.
          There’s a story attributed to a taipan in Hongkong who was asked,
“Sir, please invest in the Philippines.” And his answer was that the
Philippines is not a serious country. This to me is the projection that we as
leaders have been giving the world. We seem to have everything and
possess everything to succeed but we don’t have alignment of purpose.
We don’t seem to be able to get together, form one unified team and push
the country forward.


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 SUN.STAR ECONOMIC FORUM 2005

         In the business organization where I come from, there is no way a
CEO can achieve the results of this nature without the full cooperation of
every individual, every department, every leader, supervisor, foreman, etc.
How much more for the Government sphere where there are so many
unrelated interests? I think little can be expected from a fragmented
organization. So I hope that the Philippines can come back to the radar of
investors.
         We are no longer there by the way. When you switch it on, the
Philippines is not a country of choice. So, I hope that stories like this exist
are all over the country. They’re achieved through determination, planning
and execution. I hope that business, Government and civil society can
unite to bring forward what is much needed in the country - development.
Thank you very much. Good afternoon.




52
                                Academe
                                Fr. Roderick Salazar, SVD
                                President, University of San Carlos


        G     ood afternoon, ladies and gentlemen. I congratulate Sun.Star
Publications Network and Smart for sponsoring this Economic Forum for
2005. I thank them for the invitation to share a few thoughts from the
Academe on the topic – Investing In Cebu: Signposts for Success.
          I am invited to deal with three points: (1) the outlook and trends for
the academe in Cebu for the next five to ten years; (2) the gaps that need
to be filled so that the academe can prosper; (3) the new products and
industries that Cebu can develop within the academe and in conjunction
with other sectors. I was initially asked to do so in five minutes. Having
spoken for 45 seconds, I have only four minutes 15 seconds starting now.
          There was a belligerent samurai, as an old Japanese tale goes,
who once challenged a Zen master to explain the concept of heaven and
hell. But the monk replied with scorn, “Away with you, you’re nothing but a
scoundrel. I can’t waste my time with the likes of you.” His very honor
attacked, the samurai flew into a rage and pulling his sword from its
scabbard yelled, “I could kill you for your impertinence.” “That,” the monk
calmly replied, “is hell.” Startled at seeing the truth in what the master
pointed out about the fury that had him in its grip, the samurai calmed
down, sheathed his sword, and bowed thanking the monk for the insight.
And “that,” said the monk, “is heaven.”
                                                                            53
SUN.STAR ECONOMIC FORUM 2005

         This, ladies and gentlemen, is a story that David Coleman relates
in his famous book entitled “Emotional Intelligence.” The thesis of the
book is that IQ or intelligence quotient is not all there is to a person and
not the only issue schools and society should look for. There is intelligence
measure for emotion or a lack of it. There is another way of being smart.
While schools, colleges, and universities in general teach content and form
in certain fields and openness to continue learning beyond graduation,
they must also learn to raise and pursue the question: how are we to use
our passions to understand our circumstances and engage in communal
life? This is my answer to the second question about gaps to be filled. I will
expound on that in a while as I first attend to the first point - outlooks and
trends for the academe in Cebu in the next five to ten years.
         In Cebu, as you might know, there are two state-run universities,
the University of the Philippines-Cebu College and Cebu Normal University.
On the other hand, there are seven private universities: University of San
Carlos, University of San Jose-Recoletos, University of Cebu, University
of the Visayas, University of Southern Philippines, Southwestern University
and the latest, Cebu Doctors’ University. We also have a host of other
private and public colleges, and there are more schools in basic education.
         Due to our difficult economic times, there have been transfers of
students from the private schools to public schools. However, this year
most of the private schools registered increases in enrolment. Nursing as
we all know has the highest enrollment but commerce has its continuing
clientele. So has engineering with its various fields.
         In my university, surprisingly, there has also been an increase in
the arts and sciences. We are glad, of course, but we are also still studying
why? Is it because people, while immersed in modern technology, still
hunger for what makes them human? Or hunger to understand the basics
of the humanities, language and arts, sciences – natural and social?
Predictions are that in the next five to ten years, the demand for nursing
will continue. As we also know, many nurses study here, then work abroad.
Doctors, also much needed here, already take up nursing so that they can
have better opportunities abroad.


 54
                                                          Discussion Forum

         Colleges of Education also have improved enrolment. Yet its
graduates also tend to want to go abroad after graduation or passing the
board. A century ago, the United States of America had sent teachers to
the Philippines. Now they need our teachers to educate them. They may
be good for bragging rights but the reverse side of the reality is that we
then lack for teachers ourselves. We do not blame teachers who go abroad.
They would like to earn and earn within two to three months what they
struggle to earn a whole year here. Still the reality is when they go, we
miss them.
         Call center agents are in demand these days. They say that will be
true for the years to come. It is strange that, while our doctors, nurses,
engineers, teachers and information technologists go abroad or are pirated
or are enticed with attractive packages to go there, multinational companies,
on the other hand, probably to avoid increasing salary expectations, also
choose to come here. They employ our people with salaries comparatively
higher than those who work here but still lower than those who work abroad.
         To go to these job opportunities is perhaps one reason why there
are now those who take up English so that they would have the facility to
speak the language in the way that Americans do. The job is good; the pay
is even better. I personally cringe when I hear that to get and keep a job,
we want to sound American.
         A call center recruiter proudly recalled that once there was an
American caller who went through different call centers throughout the
world in India, Pakistan, and Europe, feeling frustrated that the accent and
the answers he was receiving were strange and hard to understand. That
was until he got through a call center in the Philippines and when he heard
the voice answering he said, “Ha! Thank God. I’m finally speaking to an
American.”
         The receptionist, of course, was a Filipino putting on an American
accent. And we are proud of that? Though I am happy that the jobs are
there for our young, I am unhappy that to have these, we have to sound
other than what we really are. So, this is the outlook for the next five to ten
years in Cebu for which the academe tries its best to prepare.


                                                                           55
 SUN.STAR ECONOMIC FORUM 2005

          In answer to the second point about gaps which I started earlier,
anticipating the third point about what needs to be developed in the
academe, I offer this on the level of expertise we are expected to deliver to
society and industry. A gap happens when the academe is not sufficiently
knowledgeable, foreseeing, or far-seeing enough to predict directions of
job and developments in society. It also happens, when in the second place,
industry itself does not alert academe, much less communicate what
industry thinks academe must teach in schools. (End of tape)
          (Start of tape) And this is what we need today. We tap the ordinary.
We don’t look for the smartest but develop the leadership even of the
ordinary. The last point I would like to insert then is the development of the
moral character, that even when we develop into a successful country
economically, we cannot stand there if there is moral decay. So, patriotism,
love of country and moral character to be added to emotional intelligence
and to the education that we need to give. After all, what we called ourselves
in our national anthem, “Bayang magiliw perlas ng silanganan.” In the original
Spanish but even the English version, we were calling ourselves, “Land of
the morning, child of the sun returning.” And so if today’s miss in our country
is to be overcome, we still have that hope that in our academe in partnership
with industry and society, we can remain child of the morning and the sun
returning. This is our goal. Thank you.




56
                     Exports
                      Agustin Palao
                      President, Philexport Cebu



L  adies and Gentlemen, good afternoon!


I have been asked to talk about the following topics:


    a. The outlook and trends for the export sector in Cebu in
       the next 5-10 years;
    b. The gaps that need to be filled so that the export sector
       can prosper;
    c. The new products or industries that Cebu can develop
       within the export sector, and in conjunction with other
       sectors.


As president of Philexport Cebu, it is important for me to take
advantage of this afternoon’s opportunity to share our outlook and
advocacies. For this matter I would like to thank Sun.Star for
inviting me to this prestigious Economic Forum.

Philexport Cebu is the umbrella organization for 7 exporting sectors
in the Visayas, which are the Cebu Furniture Industries Foundation,

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SUN.STAR ECONOMIC FORUM 2005

     Inc. (CFIF), Cebu Gifts Toys and Housewares Manufacturers and
     Exporters Association Inc. (GTH), Fashion Accessories
     Manufacturers and Exporters Foundation Inc. (FAME), Association
     of Food Industries (AFI), Cebu Garments Industries Association
     Inc. (CGIA), Seaweed Industries Association of the Philippines
     Inc. (SIAP) and the Mactan Export Processing Zone or the MEPZ
     Chamber of Exporters and Manufacturers Inc. (MEPZCEM). It also
     has 182 direct or associate members in its roster.


     Philexport Cebu’s mission is to act as catalyst for export
     development and growth in the Visayas region with a vision of
     making the Visayas exporters globally competitive.


     To achieve the foregoing, Philexport Cebu’s major activities are in
     the area of advocacy, information, training and marketing, and the
     support services of the One Stop-Export Documentation Center.


     Before I speak on the topics assigned to me, a little data on current
     export performance in the Visayas, is in order.


     Even with the political upheaval we have been experiencing, the
     data on our screen shows that Cebu still managed to increase it’s
     export performance by 6% in the first quarter of this year as
     compared to 2004. Based on this 1st quarter report, export sales
     already amounted to $ 998.9 million.


     Industrial goods, comprising electronics, electrical components,
     vehicle parts are the top export commodities of Cebu. These are
     produced either in the Mactan Export Processing Zone or the
     special economic zone in Danao. Though I have just been advised
     by the DTI that the output from the Balamban Industrial Park
     (Tsunishi and FBM shipbuilding) has also been included in this
     data.


58
                                                Discussion Forum

Our export performance for the past five years also shows an
average growth rate of 9.50%.


The outlook and trends for the export sector in Cebu in the next
5-10 years.


In today’s fast-paced world of computers, Internet, mobile phones,
cable TV and even speed transport; events, information/data and
people transfer very quickly, so much so that major decisions/
changes can happen in a span of as short as a month or even a
week. We have seen how fund managers can quickly transfer
investments on a hint of political instability, thereby immediately
affecting our economic outlook. As they say, it is not the biggest,
but the quickest that will succeed in today’s world. As such, it will
be quite difficult to give a 5-10 year outlook.


However, given the data on Cebu’s export performance for the
past five years and taking this year’s performance as a glimpse of
the future and of course barring extraordinary events, we can
hazard an outlook of at least 6 to 7% average annual growth rate
for the next 3 years.


Bear in mind that the performance for the past 5 years has been
achieved despite drastic changes in our political scenery and the
stiff competition from our Asian neighbors, Indonesia, Malaysia,
Vietnam, Thailand and now China.


Not only do we compete in terms of products, but also in terms of
investments. In the furniture sector, for example, we have seen
big manufacturing investments locating themselves in either China
or Vietnam. These are mass production types of factories, however,
and while so, Cebu has attracted the high end, comparatively lower
volume type of manufacturers. This accounts for the continued
modest growth performance of the Cebu furniture industry.
                                                                 59
SUN.STAR ECONOMIC FORUM 2005

     A similar situation is happening in the industrial goods sector. While
     we have been seeing a drop in Foreign Direct Investments (FDIs),
     we have been seeing a continued increase in export sales, because
     of increased efficiencies of our current export processing zone
     locators with, of course, the substantial contribution from the
     Balamban Industrial Park.


     The gaps that need to be filled so that the export sector can prosper.


     While Cebu exports have done well, there are quite a number of
     gaps that have to be addressed, if we are to sustain our
     performance. The increase in efficiency or creativity of export
     companies will not be enough for long. It will have to be
     complemented with infrastructure and governance.


     On infrastructure:


     Power
     We are hearing from the MEPZ locators, that our power cost is
     quite high compared to other Asian countries.


     This issue is complex and maybe it is best to leave it to the experts
     to resolve this issue. But we can probably ask for government to
     look again into how power could be delivered more efficiently,
     thereby allowing for some reduction in costs.


     Water
     We also hear from the MEPZ the lack of water supply, even while
     they are willing to pay a higher cost for it. This is not news. We
     know that even the hotels in Mactan have to truck water in.


     There are studies on this issue and some proposed infrastructure
     to be built. Maybe it’s about time we listened to our water advocates


60
                                                 Discussion Forum

in Cebu and address the problem with a combination of discipline
in water consumption combined with some infrastructure.


Export promotions
Cebu is considered to be the furniture capital of the Philippines
and it has also developed other industries like the GTH, the FAME
among others that need a proper exhibition center as a venue to
sell and promote their products.


I will speak more on this matter, as it is a subject I have been
involved with for quite sometime now.


We have seen how the Cebu furniture industry has, with guts and
creativity, parlayed a very small exhibition that started at the small
ballroom of the Cebu Plaza 14 years ago, into a world-class
exhibition called the Cebu X, that has attracted some 1,500 foreign
buyers annually. Since about three years ago however, it has been
hitting a wall. It could not grow because of lack of infrastructure.
While Cebu X has been mounting its exhibition in hotel ballrooms
and small exhibition halls, its competitors in Singapore, Malaysia
and Thailand have been mounting theirs in proper exhibition
buildings. In advanced countries, most especially in Europe, trade
exhibitions are considered to be the most efficient and effective
way for manufacturers to promote and sell their products. The Cebu
furniture industry attests that the Cebu X has not only successfully
promoted Cebu furniture manufacturers’ products, it has also
helped grow the industry from a little over 50 to more than 200
manufacturers/exporters, not to mention the ancilliary industries,
like the hotels, restaurants, car for hire etc., that have grown to
feed on the furniture industry.


This gap, however, is now being addressed by the Center for Trade
and Exhibition (CITEX) task force, composed of Philexport Cebu,


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SUN.STAR ECONOMIC FORUM 2005

     the Cebu Chamber of Commerce and Industry and the Cebu
     Furniture Industries Foundation, with the active intervention of the
     Department of Trade and Industry (DTI).


     As chairman of the CITEX task force, I am happy to report to you
     that the project study for the CITEX has already been endorsed to
     the National Economic and Development Authority (NEDA) for
     evaluation, by former DTI Secretary Juan Santos and that we are
     at this point doing the finishing touches on the study so that it will
     pass the scrutiny of the funding agency. This infrastructure project
     is approximately going to cost P500M to build and is targeted to
     start by next year at the latest.


     On governance:


     Government, in its desire to address certain anomalies, more often
     than not creates laws or regulations that unwittingly have an
     adverse effect on certain industries. A case in point is the Toluene
     issue that hounds the furniture industry. Toluene is a chemical
     present in paints, a material used in finishing furniture.
     Unfortunately, it is also one of the ingredients used in making
     shabu. Because of this, the Dangerous Drugs Board (DDB) has
     ruled that all paints should not contain more than X % of Toluene
     and because the Philippine National Police (PNP) has to enforce
     this ruling, every now and then a furniture manufacturer will
     experience a withholding of their paint importation, because
     Toluene content has to be verified. This withholding causes
     expensive delays on the part of the furniture manufacturer. The
     industry appreciates the vigilance of the enforcement agencies.
     However, it does not understand the relevance of the ruling,
     because for one thing, the technology of extracting Toluene from
     paint does not exist in the Philippines and for another there surely
     are better ways of addressing this issue. Regulators should learn


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to be more practical when coming up with rulings, so as to avoid
adversely affecting business.


For purpose of brevity, I have oversimplified the narration of the
foregoing issue, but this more or less illustrates gaps in governance
that affect the export industry. Philexport and industry have to
tackle many of these types of issues in their advocacies and it
sure would help if there are less of them.


There are, of course, other issues, such as the inefficiency in the
supply chain in most of our industries, making product prices
uncompetitive. In the furniture industry, we use a lot of indigenous
materials, or parts produced by inefficient subcontractors. We need
to develop these sub-contractors as efficient and reliable suppliers.
The CFIF, together with the Philippine Business for Social Progress
(PBSP), has created a program to address this issue.


The new products or industries that Cebu can develop within the
export sector, and in conjunction with other sectors.


New products are a yearly, if not a year round, undertaking in the
furniture, gifts, toys and houseware, the fashion accessories sector
and even in the food sector.


To the layperson, a chair might as well be the same as the next
chair, but to a furniture person, a chair could be a dining chair an
occasional chair and they could all look different, depending on
the lifestyle. And the possibilities are endless when you think of
other considerations, high-end, low-end, which room of the house
it is used in etc. With the gifts, toys and houseware sector, for
example, there are a myriad of little home accessories that can be
developed, depending on how creative one’s mind can be. With
fashion accessories, new products even have to be created for


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        every season (spring, summer, fall & winter). As we know, fashion
        does not repeat itself, not until the next 10 years or so.


        In the food sector, new product developments may not be as prolific
        as the sectors previously mentioned, but just the same, new
        products are constantly developed and promoted. In the early
        Nineties, nata de coco was so popular in Japan, so much so that
        when you surfed the channels of the TV in your hotel room, you
        will invariably hear nata de coco being shouted in some of their
        variety shows. Sometime in early 2000, we also heard of our
        buko pie’s success in the Australian market. We, of course, should
        not miss to point out the success of our dried mangoes. Today
        this sector continues to create new products not only from mangoes
        but from other fruits as well, such as calamansi, where we have
        the dried and even the bottled calmansi juice.


        I believe that with the creativity of the Cebuano exporter, we will
        not be lacking in new products.


        What should be interesting to see come around, is the development
        of support industries, like the local manufacture of tools and
        equipments for all of the export sectors. Most of the tools and
        equipments that we see are either made in Taiwan or China.


In closing, I would like to say that the outlook of exports in Cebu really
depends on the players. Twenty years ago, when I was intending to go
into the furniture industry, I was advised not to, as the industry was already
in a downward trend, I joined the industry 4 years later and 16 years
thereafter, the industry has continued to grow. We earlier said that we
have been experiencing a drop in FDIs, but for those that have invested in
Cebu, they have grown and in fact contributed to the 9.5% average growth
over 5 years, as shown in the charts. So, with aggressiveness, creativity
and with a little help from government, exports in Cebu should continue to
do well. Thank you.
 64
                               ICT
                               Lawrence Hughes
                               Chairman & CTO, InfoWeapons


“With vastly more money available around the world as private investment
than there is as foreign aid, why do Third World countries want or need
foreign aid? Because private investors will seldom put their own money
into projects that have no realistic chance of working or into countries too
corrupt and unreliable to expect the money to be used responsibly, much
less repaid.” – Thomas Sowell


I am not providing foreign aid, nor some kind of “investment” from a “selfless”
foundation. I am investing my own, hard-earned money here. I fully expect
to not only recover what I have invested, but to also get a significant return
on that investment – a return better than I can obtain in the US (if not, why
bother coming here?). My efforts will produce all kinds of local benefits
too, but that is one of the pleasant side effects that so often accompany
capitalist investments. Even with that hard-nosed approach, I chose to
invest here. As far as local investment opportunities go, here are some
points to consider:




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We should look for and invest in dramatic increases in the use of
Open Source software, as well as in the creation of products based
on them.


Open Source is a powerful and highly appropriate technology for countries
such as the Philippines. There is already some momentum in Cebu, partly
from my own humble efforts, such as the DOST Open Source & Computer
Security (OSCS) lab. Any company or individual can obtain high quality,
powerful, free software and information on its use from the Internet (or the
OSCS lab), and begin using it today. Servers are usually where it is first
deployed, while office desktops are the most difficult to migrate and will
happen last. We are using it heavily as components in products as well.
The result is products that are dramatically better and more profitable than
those based on commercial software platforms. Software piracy is no longer
an option. Companies who continue to use commercial operating systems
without paying for them will be left hopelessly behind (imagine using
Windows 3.1 today). We either have to be willing to pay full the US list
price (or higher) for this stuff (and still somehow make profits), or find
alternatives such as Open Source.


Invest in IPv6 (Next Generation Internet Protocol).
The Philippines is not doing much in the area of IPv6 yet, but is in the
middle of the most intense activity and largest investments in IPv6 in the
world: in China, Japan, Korea and Taiwan. We also have good business
and cultural connections with most of these countries. Philippine companies
who choose to work with IPv6 will have a big advantage over US-based
companies who are still blissfully unaware of the coming change tsunami.
IPv6 is an Asian phenomenon, and we are an Asian country. IPv6 is a field
pregnant with opportunities and all our neighbors are investing heavily in
it. We can begin working with it (e.g. IPv6 through IPv4 “tunnels”). We don’t
need to wait for the government or ISPs to support it.




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Computer Security is another potentially rich area.
Creating products with “Built-in Security” can do for the Philippines what
creating cars with “Built-in Quality” has done for Japan. Japan listened to
W. Edwards Deming (another American). I hope you’ll listen to me now.
Have all your developers obtain security certifications so they understand
how to avoid creating vulnerabilities. Companies should provide in-house
training and pay for certification exams (e.g. CompTIA Security+). Obtain
ISO 17799 certification for your company (in addition to ISO 9001-2000
for quality).


Cebu ICT firms can create globally competitive products, even for
the US market.
IWC is a “proof by example” of this. The US Department of Defense said
that what we have created here in Cebu is “years ahead” of any similar
product worldwide, and they are going to purchase the first two units we
ship (a watershed event for Cebu and the Philippines!).


Cebu ICT firms that understand and use the “Silicon Valley Business
Model” can become globally competitive.
Those who use traditional Philippine (or American) business models will
have a much harder time succeeding globally, if it is possible for them at
all. Some of the ideas will be very hard for local businessmen to adopt–
but you can’t pick and choose among the components. I used the model in
Atlanta when starting my previous venture (CipherTrust) – we grew 3200%
in 4 years while other firms were cutting back and laying off (which, by the
way, shows that the model works well outside of the “real” Silicon Valley
area). I’m using it again in here in Cebu with IWC, and it is working again
(which is showing that it will work outside of the US!) The details of this
model are described in the book “High Tech Start Up” by John Nesheim.


Outsourcing is only a temporary phase at best.
Outsourcing will help develop local talent in key technologies, but India
and China will soon underbid and outperform us in this area. Regardless,


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in effect, outsourcing means you are helping some foreign firm make far
more money on your effort than they are paying you for the development,
which is why they are willing to outsource. We should be creating products
here that we export directly to customers in the US, EU, and the rest of
Asia. That’s what we are doing at InfoWeapons.


Call centers are better, but still not as good as product-based
companies.
Call centers are good but they don’t really help build a sustainable ICT
industry in the long term. They do currently employ large numbers of people,
and generate revenue, but their profit margins will shrink in the face of
increasing competition from China and India, especially as people in those
countries learn to speak better English. Those countries already have better
technical proficiency and vastly larger populations. On the other hand, a
product-based company can easily generate ten times the revenue per
person as even the best call centers –its “multipliers” are far greater than
any services-based venture.


There are actually many very talented, highly intelligent IT
professionals here, and at a very good cost compared to the US.
You may have to be creative to locate and attract them, but in a population
of 90M, even the top tenth of one percent is an enormous group. I have
managed to build one of the best development teams I’ve ever worked
with, all but one of which are locals (and that one married a Filipina and
moved here!). There is much less competition for the top talent than there
is in the US. Empower them with recent information and tools, and they
will produce products as good or better than anything in the US. The
InfoWeapons team is doing it today, in Cebu.


Recommendations to make it easier for other foreigners to invest in
Cebu:
• Allow foreign investors and entrepreneurs to own real estate, or at least
their own homes and business property. Perhaps the waiver of import duties


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on cars bought by diplomats can be extended to foreign entrepreneurs
who invest here.
• Waive the ludicrously high import duties (30%) on equipment, books,
and other things required to build expertise and businesses, at least on
items not produced locally. Also reduce the amount of time and complexity
involved in obtaining business licenses & permits or importing equipment
and books.
• The government should never even consider the possibility of eliminating
long term incentives such as BOI or PEZA – investors have to be able to
count on those being permanent. Nothing will scare off potential or current
investors more than the possibility that those could be withdrawn in a budget
crunch. The returns on this “investment” by the government far outweigh
the lost revenue.




                                                                         69
                              Fr a n c h i s i n g
                              Virgilio Espeleta
                              Chief Operating Officer,
                              Julie’s Franchise Corporation



      G   reetings, distinguished guests. Good morning! It’s always a “good
morning” in Julie’s.
      My task today is to attempt to connect the relevance of franchising
as a business sector/approach to the “Signposts & Opportunities in
Investing in Cebu.”
      Franchising, as a business strategy, combined, has contributed to
economic development. Thousands of business enterprises adopt the
franchising format, generating millions of employment.
     In Julie’s, close to 500 branches/outlets, 200 entrepreneurs plus 6,000
employees not counting indirect/direct ventures/jobs are relying on Julie’s.
     The SME (Small and Medium Enterprise) Development Plan of
PGMA’s (President Gloria Macapagal-Arroyo’s) 10-point agenda has
endorsed franchising as the most preferred approach to enterprise creation.
     Franchising is the fastest way to expand your business. The franchisor
expands his successful and proven business model through other people’s
organizations.
     To an aspiring entrepreneur, it is a short cut and sure way to succeed
in business using a proven business formula and a strong brand name of

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a relevant product or service. Statistics show that franchising has a 95
percent success rate versus the non-franchised business of 25 percent
only after 10 years.
      In Julie’s and in other franchised businesses, we see a new breed of
entrepreneurs. We can share a lot of success stories from them. I’d like to
highlight OFWs (overseas Filipino workers) and their relatives as a good
source of entrepreneurs. And I’ll discuss this later.
     The most common problems of aspiring entrepreneurs include the
lack of capital, business knowledge and market information; cheaper
imported substitutes and fly-by-night or even greenhorn franchisors.
     Let me share with you some research materials I came across on the
trends and opportunities in franchising. The United States and Canada
are the prime movers of franchising. Take note of the business uptrend
there in fitness and health, kids, service care, and infotech or technical
consulting.
     There is a growing acceptance of the franchising business model in
Asia. In fact, most governments are supporting the growth of franchising
in enterprise development.
     Take note that the popular sectors are food, restaurants, retailing,
education, computer services, professional services, beauty and health,
hotel and tourism. The growth potentials are in non-food and service sectors
like computer schools, health care, nursing, senior care and real estate
brokerage.
     In the Philippines, the opportunities in franchising are in the 3F’s and
3T’s. Among the 3F’s, food is generally the most stable. Fashion is a
competitive sector, and fun (tourism and entertainment) is activity driven.
The 3T’s, which are telecoms, transport and tourism, require huge
infrastructure investments.
     For lack of time, may I focus and narrow down my topic to more relevant
ventures for Cebu? I choose to include the aspect of generating foreign
currency in the following areas: 3F’s—Fun, Fone, Foreign currency from
OFWs.



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     Fun (Tourism and Entertainment) offers opportunities in five areas: 1)
Air, sea and land transport through which our tourists get into Cebu; 2)
Access, roads and infrastructure needed to keep our tourism mobile and
moving; 3) Accommodation, or where our tourists stay and eat; 4) Attraction,
or places we are proud to show off that our tourists can visit; and 5) Activities,
which are events and enjoyable experiences found only in Cebu.
     For the first area, the franchisable businesses are travel agencies
and rent-a-car services. The second area involves highly capital-driven
projects.
     For the third area, which is Accommodation, hotel services like laundry,
banquet services, cleaning and housekeeping work are the franchisable
opportunities, as well as specialty restaurants offering Filipino and Cebuano
cuisine and delicacies.
     For the fifth area, which is Activities, there are opportunities in event
promotions, the offering of short courses like language and arts, medical
and relaxation tours, and sports competitions and invitational events.
     For Cebu’s second F, which is Fone, there are opportunities in
franchising call center operations management; training centers for call
centers; language schools; and standard building, office and equipment
supply. For call centers, there are three areas of concern—customer
service, billing and technical. They will require technology and connectivity,
and people with patience.
      The third way to position Cebu to generate foreign currency income
is through the third F, which is Foreign currency from OFWs. OFW
remittances amount to US$8-12 billion annually. We could transform even
just 10 percent of OFW savings into job-creating productive capital.
     Banks could establish a loan fund for OFWs for entrepreneurial franchise
ventures. The government could allocate an equal amount from the Sulong
(SME Unified Lending Opportunities for National Growth) Fund as
government counterpart (as provident fund). Established franchisors could
be tapped as co-managers of start-up businesses. For alternative capital,
the Department of Trade and Industry could make the spouses and
dependents of OFWs eligible for the SME Force (Financing for

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Organizationally Competent and Excellent Franchise Businesses) Program.
The Department of Finance could also give OFWs automatic approval of
incentives under the BMBE (Barangay Micro Business Enterprises) Act.
     Aside from their remittances, we should also tap the rich brain
resources of successful OFWs. The skilled professionals, managers and
executive-level OFWs have been exposed to the foreign market and
business environment. They have substantial savings.
     We could tap the OFW network as a vehicle to start Cebu-based
businesses abroad. OFWs are a rich source of foreign market and
competitive information. OFWs can become master franchisees abroad.
Brain drain becomes brain gain, and generates taxes and repatriation
income.
     In summary, the franchising opportunities in the country are in food,
fashion and fun (tourism and entertainment). In Cebu, the opportunities
are in fun (tourism and entertainment), fone (call centers) and foreign
currency (from OFW remittances). Thank you.




                                                                      73
                                       Cebu The Island
                                       in the Pacific
                                       Target 3 Million
                                       Tourist in 10 years

                             To u r i s m
                             Robert Lim Joseph Jr.
                             Chairman,
                             NAITAS & Travel Cooperative of the Phils.




1) The outlook & trends for the tourism sector in Cebu in the next 5-10
   years.


     a) Promoting Cebu as the island in the Pacific ; benchmarking with
        Singapore, Kuala Lumpur and Phuket..
     b) Working closely with NAITAS, MJTAJA , PHILTOA and tie up
        with ABS CBN
     c) Charter flights from Asia, Russia, Australia & the Middle East.
        Target is 10-5 star hotels in Cebu.
     d) Culture of Tourism seminar & community based tourism
        projects.




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2) The gaps that need to be filled so the tourism sector can prosper.


    a) A 20 year short term master plan. Proper zoning & legislation to
       support the 20 yr program.
    b) Identify the markets we would like to tap
    c) Create a Cd ( dvd/vcd) for tour guiding in Cebu in different
       languages.
    d) Infrastructure development that is sustainable to conform with
       the master plan.
    e) Government should support stakeholders in tourism.


3) The new products or industries that Cebu can develop within the
   tourism sector & connection with other sectors.


    a) Improvement of local food products, handicrafts & other
       souvenir items
    b) Targeting the international up market by having Gucci/
       Ferregamo / Prada/ Burberry/ Lacoste shops in Cebu
    c) Creating cooperatives in tourism and other industries.
    d) Review of what Cebu has to offer such as developing the
       culinary industry and other training programs to uplift the
       hospitality industry to meet international standards.
    e) Improving and creating festivals and events on a yearly basis




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     f)   Targeting new niche markets:


          •   Health and wellness
          •   Medical Tourism
          •   Retirement programs
          •   Elderly (above 60)
          •   Cultural
          •   Youth
          •   Sports
          •   Adventure
          •   Honeymooners
          •   MICE
          •   Agricultural tourism
          •   Conventions
          •   Beauty contest
          •   Film Features
          •   Telenovelas


     g) Being the hub of Western Visayas we shall promote extension
     tours to the other islands.
                  (This is the outline of Robert Joseph’s speech.)




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