Overview

Following pronouncements of a 7.9 percent expansion in the national gross domestic product in the second quarter following a revised 7.8 percent growth registered in the first quarter, CAR’s regional economy is again expected to have significantly contributed to this national growth trend.

Specifically, growth in CAR manufacturing, mining and quarrying, construction both public and private, and services are likely to have contributed to national growth in the second quarter. Moreover, the successful conduct of the May 10 national elections and subsequent declaration of Benigno Simeon C. Aquino III as the country’s 15th president provided a smooth transition to power and is expected to bring long term gains for the nation’s economy. This is again despite the losses incurred due to the effects of El Niño in the first three months of the year.

Assessment of 2nd Quarter Regional Economic Performance

Agricultural Production

Although still reeling from the damages brought by El Niño in the first three months of the year, there are indications of a slow recovery in the region’s agriculture sector.

Palay production more than doubled quarter-on-quarter from a negative performance in the first quarter of this year. From only 50,411 metric tons produced in the first three months, this increased to 109,025 metric tons this quarter. Kalinga, the region’s rice granary, managed to substantially increase its output from just 17,608 metric tons to 51,168 metric tons. Except for Benguet and Ifugao, all other provinces recorded increases in palay output this quarter. However, this quarter’s regional palay output is still 19.7 percent below the production level in the same quarter of 2009.

Even as total regional corn production has not yet recovered both year-on-year and quarter-on-quarter, Apayao managed to substantially increase its corn output this quarter to 8,054 metric tons from just 1,184 metric tons the previous quarter.

Production of fruit crops also increased by almost 50 percent quarter on quarter, led by the fourfold increase in mango production (from 712.30 to 3,018.57 metric tons) and fivefold increase in pineapple production (from 76.10 to 401.36 metric tons), two of the region’s leading fruit crops. Also, production of oranges was substantial this quarter at 288.63 metric tons compared to just 29.48 metric tons in the previous quarter though this was not enough to offset the drop in the production of other priority fruit crops . Again, production of major and priority fruits crops this quarter is below that compared to the same quarter of 2009.

Production of the region’s high-value vegetable crops continued to be affected by the effects of the long dry spell. The almost 26 percent drop in cabbage production this quarter highly influenced the decline in the region’s major vegetable crop production. Also, production of priority vegetable crops such as irish potato, carrots, habitchuelas, cauliflower, chinese pechay, bell pepper and lettuce all suffered significant declines. A sudden downpour of ice crystals on vegetable farms in the higly-elevated areas of Benguet in the third week of June partially damaged vegetables in these areas adding to even lower production levels that led to increased prices for these commodities.

Coffee production significantly dipped quarter-on-quarter, and is still lower than year-ago production levels. Compared to the 4,162 metric tons of dried berries produced in the previous quarter, this quarter’s output was a mere 408 metric tons with farmers still experiencing the lingering effects of Typhoon Pepeng’s devastation on the region’s coffee farms.

Both livestock and poultry production recovered this quarter compared to their negative performance in the previous quarter. The 12 percent increase in swine production, and the 8 percent and 26 percent increase in chicken and duck production, respectively, pulled up overall livestock and poultry production outputs.

Low water levels in inland fishponds that affected growth of fish stocks resulting from the warming weather resulted to a 29 percent overall drop in fisheries production this quarter. Ifugao, the major fish producing area in the region, suffered a 50 percent drop in fish production with the province experiencing a “fish kill” between April and July resulting to millions of pesos worth of losses. Fishponds in the lowland towns of Lamut, Aguinaldo, Alfonso Lista and Lagawe were among the affected areas.

Mineral Production

Metallic Minerals

Boosted by strong metal prices in the world market, the value of metallic minerals produced particularly gold, silver and copper were up quarter-on-quarter despite lower production volumes.

Gold production from the region’s large-scale mines dropped by almost 50 percent this quarter compared to the previous quarter due to the suspension of operations of Lepanto Mines’ Enargite Project together with the low mine delivery output of Philex Mines’ Padcal Copper Project. Despite this, gold production value was up 16 percent with this quarter’s output valued at Php1.671 billion.

Silver production value was also up 11 percent this quarter with ouput valued at Php30.163 million despite the drop in output from Lepanto Consolidated Mining Company. With lower mine delivery, low copper head grade and less operating days of the Padcal Copper project of Philex Mining Corporation, copper production slid by almost 3 percent this quarter. However, copper production value was still up 10 percent this quarter valued at Php973.275 million.

Despite the still rosy picture, this quarter’s performance of the region’s mining sector both in terms of volume and value was still below compared to the same quarter of 2009. However, metals prices are seen to remain bouyant in the medium-term given the growing demand especially for copper and nickel in the world market.

Non-Metallic Minerals

With the deadline for the completion of SONA (State of the Nation) projects set in June, sand and gravel production used for road construction was significantly up in the first half of the year. Despite a slowdown in sand and gravel production this quarter of 84,188.35 cubic meters compared to 220,266.80 cubic meters in the past quarter, the second quarter production is 10 percent higher in volume and 126 percent higher in value from year-ago levels.

 

Exports

PEZA Export

Amid the continuing global economic recovery buoyed by a strong demand for electronics products, the value of Baguio EcoZone exports was up 23 percent quarter-on-quarter and 48 percent year-on-year. The government-owned Baguio EcoZone remained the second biggest exporter among the ecozones in the country hosting Texas Instruments (TI) Philippines which is its single biggest exporter.

Total value of Baguio EcoZone’s exports this quarter was up to US$1.106 billion compared to US$895.657 million from the previous quarter. This quarter’s earnings is also significantly higher to the US$747 million earnings in the same quarter of 2009, indicating continuing signs of recovery for the region’s exports. And except for service enterprises, all other industries in the ecozone registered positive earnings year-on-year.

Electronics exports this quarter was valued at US$1.066 billion, up 24 percent from US$857.167 million in the first quarter and also up 48 percent from US$720.845 million in the same quarter of 2009. Also, the continuing strong performance of IT Companies operating in the ecozone further lifted total exports. Earnings of ecozone BPOs was valued at US$10.738 million, up 19 percent quarter-on-quarter and more than double the recorded US$5.747 million earnings in the same quarter of 2009.

Employment in the ecozone also increased year-on-year largely coming from the electronics industry and IT companies, but remained unchanged from the past quarter. From 7,779 employed in the second quarter of 2009, this is up to 9,350 this quarter. Recruitment in Texas Instruments, for both its Baguio and Clark units, almost doubled year-on-year from 1,222 reaching 3,702 this quarter. The bulk of TI employees are still with the Baguio unit numbering 2,586. TI Clark, which started commercial operation in the third quarter of 2008 with an initial workforce of around 100 employees has currently a pool of 1,116 employees. The region needs to be wary of the limited expansion area for manufacturing activities at the Loakan site that could also impose limitations on employment opportunities for manufacturing activities in the ecozone.

Non-PEZA Exports

Non-PEZA exports, or those locally manufactured products in the region for export derived from the promotion programs of the regional office of the Department of Trade and Industry, struggled this quarter as sales dropped to just US$89,200 from a high US$4.283 million in the previous quarter due to no recorded earnings from Benguet and Ifugao and very poor sales of Baguio export products. This quarter’s export earnings is also below the U$140,400 recorded sales in the same quarter of 2009.

Mineral Exports

With this quarter’s drop in the production of the region’s metallic minerals, exports of gold and silver were affected recording declines in volume and value both year-on-year and quarter-on-quarter. This despite the increased value of gold in the month of June as investors shifted to precious metals as investments given remaining uncertainties about a near-future recovery in the global economy.

However, copper exports registered continued growth on the back of strong world demand and rising prices for the metal, as well as increased output from th Padcal mine of Philex Mining Corporation, the country’s largest mining company. The volume of copper exports was up 49 percent this quarter compared to the previous quarter, and is also 54 percent higher compared to the same quarter of 2009. In terms of U$ dollars, this quarter’s value of shipments of copper exports valued at US$ 26.928 million was 56 percent higher compared to the previous quarter (US$17.310 million), and is significantly higher compared to the recorded US$1.073 million in the same quarter of 2009.

 

Tourist Arrivals

Visitors continued to flock to the region registering a 13 percent increase in arrivals quarter on quarter totalling 343,679 this quarter, but is slightly down compared to the 344,402 arrivals recorded in the same quarter of 2009.

Domestic tourists, which accounts for more than half of total regional visitors, increased by almost 13 percent this quarter compared to the previous quarter but is down 1.5 percent from the same quarter of 2009.

Baguio City’s arrivals declined despite the observance of the traditional holyweek celebration with a significant drop in domestic tourists arrivals from 210,200 in the second quarter of 2009 to just 191,194 this quarter. The drop may be attributed to a shift in tourist’s accommodation preference from the usual registered accommodation establishments to condominium or for-rent vacation homes of friends and relatives referred to as “transient homes”. Also, other popular destinations in the country offer low package rates especially during their lean season posing a great challenge to Baguio City’s competitiveness.

Apayao meanwhile is getting to be a more popular destination area among local tourists and has in fact caught up with Kalinga as a budding tourist destination area in the region. From just 2,271 domestic tourists visiting the province in the second quarter of 2009, this was up to 13,334 the previous quarter and another 10,856 visited the province this quarter with the celebration of regular festivals provincewide.

Notable is the 20 percent increase in foreign tourist arrivals quarter-on-quarter and year-on-year particularly in Benguet, Ifugao and Kalinga. Benguet’s Sister Cityhood ties with Korea and Japan, organized trekking activities, and its hosting of adventure tourism activities such as the Northface International Marathon encouraged more tourists to vist the region this quarter. The continuing popularity of the annual Lang-ay Festival of Mountain Province also drew more visitors to the province at 13,589 even as this is lower than the 15,386 recorded in the same quarter of 2009.

An innovative eco-tourism event held in May in the province of Benguet was Globe Telecom’s Cordillera Challenge – a 40-kilometer bike challenge starting from the Benguet Provincial Capitol in La Trinidad to the municipality of Kapangan. As part of the corporrate social responsibility activities of Globe Telecom and the other participating companies involved in the motoring and cycling industries, the event advocated growing awareness of the deteriorating condition of the watersheds in the Cordilleras particularly in the Kapangan area, and the adoption of sustainable solutions to environmental problems. The highlight of the event was the handing over of a check amounting to Php327,000 to the local conservationist group, the Cordillera Conservation Trust (CCT) that is involved in tree planting activities in the Kapangan area. It is observed that the municipality of Kapangan is becoming one of the driest areas in Benguet given that the Amburayan River that it hosts is a vital and major water resource in the region.

 

Investments

DTI-registered investments

Total regional investments registered with the Department of Trade and Industry amounted to Php621.67 million this quarter, up from Php572.23 million from last year’s level but lower than the Php665.74 million registered in the previous quarter. However, only Apayao, Baguio City and Ifugao registered increases with the two latter almost doubling total DTI-registered investments quarter-on-quarter. The quarter-on-quarter drop in investments is due to the suspension of implementation of the CLEEP (Comprehensive Livelihood Emergency and Employment) Program of the past administration.

Apayao, Baguio City and Ifugao appear to have improving business climates as both areas again registered significant increases in investments from year-ago levels against the recorded declines in the rest of the provinces. Specifically for Baguio City, the Department of Transportation and Communication (DoTC) required taxi operators to register trade names in 2009.

The increased investments generated a total of 5,431 jobs, up from the 5,139 in the same quarter of 2009 but is less than the 7,715 jobs generated in the previous quarter. Only about 9 jobs were generated per Php1 million investment this quarter, the same level in the same quarter of 2009 but is much less compared to 12 jobs generated in the previous quarter.

PEZA investments

As of the first half of 2010, new investments infused into the Baguio EcoZone totaled Php20 million, mostly put into the electronics industry particularly semi-conductors. No infusions were recorded in the same quarter last year as PEZA locators continued to feel the impact of the global financial crisis.

While investments in the electronics industry is slowly recovering, it is projected that a minimum of $1 billion in investments is needed in the whole electronics industry just to maintain its current standing. Industry analysts say such investment level is achievable this year. But to become globally competitive, it is projected that between $5-10 billion is needed by the industry which currently Vietnam is able to generate. The national office of the PEZA is targetting this year a 15 percent growth in investments, a 10 percent increase in exports and a 10 percent expansion in employment.

Energy Consumption

With the continuing drought situation still being experienced and affecting operations of hydropower facilities in the region, total energy consumption dropped 1.2 percent quarter-on-quarter in the areas served by the Benguet Electric Cooperative (BENECO). This may have been due to major users cutting back on energy use or a result of rotation brownouts experienced during the period due to insufficient power generation. Even as energy consumption by almost all types of users was up from year-ago levels, only commercial users registered increased consumption this quarter compared to the previous quarter. This increased consumption is even more significant as, in fact, the number of commercial billed consumers was down 0.4 percent this quarter. Meanwhile, the total number of billed consumers for the coopertaive continues to increase, up by 1.3 percent compared to the previous quarter and up 3.5 percent from its year-ago level.

BIR Revenue Collection

Total regional revenue collection this quarter amounted to Php881.806 million, 26.7 percent higher than the previous quarter and also 22.6 percent higher compared to the same quarter of 2009. The quarter-on-quarter increase was largely due to the 35.5 percent increase in the collection of withholding tax on wages and creditable withholding tax for businesses with the second quarter as a designated income tax paying period. Also, an almost 27 percent increase in the collection of value-added taxes was realized this quarter due to invoicing compliance of businesses and an increase in taxes collected from construction firms with the accompanying increase in infrastructure projects implemented by the Department fo Public Works and Highways (DPWH) and local government units.

Again, Baguio City contributed the most to total regional income tax collection at Php415.484 million, while Benguet contributed the most to total regional specific tax collection especially taxes on mineral products at Php364,062. The BIR-CAR also pursued collection of the 5 percent withholding tax on Oplan Iboto Mo Program by urging candidates in the May 10 polls to voluntarily pay withholding taxes related to their elections expenses.

 

On a year-on-year performance, the region registered double-digit percentage increases in collection for all types of taxes except percentage taxes that dropped by 3.9 percent due to the decrease in withholding tax on business per Republic Act No. 1051. The highest increase was realized for the collection of specific taxes that almost doubled to Php608,391 this quarter from Php330,368 in the same quarter of 2009 with improved collection of taxes on mineral products, and with collections in the Kalinga-Apayao district more than tripling from year-ago levels with increased mining interests particularly in Kalinga.

 

Employment

Despite the higher than expected growth of the national economy in the first quarter, the country’s jobless rate rose in the second quarter. As with the national trend, the regional unemployment rose to 6.0 percent this quarter compared to the 5.0 percent of the previous quarter and is also higher than the 4.2 percent recorded the same quarter of 2009. Moreover, the ranks of the underemployed – or those wanting additional working hours – increased to 18.9 percent, up from the 17.3 percent the previous quarter and again higher than the 17.9 percent recorded in the same quarter of 2009. These figures are a concern with the fact that the proportion of the working age population seeking work or those wanting to be included in the labor force dropped slightly this quarter to 67.9 percent from 68 percent in the previous quarter indicating poor job generation and poor absorptive capacity of the regional economy to take in fewer workers willing to be employed.

Despite signs of recovery from the lingering global financial crisis, two establishments including a language school and construction firm reported to have retrenched workers this quarter totaling 17 workers. However, this number is much lower than the 643 workers rentrenched in the same quarter of 2009.

Prices and Inflation

With growing signs of stability in the nation’s economy following the successful conduct of the May 10 elections, overall prices of commodities in the region further eased for the second quarter in a row. This quarter’s recorded inflation rate of 4.9 percent is lower than the 5.3 percent recorded in the previous quarter.

Prices for the heavily-weighted food, beverages and tobacco subgroup of the index was down to 3.6 percent from 4.4 percent in the previous quarter, and is significantly lower than the 6.1 percent recorded in the same quarter of 2009.

Minimal increases were recorded quarter-on-quarter for staples rice and corn which were up by 0.5 percent, while eggs, fruits and vegetables, and meat products were cheaper this quarter with recorded drops in prices. Under the non-food group, the biggest increase recorded was for electricity prices up by 9.7 percent this quarter largely due to the lingering effects of the El Niño drought that affected generation capacities of power firms operating in the region. This is also despite the 51-centavo per kilowatt reduction granted in June by the Benguet Electric Cooperative (BENECO), the bigegst electric cooperative in the region, to its residential and commercial customers. The reduction was partly due to the reduction in the generation charge passed on to consumers indicating movements of normalization of operation of power generating companies in the region with the onset of afternoon rains after the prolonged drought. Fuel prices meanwhile were on the downtrend recording a 0.9 percent contraction with the successive rollbacks of fuel prices in June.

Year-on-year, however, the recorded 4.9 percent inflation this quarter is still higher than the 3.1 percent recorded in the same quarter of 2009. Except for the food, beverages and tobacco subgroup that recorded a drop in prices, all other subgroups included in the computation of the index were higher with fuel, light and water prices recording the biggest increase at 22.8 percent from year-ago levels.

All provinces in the region recorded drops in overall prices quarter-on-quarter except for a minimal 0.1 percenatge point increase in Benguet. Year-on-year, prices in Apayao, Baguio City and Benguet registered from between 2 and 4 percentage point increases, while the rest of the provinces recorded slowed down or no price increases. As with the regional average but with the exception of Apayao, all provinces experienced double-digit increases in fuel, light and water prices to as high as 20 percent in Abra and Mountain Province. Food prices were lowest in Abra and highest in the Baguio-Benguet area and in Ifugao.