Virtual vaccine

One thing can be said about projections and expectations of a rebound, which by 2022 is going to bring us back to pre-pandemic economic levels: It’s not going to be automatic.

A lively domestic market, if we can pick just one among the important indicators, is the scenario we need to get back to recover our economic strength. Our visuals on retail and food service establishments tell the story of how slow the phase of recovery can be. We go out and say there are now more people in stores and in restaurants and it seems like a semblance of normality, but we are actually benchmarking it against the new normal. It is way nothing compared to the pre-pandemic volumes of almost entire Filipino families in malls, with lines even to get into restaurants during the peak hour for lunch, and merchandise and stores already spilling into walkways and corridors.

We may find our way back to the crowd after vaccination of our population but the confidence in physical commingling will never be the same for everyone and will continue to impact the economy.

This brings me to the point of putting mad urgency to building virtual confidence nationwide. It can never be achieved without access to quality broadband services, which in substance and by definition, are part of telco services of a public utility franchise.

Indeed, there has been an acceleration of digital transformation by businesses by compulsion but from what we’ve observed, the MSME population has barely scratched the surface. Regardless of the stage of transformation, Internet access and speed will dictate the usefulness of technology. If you are one of those who go to the office on a more or less regular basis, you would notice the traffic buildup during peak hours. People go to the office for various reasons but in great part, it’s for better Internet connectivity.

The livelihood of “homepreneurs”, and towns and villages across our 7,100 islands, now depends on broadband access for inclusion, if not survival. The education of our youth now hangs in the balance as only about half of the student population (based on a PwC Philippines survey) have reliable Internet connection.

The positive thing I am here to say is that such required virtual confidence is within reach. From the franchises issued by the government, there are now five major telco players: Globe, Smart, the Chinese-backed DITO Telecommunity, the recently listed Converge that laid a strong fiber optic network, and NOW Telecom that teamed up with Nokia to deploy a stand-alone 5G network nationwide.

Among these five telco companies alone are hundreds of billions of funds required for capital expenditure and network expansion programs for the next five years. Domestic funds alone cannot finance their rollouts because telco is not the only industry for investment destination. We need foreign capital to come in more freely.

That is why I am with the ranks of those who advocate for relaxation of foreign equity limitation of telco and public utility companies.

To refresh my readers, the issue is a constitutional one. The Philippine Constitution limits foreign equity to at most 40 percent for corporations engaged in the operation of public utilities. The most expedient way to amend the Constitution is via a vote of three-fourths of its members. That being said, it’s not easy because you need a plebiscite. That is why there is an approach to amend the definition of “public utility” by law, and from that definition, take out the public utility where they want to liberalize the entry of foreign equity.

This move, however, may not work because when the Constitution was written, the old public service act was the one existing, which defined public utilities as entities rendering service to the public. So certainly, the framers of the Constitution then had this in mind. No less than a Constitutional amendment is needed.

Truth be told, things are not stagnant on the investment scene during the pandemic. The M&A (mergers and acquisitions) action in 2020, particularly the latter part, beat 2019. M&A activity in the utilities sector have taken the lion’s share with activities in the food industry and fintech as well, with 40 percent coming from foreign investors. But we need so much more.

The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) that would lower income tax to 25 percent (20 percent for smaller companies), even if such reduced rate still lags behind our Southeast Asian neighbors, causes an attraction. It is because it’s complemented by a strong domestic market or a really strong potential, post-pandemic.

The connection is now made more plain: A strong domestic market can still happen but it requires confidence. While that cannot be the old normal’s confidence, we must afford virtual confidence, almost like a virtual vaccine. More people can have full-time jobs working from home. With underemployment abetted, purchasing power can be regained. And the academe with less connectivity issues can still churn out competitive human resources that our industries need.

Our people should be properly informed and our legislators must once more put on the pandemic spirit of oneness and good faith to achieve one of the most difficult legislations to pull off – a constitutional amendment. This is to attract more foreign funds and get them here, to build more broadband access to our more than 100 million people in the multifarious corners of our archipelago, to build confidence for our economic rebound. It is not automatic, it’s also not undoable.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.