Philippines needs more than BPOs to grow economically

While the Philippine outsourcing industry has been responsible of generating over 600,000 jobs, the dream of creating more jobs sufficient for the country’s many jobless have a limit according to the ADB. The normal route of a country to reach a service economy where outsourcing industry is the dominant employer is a path started from the agricultural sector reducing its size when industry grows substantially. And from an industrial economy being transformed again when more jobs are generated in services. Can the Philippine bypass the industrial phase of its economic development? This is the case the ADB believes is not possible. But the debate continues.

From BusinessWorld Philippines

September 06, 2012

ADB economist downplays BPOs as ‘savior’ of economy

DAVAO CITY — While business process outsourcing (BPO) is regarded as a sunshine industry, it could also be a testament of the country’s lack of product diversification and a services-reliant economy, an economist at the Asian Development Bank told local business leaders.

“Don’t believe the BPO is the savior of the economy,” Noro Usui, senior country economist of the Bank, said during the 8th general membership meeting of the Davao City Chamber of Commerce and Industry last Friday, Aug. 31.

While the BPO industry creates jobs, “its impact is limited given the scale of utilized workforce and its bias toward educated labor.” But Mr. Usui did say that the outsourcing business is more than the dominant contact center industry as it also involves other sectors such as animation, transcription and software development.

Earlier, the Business Process Association of the Philippines noted the industry increased its revenues by 24% and employment by 22% last year against 2010 figures. This translates to an additional $11 billion and 638,000 employees.

The association’s projections, based on current pace, indicate the industry would generate $25 billion annually by 2016, which is about nine percent of the gross domestic product, or the total value of services and goods in a year.

Mr. Usui said the country’s past growth has been led largely by services and it would be difficult for the country’s economy to take off because of persistent productivity growth deficit due to stagnant industrialization, lack of product diversification, and limited job opportunities which result in slow poverty reduction.

Unlike manufacturing and industrial sectors, the service-led growth does not require a high investment.

He likened good economic growth as walking on two legs, both industry and services. While the Philippines “has this beautiful new leg of services, it has no traditional leg of manufacturing,” he said.

Mr. Usui conceded that there are factors that hinder the growth of manufacturing, such as the high cost of electricity in the Philippines compared with its Asian neighbors.

Also, the government needs to prepare a checklist of what the manufacturing sector needs including power, water, urban transport, physical connectivity like ports and airports, security, labor, and other specific needs like cold storage, containerized cargo and suppliers.

Domingo T. Duerme, former president of the Davao City Chamber of Commerce and Industry, Inc. and Philippine Airlines vice president for Mindanao sales, said Davao City has the opportunity to buck such trend. He said it is ideal for manufacturing “because of its low electricity rates, good water, strong labor force and transport system.” — Joel B. Escovilla

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