NOT everyone in the business sector will be merry this Christmas, based on the prognosis of experts and leaders in the private sector.
What determines who will be merry and sad, according to them, is the exchange-rate situation. And with the stronger peso, the tide is on the side of sellers of goods that are imported or with heavy imported components.
The tiangge [street bazaars] that are selling imported products are raking up the sales,” George T. Barcelon, vice president of the Philippine Chamber of Commerce and Industry (PCCI), said.
Barcelon is feeling the effect of the stronger peso personally, being a domestic manufacturer. He owns Paramount Vinyl, which produces and sells slippers, sandals, rubber mats, shower curtains, leatherette and tablecloth, among other things.
He said that while sales are expected to pick up this holiday season, it would not be as much as the previous year. “Probably, our sales will increase by 5 percent only,” he said.
Barcelon also said while the economy is growing better than expected, domestic manufacturers are not really feeling its effects, because it is happening at a time when the peso is appreciating strongly.
Naturally, he said, a stronger local currency would make imported goods cheaper. Liberalized trade aggravates the situation, with the often-subsidized products from China and other countries entering the Philippines at zero or very little import duties.
“For us domestic manufacturers, the situation is downhill; the sales are going to the importers,” Barcelon said.
As of December 14, 2012, the peso-dollar exchange rate was P41.059. It went beyond P56 in 2004 but the peso started gaining strongly in the last quarter of 2005.
During the Arroyo administration, the government used the stronger peso to harp on the performance of the economy, even if the exporters and several economists were saying that devaluation would do the country better.
This time, even Socioeconomic Planning Secretary Arsenio M. Balisacan issued a warning that the appreciating peso could hurt the economy if it is not accompanied by growth in productivity.
This, he said, is why bottlenecks, such as the high cost of doing business, bureaucratic red tape, and poor infrastructure are being addressed by the Aquino administration.
Also, Balisacan said the government is taking efforts to get all its pipelined public-private partnership (PPP) projects off the ground as soon as possible as these will entail the use of more dollars, particularly in the importation of capital goods and equipment.
“Exchange rate is a key variable in the performance of the economy,” Balisacan said, pointing out that the appreciation of the peso affects the lives of ordinary people and employment.
He noted that an appreciating peso reduces the purchasing power of overseas Filipino workers (OFWs) and their families, and makes Philippine exports less competitive in the world market.
Also, since a stronger peso leads to cheaper imports, manufacturers and producers that cater only to the domestic market lose sales.
Aside from that, Balisacan said stronger peso encourages the inflow of hot money, whose investors just run away easily.
This, he said, is why the government needs to assist the Bangko Sentral ng Pilipinas in managing the peso appreciation, even if this is determined by market forces.
Balisacan made the comments as a caveat, that although the economy is outperforming expectations, much should still be done to sustain it, and this includes managing the strengthening of the local currency.
The National Economic and Development Authority (Neda) reported that GDP grew by 7.1 percent in the third quarter and 6.5 percent for the first three quarters. These increments are way above the 5.5-percent to 6-percent official forecast of the government for the whole year.
But Donald Dee, vice chairman of the PCCI, said the “over-valued” peso is creating problems at the grassroots.
“If we don’t correct this, we will not be able to create jobs. Unemployment and poverty will still be a problem. The exchange rate is an issue, and we need to manage it so industries can grow and we can be competitive,” Dee said.
Sergio Ortiz-Luis, president of the Philippine Exporters Confederation, said speculators posing as economists are hurting the export sector, OFws, small businesses and local manufacturers by making predictions that the peso would appreciate further.
These predictions, he said, are not really based on sound scientific method but represent the advocacy of fund managers to push for a stronger local currency.
“Fund managers predict that the exchange rate would reach P37. They said it then, but it did not happen. Now they are saying it again. But why are they saying this? Are they qualified? Only the regulators can say this because they can make policies,” Ortiz-Luis said.
Alfredo Yao, chairman of the Zesto Group and chairman of PCCI, said his juice business is likely to grow by 7 percent this year because of little competition from imported varieties.
His airline business, on the other hand, is headed for another double-digit increment.
Due to seasonality, he said December sales should also improve by about 10 percent.
“The stronger peso is benefiting the consumers because of lower prices. But the exporters are suffering,” Yao said.
Nestor E. Constancia, marketing and sales manager of Gardenia Bakeries Philippines, said that while they are expecting growth this year, it would not be better than in 2011. This, he said, will be true for both the full-year and December-only sales of Gardenia.
“Last year will be better [than this year]. Maybe it is because the effects of the improving economy have not trickled down yet. But next year should be better,” Constancia said.
He said bread sales traditionally peak from December 21 to 31.
“We should feel the full impact [of the improving economy] next year because higher consumption will follow,” he added.
For meat processors, a source privy to market trending said the industry expects 15-percent to 18-percent sales increase this month versus December last year.
“Hams eat up about 50 percent of processed-meat sales during December,” the source said.
But local meat processors, with big names such as Swift, Purefoods and CDO, do not have to contend with imported brands.
The source said imported varieties only represent about 1 percent of the processed-food market, and these are mostly canned meat from China.
Also, the processors import up to 20 percent of their raw-material requirement, which means they are also benefiting from the strengthening peso.
The source said the December sales increase is due to natural growth and increased consumer spending. “Institutional sales contribute much to the December sales upswing.”
Ortiz-Luis said government policy-makers and the public should not fall for the mind conditioning being done by speculators.
“We have 12 million OFWs and 4 million exporters. If you multiply these numbers by the average family size, which is 5, that would be 80 million Filipinos already. We are now dependent on dollars and not the peso. And it would be impossible for our industries to compete with imported goods if the peso is high,” Ortiz-Luis said.
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