Duterte’s 1st State of the Nation Address (SONA): A

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Philippine ANALYST July 2016POLITICAL

Duterte’s 1st State of the Nation Address (SONA): A Statement of the FutureIn his 1st State of the Nation Address (SONA), President Rodrigo Duterte highlighted his administration’s intensive campaign against illegal drugs, criminality, and corruption – the same theme that catapulted him to power. But unlike his previous speeches that primarily revolved around these 3 issues, the president’s 1st SONA was more balanced as he discussed concrete economic plans for the country; how he plans to solve the chaotic Metro Manila traffic; measures to implement to improve the country’s bureaucracy to benefit the poorest of the poor; priority bills that he wants enacted; etc.

An earlier concern that President Duterte wouldn’t be able to rise above the town hall level of irreverent speech was dispelled. He spoke mostly in English, understandable

to the world, and without a single cuss word (although close to one once). His lapses into Tagalog and Cebuano were wanderings off the prepared speech that weren’t of principal importance, but loved by the audience. He was down-to-earth presidential. A finely crafted barong ─ with the sleeves rolled up.

His speech covered a wide range of things to be done and to be achieved. It wasn’t a State of the Nation, it was a Statement of the Future.

As he said at the beginning, “we cannot move forward if we allow the past to pull us back. Finger-pointing is not the way.” This is a huge contrast to former President Benigno Aquino lll who started his SONAs by blaming his predecessor (Arroyo) for the ills of the country.

As expec ted , he h igh l igh ted h i s con t inued war vs illegal drugs, corruption, and criminality:

h Ordered the National Police Commission (NAPOLCOM) to hasten the conduct of investigation of administrative cases against police officers involved in illegal activities.

h Instructed the DILG to strictly monitor how LGUs perform their supervision functions over the police.

h Pledged to create an Inter-Agency Committee on Illegal Drugs that will integrate efforts and strengthen the partnerships of all stakeholders.

h Ordered the strengthening of the ROTC program. h Committed to increase the number of residential drug

treatment and rehabilitation facilities in all regions of the country.

h Mandatory education about the evils of drugs in schools. He also pledged that his administration “will continue and

maintain current macroeconomic policies, and even do better.” He said that his goal is to achieve inclusive growth or economic growth that provides jobs to the unemployed and lifts the impoverished out of poverty. He hopes to handover an economy that is characterized by solid growth, low and stable inflation, strong dollar reserves and robust fiscal position. He mentioned that corporate and personal income tax rates will be reduced.

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Duterte’s 1st SONA:

What’s in it for Business

h Reduction of corporate and personal income tax rates.

h Relaxing of Bank secrecy law.

h Revival of major job-generating sectors such as manufacturing and revitalization of agriculture. Construction of more farm-to-market roads and establishment of modern harvest and post-harvest facilities.

h Construction of more access roads to tourist sites.

h Improvement of the country’s competitiveness.

h Promotion of ease of doing business in the country.

h Opening of the country to more foreign investments.

h Promotion of entrepreneurship.

h Streamlining of business registration and investment application processes.

h Small and medium entrepreneurs access to financing.

h Intensified infrastructure spending (e.g. Mindanao logistics infrastructure network and inter-island linkage projects).

h Establishment of a hotline (8888) solely for corruption-related concerns.

h Improvement of internet speed and free Wi-Fi access in selected public places.

h Regulatory agencies to prioritize the issuance of required permits for power development.

h Continued implementation of CCT – expansion of consumer base.

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He also committed that - h Bank secrecy law will be relaxed. h The Philippines’ global competitiveness will improve by

easing the process of registering a business h The country will be more open to foreign investments h Entrepreneurship will be promoted. h Tourism, manufacturing, and agriculture will be promoted. h Government financial institutions will provide financing

packages to small and medium enterprises. He also committed specific improvements in the bureaucracy

such as extension of drivers licenses’ effectiveness from 3 to 5 years; streamlining of documentary requirements for passport applications. And extension from 5 to 10 years; creation of a one-stop-shop and department for OFWs; and availability of train tickets in malls.

He said he will request Congress for Emergency Powers to speed up the construction of infrastructure and address the traffic problems of Manila. He will also support the construction of a high-speed train from Manila to Clark to fully utilize Clark Airport.

Other infrastructure projects that he will prioritize are the following:

h Inter-island linkage projects h The Mindanao Logistics Infrastructure Network h Mindanao rail project h Pumping stations across Metro Manila to address the perennial

flooding.President Duterte acknowledged that the AFP must enhance

its capability to search and engage members of the Abu Sayyaf group. A stronger coordination with Indonesia and Malaysia is also needed to combat kidnappings in Mindanao.

He also stressed that he will support the passage of the following measures:

h Freedom of Information h Creation of a People’s Broadcasting Corporation replacing

PTV 4 h Whistleblower Protection Act h Amendments to the current Witness Protection Program h Expansion of Public Attorney’s Office (PAO) h Bangsamoro Basic Law (BBL) h Extension of the validity of Philippine passport from 5 to 10

years (Amendments to Passport Law)He also sought to improve the welfare of Filipinos in

the areas of health, education, adequate food and water, housing, environmental preservation, and respect for culture. He stressed the need to continue implementing the CCT program but implied that it needs an effective exit strategy (“The beneficiaries of 4Ps shall be made to become independent and self-reliant after they have graduated from the program”). He mentioned that the poor will be given rice subsidy and be enrolled as PhilHealth members. This will be complemented by the hiring of more health professionals and acquisition of more health equipment. The country’s Alternative Learning System programs will also be expanded.

Duterte admin proposes P3.35-T national budget for 2017

The Duterte administration is proposing a national budget of P3.35 trillion for 2017. According to the Department of Budget and Management (DBM), bulk of the Duterte administration’s budgets for 2017 to 2022 would support the President’s commitment to improve the country’s infrastructure network; invest in education and health; and modernize agriculture.

The 2017 budget is higher by 11.6% than the current year’s budget of P3.002 trillion. As a percentage of the GDP, the 2017 budget represents 20.4% compared to this year’s 20%.

According to Sec. Diokno the country is behind its ASEAN peers in terms of infrastructure and is deficient in all types of infrastructure — roads and bridges, ports and airports, railways and urban transit systems, irrigation systems and water systems. This only highlights the need to spend about 5-7% of the country’s GDP on vital infrastructure projects. According to Sec. Diokno, the Duterte administration will spend some P900 billion in 2017 for public infrastructure projects. The Budget secretary noted that “specific infrastructure projects to be pursued by the Duterte government include small, medium and large-scale projects that will be done in all regions — both highly developed and lagging — simultaneously, not sequentially.”

“The next 6 years will be the golden age of Philippine construction, both public and private,” Sec. Diokno stressed.

The top 10 agencies/sectors in terms of 2017 budgetary allocations are the following:1. DepEd P567.5 billion2. DPWH P458.6 billion3. DILG P150 billion4. Defense P134.5 billion5. DSWD P129.9 billio n6. Health P94 billion7. SUCs P58.8 billion8. DOTr P55.4 billion9. Agriculture P45.2 billion10. ARMM P41.7 billion

The Congress’ al location for 2017 is P14.12 billion while the Judiciary will receive P32.5 billion.

Rep. Nograles and Budget secretary Diokno have agreed to craft a budget that is responsive to the needs of the populace. Both also agreed to put an end to the corruption-laden system of re-enacting budgets and committed to finalize the proposed General Appropriations Act (GAA) on time.

The proposed national budget provides higher allocation to key sectors such as education and infrastructure. However, the Duterte administration must ensure that it does not fall into the trap of underspending. Previous administrations have underspent due to bureaucratic inefficiencies such as an inefficient procurement system.

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The Duterte administration must ensure that it does not fall into the trap of underspending.

The previous administration’s opponents criticized the Aquino administration’s underspending which, according to critics, is tantamount to underperformance. Some oppositionists lamented that people didn’t get the education and healthcare they deserve because of underspending. Some say that the Aquino administration also underspent on infrastructure, a sector with a vast potential to generate jobs for Filipinos.

The previous administration stressed that underspending was due to careful evaluation of government contracts that led to national government agencies incurring savings.

This is a key weakness of the Philippine bureaucracy. The “savings” aren't actually savings but funds that weren't utilized because of national government agencies' (NGAs') low absorptive capacity or inability to efficiently implement projects as specified in the General Appropriations Act (GAA).The low absorptive capacity has been attributed by the World

Bank to the following:1) Frequent and unpredictable changes in agency policy

regarding program implementation modality;2) Cumbersome procurement process exacerbated by lack of

forward planning; and 3) Complexity of inter-agency coordination, which at times

is exacerbated by avoidable internal administrative errors in some cases.

An example cited by the World Bank was the hiring of new teachers that requires authorization from 3 agencies: DBM, the Civil Service Commission (CSC), and the Professional Regulatory Commission (PRC). A procedure that could’ve been simplified by better inter-agency coordination, with only 1 agency having the power to authorize the hiring of new teachers.

Apart from improving implementing agencies’ absorptive capacities, the government must also ensure that safeguards are in place in spending the national budget. This is important particularly in the light of the congressional fund scandal that eventually led to the Supreme Court declaring the priority development assistance fund (PDAF) or “pork barrel” system unconstitutional in 2013.

Duterte admin implements pro-business reforms

President Rodrigo Duterte has emphasized the need to eliminate bureaucratic red tape and speed up the business registration system to attract more job-creating foreign direct investments (FDI). The current administration’s cabinet members are starting to implement measures to help the Chief Executive fulfill his commitment of improving the country’s investment climate.

Recently, the Trade, Local Government and Technology departments have signed an agreement to streamline the business permit and licensing system of all cities and municipalities. Under the current system, businessmen have to file their requirements to the city government, but also need to secure separate permits from the barangay (village) and the Bureau of Fire Protection (BFP). The new system will only require the applicant to submit the requirements to the city hall. The city government will handle all the necessary clearances and payments with the other concerned agencies. This process is expected to cut down the processing time of business permits and licenses to just 1-2 days, from the current average of 5-10 days. But, despite the streamlined application process, the cost of the permits and licenses will remain the same. According to the trade department the circular will be effective immediately, but local government units (LGU) will still have to be trained to handle the new system. The agency said businessmen should see the difference in the next 30 days.

During President Duterte’s term as mayor of Davao city, the city was considered as one of the most competitive LGUs in the country due to its efficient business registration system. The city government attributed the surge in local and foreign investments to the city’s streamlined permits and licensing system. In terms of business registration some progress has been achieved under the Aquino administration but President Duterte is likely to accelerate these pro-business initiatives as shown in Davao city (see charts: Is Du30 business-friendly?).

During the campaign period for the 2016 presidential elections then Mayor Duterte emphasized that to attract more foreign direct investments, the government needs to reduce the number of days and procedures required to start a

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business. He noted that longer business registration processes make the bureaucracy vulnerable to bribery and corruption.

Meanwhile, the newly-created Department of Information and Communications Technology (DICT) is developing a software that will automate the recording, assessment and issuance of business permits and licenses in local government units (LGUs) across the country. The software program will be tested initially in Tanay, Rizal. Automated processes will help eliminate corruption in government agencies and this should significantly help the Duterte administration in its goal of improving transparency in government transactions.

Meanwhile, Finance secretary Carlos Dominguez named Finance undersecretary Gil Beltran as “Anti-Red Tape Czar” to help hasten transactions in the tax and customs bureaus. According to Sec. Dominguez the senior Finance official will be tasked to “dramatically reduce the number of steps and documentary requirements” in the Department of Finance and its attached agencies. Sec. Dominguez added that this will include paying taxes, getting tax refunds, acquiring tax exemption certificates, getting imports released, shipping out exports, registering a business and getting appointments with public officials. Usec. Beltran has been finance undersecretary since 2005. He is also the DOF’s concurrent chief economist.

The secretary also committed to eliminate redundancy in government processes to improve the delivery of basic services and infrastructure. This would include amendments to the procurement law to streamline processes; simplification of permit requirements for infrastructure projects; and improvement of the absorptive capacity of implementing agencies. These measures bode for well for the president’s promise to speed up the process of constructing infrastructure projects and spread economic growth to other regions.

The Philippines’ convoluted bureaucracy is a major bottleneck to attracting much-needed foreign direct investments. In the latest edition of the Ease of Doing Business report released by the World Bank and its private sector investment arm, the International Finance Corporation (IFC), the Philippines ranked 103rd out of 189 economies, down from 97th last year. The country trailed its ASEAN neighbors Singapore, Malaysia, Thailand, Brunei and Vietnam.

In terms of starting a business, the Philippines’ ranking worsened to 165th from 157th last year.

It’s the same with the other indicators where the country’s ranking worsened: paying taxes (126th from 125th), resolving insolvency (53rd from 50th), getting credit (129th from 127th), dealing with construction permits (99th from 94th), and registering property (112th from 110th).

Improvement of the Philippines’ ranking in global competitiveness and doing business surveys is a vital pre-requisite to improving the country’s business climate and attracting foreign investments that will help uplift the lives of more than 20 million Filipinos living in abject poverty.

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WWW.WALLACEBUSINESSFORUM.COMTETRAPAK BRIEFING CHARTS AUG. 24, 2016 10

Duterte’s 10-point economic agenda 1. Continuing and maintaining the current macroeconomic policies,

including fiscal, monetary, and trade policies.2. Instituting progressive tax reform and more effective tax collection

while indexing taxes to inflation, in line with the plan to submit to Congress a tax reform package by September

3. Increasing competitiveness and the ease of doing business, drawing upon successful models used to attract business to local cities such as Davao, as well as pursuing the relaxation of the Constitutional restrictions on foreign ownership, except with regards land ownership, in order to attract FDIs

4. Accelerating annual infrastructure spending to account for 5% of GDP, with Public-Private Partnerships playing a key role.

5. Promoting rural and value chain development toward increasing agricultural and rural enterprise productivity and rural tourism.


Duterte’s 10-point economic agenda… 2

6. Ensuring security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies.

7. Investing in human capital development, including health and education systems, as well as matching skills and training to meet the demands of businesses and the private sector.

8. Promoting science, technology and the creative arts to enhance innovation and creative capacity towards self-sustaining and inclusive development.

9. Improving social protection programs, including the government’s conditional cash transfer program, in order to protect the poor against instability and economic shocks.

10. Strengthening the implementation of the Responsible Parenthood and Reproductive Health Law to enable, especially poor couples, to make informed choices on financial and family planning.

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List of issues… 2

Implement a national I.D. system.

Implement a responsible mining policy where responsible mining is supported, and illegal and irresponsible mining stopped.

Develop a national strategy to take advantage of areas where the Philippines has a competitive advantage both domestically and globally.

Improve internet and communication services to be competitive with the best in the region.

Those he hasn’t yet covered:


Issues that need to be urgently addressed, from Sulong Pilipinas in Davao conference June 20-21:

Those in the 10-Point economic agenda, or Duterte publicly committed to do: Adopt a comprehensive tax reform package.

Streamline the bureaucratic system and thereby reduce corruption.

Improve infrastructure with faster action on projects nationwide.

Review the CCT program.

Remove the bottlenecks in the PPP programs and commit to sanctity of contracts.

Improve services for farmers and fishermen.

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Is DU30 business friendly?(or what can business expect under the new President)

Just look at Davao:

From the “killing fields” or “Murder City” of the Philippines in the 1970’s to one of Asia’s 10 Safest Cities and one of the world’s 20 Safest Cities (Numbeo survey)

Change came in 1988 and onwards, when Duterte became Mayor

Davao’s economy (GRDP) grew 6-7% p.a. past 27 years double its pace in the 1970’s. Nation grew 4-5%


Is DU30 business friendly?... 2

In this decade, Davao City is …

The 5th most competitive city in the country after Manila, Cebu, Makati & Quezon City, according to the Nat’l Competitiveness Council (NCC)

Among PH’s top cities in World Bank’s Doing Business Survey: #2 in starting a Business; #1 in Dealing with Construction Permits

Among the best in terms of health support services, according to NCC

Business registration, getting local permits 1 day vs. PH 6 days

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The 3rd best BPO destination in the country, among the 6 BPO centers of excellence, based on BPAP/ICTO assessment

The 5th largest tourist destination in PH (1.0M tourists in 2014) and among the fastest-growing

But it’s just Davao City, critics say, not the entire PH

Nonetheless, it shows his support for business, and the initiatives he takes

So taking that national can be expected

Previous presidents had less, if any experience – Cory, Erap, Pnoy - none



Business can expect him to… Sustain economic growth of at least 6% p.a. and to spread

the benefit of growth across the country through the promotion and dev’t of:Agriculture and Agri-businessBPO’s (duplicating the success of Davao + DICT now in

place) Innovative tourism approaches, such as agriculture

tourism Focus on MSME’s

But mining?

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He will push for Federalism and removal of restrictions on foreign investment in the Constitution. Until then there will

be a shift towards stronger decentralization. Continue efforts at simplifying, speeding and putting on-

line business licensing and permit systems at LGUs to enable provinces and small cities to attract more investment.

Build more infrastructure; he is action-oriented, so he expects his Cabinet to be the same. He is aware PH needs to raise infrastructure spending to at least 5% of GDP. And PPP accelerated

Documents

Duterte’s 1st State of the Nation Address (SONA): A