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Doing Business through Good Times and Bad

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In terms of adverse developments, 2003 is a landmark year. War jitters pervaded during the 1st quarter as the United States and the “Coalition of the Willing” built up forces in the Middle East to effect regime change in Iraq. Hardly had the dust from the swift and early US victory settled when the world reeled from the international outbreak of the Severe Acute Respiratory Syndrome (SARS) disease. What are the implications of these developments on Philippine businesses?

Post-Bombing Revival

  • The swift US victory over Iraq resulted in nationwide collective sigh of relief. Business confidence made a rebound in the Philippines as manifested in the stabilization of interest rates and oil prices and a stock market revival. Inflation slowed to 2.7% in May, representing a progressive decline from 3.1% in February. The Philippine Peso appreciated from a 26-and-a-half-month low of 55.16/US₱ in March 13, to P53.44 as of June 27. As of August 4, it reverted to P54.88/US₱ but this is because of the attempted coup of July 26-27.
  • The economy exhibited its resiliency during the height of the tensions and uncertainties producing better than expected GDP growth of 4.5% during the first three months of the year. The encouraging economic performance was characterized by the continuing robustness of services (+5.6%). The recovery of manufacturing (+5.3% from +2.4%) and the continuing confidence of Filipino consumers (+4.9% consumption growth).
  • In the wake of the US victory are the difficult tasks of reconstructing Iraq and mending relations with its Western allies and international institutions. There are concerns that the continuing US occupation will radicalize more Arabs and inflame anti-American sentiment thus contributing to more acts of terrorism. Already there have been bombings in Saudi Arabia and Morocco and Al Qaeda was again reported to be recruiting new members during the past few months. By the first week of August, daily guerilla attacks on occupation forces resulted in scores of casualties among US soldiers and a number of British military personnel although the US scored a major victory when the sons of Saddam Hussein Qusay and Uday were killed in an encounter with UD forces.
  • By joining the US-led coalition of the “willing”, the Philippines expects to received priority jobs n the reconstruction and humanitarian efforts in Baghdad. Skilled overseas Filipino workers (OFWs) and local construction companies are sectors seen to benefit from the post-war rebuilding . In helping rebuild post-war Iraq, the Philippine government also hopes to make the Middle East safer for more than 1.5 million Filipinos already employed in the region and providing much needed dollars.
  • Given stiff competition from China for technical and professional jobs, President Gloria Macapagal Arroyo created an inter-agency humanitarian task force and a private-public sector partnership for reconstruction of Iraq under Philippine ambassador-designate to Kuwait Bayani Mangibin. The task forces will ensure that the Philippines will be the first in line in the rebuilding efforts. The Philippine Public-Private Sector Partnership for the Reconstruction and Development of Iraq identified the following Areas of Opportunities for Philippine Professionals and Businesses:

    - Supervisory and Management Service (Manpower Services)
    - Healthcare Services
    - City/Municipal Services
    - Administration of Provinces
    - Internal Security, prisons administration (Security Services)
    - Bank Managers
    - Water/sanitation specialists (Utilities Services and subcontractor network)
    - Telecommunications experts
    - Air traffic controllers
    - Highways systems administration

    The substantial benefits that the Pres. Arroyo obtained from the Bush Administration during her recent U.S. state visit highlight the advantages of the country being in the forefront of the “war against terrorism”. Critics have pointed out that this will make the Philippines a more attractive target for terrorists. It is a risk that the government is willing to take to fuel economic growth and hope to undercut poverty that it perceives as the root cause of violence.

    SARS-struck in Asia
    After generating a worldwide concern, SARS seems to have wound down by end of June. The last probable case in the Philippines was reported May 15. The hardest hit by the disease, China and Hongkong recorded their last probable case on June 11. Nevertheless, the spread of SARS has had considerable economic impact:
    • World Health Organization officials state that the total worldwide economic impact could top ₱30 billion. The effect on Toronto was estimated at ₱30 million a day.
    • NTC Research’s Purchasing Managers’ Index which provides an overall view of business conditions in Hongkong fell 21.28% to 38.1% in April, its lowest level since the index began in July 1998.
    • The World Bank projects that growth in East Asia will fall by almost a percentage point in 2003, to 5 percent, given the disease and the crisis in Iraq.
    • Industries affected by SARS are:
      Tourism and business travel – hotels, resorts, airline industry, etc. Philippine tourist arrivals in March dropped 9.9% from a year ago. According to the Department of Tourism (DOT), the average occupancy rate of accredited hotels declined by 7.25% to 56% for January-June 2003.
    Pharmaceutical industries and industries manufacturing household goods. In their fight against SARS, consumers have increased spending in categories like household products, cleners, toiletries, and pharmaceuticals.
    • Retail sales- those businesses that require face-to-face contact. In Hongkong, it was reported that the retail sales plunged between 50 percent to 80 percent since the outbreak of the disease. In the case of China, the fallout would be limited because the services sector that is most heavily affected by SARS makes up only 28% of the economy.
    • Those industries that rely heavily on imports of raw materials especially from SARS affected countries.
    • As the negative impact of SARS has extended over the 2nd quarter of 2003, Southeast Asia GDP may grow by just 3.4% while that of East Asia down to just 5.3% during the period.
    • The Philippine government also reported that it is likely that economic growth in the 2nd quarter may be just about 4% in contrast to the 1st quarter’s 4.5% due to the impact of SARS.
    • Governments are preparing economic recovery packages and easing travel restrictions while tourism and transport companies in the region are implementing marketing promotions to recover lost ground.
    While taking into account the still anemic global economy, the positive developments coupled with the end of the mild El Niño episode and the recent SARS free status of the Philippines continues to improve our economic outlook over the short term. If the authorities manage effectively the fallout from the July 26-27 attempted coup, its adverse effects on the economy are also anticipated to be minimal.
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