SGV hosts seminar on Rethinking Counter-terrorism Financing

SGV/EY Philippines hosted a seminar on Counter-Terrorism Financing (CTF) last 6 February 2018. Anti-money laundering (AML) professionals and compliance officers from different financial institutions, representatives from the Board of Trustees and Founding Members of the Association of Certified Anti-Money Laundering Specialists (ACAMS) Philippine Chapter, along with SGV Chairman and Managing Partner J Carlitos Cruz, Vice Chairman and Deputy Managing Partner Wilson Tan, FSO Leader Vicky Salas and other SGV professionals attended the seminar.

Vicky opened the seminar and discussed the importance of AML/CTF considering the current environment and continuing terrorist attacks. Jose Gabriel Sebastian then introduced the key speakers, who were Tom Keatinge (Director) and Florence Keen (Research analyst) from the Royal United Services Institute for Defence and Security Studies (RUSI) in London.

From left to right: Tom Keatinge and Florence Keen, speakers from the Royal United Services Institute for Defence and Security Studies; SGV FSO Leader Vicky Salas; and SGV Chairman and managing Partner J Carlitos Cruz.

Both speakers have visited different countries to gather information and present their research work from their Research Centre in RUSI, which focuses on public-private partnerships, information sharing and making use of financial intelligence. The seminar focused on the evolving tactics of terrorist financing over the past two decades, what CTF means, what is a CTF strategy and whether the current approaches of covered persons are effective. Tom and Florence presented their ideas on the need for greater focus on finance as an intelligence tool and shifting the approach from ‘stopping terrorist finance’ toward ‘using finance to stop terrorists’. Further, the discussion highlighted the importance of collaboration between the public and private sectors.

Ms. Sally Camposano, who represented the ACAMS Philippine Chapter, gave the closing remarks. The seminar was organized by Vicky Lee Salas and her team, Veronica Arce, Glaiza Escaño, Radelaine Borreta and other members of the SGV AML Team.

Philippine Innovation Week opens with Innovation Forum

SGV joined the Benita and Catalino Yap Foundation (BCYF) and the Department of Science and Technology (DOST) in leading an Innovation Forum titled “Innovation for Learning and Development” last 19 February at the PHIVOLCS Auditorium in UP Diliman. SGV Partner Clair Mangangey, representing SGV Chairman and Managing Partner Itos Cruz, delivered the welcome remarks during the opening ceremonies. Also present to give their welcome remarks were BCYF Founder and Chairman Tony Yap and DOST Secretary Fortunato dela Peña.

From left to right: Lyn Talingdan, Emcee from NRCP-DOST; Fortunato dela Peña, DOST Secretary; Winston Chan, retired SGV Partner; Mylene Abiva, President and CEO of FELTA Multi-Media, Inc.; Kathrina Macaisa, SGV Partner; Christina Barroga, President of PICPA Western Metro Manila; Clairma Mangangey, SGV Partner; Prof. Melito Salazar, Dean of the School of Accountancy and Management at Centro Escolar University; and Tony Yap, BCYF Founder and Chairman.

The forum featured three plenary sessions which focused on innovation in the fields of education, research and development, and business. Also present during the forum were BCYF Advisory Council Member Renelyn Tan-Castillejos who served as a session moderator, and SGV Advisory Partner Kathrina Macaisa who served as a session speaker. Retired SGV Partner Winston Chan and Entrepreneur Of The Year 2009 Finalist Mylene Abiva served as session panelists.

The Innovation Forum marked the start of Philippine Innovation Week (PIW) 2018 and was the first in a series of activities lined up for the week. It aims to focus national attention on the significance of innovation and its benefits to society, as well as recognize and stimulate worthy innovations in various fields.

Advisory Senior Director wins Best Green Leader Award

Advisory Senior Director Hemant Nandanpawar was awarded the 2017 Best Green Leader Award, under the individual category of Global Green Leadership Awards, by the Global CSR Excellence & Leadership Awards panel. He was recognized for his outstanding international contribution towards the development of sustainable green projects. Hemant was invited to receive the award at the 7th annual Global Green Future Summit & Leadership Awards during the World CSR Day Conference in Mumbai, India last 18 February. The World CSR is a sustainability sector training provider and a conference management company based in Mumbai, India.

An advocate of clean energy, climate-change mitigation and sustainability, Hemant has previously been recognized at national and international levels, having received the Award for Excellence in Energy Management by the Government of Maharashtra State; the DSK Energy Award by the Institution of Engineers India, and the Appreciation Award for Energy Conservation by the Government of Andhra Pradesh State of India.

Congratulations, Hemant!

Shaping tomorrow’s professionals

SUITS THE C-SUITE By Adeline G. Lumbres

Business World (03/12/2018 – p.S1/4)

Klaus Schwab, founder and executive chairman of the World Economic Forum (WEF), said: “we stand on the brink of a technological revolution that will fundamentally alter the way we live, work and relate to one another.” The WEF calls this evolving paradigm the Fourth Industrial Revolution. Based on the World Economic Forum Report issued in 2016, concurrent with this technological revolution are a broader set of related socioeconomic, geopolitical and demographic developments.

While these notable developments will result in job creation, they also present major challenges that will require businesses, governments, and individuals to proactively adjust and transform their work force strategy. The reality today is that the accelerating pace of how these factors drive change is transforming the skills that organizations need and shortening the shelf-life of existing employee skill sets.

IMPACT OF DISRUPTIVE CHANGE ON EMPLOYMENT

Technological disruptions (i.e., Big Data, crowdsourcing, robotics, artificial intelligence, etc.) are viewed as very significant drivers of industrial change while demographic and socioeconomic shifts (i.e., changing work environments and flexible working arrangements, rise of the middle class in emerging markets, climate change, rising geopolitical volatility, young demographics in emerging markets, women’s economic power, changing aspirations, among others) are forecast to have an influence on the changing business and organizational structures nearly as strong as technological disruptions.

The World Economic Forum Report identified job families, which are job groupings that tend to require similar types of knowledge, skills and competencies, have a distinct compendium of knowledge, skills and abilities, and a defined career progression. Disruptive changes may have a significant impact on such job families.

Some of the job families that will benefit from greater efficiencies and reduced man-hours include computer-related and mathematical industries, architecture and engineering, sales-related functions, business and financial operations, management, education and learning. On the other hand, disruption and automation may reduce the need for manpower in areas such as office and administration, manufacturing and production, construction and extraction, arts, design, media and entertainment, legal, installation and maintenance.

The rise of technology is also expected to dramatically influence traditional work force roles. For example, process automation, robotics, and artificial intelligence will eventually be able to substitute for or make office and administration job roles redundant. Resource efficiency and workplace flexibility may also undermine the need for maintaining large work force complements within these roles. Increasing use of new technologies, such as 3-D printing, may result in a decline in manufacturing and production as it replaces more traditional labor-intensive manufacturing processes.

As companies continue to navigate their way through the Fourth Industrial Revolution by heavily investing in new technologies and in Big Data analytics, more organizations will require skilled science, technology, engineering and math (STEM) talent. Other factors that contribute to the increasing demand of STEM-skilled individuals are the rapid urbanization in developing countries and rising geopolitical and privacy issues in emerging markets.

Two job groups that are foreseen to have flat employment outlooks are business and financial operations and management. Both will be impacted by various drivers of change, therefore whether employment will be positively or negatively impacted will depend on the scale of transformation and the upskilling needs these industries will undergo over the coming years.

It is clear from the World Economic Forum Report that these changes are well underway and that the future of our work force depends on how we proactively manage near-term and long-term talent management transition requirements.

UNDERSTANDING OUR WORK FORCE SKILL SETS

People as assets are at the core of almost every business. It is imperative that we understand the future requirements of our operations and bridge the gap of our existing talent skills against future requirements. This means looking beyond the existing job descriptions and roles of our people and looking at how we can upskill or reskill to adapt to future requirements.

Based on the results of a WEF survey conducted across global Chief Human Resource Officers, more than one third of all jobs across industries will require complex problem-solving core skills by 2020. Also, social skills such as emotional intelligence, persuasion, and coaching ability will be in higher demand across industries. Content skills (Information and Communications Technology literacy, active learning, etc.), cognitive skills (creativity and mathematical reasoning) and process skills (active listening and critical thinking) will be a growing part of the core skills required in the future.

UPSKILLING AND RESKILLING A DIVERSE WORK FORCE

Because businesses may eventually require skill sets that may not even exist in our organizations today, it is critical to prepare our existing work force for future demands through highly relevant fit-for-purpose learning and development programs using the latest technologies.

Learning and development specifically aligned to job families and employee roles and responsibilities will become more effective. There are also various training channels that are now available such as mobile learning, online courses, and even streaming YouTube videos. These new modes of learning are important channels that can help employees understand, accept and comply with the rigorous continuous learning requirements that are now a part of today’s work conditions.

Other ways of learning are capability uplift through collaboration with professional services or consulting firms. This allows for flexibility learning through combined teaming and peer coaching. In these cases, consultants can help the business identify their capability gaps, develop a learning module that would meet their specific requirements and be ready to coach the employees through learning sessions.

RECOMMENDATION FOR ACTION

In order to meet the talent and skills gap driven by disruptive changes, businesses would need to place talent development and future work force strategy at the front and center of their growth. Businesses cannot remain complacent, i.e., taking a passive approach and assuming that they can just recruit new talent to supplement their existing skills and capabilities.

Businesses should also consider uplifting and prioritizing their HR function by providing HR with the right tools that will help them align their future business operations with their talent management strategies.

Moreover, businesses should encourage their work force to take on an attitude of continuous pursuit of knowledge through the various channels of learning available to them.

Progressive and dynamic organizations need to foster a collaborative mind-set that would allow them to engage with other businesses, professional firms, educational institutions and government bodies in building and upskilling talent capabilities. In SGV, for example, we have transitioned from a traditional accounting firm into a multi-disciplinary company that recruits skill sets to meet our digital strategy platforms. We have also embarked on upskilling programs to help our people attain the right level of technical skills relevant to their roles. We in the process of automating certain processes and robotizing certain functions. It would also be beneficial for companies and industries to partner more closely with educational institutions in order to catalyze necessary revisions to current curriculum to help future professionals adapt to evolving business requirements.

This article 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 authors and do not necessarily represent the views of SGV & Co.

Adeline G. Lumbres is a Partner of SGV & Co.

FKS leads Executive Briefings in SGV Davao and Gensan

As part of SGV’s goal of delivering exceptional service to its clients, SGV held executive briefings on the TRAIN Act in the SGV Davao and General Santos City offices. The briefings were attended by C-suite and other key officers of clients and other major companies in Davao, Gensan and neighboring areas within the region.

SGV Tax Partner and Market Group 4 Leader Atty. Fame Delos Santos led the briefings and exchanged views with the participants about the salient features and significant changes in the tax rules brought by the TRAIN Act.

The briefings also provided an opportunity for the firm to hear firsthand clients’ ideas and impressions on the potential impact of the TRAIN provisions on their respective enterprises.

Also present at the briefings were SGV Chairman and Managing Partner Itos Cruz, EY Asean FAAS Leader Aris Malantic, SGV Cavite Partner-in-Charge Benjamin Villacorte, and MG4 Partners Alvin Pinpin, Raoul Balisalisa and Nilo Mendoza.

SGV Cebu conducts TRAIN seminar

SGV Cebu recently held a half-day public tax seminar on Tax Reform for Acceleration and Inclusion (TRAIN) Act at the Cebu City Sports Club with 130 individuals from different companies and various sectors in the Visayas region in attendance.

SGV Cebu Partner-in-Charge and Tax Partner Atty. Cheryl Ong facilitated the extensive discussion on the recent amendments to the country’s tax code brought about by the passing of the TRAIN Act. An open forum followed the lecture.

Associate Directors Atty. John Edmar Garde and Atty. Virnee Joy Agot spearheaded the organizing team.

SGV Cebu holds Annual Corporate ITR Preparation workshop

SGV Cebu held a workshop on the preparation of the Annual Corporate Income Tax Return (ITR) last 15 February at the Cebu City Sports Club. The Global Compliance and Reporting (GCR) team in the Cebu office hosted 50 attendees from various corporations within the region.

The workshop focused on the basics of preparing an Annual Corporate ITR and included topics on the computation of taxable income and administrative requirements, which were discussed by GCR Tax Partner Josenilo Mendoza and culminated with a case study facilitated by GCR Director Rosevi Garcia.

Happy International Women’s Day!

On 8 March, SGV joined the world in celebrating International Women’s Day. Everyone was encouraged to join the ‘hands out’ #PressforProgress photo challenge by posting their Women’s Day commitment on social media, with the hashtags #PressforProgress; #SGVsupportsgenderparity. Participants had to strike a ‘hands out’ pose, hold an IWD selfie card, and write a caption for the photo entry that presses for women’s advancement.

As the global campaign partner of IWD 2018, EY aims to accelerate achieving gender parity and creating equal opportunities for all.

MCM appointed as CAPA Governance and Audit Committee Chair

Assurance Partner Marydith Miguel (MCM) was recently appointed as the Chair of the Governance & Audit Committee (GAC) of the Confederation of Asian and Pacific Accountants (CAPA).

The CAPA is a regional organization that represents 32 national professional accountancy organizations (PAOs) operating in 23 jurisdictions in Asia and the Pacific. These PAOs represent over 1.6 million accountants across the region. Tracing its origins to 1957, the CAPA observed its 60th anniversary in November 2017.

The CAPA provides a structure for enabling relationship-building and knowledge-sharing among PAOs operating in the region. As GAC chair, MCM is tasked to review and provide recommendations to the CAPA Board and members on matters related to finance, audit and governance to ensure consistency with the CAPA’s objectives, policies and procedures.

MCM was cited for her extensive experience in audit and her knowledge of International Financial Reporting Standards (IFRS). She is adept at financial audits and agreed-upon procedures, and has worked on due diligence reviews, as well as cross-border and local equity offerings. She also has deep experience in the review of internal controls over financial reporting. She has worked with companies engaged in telecommunications, power and energy, oil and gas, real estate, infrastructure (roads and rail), investment holdings, car assembly, food retailing, and media and entertainment, as well as with hospitals, schools, and nonstock, nonprofit organizations.

In addition, MCM is the current Chair of the Metro Manila Geographical Area Office of the Philippine Institute of Certified Public Accountants (PICPA). She is also in her second term as member of the PICPA National Board. She served as President of the PICPA Western Manila Chapter in 2006-2007.

Congratulations, MCM!

What ASEAN SMEs need to transform

SUITS THE C-SUITE By Henry M. Tan

Business World (03/19/2018 – p.S1/4)

For almost all countries in the Association of Southeast Asian Nations (ASEAN), small and medium-sized enterprises (SMEs) are the primary engines for economic growth and development. With the creation of the ASEAN Economic Community (AEC) in 2015, reports have indicated that anywhere from 88.8% to 99.9% of total businesses in ASEAN member nations are SMEs, and account for 51.7% to 97.2% of total employment. On its website, the ASEAN also highlights the importance of SMEs in income and employment generation, gender and youth empowerment and sustainable economic growth.

Given the significant role of SMEs in the region’s ongoing development, Ernst & Young (EY) Singapore, United Overseas Bank of Singapore and Dun & Bradstreet recently conducted a study of 1,235 SMEs in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam to find out whether ASEAN SMEs were transforming rapidly enough for the future. The study offers a broad look at current conditions, challenges and opportunities for SMEs. To narrow down the focus, this article will consider what the report views as key areas for effective and competitive transformation.

TECHNOLOGY

Unsurprisingly, many ASEAN SMEs (60%) see the need to invest in technology over other fixed assets in 2018 to help drive business performance. Specifically, 70% of SMEs are looking to invest in software to enhance digital and mobile engagement, such as through websites, social media and apps. That being said, respondents also indicated interest in cutting-edge areas such as robotics process automation, artificial intelligence and 3-D printing.

What we should note, however, is that most SMEs are still considering tools such as licensed software, customer relationship management and content database management that are hosted or run from their own systems. The study also shows that, at the moment, few SMEs are considering the use of Software-as-a-Service (SAAS), and are not aware of the efficiencies that pay-per-use software can bring to the organization, such as in business processes like accounting, invoicing and payroll.

SAAS offers more flexibility and scalability for small businesses since they only pay for what they use, and can easily add on new functionalities as the business expands or the number of users grow, without the need for significant additional capital investment.

FINANCING

Currently, most ASEAN SMEs are generally satisfied with their primary financial providers, with 47% of respondents intending to retain their current financial service relationships. It is noteworthy, though, that 37% of ASEAN SMEs would like to elevate their level of engagement with their financial service providers, and be given more personalized attention and differentiated products, rather than simply being considered a retail customer. This is particularly the case for SMEs that have global or regional operations — they need financial service providers that don’t just offer efficient transaction and operational support, but can also serve as international trade partners, providing banker’s guarantees, services for import and export operations, as well as support in managing international credit risk.

Interestingly, 16% of ASEAN SMEs want to explore new nontraditional bank and financing providers. This is particularly the case for newer SMES that do not yet have a solid financial track record or those operating in cyclical industries with limited affordable and timely financing choices. Some SMES have also reported that loan approvals can take from 15 days to many weeks, which is clearly an area of improvement for financing institutions.

In such cases, more ASEAN SMEs are considering exploring alternative financing platforms, such as crowdfunding, private equity finance and government financing. For example, in Thailand, the Digital Economy Promotion Agency helps innovative software firms qualify for financing from the state-owned Thai Credit Guarantee Corp.

More opportunities are opening up for non-bank digital SME lenders, such as peer-to-peer (P2P) crowdfunding platforms specifically tailored for SMEs, notably in areas such as invoice financing, online trade financing and e-commerce financing. The report mentions that there are already various P2P financing platforms available, globally and regionally, with some platforms specifically emerging in Southeast Asia, such as Crowdo, CoAssets, Funding Societies and B2B FinPAL.

GOVERNMENT SUPPORT

Given the pivotal role of ASEAN SMEs in sustaining regional economic development, it becomes even more vital for member governments to help sustain SME development. Some of the areas where respondents hope to get more government support are as follows:

· Creating sustainable business environments through simplified legal and regulatory frameworks and good governance
· Developing capital and infrastructure in emerging markets
· Assisting in capital funding, technical and creative support
· Providing guidance and support in Information Technology (IT) and digital innovation
· Providing support manpower and talent management

Many respondents indicated that, among these important areas, they would find the most value in government assistance to adopt digital technologies for greater automation and better cost efficiencies, as well as regulatory environments that do not penalize innovative risk taking. Some other steps that ASEAN governments may take, if they do not already exist, are: establishing a credit bureau that helps establish credit standings for smaller enterprises; creating government credit guarantee institutions to help SMEs qualify for loans; incorporating bankruptcy regimes into financial development agendas; establishing industrial parks with appropriate infrastructure; hosting industry clusters to position their countries in new sectors, such as biomedical, digital science, and global arbitration, among others; and reducing regulatory red tape to help SMEs overcome cumbersome regulations, foreign investment limits and other limitations.

While the existing level of government support in ASEAN member countries is encouraging, more can still be done. In the Philippines, for example, the government has created programs that support SMEs, such as the Credit Surety Fund, which helps cooperatives manage and administer credit surety funds to give micro and SME entrepreneurs, cooperatives and nongovernment organizations better access to financing; the Pondo Para sa Pagbabago at Pag-asenso, a microfinancing initiative that aims to eradicate usurious money lending practices and help micro businesses find alternative legal microfinancing facilities; and the National Retail Payment System, which defines high-level policies, standards and governance principles covering retail payment operations and infrastructure, with the objective of developing digital consumer payments and more efficient retail payment systems.

OPTIMISTIC OUTLOOK

Currently, most of the respondents have an optimistic outlook despite global economic challenges in the areas of higher costs, reduced productivity and the inability to leverage new technologies quickly. This positive attitude may likewise be buoyed by the robust expectations for a successful and sustainable AEC integration.

With better digital and technological platforms, more supportive credit and financing options, and strong government support, it is very likely that ASEAN SMEs will better be able to progressively transform into economic powerhouses, both individually as companies and collectively as a regional business community.

This article 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 authors and do not necessarily represent the views of SGV & Co.

Henry M. Tan is a Tax Partner of SGV & Co. and the Program Director of the Entrepreneur Of The Year Philippines program.

Unlocking more possibilities for women in ASEAN

SUITS THE C-SUITE By J. Carlitos G. Cruz

Business World (03/26/2018 – p.S1/4)

The Philippines is thought to be a bit ahead in gender parity in the region. According to the Global Gender Gap Index, the Philippines is ranked 7th out of 145 countries — the highest-ranked country in the Asia-Pacific and the only one to make it into the top 10 worldwide. Studies have found that 37% of senior management and board positions are held by women – ranking the Philippines also in the global Top 10. According to the index, Filipino women are also more active in starting a business than men (51%). Globally, the Philippines has the smallest gender gap among business owners, with a split of 55% male against 45% female.

While the statistics provide a positive picture of female empowerment in business circles, the Philippines can still improve further the role of women in the work force where there are gaps in education, skills, social standing and even geography. This is a finding in a recent EY report titled “Can ASEAN move forward if women are left behind?”

The report is particularly relevant and timely, given the recent 50th anniversary of the Association of Southeast Asian Nations (ASEAN) as well as the creation of the ASEAN Economic Community. Among the major insights contained in the report include the observation that ASEAN economies are increasingly recognizing the reality that to genuinely achieve sustained economic growth, it is vital to invest in gender parity and women. Studies have shown that doing so can contribute significantly toward building greater capacity and a higher quality workforce to drive further economic growth. Yet, the degree of investment in women across ASEAN remains disparate and gender parity champions see that there is still a collective need to ensure that hard-won gains on achieving gender parity are not lost amid a fast-changing environment.

Ambassador Delia D. Albert, SGV Senior Adviser, who participated in the study says: “The ASEAN region is still dominated by many gaps. There are horizontal gaps that consist of development gaps between and among the member countries, as well as gender equality gaps. There are also the vertical gaps between women who are well-educated and have better access to leadership roles and those who have fewer possibilities and are stymied by economic and social circumstances. These gaps hinder the possibilities for leadership roles.”

To that end, governments play an important role in working with corporations to ensure that women have equal opportunities. “In view of the varying stages of development and systems in the 10 member countries of ASEAN, different types of support may be considered according to the needs of each individual country,” adds Ambassador Albert.

The report looks at three specific areas on which policy makers can focus to create a more conducive labor market where women can thrive:

SUPPORT FOR MATERNITY AND CHILD CARE BENEFITS

First, governments can seek to mandate the minimum amount of support that women receive at the workplace, particularly in areas such as maternity leave and child care.

Across ASEAN, provisions for maternity leave are generally well laid-out but further enhancements can be considered. Other than the Philippines, Myanmar and Vietnam, governments in the ASEAN generally do not pay fully for maternity leave. Singapore and Thailand adopt a hybrid approach whereby the government pays for a portion of the maternity costs.

Encouragingly, Senate Bill No. 1305 or the Expanded Maternity Leave law, was passed on third and final reading in the Philippine Senate in 2017. Once enacted into law, it will upgrade the current maternity benefits provided to mothers under existing laws, such as extending the maternity leave granted to female employees in both the public and private sectors to 120 days, paid leave, as well security of tenure, among others.

To motivate companies to grant female employees more maternity benefits, ASEAN member governments can consider providing partial subsidies to alleviate cost pressures in the form of cash reimbursements or enhanced tax deductions, or directly to employees. Countries that enjoy high levels of female work force participation can also consider making provisions for paternity leave to enable men to co-share child care at home.

Policies to improve child care access and quality are just as critical in helping women to join, remain or re-enter the work force after giving birth. ASEAN countries can consider establishing subsidized child care infrastructure to support mothers, which is particularly important in the developing markets where child care options are limited, and a significant percentage of women may not be formally employed or are agricultural-based.

Another alternative is to provide subsidies or enhanced tax deductions to help companies offset the costs of running child care centers at the workplace. For higher-educated women, other forms of tax relief to encourage mothers to remain in the work force, such as tax deduction on a certain percentage of child care fees incurred or special tax rebates, will be helpful.

INVESTMENT IN TARGETED TRAINING

The second area that governments can focus on is to encourage the private sector to invest in capacity-building and leadership opportunities for women through training and skills upgrading.

In the ASEAN, incentives to encourage training are typically across the board, and not many are targeted at the needs of women throughout their life cycle in the labor force. In the less developed ASEAN countries such as Indonesia and the Philippines, where large populations of women lack basic vocational skillsets that allow them to participate actively in the labor market, governments should advocate training programs that are specific to women from the unskilled to skilled level.

For example, the Philippine government provides cash support for a pilot skills training program whereby participating women will be trained in a wide range of skills including basic computing, business skills, baking and dressmaking.

INCREASE AND ENABLE ACCESS TO FINANCING AND RESOURCES

Based on a World Bank Report, Expanding Women’s Access to Financial Services, women-owned small and medium-sized enterprises represent 30% to 37% of all firms (approximately 8 million to 10 million) in emerging markets, requiring between $260-320 billion a year in funding and capital.

We should note that public and private sector efforts and investments continue to open markets to women entrepreneurs across the entirety of the ASEAN. For example, in the Philippines, legislation such as the law on Gender and Development (GAD) has been a big boost in empowering women to work outside of the home. Under the GAD Budget, government entities must allocate 5% of their total budget to address the needs of working women, such as day cares to allow working mothers to keep their children close by. Progressive legislation such as this can help more women professionals and staff to work full time while raising a family.

The Philippines also has the Magna Carta for Women, which is a comprehensive women’s rights law that aims to eliminate discrimination against women by granting them equal access to work opportunities, further supporting the dual roles that women are expected to play in society.

ACCEPTING TECHNOLOGY

With the rise of disruptive technologies, automation is impacting and eliminating roles in sectors where there is a high rate of employment of women, such as agriculture, garments and textiles (especially in the developing ASEAN countries), health care, manufacturing, services, retail, and food and beverage.

Based on the report, ASEAN in transformation: How technology is changing jobs and enterprises, by the International Labor Organization, women in the Philippines and Vietnam are twice as likely to occupy jobs at high risk of automation as their male counterparts. What this points to is the imperative to ensure that girls and women in ASEAN have access to quality education and training that are relevant and matched to market demands now and into the future.

Women provide a source of talent needed to propel economic growth and prosperity across ASEAN. For the less developed ASEAN countries, working on the foundation to support women participation in the work force is key. Governments and corporations should collaborate to advance the role of women in the work place. Perhaps, the Philippines can take the lead in sharing its best practices in gender parity and women empowerment with the other ASEAN member economies that may be struggling to unlock possibilities that would uplift the women in their work force. Only by safeguarding the future of women in the ASEAN can we likewise ensure the continuing resilience of the region’s cultures, economies and communities.

This article 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 authors and do not necessarily represent the views of SGV & Co.

J. Carlitos G. Cruz is the Chairman and Managing Partner of SGV & Co.

Which way to grow?

SUITS THE C-SUITE By Jane Carol U. Chiu

Business World (04/1/2018)

In the World Bank’s January 2018 Global Economic Prospects report, the Philippines was expected to post a steady 6.7% growth this year and in 2019, before a slight decrease to 6.5% in 2020. Although the estimates are lower than the government’s 7.0% to 8.0%, the Philippines is still seen by the World Bank to continue being among the fastest-growing economies in Southeast Asia.

With a strong and positive growth outlook for the country, the questions that now face C-Suite leaders of big and small businesses alike, are: Where do you want to take your business moving forward? How can you capitalize on this growth? And ultimately, when will you do it?

Given current market conditions and anticipated opportunities, it would seem that the time to act is now. Companies would benefit from taking a proactive, rather than reactive, stance. They should also pay attention to market trends, in order to leverage on these to seize opportunities and propel the organization’s priorities.

ORGANIC GROWTH VS INORGANIC GROWTH

There is no doubt that growth is always on the agenda of every business. The only question is how this will be achieved.

While companies have a wide range of diverse approaches to grow their business, the challenge is to identify the right one for the business’ strategic direction. Smaller enterprises generally favor growth from an internally focused organic approach, while larger enterprises usually prefer to take an externally driven inorganic growth strategy, such as through acquisition. There’s no one-size-fits-all solution. Management and business leaders need to assess which strategy best suits the organization. Both avenues are open to companies of any size and both avenues have their advantages and disadvantages.

ORGANIC GROWTH

Taking on an organic growth approach (or growth from within) involves, among others, a focus on growing the operations, reinvesting the profits in income-generating new assets, and improving productivity to increase the bottom line. Expanding from within gives management a deeper understanding of its business and allows it to quickly take advantage of changes in the industry. This also allows management to control the pace of growth in order to maintain one that is comfortable for the organization. However, this generally takes a longer time given the usually limited resources for growing the business. The risks of organic growth lie in expansion that outpaces the ability to effectively manage, stretches resources too thin, strains capital, or diverts focus from the business’ core mission.

INORGANIC GROWTH

Inorganic growth, which can be done via mergers and acquisitions (M&A), can result in accelerated growth as market share and assets are immediately larger; new skills and knowledge become available, and access to capital and new markets may be easier. However, this generally has greater financing requirements, which, in turn, entails higher cost of funding.

Naturally, experiencing a sudden increase in size also presents significant management challenges that increase with the size and complexities of the new entity created. People and branding issues are likely to arise. At the same time, systems, sales and support capabilities must be scaled and positioned to meet new demands. No matter how ideal an M&A initiative looks, seamless operational integration on the back and front ends are the real keys to its success.

TO INVEST OR DIVEST, THAT IS THE LONG-TERM GROWTH QUESTION

The 17th Edition of EY’s Global Capital Confidence Barometer issued in October 2017 states that 98% of the surveyed respondents see the global economy as improving or stable, and 99% see the M&A market as improving or stable. From among these respondents, 56% intend to pursue acquisitions, indicating that M&A is a cornerstone of today’s corporate route to growth. And where there are buyers, there are sellers. Hence, forward-looking leaders focus on selling assets in the same way they focus on acquisitions. Strategic divestments are a key to raising capital and deploying it into a company’s core business.

Likewise, out of 900 corporate executives from around the world interviewed in a recent survey, 76% answered that their most recent divestment created long-term value. By applying leading practices to the process, selling assets and reshaping portfolios can help companies concentrate on higher-growth opportunities and create value for stakeholders. Although selling can mean a short-term dip in top-line growth, redeploying and reinvesting capital in core activities, expanding into new markets or developing new products can lead to longer-term growth and higher value.

Local conglomerates are also revisiting their portfolios and are using M&A’s and divestments to expand their businesses. Among the notable M&A’s and divestments in the past two years are the following:

• A food manufacturer’s (Buyer) acquisition from another food manufacturer (Seller) of the selling rights to manufacture and distribute a global food brand’s products. This enabled the Buyer to expand its food portfolio while the Seller on the other hand was left to focus on its snack foods and beverages business;

• A conglomerate involved in mall operations, among others, ventured into a new business with its acquisition of a logistics company as part of its strategy to address the emergence of e-commerce, which is threatening the malls’ foot traffic;

• A conglomerate acquired an e-commerce business as part of its strategy to invest in new disruptive businesses that provide innovative solutions to evolving markets;

• A telecommunications company divested its remaining stake in a utilities company to focus on its telco business and fund ongoing network upgrades and expansion;

• A real estate developer (through a joint venture with a retail group) sold to a petroleum company its shares in a convenience store chain to focus on its core businesses. The petroleum company, on the other hand, sees the acquisition of the convenience store chain as complementary to its retail fuel business and marks its entry into the fast-growing domestic convenience retail market; and,

• A conglomerate’s energy unit invested in a power company to increase its footprint in clean coal technology that provides reliable and affordable power, particularly in Luzon.

While the impact of the above transactions has yet to be seen, these conglomerates believe that the M&As and divestments they have undertaken are a step towards reaching their desired growth.

TAKE ACTION

With the economy continuing to grow, one has to pay attention to market trends and use these to seize opportunities to propel the company’s priorities and explore outside the organization’s comfort zone. By taking better-informed and decisive action, management is better able to find the right balance between future risk and reward. Part of this challenge is understanding that growth is not just about investing, but sometimes, it’s also about divesting at the right time.

Jane Carol U. Chiu is a Senior Director of SGV & Co.

Surviving in the logistics business — a constant challenge

SUITS THE C-SUITE By Janis Nathalie T. Moises

Business World (04/09/2018 – p.S1/4)

Given the rapid changes in technology today, doing business the traditional way is not an option for companies seeking to survive, particularly those in the logistics business such as third-party logistics providers, freight forwarders, trucking and transport companies, to name a few. These companies should be able to respond to the changing customer requirements and cope with how disruption is changing the way they do business.

So how should companies compete? For those engaged in logistics, the primary consideration is to re-evaluate how they respond to changing customer demands. They will also need to consider other factors, such as fuel cost, distribution cost, inventory and landed costs. Fuel cost, in particular, has been a top consideration for several years as fuel prices continue to be volatile on the global market. With tighter transportation budgets and the country’s still limited infrastructure, this may be a compelling reason to seek new ways to do business.

In a study that was conducted by EY Global, Trends in Transportation & Logistics, there are three main factors for a company to be successful in the logistics or transportation sector: (1) Flexibility; (2) Efficiency; and (3) Differentiation — or the FED model. In terms of adapting and responding to the dynamic customer needs and requirements, companies must be able to quickly meet different customer requirements, striking a balance between the right cost, time and place, to create maximum added value for the company.

Building flexibility entails strategic, tactical and operational actions and initiatives. There are a number of initiatives to address flexibility: use of multiple modes of transportation; alignment of labor force skills to better meet changed customer demand requirements; integration of internal systems; and increase in collaboration with key customers.

In addition, technology plays a critical role in value creation since it affects both efficiency and flexibility. Technology facilitates the physical and administrative management of the shipment and cargoes. For example, technology is used to keep track of shipments and enables logistics companies to plan quicker response rates and better use of resources.

The results of a study conducted several years ago are still applicable today. It reported that the primary tools and methods used to manage domestic distribution are encouraging, as fewer companies are using manual methods or spreadsheets to manage distribution. However, focusing on flexibility alone is not sufficient for a company to be in a transformative state toward long-term success.

Achieving the desired level of efficiency necessitates a deep understanding of the cost to serve (distribution cost). Companies should focus more on truly understanding their profitability. For instance, companies that can achieve greater productivity for every peso spent and be able to ship or transport more volume in a shorter period of time will have positive effects on their bottom line.

There are also other factors that may challenge efficiency such as volatility in energy (fuel) prices, demand uncertainty, and other regulatory issues that are beyond the control of the company. Logistics companies should be able to maximize utilization of their fixed assets and variable resources as well as consider investing heavily in technology to improve operational efficiency, while keeping up with the changing needs of customers.

The ultimate goal of the company is to combine the power of the three main ingredients of the FED model to create an organization that produces long-term and sustainable value for itself. In order to do so, companies must be able to develop and deliver logistics and transportation services that are viewed by customers as distinctly different from those of competitors.

Several logistics companies consider their distinctiveness based on the services they offer. For example, setting up a one-stop-shop that will cater to the needs of customers. Differentiation of service recognizes that the cost to serve is not the same for every customer. It is also one of the important things to consider in maximizing a company’s profitability.

In the same EY Global study mentioned previously, the top five impediments to developing robust capabilities in the area of differentiation are: lack of integrated processes; objectives that vary across business units; cost of implementation; lack of standardized data; and lack of organizational strategy.

Increasing distribution cost has been a major issue for some time now. The country’s investment in transport infrastructure remains low and certain modes of transportation, such as rail, fall far short in providing a national network. The quality of the Philippines’ freight transport infrastructure is also poor in comparison to regional competitors such as Malaysia or Singapore. Accordingly, the government’s “Build, Build, Build” infrastructure program seeks to address these issues by building more railways, improving urban mass transport, building or improving airports and seaports, bridges and roads. The business community looks forward to the program’s success to increase competitiveness while providing more value to consumers.

So how do companies address the issue of rising distribution costs? Or how do they at least generate enough revenue to compensate for increasing distribution costs?

One way is to determine the best routes while considering cost and delivery time windows. Technology has enabled logistics companies to plan for quicker response and better use of transportation resources. Logistics requires an intensive amount of capital as companies need to invest heavily in equipment and technology to be able to provide different types of services using different modes of transportation — road, rail, air and sea. In addition, companies need to invest in strategic sites and locations for pickup points and warehouses, in order to facilitate more efficient handling and temporarily storage of cargoes.

While there has been a noticeable change in how logistics companies have evolved, the challenges to be flexible, efficient, and different remain. These should be addressed in light of constant technological disruptions and fluid customer needs in order for companies engaged in logistics to achieve long-term success.

This article 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.

Janis Nathalie T. Moises is a Senior Director of SGV & Co.

Spotlight on Advisory

Advisory Services Group partner Joselito Lopez (JEL) specializes in Risk services, which cover strategic risk services, business process reviews, internal audit services and operations review services.

Facilitating and managing strategic risk assessment sessions, JEL has experience with clients from various industries – electric utilities, water utilities, telecommunications, real estate, pharmaceuticals, manufacturing, oil, and holding companies, as well as with government and public-sector clients.

JEL also has professional experience with enterprise risk management, contract risk services, contract compliance programs, services for unilateral funding agencies, business process reviews, finance transformation, compliance risk and performance assessments, internal audits, agreed-upon procedures and SOX 404/J-SOX compliance.

As the Regional Advisory Quality Leader, JEL also supports the Area Advisory Quality Leader and Regional Advisory Leader in executing quality priorities and initiatives across the Region, including providing advice and guidance to Advisory leadership and teams.

ACIIA appoints SGV Senior Advisor as board member

Risk Services Senior Advisor and Alumni Partner Rebecca Sarmenta was recently appointed as Board Member (Honorary Treasurer) of the Asian Confederation of Institutes of Internal Auditors (ACIIA) for 2017-2018.

Rebecca was the Chairman of the Board of Directors, Institute of Internal Auditors – Philippines (IIA-P) in 2015. Her valuable experiences include working with the private sector and various regulators (i.e., Securities and Exchange Commission, Commission on Audit, and Bangko Sentral ng Pilipinas) in transforming and developing rules and regulations for their internal audit function, risk and governance practices.

JMC speaks at the Solo Sustainability Forum

Advisory Partner Ian Canlas (JMC) was invited to be a panelist for the Solo Sustainability Forum on the latest developments in sustainability reporting and assurance in the region held last 24 February at the Loral Hotel Solo, Central Java, Indonesia.

Organized by the National Center for Sustainability Reporting and the Institute of Certified Sustainability Practitioners, the Solo Sustainability Forum brought together academicians and company representatives, who are all Certified Sustainability Reporting Specialist and Certified Sustainability Reporter Assurer alumni.

ISACA elects and re-elects SGVeans to 2018 Board of Trustees

Advisory Partner Allan Ocho (AWO) and Associate Director Michelle Claire de Luna were re-elected while Director Elvin Mercader was newly elected to the 2018 Board of Trustees (BoT) of the ISACA Manila Chapter during the association’s 2017 Annual General Membership Meeting held at I’M Hotel, Makati City. AWO was also selected as the association’s Auditor in an internal election among the BoT while Michelle and Elvin were appointed as the Director for Membership and Assistant Treasurer, respectively.

ISACA (formerly known as the Information Systems Audit and Control Association), is an independent, non-profit, global membership association for information systems governance, control, security, and audit and assurance professionals. It offers globally accepted and recognized certification programs where professionals can become a Certified Information Systems Auditor (CISA), a Certified Information Security Manager (CISM), Certified in the Governance of Enterprise IT (CGEIT), Certified in Risk and Information Systems Control (CRISC), or a Certified Cybersecurity Practitioner (CSXP).

ISACA has 217 chapters established in over 188 countries worldwide, and the chapters provide members with educational, resource sharing, advocacy and professional networking opportunities as well as a host of other benefits on a local level.

Cyber Team professionals acquire certifications

Congratulations to the SGV Cyber Team for continually strengthening its technical capabilities. Led by partner-in-charge Warren Bituin (WRB), the Cyber Team has successfully grown in number and expertise over the years. Let’s all congratulate the SGVeans under WRB’s mentorship for passing their respective certification exams.

The Certified Information Systems Auditor (CISA) program offered by ISACA is a globally recognized certification for individuals knowledgeable in the audit, control, monitoring and assessment of information technology and business systems.

Our CISA exam passers are:

· Angela C. Chan – Senior Associate; 2nd highest scorer in the Philippines
· Jacquelyn Gracel V. Ambegia – Senior Associate; 3rd highest scorer in the Philippines
· Lalaine N. Aviles – Senior Associate
· Mary Grace G. Uy – Senior Associate
· Edmark M. Billones – Senior Associate
· Lovelee May A. Ramel – Senior Associate
· Sarah Lee D. Barrozo – Senior Associate
· Rea Marie L. Javal – Senior Associate
· Carmina D. Lugue – Senior Associate

ISACA’s Certified Information Security Manager (CISM) program is designed for professionals involved in the management, design and oversight of enterprise information security, and promotion of international security practices.

Our CISM exam passers are:

· Robin Jay S. Danao – Senior Director
· Alvin G. Manuel – Director; 2nd highest scorer in the Philippines
· Angela C. Chan – Senior Associate; 3rd highest scorer in the Philippines
· Nixon C. Garais – Senior Associate
· Adrienne Kim M. Aguilar – Senior Associate

The ISO/IEC 27001:2013 Lead Auditor Course is a five-day development training to acquire the expertise necessary for the certification audit of an information security management system (ISMS) in compliance with ISO 19011 and ISO 17011.

Our ISO/IEC 27001 Lead Auditor Course exam passers are:

· Edmark M. Billones – Senior Associate
· Nixon C. Garais – Senior Associate
· Micah O. Pablo – Senior Associate

The Certified Ethical Hacker (CEH) program is part of the information security track offered by the EC-Council designed to provide individuals with practical knowledge in penetration tools, techniques, and hacking technologies.

Our CEH exam passers are:

· Marlon G. Cacho – Associate
· Ma. Jessica D. Calderon – Associate
· Phillip Enrico T. Ching – Associate
· Jed Kenley S. Chua – Associate
· Ma. Patricia O. Egonia – Associate

Congratulations, everyone!

What makes digital tax administration a success?

SUITS THE C-SUITE By Lee Celso R. Vivas

Business World (04/16/2018 – p.S1/4)

Among the less talked about provisions of Republic Act No. 10963 or the TRAIN Law are perhaps the amendments to Section 237 of the Tax Code, and the insertion of Section 237-A. Within the next five years, these two changes will require large taxpayers, exporters, and taxpayers engaged in e-commerce to electronically issue their invoices/receipts, as well as report their sales data to the Bureau of Internal Revenue (BIR) at the point of sale (i.e., “eSales reporting”).

In the final copy of RA 10963, Section 237-A thereof only includes as among those mandatorily required to report sales “taxpayers engaged in the export of goods and services, and taxpayers under the jurisdiction of the Large Taxpayers Service”; however, in the proposed additional revision to Section 237-A under the draft bill for Package 2 of TRAIN, the phrase “taxpayers engaged in e-commerce” is already included therein. Pending clarity on the matter, and in the absence of indications to the contrary, we will assume for discussion purposes that taxpayers engaged in e-commerce are also already covered by the mandatory e-sales reporting requirement.

The upcoming e-invoicing and eSales reporting requirements are part of the Philippines’ current tax reform program — and with these new digital tax reporting requirements, the Philippines looks to mature to another level in terms of Digital Tax Administration. But what makes a digital tax administration a “good” one? How can the BIR measure the success of e-invoicing and eSales reporting? Here are some possible indicators.

INCREMENTAL INCREASE IN TAX COLLECTED

Point-of-sales reporting provides the BIR with transactional level data that — in theory — since already reported to the BIR, should also be consistent with what is being included in the periodic tax returns. In other words, BIR will gain more visibility over taxpayer compliance, with a greater ability to match each transaction reported at the point of sale vs. total sales. This will be a vast improvement on its current capabilities under the RELIEF (Reconciliation of Listing for Enforcement) system that the BIR has adopted for quite some time now.

Real-time (or near real-time) submission of sales data at the point of sale leaves the taxpayer little room (if at all) to adjust the corresponding periodic amounts to be reported in the tax returns (e.g., VAT or income tax returns). Taxpayers can no longer retract the information already provided to the BIR, and any discrepancies between the transactional level data and the periodic returns may be indications of fraud or error.

A case in point for this is South Korea — where in addition to being required to issue an Electronic Tax Invoice (ETI), taxpayers are also incentivized to use credit cards and other electronic payment methods. The data collected by the South Korean tax authorities from the mandatory use of the ETI — when paired with the information obtained through credit card usage — made it virtually impossible to engage in certain tax fraud schemes, such as the use of fraudulent tax invoices to claim tax credits or deductions. By simultaneously incentivizing the use of credit cards, South Korea had increased the amount of available purchase data that could be matched and validated against sales data from ETI, and reduce opportunities for taxpayers to claim fictitious deductions or tax credits against sales or sales/revenue taxes. In 2009, the year after the ETI became mandatory, South Korea estimated an increase in tax collections of about 880 billion won (about P40 billion). South Korea also estimated a reduction of 57% in cases of invoice seller fraud. [Can Electronic Tax Invoicing Improve Tax Compliance? A Case Study of the Republic of Korea’s Electronic Tax Invoicing for Value-Added Tax; World Bank Group Policy Research Working Paper No. 7592].

It is interesting to note that the draft bill for Package 2 of TRAIN (i.e., draft as of Jan. 15, 2018, as introduced by Reps. Dakila Cua and Aurelio Gonzales, Jr.) further proposes to incentivize the use of Electronically Traceable Payments (ETP) through additional deductible expenses for taxpayers using ETPs — much like the South Korean ETI model. The Package 2 draft bill also proposes to incentivize the adoption of e-Invoices/receipts and transmission thereof through the designated channels by offering tax credits to those who will adopt these systems.

IMPROVED AUDIT SELECTION PROCESS

In theory, the availability of transactional-level sales and purchase data will allow the BIR to better identify the taxpayers who should be prioritized for audits. For example, instead of simply matching one buyer’s purchases (e.g., Summary list of Purchases or Alphalist of Payees) vs. the sales data of a particular vendor (e.g., Summary List of Sales), the BIR may be able to employ more sophisticated data tools and techniques to consolidate transactional level purchase data across multiple tax payers (i.e., various customers of a specific vendor) to determine the expected sales of a particular vendor (even if sold to multiple customers). Any discrepancies in the sales and purchase data may then be used by the BIR to flag potential audit targets.

IMPROVED TAXPAYER EXPERIENCE

Naturally, any new or additional compliance requirement will raise some concern from covered taxpayers who may view this as an added burden. However, on the positive side, transitioning to a digital tax system is also expected to significantly enhance the tax filing experience itself.

On social media, we sometimes see a mix of rants and raves about our tax filing system. Rants are about system downtime, or connectivity issues; and raves are about how filing a return this time around took “only” a certain number of hours. By contrast, in Estonia, the process for filing personal tax returns takes less than five minutes on average – i.e., the apparent “norm,” and owing to pre-populated tax returns that leverage data obtained through the national e-ID system [Digitalisation of Tax: International Perspectives, ICAEW, 2016]. With this in mind, taxpayers will certainly be observing how smoothly the e-invoicing and eSales reporting will be implemented, i.e. without being disruptive of operations. Taxpayers will also want to see whether the overall implementation will bring about IT infrastructure improvements, as well as simplify the periodic reporting requirements.

Taxpayers may also be gauging how real-time or near real-time submission of transactional-level data can improve the audit selection process for the audit itself. Having provided the BIR with so much information, taxpayers can be expected to look for more scientific methods of selecting audit clients, and more “black-and-white” issues being raised during the actual examinations. As it is, there are taxpayers who still hope to experience the benefits of more rationalized BIR audit target identification methods. For example, even with the current RELIEF System, some taxpayers still claim to receive Letters of Authority every year even after they have explained/reconciled any supposed discrepancies between sales (or purchase) data with the customers’(or vendor’s) reported purchases from (or sales to) them. With a digital tax system, remote and electronically executed tax audits (or portions thereof) may even be a possibility – such as in the case of Brazil, where most tax audits are performed remotely and electronically, without contact with the taxpayer. After all, a “no contact” system of auditing has always been an aspiration for tax authorities and stakeholders.

Overall, the shift of the BIR to a digital tax administration holds much promise. Just last week, the BIR reported that it exceeded its first-quarter goal by 16.8% and by 14% year on year. It is expected that this level of performance can be sustained with the transition to the digital tax administration that has now been legislated. The challenge now is for the BIR to clearly demonstrate how this shift can benefit both tax authorities and taxpayers alike.

This article is part of a series on digital tax. The links to the previous articles are:

· http://bworldonline.com/e-invoicing-real-time-sales-reporting-hb-5636/

· http://bworldonline.com/hb-5636-philippine-tax-administration-going-digital/

This article 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 authors and do not necessarily represent the views of SGV & Co.

Lee Celso R. Vivas is a Tax Partner of SGV & Co.

Operation Zero: the call for economic liberation

SUITS THE C-SUITE By Christian G. Lauron

Business World (04/23/2018 – p.S1/4)

(First of two parts)

What is the value of P1,500? Of P3,000? For “Raf” of Sta. Cruz, Marinduque, it was the means by which his parents were able to provide him with a pair of slippers, eat breakfast and stay in school. The same sums allowed 10-year old “Jennifer” and her siblings from Guiuan, Eastern Samar to attend school and take notes with pencils and paper. Grade 5 star section pupil “Jeric” of Anini-y, Antique is able to attend his school’s journalism and math workshops as the project fees, as well as food and transportation allowances, are taken care of.

These are but three out of hundreds of stories from thousands of data points that we previously gathered when our teams visited the homes, schools and communities of the Zero Dropout Education Scheme (ZeDrEs or Zero Dropout) program beneficiaries, covering over 30 locations all over the country.

The ZeDrEs program was conceptualized and initiated by the late SGV Founder Washington Z. SyCip and is implemented by the Center for Agriculture and Rural Development — Mutually Reinforcing Institutions (CARD-MRI). The program aims to enable Filipino children, especially the poorest of the poor, to enroll and complete their elementary education by providing micro-loans for school needs. Mr. SyCip believed that proper basic education can help us rise above poverty, achieve development and bring about change in our nation, and this conviction led to an all-out declaration for a zero drop-out goal in at least basic education.

The visits by SGV’s ‘Operation Zero’ teams were part of a three-step process in conducting an impact engagement:

1. Financial audit;
2. Program validation; and,
3. Improvement identification.

Under program validation, our teams visited the homes of the clients (i.e., borrowers and their beneficiaries) to gain a first-hand view of their living conditions and learn how the program has helped them gain access to primary education. The visits included meeting the teachers of the beneficiaries to gain an insight into school enrollment, class performance, and attendance, as well as meetings with municipal and provincial, school heads and local business organizations (e.g., cooperatives) to gather insights on what still needs to be done to improve the local conditions. The engagement yielded insightful information that helped inform discussions with policy makers and stakeholders and lead to practical recommendations — from risk management and control improvements to even the development of a crowdfunding platform.

The locations selected for the visits registered the highest dropout rates and poverty incidence based on data from the Department of Education and the then-National Statistics Coordination Board, which has now been folded into the Philippine Statistics Authority. In addition to the field visits, the process involved analyses and exchange of information, with the objective of putting into proper context the data and definitions being used for policy formulation and investment formation — and how developmental and economic issues can be properly framed using ground information.

The teams faced complex issues and the combination of grounding activities, a thematic approach to reviewing the issues as well as applying a systems thinking approach was vital. While the audit and validation activities were ongoing, the teams also needed to make sense of the macroeconomic data and social indicators that are interdependently used for policy making, investment and spending decisions.

In this article, we look back at some of the unintended socioeconomic dimensions of this impact engagement experience that could be relevant to the government’s push to eradicate poverty and the private sector’s goal of achieving inclusive business, in the hope of attaining shared prosperity for all. The experience included recommendations and insights that not only helped the program itself, but also informed the country’s development agenda and even provided business risk assessments for the financial sector who wanted to increase their exposure allocation for inclusive sectors. For instance, having catalogued areas with high malnutrition cases during their field work, the Operation Zero teams eventually worked with policy makers and stakeholders to help prioritize and redirect agri-development initiatives to address not only malnutrition but support agri-value chain financing and investing initiatives for growth locations and priority commodities.

EXTREME POVERTY AND DIGNITY

One issue that needed to be clarified is on the definition of the “Poorest of the Poor,” a key target not only of the ZeDrEs program but also by policy makers to help decide the level of budgetary support. What does “Poorest of the Poor” mean? Quantitative thresholds provide the most common measure and globally these would pertain to those whose income is below the poverty line of $1.25 per day (P62). In the Philippines, cooperative groups generally use $2.50 (P125) as the poverty threshold. Based on the data available and field observations, the Operation Zero teams evaluated and identified the provinces with extreme poverty levels and the related structural issues and correlated factors. There seemed to be a persistent relationship between education drop-out, poverty and the dearth of quality and connected infrastructure, not to mention political governance.

In the second part of this article, we will continue the discussion on the impact of extreme poverty, as well as taking a corridor approach to development.

This article 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 authors and do not necessarily represent the views of SGV & Co.

Christian G. Lauron is a Partner of SGV & Co.