The Phl macro-economic picture (part 3)

According to the Institute for Development and Econometric Analysis, Inc. (IDEA) latest Economic Monitor, the Philippines trumped India as the world’s leader in call centers a few years ago but the former is also trying to gain in other outsourced businesses such as medical and legal transcription, ac-counting, software writing and animation. Earlier this year, the BPAP forecast that call center revenues would peak to $8.4 billion this 2013 with 493,000 people employed. Their projection showed that this should continue to rise to $14.7 billion by 2016, when the sector is tilted to employ 862,000 people.

Per same published report, it’s not just the exports sector and the BPO industry that have said their piece against the strengthening Peso. Overseas Filipino workers who send in their remittances are also suffering, as BSP data showed the growth rate of remittance inflows has declined from 16.38% in 2008 to 5.61%, 8.16%, 7.22%, 6.33% in 2009, 2010, 2011 and 2012.

Per IDEA, in retrospect, the Philippines can learn from what happened to Japan. An appreciating yen made Japan’s export industry unprofitable and as a result it lost market share to South Korea. The Japanese stock market languished and lost its currency value in almost 80 percent since it spiked in December 1989. Japan hardly recovered in what is known as Japan’s “lost decade.” At present, Japan’s new leader Shinzo Abe tries to weaken the yen to fight deflation and stimulate the economy.

While most in the export sector consider currency appreciation as a possible cause of the country’s undoing, some of them have argued for quality of service as a more important investor consideration than currency value. Cebu Investment and Promotions Center (CIPC), Filipino Cebuano Business Club and the Mandaue Chamber of Commerce and Industry President Philip Tan, vowed that the BPO firms would still remain in operation even if the exchange rate will hit P39 against the dollar, with favorable factors such as less corruption and efficiency of the Aquino ad-ministration contributing to the improved business climate in the country and in turn making up for the lost competitiveness due to the exchange rate, according to IDEA.

For this year, Cebu expects to hire more than 100,000 employees in the information and communications technology sector as some high-value outsourcing companies have expressed their desire to relocate in the Cebu. CIPC has received approximately 56 inquiries in 2012 alone in the ICT/BPO sector. About 17 new firms opened in Cebu’s ICT sector last year. At least five companies are preparing their documents to establish business in Cebu and may eventually set up early this 2013.

Beyond adapting to the peso’s appreciation, there are even propositions to exploit and take advantage of the trend. Pointing out missed opportunities, the director of the BSP’s Center for Monetary and Financial Policy Francisco Dakila said that despite the proclaimed Philippine independence in 1946, parts of the economy were then still controlled by the US because of the Belle Trade law.

Economic Monitor is a monthly publication of IDEA. It provides a summary of monitored news and indicators of the economy released in the preceding month.

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