The STAR’s Top Ten business stories of 2003

The Philippines, like many other countries in Asia, was hit hard by overseas developments in early 2003 such as the US-Iraq war, which cut demand for exports in key markets, and the outbreak of the Severe Acute Respiratory Syndrome (SARS) which left the region’s travel and tourism industry severely battered.

But while most Asian economies picked up in late 2003, the country seems to lag behind as non-economic issues such as political concerns and peace and order took their toll on the local economy.

In the last quarter of 2003 alone, a wave of kidnappings, capped by the abduction and killing of a Coca-Cola executive as well as the resignation of Finance Secretary Jose Isidro Camacho and the prospects of President Arroyo being defeated by popular action star Fernando Poe Jr. have rattled the local financial markets.

Most analysts said that were it not for too much political noise, the outlook would appear to be improving for the Philippines, which is expected to benefit from an upturn in the developed countries, particularly its main export markets, the US and Japan.

A strong US economy would certainly boost demand for many of the products that Asia, including the Philippines, make for export.

While analysts said a global recovery should help the Philippines attain a moderate growth of 4.2 percent in 2003 they acknowledged that prospects for 2004 depend very much on the results of May’s presidential election.

The government earlier set a 2003 gross domestic product (GDP) growth target of 4.2 percent to 5.2 percent.

Following is The STAR’s choice of the 10 most prominent business stories of 2003.

• Peso plunges to historic closing low

The rising political uncertainty created a downward pressure on the local currency in November, especially after actor Fernando Poe Jr. declared his intentions to run for president in the May 2004 elections.

Following Poe’s announcement of his candidacy, the peso plummeted to a new record closing low of 55.730 to $1 by the end of November.

Analysts said the local financial market was besieged by what analysts perceived as negative developments led by growing fears among investors and businessmen that a political novice could win the presidency in this year’s elections.

The Bangko Sentral ng Pilipinas (BSP) said that monetary officials expect the peso to remain volatile this year, to hit as low as 56 to the dollar.

Analysts said much of jitters in the market was caused by the apparent lack of concern among political candidates about the country’s economy and how they intend to steer the country towards sustainable growth.

The peso has been one of Asia’s weakest currencies in 2003, dogged by worries over the budget deficit and political uncertainty.

• Budget crunch eases

The country’s budget deficit remains a major concern of investors and a big headache for the government. However, due to government’s strong efforts to raise revenue and cut spending, the budget shortfall from January to November stood at about P172 billion, substantially below the full-year government-imposed ceiling of P202 billion.

Government officials said the fiscal crunch has eased due to higher revenues, notwithstanding some "slight" overspending in November.

They said it is unlikely the budget deficit will widen by as much as P30 billion in December, which means the government will likely meet its full-year deficit target.

The government aims to keep its 2003 fiscal shortfall within P2002 billion, or 4.7 percent of projected gross domestic product (GDP).

In 2002, the worsening fiscal condition was one of the reasons why global ratings agencies decided to downgrade the country’s debt rating.

• Exports perform below target

The country’s export sector hardly recovered in 2003 The STAR’s... From B-1

from a dismal performance in 2002 despite the recovery in the country’s key markets, particularly the US.

In the first 10 months of the year, exports managed to rise by a paltry one percent to $29.489 billion.

The government expects export revenue to rise by only two percent in 2002, lower than the original target of five percent and much lower than the 9.5 percent growth recorded in 2001.

Asian exporting economies have started to ride a recovery in the US economy which grew by a blistering 8.2 percent pace in the third quarter–the fastest in nearly two decades. But while the Philippines’ export sector is showing signs of mild uptick, the country is struggling to deal with stiff competition from cheap Chinese exports.

Analysts said the global recovery in electronics and chip sales may shelp boost the country’s export performance in 2004.

However, industry sources said the country’s electronic export, which consists largely of assembling imported parts and shipping them out again, looks outdated and vulnerable to Chinese competition.

Electronics executives warned recently that the industry was in severe trouble, partly due to a lack of government support.

• Economic growth on track

Despite a spate of negative developments, government economists said the economy had exceeded most economic targets in 2003.

In December, government economists confidently announced that the country’s gross domestic product (GDP) will grow by at least 4.2 percent in 2003.

Economic Planning Secretary Romulo Neri said that GDP would grow by at least 4.2 percent while acting Finance Secretary Juanita Amatong said the budget deficit would likely end 2003 at about P200 billion, or lower than the P202 billion ceiling.

The Bangko Sentral ng Pilipinas (BSP), on the other hand, said that inflation would likely average at 3.1 percent against a programmed target of 4.5 percent and 5.5 percent.

Analysts said strong consumer spending in the last quarter would drive the economy forward to match the previous quarter’s growth of 4.4 percent.

They said were it not for such political concerns, the outlook would appear to be improving for the Philippines, which is expected to benefit from an upturn in the developed countries, particularly its main export markets, the US and Japan.

However, recently resigned Finance Secretary Jose Isidro Camacho warned that the Philippines must undertake massive reforms if it wants to take advantage of opportunities by the worldwide economic recovery.

• San Miguel Corp gears up for Asian expansion

Bullish on the region’s economic prospects, food and beverage giant San Miguel Corp. (SMC) decided to make its presence felt in the region.

For SMC will invest around P10 billion in new projects, acquisitions and the expansion of businesses in Thailand, Indonesia, Malaysia and Vietnam which would involve beer, meat processing, alcoholic beverages, and the complete line of non-alcoholic beverages.

As part of its regional expansion, the food and beverage onglomerate had finalized the purchase of a $35.5-million farm venture in Thailand. It also paid $20 million for a 100-hectare property at the Amata City industrial estate in Rayong, Thailand for a beverage production site by 2005.

The company earlier announced plans to invest $700 million in food and beverage complexes in seven Asia-Pacific countries.

• Maynilad gets debt reprieve

After causing a stir in the local business community when Maynilad announced early in December 2002 that it was returning to the government its water concession for the western half of Metro Manila, the company, early this year, managed to secure a court reprieve on the payment of its P17.59 billion debt, giving Maynilad enough time to map out a viable rehabilitation plan.

Analysts said Maynilad’s trouble only confirms the extent of Benpres’ financial woes which has around $600 million worth of debt that it is seeking to restructure. Benpres itself has been convincing creditors to approve its asset management plan, to avert receivership.

In a latest development which analysts said could inflict a heavy blow on the parent firm, the Supreme Court raised the possibility of requiring Benpres to answer for at least 30 percent of the debts of its subsidiary.

Maynilad is about 59 percent controlled by Benpres Holdings, the flagship firm of the Lopez family. About 20 percent of the firm is owned by Ondeo, a French multinational affiliated with Suez Lyonnaise de Eaux and the remaining 20 percent by Lyonnaise Asia Water Ltd.

• Globe Telecom buys back DeTeAsia stake

In a deal valued at P8.16 billion, Globe Telecom Inc. approved in early October to buy back the 12 million shares of DeTeAsia Holdings GmbH (DeTeAsia).

DeTe Asia, a wholly owned subsidiary of German phone giant Deutsche Telekom AG (DeutscgeTel) earlier announced that it was divesting its stake in Globe Telecom.

DeTeAsia sold its shares in Globe after its parent company Deutsche Telekom continued to suffer massive losses in its worldwide operations. It offered the shares to partners Ayala and Singapore Telecom International (STI) in pursuance of the right of first offer available to the two companies.

Ayala, STI and DTI Asia are the three biggest shareholders of Globe.

DeTe Asia owns 24.8 percent of Globe’s common shares acquired via a share-swap arrangement executed when Globe acquired DeTeAsia’s stake in Isla Telecommunications (Islacom).

• Digitel launches Sun

Gokongwei-owned Digital Telecommunications Phils. Inc. launched its digital mobile service offering –Sun Cellular during the first quarter of 2003 for which the company has allocated P20 billion in investments for 2003 alone.

Digitel owns and operates the country’s second largest landline network, next only to the Philippine Long Distance Telephone Co. (PLDT).

In terms of capital expenditure budget, the wireless business of Digitel got P20 billion and the fixed line business, P1 billion for 2003.

• Cojuangco acquires ABC-5

A group led by businessman Antonio ‘Tonyboy’ Cojuangco made waves when reports confirmed that his group has acquired the Associated Broadcasting Corp. (ABC-5) for at least P5 billion.

The group earlier said that it hopes to be running ABC-5 beginning this month. Cojuangco will be the chairman and chief executive officer and is expected to actively manage the network.

It will be recalled that the Concepcions of the RFM Group and PLDT’s Manuel V. Pangilinan earlier made a pitch for ABC-5 at a price close to P2 billion, which was rejected by ABC-5 owner Edward Tan.

Disagreement over pricing almost led to the collapse of the talks between Cojuangco and Tan.

It is not clear up to now why Cojuangco wants to go into the broadcasting business, although his group claims ABC-5 will instantly give Cojuangco’s Dream Broadcasting Corp., which is into satellite television, a nationwide reach.