“Priority investment areas in 2010” by Carolina A. Racelis (Jun 21, 2010)

SUITS THE C-SUITE By Carolina A. Racelis
Business World (06/21/2010)

As the business community eagerly anticipates the inauguration of President-elect Benigno Simeon “Noynoy” C. Aquino III, there seems to be renewed energy for Filipinos to work together as a nation.

The timing, then, of the recent release of the 2010 Investment Priorities Plan (IPP) is auspicious. Signed by outgoing President Gloria Macapagal-Arroyo last April 30, 2010, the IPP gives us a framework for focusing on specific investment areas that are deemed critical in our pursuit of national advancement. In addition, these priority areas are entitled to incentives under the Omnibus Investments Code which include, among others, the income tax holiday.

Interestingly, the 2010 IPP aims to generate more investments and jobs in the agriculture, industry and service sectors to optimize the opportunities from the global economic recovery and the implementation of international agreements. This IPP also promotes investments in green business initiatives that will address the climate challenge towards a Green Philippines.

On June 5, 2010, the Board of Investments (BoI) published the General Policies and Specific Guidelines to implement the 2010 IPP.

While the 2010 IPP comprises four parts: Preferred Activities, the Mandatory List, the Export Activities and the Autonomous Region in Muslim Mindanao (ARMM) List, this discussion will focus on the Preferred Activities List (particularly the new inclusions), because it is the most exhaustive, its applications are timely and the potentials seem far-reaching.

The Preferred Activities consist of the (a) Contingency List and the (b) Regular List.

The Contingency List

The Contingency List was first introduced in the 2009 IPP and is a temporary inclusion in the IPP to enable enterprises to recover from the effects of the global crisis.

It will be taken out of the IPP when the National Economic and Development Authority announces that the crisis no longer exists.

To qualify for registration, the enterprise must prove that its operation has been affected by the global economic crisis impairing its viability as reflected in the company’s audited financial statements.

This list covers Job Saving/Creation Projects that include existing projects and activities affected by the global economic crisis that will at least retain investments and either maintain current number of workers, reinstate laid-off workers to equal their pre-crisis number or increase current number of workers.

However, there are certain businesses and activities that are not qualified under the Contingency List such as banks and financial institutions, among others.

The Regular List

In addition to the activities historically included in previous Regular Lists, the 2010 Regular List has new inclusions: Green Projects and Disaster Prevention, Mitigation and Recovery Projects.

Green Projects cover the production of goods such as capital equipment, lighting, construction materials the utilization of which would lead to either the efficient use of energy, natural resources, raw materials, or minimize/prevent pollution.

This category also includes systems/processes that would involve the application of cleaner and more efficient technologies for reducing carbon and/or other green-house gas emission.

To qualify for registration, the Green Project activity must (i) reduce greenhouse gas emissions, (ii) use less natural resources, (iii) create less waste, and (iv) the products and goods must be affordable.

Disaster Prevention, Mitigation and Recovery Projects have three categories: (1) projects that will prevent or mitigate the adverse impact of calamities and disasters such as installation of flood control systems, installation of early warning systems for natural calamities like typhoons, earthquakes, tsunamis, volcanic eruptions, manufacture of goods critical to disaster management, construction of dikes, salvaging operations and installation of power generating equipment and auxiliary equipment; (2) projects that involve rehabilitation of areas affected by calamities and disasters such as rebuilding of roads and bridges after earthquakes and flooding, volcanic eruptions and oil spill cleanup; and, (3) projects covering training for disaster preparedness, mitigation, recovery, rehabilitation and reconstruction.

Investments in these activities are highly encouraged to address the challenges brought about by climate change and natural calamities.

Investment in these areas will not only benefit the Philippine economy and contribute to the sustainability or sustainable development of businesses but will also promote corporate social responsibility (CSR). In fact, the 2010 Guidelines require registered enterprises with pioneer incentives to undertake CSR activities, and projects seeking BoI registration are encouraged to contribute to activities that will address or mitigate climate change.

The 2010 Regular List has not forgotten our banner investment area — the business process outsourcing (BPO) industry. It should continue to be our flagship area of investment given our exceptional English-speaking and educated work force and relatively low cost of labor. Strong revenues from the BPO sector have contributed to the balance of payment surplus of the country.

Infrastructure continues to remain in the 2010 Regular List. Infrastructure covers air, water and mass rail transport, water supply and distribution, logistics, energy, specifically, power generation projects, projects/activities under the PSALM privatization plan, power generation projects located in missionary areas, rehabilitation of power plants, waste management facilities, mass housing, physical infrastructure, pipeline projects for oil and gas, projects under the Build-Operate-Transfer Law.

Investments in infrastructure have always been high on the list since highly developed and dependable infrastructure is needed by the country to spur progress. We need only to look at our successful Asian neighbors to see how poorly we have fared in this area.

To further increase the country’s competitiveness, much attention should also be placed on transportation and power. It is therefore encouraging that improving transportation is one of the key points of the President-elect’s economic policy plans for the country.

He also hopes to promote industries with the greatest potential for growth and where the Philippines can really compete such as agribusiness, BPO, creative industries, infrastructure, manufacturing and logistics.

The recent improvement in the Philippines’ standing in world competitiveness should be further fuel to our optimism. In the 2010 World Competitiveness Yearbook, a renowned and reputable report on the global competitiveness of 58 economies and published by the Swiss nonprofit business school, Institute for Management Development, the Philippines ranked 39th overall in competitiveness. This is four notches higher in 2009 where the Philippines ranked 43rd overall. This is the Philippines best performance ever since its inclusion in over 10 years.

With emphasis on investments that not only aid the country’s progress but also consider the environment, climate change, good governance and corporate social responsibility among others, the 2010 IPP can really help us make a turnaround, and this bodes very well for all Filipinos.

(Carolina A. Racelis is a Tax Senior Director of SGV & Co)

This article was originally published in the BusinessWorld newspaper. It is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.