MAP Insights

1. Many investors stick to blue chip stocks, real estate and telcos usually, as these are proven to have a high demand and limited supply. Besides these two categories, food and beverage despite the challenges to agricultural products remain a top favorite of investors. Sexy businesses like restaurant chains have lots of appeal as consumers feel their ownership especially when they directly patronize the very establishments their stockholdings support.

    

   But what about the new breed of investments called REITs?  First, they are a new category worth a deeper look because they live on incomes of the chosen sector—be it real estate and in the case of the even newer subcategory, energy REITs. Take solar, for example.

    

   I recently went on a field trip to see how a solar farm works and how important it is to build more of these farms. I got very interested because solar farms seem to be like lifeless industrial farms, yet they also can create value with agricultural crops growing around the property. Root crops like turmeric, for example, can grow around the solar panels without changing the output of each panel. Other free areas can be planted to sun-hungry vegetables, even high-value arugula or the lowly pechay.

    

   What are other advantages of Solar farms?

    

   Feed in Tariff (FIT) is a fixed payment

    

   As explained by experts in the team during our field trip, the electricity generated from solar, wind, run-of-river hydro and biomass power plants approved by the Department of Energy (DOE) and Energy Regulatory Commission (ERC) are delivered to us consumers to our homes immediately through different transmission and distribution lines. These renewable energy (RE) plants then receive payments from the market operator in the spot market and the National Transmission Corporation (TRANSCO) under the Feed In Tariff (FIT) system of government for a fixed period of 20 years.  ERC has approved FIT rates for each of these RE projects based on reasonable return of investment in these RE projects.   If the payments of the market operator are not enough, then remaining FIT cost of generated electricity shall be paid by consumers through FIT-allowance (FIT-All) charge per kWh in our electricity bills.   So, there is in fact a sure taker or buyer for the electricity generated by these solar farms: us electricity consumers. FITs then become a sure winner and the ERC-approved margin becomes a sure profit for the investing public. This is why REITs in solar power can promise certain returns for the next 20 years. That’s sure income for a long period of time.

    

   Energy demand will remain higher than supply

    

   The electricity demand rises during summer months as more people use air conditioners, electric fans, air coolers and even ref and freezers run on overtime. Why do brownouts or power outages occur? There just is not enough supply available, whether coal or renewable. Why did this happen? We sat on our power choice decisions too long, too late.  And in the past, the focus was all about the supposed cheaper coal.  So for the next 5-6 years, unless half of us decide to live elsewhere where we do not need air-conditioning, power supply will be negative. And this is why solar farms need to be multiplied many times over. But for those who will only invest now, profits may not be as handsome as those of the first-movers, who were able to get into the FIT program.  But still, there are profits to be made.

    

   Agro-solar farming is a reality

    

   When you put up solar farms, you need a whole village to maintain and protect the hard assets while looking for soft profits like community engagement, livelihood opportunities and agriculture production. This will be the case in every project as agricultural land will need soil regeneration and projects that contribute to biodiversity. Besides using the soil as the surface for installation of the solar panels, helping dry acidic soil recover is another plus point for solar farming. You can watch soil recover, you can actually make soil while watching the solar panels do their work. The regenerated soil can then be a medium for various crops that the community can consume as well as sell, if they have any extra production.

    

   What is the downside you might ask?

    

   I really cannot find any, except it was too easy for people to just choose coal and oil as they were more familiar with these old traditional polluting energy sources.

    

   It was also unfamiliar to invest in, except for forward-thinkers and first movers.

    

   When something is so new, it takes a gutsy entrepreneurial mindset to enter a new field, literally a new energy field.  Putting up solar also poses challenge in terms of finding large tracts of land.  The government needs to make sure that we also keep enough lands for agriculture and our food security.

    

   With coal prices now at P9-11/ kilowatt and solar at P3.50-4.00/ kilowatt you will not need rocket science to know where to invest your money. Solar and even wind power are the better choices.

    

   Maintenance-wise, you just need to wipe these panels clean of dust, like cleaning your glass windows, or your walls. And if you have plants growing around the panels, you will even have less dust and more vegetables.

    

   If the demand is there for the next 5-6 years until we play catch up, it is worth investing in solar energy for your home, for your plant or even just for your portfolio. Diversifying your portfolio and adding some renewable energy REITs may do well for your financial planning.

    

   It is amazing to hear about the state of our energy demand and supply from experts I met from Department of Energy (DOE). It is worth sitting down with your board on how to participate in this opportunity to not only stay away from coal and oil, but to do Mother Nature a favor. In our own manufacturing plant, we installed solar panels on the roof and so far we have already reduced our electric bill by 10%. Imagine a whole farm –tracts of land as far as your eyes can see—which can generate free power.

    

   As I was on a road trip in Spain recently I googled their use of Renewable Energy (RE) and found out is a happy 45% because I saw a lot of wind farms and solar farms along the way. We could do this, too.

    

   In the meantime, you can also join the joyride by supporting companies who invest in Renewable energy (RE) and watch your profits grow while taking care of the environment, too.

    

   It’s time to ask your investment counselor about energy REITs.

    

   (This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is member of MAP Diversity & Inclusion Committee, and MAP Agribusiness Committee. She is Chair of the Philippine Coffee Board, and Councilor of Slow Food for Southeast Asia. Feedback at <map@map.org.ph> and <pujuan29@gmail.com>.  

    

   food, and not just cheap food choices. If we run a company cafeteria, it is time to look for providers who not only sell affordable food to our employees, but healthier food as well. After all, the ones who decide are the management, Human Resources and Finance. You may be surprised that healthier food served in cafeterias may mean less sick days for your personnel and less absences, too.

    

   Using technology to save money

    

   If you have not yet invested in inverter appliances, think again. These energy-efficient appliances, lights and other equipment save the company a lot of money in lower electrical consumption while saving the planet. Yes, it may be expensive at the start but savings as well as a lesser carbon footprint come as a reward for the planet and your bottom line.

    

   Bike, don’t drive

    

   Many factories now encourage employees to live near their place of work and avoid long commutes. They provide bicycles, motorcycle loans and other provisions for employees to avoid long travel times. This also contributes to efficiency of workers who sleep longer than those who have to wake up early, get less sleep and are less efficient in their jobs.

    

   Vegetable gardens in the office or workplace

    

   Companies can encourage employees to plant in a designated area and grow their own vegetables. This action helps employees save on market trips and makes them more conscious about growing their own food. Even the lowly malunggay or moringa tree can give employees a lot of healthy meals at home or in the cafeteria. There are urban gardens, like plant towers, that can be started even in high-rise offices with decks or open rooftops.

    

   Rather than just tree planting activities in the Human Resources calendar, you can start allocating space for company gardens where employees can buy fresh vegetables or harvest what they plant.

    

   Work outside and take in some fresh air

    

   Make a field day or a day outside a regular occasion for your townhall meetings rather than another gathering inside air-conditioned offices or hotels. Get some sun, some fresh air and let employees work (or meet) outside the office for a change. Go to a park or a farm, for a change. You may be surprised with better results when your team gets to commune with Nature. Take your employees hiking, going on a picnic or just breathing some fresh air on a regular basis.

    

   Give rewards for green and safe ideas

    

   The best ideas come from the people who feel the heat of brownouts, high electricity costs and the high price of onions and rice. Listen to ideas from the smallest member or the one who had the simplest education. Green is the new black. Maybe they have ideas that can help your bottomline while you help Mother Nature. Reward suggestions on how to make your company greener, healthier or safer.

    

   Ready to start to turn a new leaf? Start with yourself, then your family and then your company. If everyone just did something different to make the world a better place, we will all be able to take 2023 by the horns and hope for a better, healthier year. But we have to start with ourselves.

    

   What habit can you change this New Year?

    

   (This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is member of MAP Diversity & Inclusion Committee, and MAP Agribusiness Committee. She is Chair of the Philippine Coffee Board, and Councilor of Slow Food for Southeast Asia. Feedback at <map@map.org.ph> and <pujuan29@gmail.com>.  

    

   sending someone to the bank physically. It has been a breeze depositing a check virtually.

2. Download Spotify to listen to music of your era or to listen to podcasts of speeches, or other interesting topics discussed by experts. You have no need for Compact Discs (CDs) or USB sticks to put in your laptop.
3. Learn how everything works through Bluetooth. Get Bluetooth speakers which are so portable you can take them literally everywhere and just connect to your mobile phone (with wifi of course)
4. Play games on your mobile phone. You can pass the time and keep your brain active by doing puzzles, word games and even solitaire on your phone. They say it’s good for the brain to work different parts of it, not just the analytical side.

It is never too late to start. You may ask a very patient middle-aged person to teach you as the young seem to be impatient in teaching the old. They do not know why we do not get it right away. They forget we are digital immigrants while they are digital natives, being able to intuit everything without an operating manual.

 

But, do start. It is a liberating experience to know how to manage our affairs even without virtual or real assistants. You can start with making lists of what you ask others to do for you. Then start crossing them out as you learn to do it yourself. Even the act of crossing out an item in your “things to do” is liberating.

 

Before you lose your memory, train your brain. Train it to think not only on problem-solving but on routine tasks as well. Paying bills, checking bank accounts, transferring money—these will become routine once you get the hang of it.

 

Challenge yourself to do the unthinkable—like letting go of your assistant. They have been half our brains and we are held hostage because we become too dependent on others.

 

Challenge yourself while helping your brain stay healthy. It may be the best gift you can give yourself this Christmas.

 

 

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is member of MAP Diversity & Inclusion Committee, and MAP Agribusiness Committee. She is Chair of the Philippine Coffee Board, and Councilor of Slow Food for Southeast Asia. Feedback at <map@map.org.ph> and <pujuan29@gmail.com>.  

 

be causing the ‘cost-push’ inflation and that contractionary monetary policy may not be enough to temper it – notwithstanding the responsive policy rate adjustments made by BSP, inflation has continued to rise.

 

In view of this, the following fiscal policy tools are recommended to the Philippine government through the Department of Finance with the aim of easing the hardship brought by high inflation especially to the poor and low-income earners: (1) increasing excise taxes on non-essential goods, (2) imposing corporate income tax to non-resident foreign tech giants, (3) improving tax collections through digitalization, (4) cutting government spending, and (5) other government interventions.

 

Increasing taxes

 

While increasing taxes may be politically challenging, Congress can enact a law to increase taxes on non-essential goods, like luxury cars, alcoholic drinks, cigarettes including vapes which are not considered basic commodities. Revisiting the Tax Reform for Acceleration and Inclusion (TRAIN) Law to further increase excise tax on luxury cars from 60 to 200 percent will generate more revenues from the top 10 percent of households in terms of income as this is a highly progressive tax. There may be an initial slowdown in the sales of cars, alcohol and cigarettes but it will quickly recover as it did in the past once the inflation is brought back down to healthy levels.

 

Imposing corporate income tax

 

Congress is presently considering the imposition of the 12 percent value added tax (VAT) on digital services, expecting that it will generate an estimate of P19 billion in revenues or less than 0.1 percent of GDP. Instead of doing that, however, imposing income tax or digital service tax to non-resident foreign tech giants and digital transactions including cryptocurrency may yield higher revenues without burdening the low-income earners. How it will be collected may still be a question but it’s worth pursuing rather than simply imposing a 12 percent value added tax on digital services which will burden local consumers.

 

Improving tax collections

 

Revenue collections from audit and investigation contribute less than 2 percent to the total tax collections. The government must instead prioritize the full digitalization of the Bureau of Internal Revenue (BIR) so that they can catch up with the fast-paced development in the e-commerce and digital economy. This will require at least an additional 10 percent of their P11.12 billion FY 2022 budget and reallocation of Personnel Services which comprised 72 percent of its total budget. This can be used to fund full digitalization and hiring of software engineers, developers and data analysts to support its new IT infrastructure.

 

Implementing a general tax amnesty and lifting the Bank Secrecy Law will also generate more revenues without relying on regular audit and investigation. This will allow the BIR to run after big-time tax evaders since they would no longer be able to hide behind the Bank Secrecy Law.

 

However, both legislations will require more political will from the President to make it a priority bill of his Administration.

 

A risk-based audit will also generate more tax collections than the random audit. Using data analytics and industry benchmarking, the BIR can allocate their resources in auditing high-risk industries and taxpayers, especially large corporations which contribute more than 60% of the total tax collections.

 

Cut government spending

 

While checks and balances are in place, the government must cut spending, address loopholes in budget allocation, and deal with procurement issues that led to an average of P1 Trillion (T) unused and misused/abused annual budget from 2010-2020. Transparency and accountability must be upheld, especially given the proposed P5.268T budget for 2023 and the increasing debt at P13.5T as of November 2022.

 

Targeted subsidy and financial support to farmers and fisher folks must also be prioritized to increase domestic productivity which will reduce prices and importation of agricultural products.

 

Other government interventions

 

While subsidies are helpful, it is high time to revisit the Oil Deregulation Law in order to give the government the power to intervene when there is a prolonged increase of oil prices.

 

RECOMMENDATIONS

 

Addressing high inflation requires a whole-of-government approach. It requires fiscal consolidation through budget rationalization and more tax revenues. While the BSP uses monetary policy to temper inflation with the least possible job loss, the government must exercise fiscal restraint to lower inflationary pressures.

 

First, government deficits and debts must be lowered. Rationalizing the government budget will not only cut unnecessary spending but also reduce the budget deficit. PPP may also be helpful in funding infrastructure projects to avoid incurring more foreign debts.

 

Moreover, revenue efforts must be increased through tax policy and administration reforms. Increasing the excise tax on non-essential goods will serve as both a revenue and health measure, and imposing corporate income tax or digital service tax on non-resident foreign tech giants will generate more collections from the digital economy.

 

Fiscal consolidation aimed at taxes and spending that help the rich can help reduce inflation. There could be trade-offs in terms of jobs to a slower economy but inflation is already hurting the poor and vulnerable. Thus, keeping targeted subsidy will help ease their hardships while the government continue to address high inflation.

 

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is a MPA/Mason Fellow at the Harvard Kennedy School. He is a member of the MAP Tax Committee and the MAP Ease of Doing Business Committee, Co-chair of Paying Taxes on Ease of Doing Business Task Force, and Chief Tax Advisor of the Asian Consulting Group. Feedback at <map@map.org.ph> and <mon@acg.ph>.)