by Teodorico T. Haresco, Jr.
The financial crisis in America and Britain, whose Central Banks, avoided recession for two decades, but allowed unchecked consumer debt growth. Their lax standards allowed housing loans to otherwise ineligible consumers. The latest victims of the US financial chaos? A massive US$182 billion write-off by the US Government-backed twins, “Freddie Mac” and “Fannie Mae,” the prime secondary mortgage market worth US$5 Trillion of US Homes; for the taxpayers to carry. The irony is that US$79 billion went to their shareholder’s pockets.
Another consequence was trade deficits with Anglo-Saxon countries, financed largely by surpluses from Asia and the Middle East; leaving US and UK economies more volatile, and vulnerable. Manufacturing has shifted to the developing world, and increased trade will shift the Global GDP from North to South, and West to East.
Oil’s cyclical price has exacerbated the crisis, and signs point to a financial meltdown. As this happens, some 3M families in the US were rendered homeless, and as more banks fail, economic depression could ensue from recession. But there is a positive side.
While waiting for the financial crisis to abate, the world is fighting back. Since part of the problem is oil, green alternatives to reduce oil dependence are emerging.
Government has joined the fight. The lower house has passed House Bill 4139, a Renewable Energy Bill. Awaiting enactment into law, it projects US$1.2 billion savings over 10 years assuming 1,250 Megawatts (MW) of alternative power plants are built. Seamlessly melded into the national power grid, it will lower rates, reduce oil dependence, and compete with power-providing monopolies.
Private sector and local governments are at the forefront of using alternative, green energy: microhydroelectric power plants, which require no dams, rated at 7.5 to 35 MW, have already been deployed in parts of rural Philippines. The Bangui, Ilocos Norte wind farm pumps out 25 MW, about 40% of the province’s requirement. It was inaugurated in 2005.
This Administration’s progressive support, ie., Php500,000 for Public Utility Vehicle conversion increases driver’s incomes by half. Aggressive information campaigns (supported by raffle prizes) meant to overcome Filipino driver recalcitrance and reluctance to go LPG, should be conducted by private sector and Government, using the Indian or Thai country experiences. Imagine the increase in Metro Manila air quality with the conversion of 200,000 PUVs.
BIO-PRODUCTS: NEW GLOBAL LYNCHPIN
Calling all chemically oriented entrepreneurs, there is an expanding industry called Chemurgy, which turns agricultural products into industrial and everyday items, lessening oil use. Said by DuPont to become a US$100B industry by 2011, it has been around since the 1930s. With it, the idea of taking your car to work and eating the body for dinner becomes plausible. Because Chemurgy is turning agricultural products into foam for cars and refrigerators. Henry Ford built an all-soy car in 1941.
Big companies are using it: German firm BASF produces “chiral intermediates” for pesticides; the Haber – Bosch process takes nitrogen from air for conversion into synthetic fertilizer. The other plus aside from reduced oil? Greener applications.
Another plus? Bio-polymers were profitable when oil was at US$40 per barrel; today it hovers at US$125.
This is clear opportunity for local manufacturers, the next generation chemurgy kings: energy from seaweed, cancer vaccines from genetically modified plants, bio-detergents and so on.
We salute the enterprising landfill gas to energy entrepreneurs, and the Cebu company that converts rain into drinking water, going from Php48/cu.m to P3.00/cu.m. This exhibits that enterprise can combine green-ness, national interest, ecological responsibility, and profit.
Developed countries’ mandated ethanol use will increase demand. The US plans consuming 10.5B in 2009, to 32B gallons by 2022, versus a current 6.4B gallon production capacity. As increased ethanol production arouses food shortage fears, since the US uses corn, anything the Philippines produces, using sugar cane or even cassava, will be used.
The Entrepreneur always sees opportunity in crisis. When faced with a downturn, these is what we must do:
1. Keep Marketing. This doesn’t mean spending more, but a smarter marketing means knowing the customer’s expansion plans well enough to be there when he decides to grow his business.
2. Cut Expenses. With tighter sales revenues, costs must be cut, unfortunately releasing perhaps 30%-40% of slacker manpower, but preserving critical personnel. Likewise, be creative. Barter goods and services. Save on travel, and use videoconferencing instead, which the Internet supports with realtime, virtually free communications tools like Skype.
3. Keep Cash Flowing. Revise the billing cycle, or bill one month in advance. Make calls when the invoices are due. In essence, collect, collect, collect. This is a wake-up call for BPOs to run tighter credit and collection policies to keep them liquid, and allow them to maximize net present values.
4. Be positive. There are unscathed Global Market niches that will flourish once the Global Economy recovers. Do not assume your demand disappeared. The way demand is met has only changed. Be positioned properly to be able to address the changed patterns.
Despite the gloom and doom cycle of oil prices and global financial meltdown, human determination will see him out of this global crisis. Boom shall always come again.