There were four economic developments in the past week that I would like to comment on.
The first is high inflation driven by transport, alcoholic beverages and tobacco (ABT) and financial services.
Last Friday, the Philippine Statistics Authority (PSA) reported the inflation rate for July 2022 at 6.4%, another four-year high from 6.9% in October 2018. Transport and ABT are among the major generators of inflation (Table 1).
Based on transport inflation of 18.1% in July, the sub-component inflation rates are:
1.) Operation of personal transportation equipment, 48.1%;
2.) Passenger transportation services, 7.2%;
3.) Purchase of vehicles, 1.3%;
4.) Freight transportation services, 0.3%.
MOTORCYCLE TAXIS AND LTFRB
As the figures above show, the cost of operating personal transport such as cars was very high, 48% in July due to rising gasoline and diesel prices.
Last week there was this report in Business world: “Grab PHL says acquisition of MOVE IT is within the rules” (August 8). It’s good news.
There are currently three motorcycle taxi companies (MCTs) in the Philippines: Angkas, Joyride and Move It. The latter is the smallest with just a few hundred drivers, while the first two have at least 15,000 drivers, the cap per player imposed by the Department of Transportation’s (DoTr) Technical Working Group which includes the Land Transportation Franchising Regulatory Board (LTFRB). Grab PHL’s acquisition of Move It will have many benefits for the public.
First, commuters will have more options, more convenience with three large MCT drives to choose from. Long lines of people queuing for a ride will be shortened.
Second, thousands of new drivers will be on board – not hired because this is not an employer-employee agreement. More drivers means more MCTs to serve the public.
Third, there will be more competition as the virtual duopoly of Angkas and Joyride will be broken. Thus, there will be more competition in technology/applications, better services, more competitive fares, more convenience and safety for passengers.
Fourth, traffic will ease as more people leave their cars or motorbikes at home and take public transport. MCTs will help provide the “first mile” between home and the station/bus station, and the “last mile” between the station/bus station and the destination. And go back to go home.
Fifth, the overall inflation rate will be tempered when inflation in transport, especially in the operation of personal transport, is reduced. And people will have more savings.
To further increase competition and passenger comfort, Secretary of Transportation Jaime J. Bautista and LTFRB Chairman Cheloy Velicaria-Garafil should consider removing two caps – removing the maximum number of MCT players from just three and removing the maximum 15,000 drivers per player. At a maximum of 45,000 legal drivers, it is very likely that the number of “unregistered”habal habal“drivers may be twice or more than that number nationwide. Since they already exist, they should be integrated via legal MCT companies, for better regulatory transparency and better passenger safety.
If both caps are removed, it is estimated that at least one million daily trips can be served by MCTs. Secretary Bautista comes from the airline industry where there is no cap on flights per destination per day or per month, so he can appreciate the need to remove caps on the number of players and vehicles in transportation earthly.
More restrictions mean less choice and more suffering for the public. More competition means more choice and less suffering for commuters. Greater and faster mobility of people and goods means more economic growth, more businesses and job creation, and lower inflation.
TOBACCO TAXES AND ILLICIT TRADE
Last week, Budget Secretary Amenah F. Pangandaman reiterated that she would submit the 2023 budget to Congress on August 22.
Eight years ago, the current Secretary of Finance, Benjamin Diokno, wrote a column titled “Illicit Cigarette Trade on the Rise” (Manila Speaks, 9 October 2014; reprinted in one of his four books, on the other side of the mirror, published in 2020). He cited Oxford Economics estimates of tax losses from illicit cigarettes: 2.62 billion pesos in 2012 and 15.60 billion pesos in 2013. The estimated number of illicit cigarettes was 6.4 billion sticks in 2012 and 19.1 billion sticks in 2013, an increase of nearly 200% in just one year.
Last April, I attended a webinar hosted by the National Tobacco Administration on illicit tobacco and Congressman Jericho “Koko” Nograles was one of the speakers. He shared EuromonitorEstimates of illicit tobacco as a percentage of total supply: Nationwide 13%, Zambales 11.5%, Nueva Ecija 22%, Bataan 32%, Palawan 25%, Sultan Kudarat 36%, Zamboanga de Sibugay 51%, Misamis Occidental 57% , some areas of Mindanao up to 60%.
Mr. Nograles’ estimate of lost illicit tobacco revenue nationwide is P26 billion/year. In March 2021, Congressman Joey Salceda released his estimate of illicit tobacco-related tax losses at 30 billion pesos/year. These are huge sums that benefit smugglers and criminal gangs in cahoots with some corrupt government officials, both national and local.
To verify the numbers of the two legislators, I made my own estimate, starting from the Euromonitor estimated 13% of the share of illicit cigarettes in the total supply, which means that 87% is legal tobacco. The numbers I got range from 24 to 49 billion pesos in 2021 alone (Table 2).
The high contribution of ABT to inflation (Table 1) is mainly due to the constant increase in tobacco tax: 50P/pack in 2020, 55P in 2021, 60P in 2022 and an annual increase of 5% from 2023. It is reasonable to assume that illicit tobacco will only increase, not decrease. With cheap contraband tobacco, there will be more smokers, not fewer. And there will be more money for criminal gangs and their corrupt government partners, not less.
ELECTRIC COOPERATIVES AND THE BLACKOUT ECONOMY
Last week, Senator Raffy Tulfo, chairman of the Senate Energy Committee, lambasted a number of electric cooperatives (ECs) across the country for frequent power outages in their franchise area. I have also seen these reports in Business world: “ERC orders 3 electricity cooperatives to reimburse nearly 294 million pesos” (31 May), “Government imposes sanctions on two electricity cooperatives” (9 June) and, “Tulfo threatens to summon officials of inefficient electric cooperatives before the Senate Committee” (August 3).
Report number one concerns Central Negros EC (Ceneco), Pangasinan I EC (Panelco I) and La Union EC (Lueco) who overcharged their customers.
Report number two concerns Maguindanao EC (Magelco) and Lanao del Sur EC (Lasureco) which owe 16.7 billion pesos to the Power Sector Assets and Liabilities Management Corp. (PSALM), a Crown corporation under the Ministry of Finance. Magelco owes 3.8 billion pesos, Lasureco owes 12.9 billion pesos and they have not expressed their intention to pay. Thus, the taxpayers shouldered their unpaid debt – very wasteful and corrupt.
Report number three concerns frequent brownouts in CE areas in provinces such as Palawan, Bataan and Davao. Later, Oriental Mindoro EC was also investigated.
Five years ago, I wrote in this column, “Unstable electricity supply due to problematic electricity cooperatives” (Business worldFebruary 8, 2017), about Abra Electric Cooperative (ABRECO) and Albay Electric Cooperative (ALECO) owed large sums to the Wholesale Electricity Spot Market (WESM).
ALECO, in particular, owed WESM 1 billion pesos around 2010, it also owed PSALM about 2 billion pesos. In 2014, SMC Global purchased ALECO and renamed it Albay Power and Energy Corp. (APEC), and assumed its debt of 4 billion pesos. Two years later, the debt soared to 5.6 billion pesos. So far, ALECO or APEC still owe some gencos hundreds of millions of pesos.
Many CIs are notorious for their inefficiency, frequent outages and/or high electricity tariffs which penalize their customers. See some of these CEs and compare their rates with Meralco and the National Capital Region (Table 3).
I’m sure Energy Secretary Raphael “Popo” Lotilla is doing something to solve the twin problems of the blackout economy and the tax burden of unpaid debt to PSALM and gencos by many CEs.
Finally, when Philex Mining Corp. last week, Finance Secretary Ben Diokno, as the keynote speaker, reiterated his support for the mining sector, particularly Philex’s new gold mining project in Surigao. Metal prices can only go up, not down, as global demand for gold, copper, silver, nickel, etc. keeps increasing. The currently high excise tax on mining production means higher revenues for the government while allowing companies to export more and create more jobs. Good policy, Secretary Diokno.
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.