Press Releases Archived (June 2014)

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High local shipping costs may be attributed largely to the absence of competition in the local shipping industry, thus the need for a comprehensive review and amendment of the Philippine cabotage law. This was according to a recent study published by state think tank Philippine Institute for Development Studies (PIDS).

Authored by Drs. Gilberto Llanto, PIDS president, and Adoracion Navarro, senior research fellow, the study argued for a well-planned review and lifting of cabotage restrictions to bring down the high cost of domestic shipping rates in the country.

Under the present cabotage law, only domestic shipping lines can serve domestic routes. The absence of competition has resulted in "high cost of transporting raw materials to manufacturing sites, finished products and agricultural goods to various destinations, and imported products to distribution areas, thereby increasing operational costs that are passed on to consumers as high prices," the study noted.

The study recommended a serious review of lifting cabotage restrictions, especially in the light of the planned Association of Southeast Asian Nations (ASEAN) Single Shipping Market.

It cited a study of the Joint Foreign Chambers of Commerce in the Philippines (JFCCP), which showed the high cost of domestic shipping compared with the cost of shipping via foreign transshipment.

"It is cheaper to send a container from Manila to Cagayan de Oro via Hong Kong or Kaohsiung (in Taiwan) than to simply transport the cargo directly from Manila to Cagayan de Oro."

A 40-footer container domestic shipping, from Manila to Cagayan de Oro, costs USD 1,860, which is a lot expensive than foreign transshipment via Hong Kong (USD 1,144) and via Kaohsiung (USD 1,044). A local trader could save approximately 43 percent in shipping costs via transshipment to Kaohsiung than by directly availing of domestic shipping services.

The ageing domestic fleet of the maritime transport industry is also a cause for concern. "Domestic vessels for cargo in 2007 were generally 20 years old. Moreover, average age of passenger vessels in 2012 is higher compared to the average age of 5 to 10 years old in the late 1990s."

"Even though the Philippines is the world`s fifth largest ship building country, domestic shipping lines continue to use smaller and even older vessels in transporting cargo, which are uncompetitive compared to those used by their foreign counterpartsthe small capacity of cargo vessels implies longer transit and more turnaround times in ports, resulting in higher shipping costs."

For comparison, the study cited that the domestic shipping is dominated by vessels that have a capacity of 200-300 twenty-foot equivalent units (TEUs) compared with those of foreign container ships that can carry as much as 5,000 TEUs.

Thus, it underscored the need for the Maritime Transport Authority to examine very closely the likely effects of the removal of cabotage restriction on domestic shipping, trade, and movement of passengers and cargo.

Several developed countries have moved toward a more liberal cabotage regime. In New Zealand, for example, 21 vessels were engaged in coastwise trade in 2000, 19 of which were flying foreign flags.

Policymakers should seriously review and consider lifting cabotage restrictions, but in a phased-in and well-planned approach, the study emphasized.

Fears of foreign players immediately dominating the local shipping industry may be unfounded. The lack of familiarity with domestic markets may not allow foreign shipping companies to do business in all sectors of coastwise trade.

"The need for market adjustments by foreign competitors interested in engaging in coastwise transport will also give domestic shipping operators ample time to modernize their fleet and operations to be more competitive," the study said. "Competition provides a credible threat to those who refuse to modernize and maintain efficient operation."


For more information about the study, you may download it at http://www.pids.gov.ph/policynotes.php?id=5359 and pubyear=2014

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The Philippines should implement strong medium-term structural reforms to ensure growth, according to an expert in international business and investments during a seminar-forum at the Philippine Institute for Development Studies (PIDS).

The country outperformed other emerging markets in Asia in the first half of 2013, noted Dr. Dan Steinbock, research director for international business at the India, China, and America Institute in the United States, during the Pulong Saliksikan on "Navigating in uncharted waters: Advanced and emerging economies after the US Fed`s tapering" at the Romulo Hall of Neda sa Makati Building last Feb. 18.

However, natural calamities such as last year`s typhoon "Haiyan" (local name: "Yolanda") could derail the Philippines` economic growth, highlighting the need for the government to adopt medium-term structural reforms.

"The impact of typhoon `Haiyan` prevented the economy from ending the year on a high note," Dr. Steinbock said. "The typhoon did affect agricultural production, which will increase price pressures in near term, and upside risks to core inflation, which could be exacerbated by strong aid-related capital inflows."

The current account surplus is enough to support the peso, but does not necessarily ensure an upside in growth. "There is a need for structural reforms to address issues on exports, regional maritime disputes, and natural disasters," Dr. Steinbock said.

Moreover, the country should sustain its momentum, he said. It is important to know where the country is headed to even after President Aquino ends his term in 2016, Dr. Steinbock said.

He lauded the country`s fiscal situation as shown by the decline in the debt-to-GDP ratio, but said it was important to know if the result of fiscal reforms was truly structural.

With an overwhelmingly young demographic profile, "economic growth must be accompanied by job creation to address the country`s unemployment rate," he said.

The manufacturing sector should be a top priority for rapid industrialization, he added, noting China`s refocusing on global manufacturing, which has vastly improved the Chinese economy`s growth potential.

Dr. Steinbock also lauded the Philippines` initiative for public-private partnerships in infrastructure and public services development. However, more reforms are needed to boost foreign direct investments (FDIs) to the country, he said.

He pointed out that the Philippines` share of FDI flows to gross fixed capital formation (GFCF) shrank to 5.6 percent in 2012 from 10.3 percent prior the 2008 crisis period. "The country should have reforms favorable for FDIs, given the abundance of alternatives for foreign investors to invest in other Southeast Asian countries and elsewhere," he said.

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State think tank Philippine Institute for Development Studies (PIDS), represented by its president Dr. Gilberto Llanto, and World Bank Philippines, represented by its country director Mr. Motoo Konishi, sign the memorandums of agreement on the Knowledge for Development Center (KDC) Program and the SocioEconomic Research Portal for the Philippines (SERP-P) Project on March 18 in Makati City. Witnessing the signing of the agreements are from L-R, PIDS Librarian Rosanna Cleofas, SERP-P Coordinator Kristine Carla Oteyza, PIDS Research Information Director Sheila Siar, World Bank Senior Communications Officer Nor Gonzales, and World Bank Senior Country Economist Karl Kendrick Chua.



WB and PIDS have agreed to collaborate in strengthening research networking and knowledge dissemination through the SERP-P database (serp-p.pids.gov.ph). The SERP-P is an online knowledge resource containing socioeconomic studies and materials related to development and policymaking in the Philippines. It is also a knowledge network that links academic and research institutions, government agencies, and international development organizations involved in development research and planning.

The WB shall contribute to the growth of the portal by uploading research results conducted by the Bank. The PIDS shall ensure that all the information found at the SERP-P site is readily available and accessible to users.

PIDS also signed an agreement with the World Bank to be part of the KDC Program for the promotion of knowledge sharing through the organization of dialogues and consultations with the academe, media, government, civil society, and other stakeholders in the country. As a Knowledge for Development Center, online publications, reports, project documents, and other development-related materials of the World Bank will be made available in the PIDS library.

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It has been twenty-five years since the passage of the Generic Drugs Act and five years since the Cheaper Medicines Act, but majority of Filipinos, particularly the poor, have not fully taken advantage of the laws` benefits.

Separate evaluations of the Generics Act of 1988 (Republic Act 6675) and the Cheaper Medicines Act of 2008 (Republic Act 9502) by state think tank Philippine Institute for Development Studies (PIDS) and the Department of Health (DOH) confirmed that low consumer awareness was among the reasons for the low take-up. This is compounded by the perception that generics are of poorer quality compared with branded medicines.

The Cheaper Medicines Act is intended to achieve universally accessible, cheaper, and quality medicines by pursuing an effective competition policy in the pharmaceutical sector. Under the law, an executive order was issued imposing maximum retail prices on a number of drugs. The Generics Act, meanwhile, aims to promote, require, and ensure the production, adequate supply, distribution, use, and acceptance of drugs and medicines identified by their generic names.

The PIDS-DOH study titled The Impact of the Cheaper Medicines Act on Households in Metro Manila found there was low awareness of the law, and while many people were aware of the Generics Act, most respondents thought the Cheaper Medicines Act covered mainly generic medicines.

Adoracion Fausto, one of the authors, said during a forum co-organized by PIDS and DOH last February 13, that although the increase in the number of generic drugstores and the use of celebrity endorsers like Vilma Santos and Susan Roces had helped improve the image and acceptability of generic medicines, a more integrated communication campaign by the DOH was needed to promote the benefits of the two laws.

The study found that government physicians have a positive influence on the use of generics because they are required by law to write prescriptions using generic names. However, private physicians, who have an option to write in brand names in addition to generic names, seem to contribute to the generic medicines image of poor quality, especially among higher social classes.

"It is important to study physicians behavior because whatever the doctors say, the patients will follow. In doing so we can develop ways on how to mobilize them and make them advocates of the Cheaper Medicines Act," Fausto said.

To correct consumer perception on the quality of generic drugs, the study said information on why and how drug prices were reduced should be provided by the Food and Drug Administration (FDA), to address quality and efficacy issues.

In response, FDA Acting Director-General Kenneth Hartigan Go said the agency was already implementing several reforms to address not just perception but also real problems. These reforms include strengthening FDAs capacity through recruitment of qualified personnel, so it can expand the scope of its work.

"For example, FDA should be able to do foreign compliance [with] current good manufacturing practices inspection. This way, the FDA can determine where the drugs came from and whether the factory [complied with] current good manufacturing practice," Go stated.

Likewise, FDA will implement a process of risk management planning for drug firms. Drug companies will be required to submit a risk-management plan that explains how they are going to deal with an adverse product reaction and drug recall. The agency will also start using the ASEAN Common Technical Document as sole basis for the submission of pharmaceutical drug applications starting September 2014. Under this scheme, local companies must meet rigorous harmonized requirements of the Association of Southeast Asian Nations (ASEAN).

Meanwhile, another PIDS-DOH study titled Determinants of Consumer Generic Use Behavior: An Evaluation of the Generics Act recommended that DOH come up with a campaign that could influence the behavior of consumers towards acceptance of generic medicines. One of the authors of the study, Dr. John Wong, called for information campaigns targeted on drugstores and consumers, rather than on physicians.

This study, which looked at compliance of doctors, drugstores, and consumers with the generics law, found out that doctors were already compliant, with five out of six drugs prescribed using generic names. However, generic substitution and the use of generics were low, with only two out of five consumers surveyed reporting that they had been offered generic alternatives by drugstores, and only three out of 10 purchasing generic medicines.

"Consumers do not usually ask for generics nor inquire about their prices when buying medicines. There is a need, therefore, to teach consumers to ask for generics and inquire about their prices if drugstores do not offer them," Wong stated.

Anna Melissa Guerrero, DOH director and program manager of the National Center for Pharmaceutical Access and Management, agreed that the DOH had not been able to come up with mass media campaigns such as radio and TV advertisements because of high costs. However, the Health Department has tried other avenues to promote the use of generics, like information and education communication materials on the Cheaper Medicines Act and generics in government hospitals, and the holding of the annual Generics Month.

"The DOH will rather purchase medicines and give them for free instead of spending on information campaigns. In the law, DOH is mandated to spend 90 percent of its PHP 1-billion budget for the provision of medicines and only 10 percent for operations," Guerrero said.