Saving the Philippines

Michael Alan Hamlin

Posted on December 24, 2008

The title of this week’s column may seem extreme, but these are extreme times. As the global financial crisis deepened in recent weeks, its impact on the Philippines and Asia became clearer. Almost 80% of Asia Pacific executives in an early December McKinsey Quarterly poll said profits are down as a result of the crisis. Philippine furniture, fashion, and other consumer export manufacturers now say they will focus on the domestic market in reaction to decreased demand in their traditional overseas markets.

There are signs that B2B exporters are also feeling pressure. Texas Instruments (TI) announced that 400 of 2,300 employees will leave their jobs in the company’s Baguio semiconductor plant voluntarily. Although 100 of those employees will transfer to the new $1 billion facility in the Clark Special Economic Zone, whether development of that facility will be affected by the crisis isn’t yet clear.

The TI facility in Baguio produces components for mobile phones, and virtually every mobile phone in the world uses them. Research firm IDC has reported that sales of mobile phones are expected to decline about two percent in 2009, the first drop since 2001. Arthur J. Young, Jr., president of the Semiconductor and Electronics Industries of the Philippines, said previously that more job cuts for the semiconductor industry are on the horizon.

Lear Automotive Services, which supplies badly ailing US carmakers General Motors, Chrysler, and Ford and Japan’s Nissan, announced that it is laying off workers in its Mactan Economic Zone Manufacturing plant. With the Philippines’ major export markets in recession, it should be clear to any observer that for the Philippines the economic crisis is not a financial crisis, but a jobs crisis.

Government response to the crisis has varied, from uninspired to encouraging. Desperate – verging on the panicky – government announcements that the market for foreign overseas workers (OFW) will remain strong despite the crisis are strained at best and disingenuous at worst. Millions of workers around the world are losing their jobs. While remittances to the Philippines exceeded $1 billion at $1.4 billion in October, growth in remittances has slowed despite an expansion in the number of remittances centers worldwide.

The government’s tendency to point to the OFW market as a sign of economic strength is also alarming because high worker exports demonstrate poor economic conditions and opportunity at home. In fact, the number of registered OFW’s has increased to 1,115,199 from 888,3339 a year ago, clear evidence that growing numbers of Filipinos are desperate for jobs. Now, those overseas opportunities are threatened as well.

A more encouraging, proactive response to the crisis is the move by the National Economic Development Authority (NEDA) to reduce corporate income taxes and increase personal exemptions for non-minimum wage earners. Although the Philippines has lagged its regional and global neighbors in economic development, it has one of the highest corporate income tax rates in the region. Government has also announced a P300 billion stimulus package in an effort to keep growth between 3.7 and 4.7 percent (The International Monetary Fund forecasts 3.5% and the World Bank estimates three to four percent growth in 2009.).

With semiconductor and electronics exports, which account for two thirds of total exports, declining the Philippines is desperate to see growth in the business process outsourcing (BPO) industry sustained. Fortunately, unlike many traditional exports that depend on robust export markets, BPO is not only largely immune from economic fallout associated with slowing economic growth, but can actually benefit from depressed markets because clients are desperate to cut costs.

This is especially so in value-driven sectors of the BPO industry, as we saw from the results of a recent survey of these sectors (See my December 3 column, “BPO outlook positive, but are we prepared?”). This industry already employs about 25% of the number of OFWs working outside the Philippines in October. If forecasts are met, with OFW deployment slowing, BPOs could employ close to 70% of the number of OFWs working overseas in two years, with comparable or higher incomes.

There are other smaller but impactful initiatives underway to “save the Philippines” from the worst of the economic crisis. For example, Immigration chief Marcelino Libanan has announced the issuance of permanent residence visas to foreign investors who employ at least 10 Filipinos. Libanan believes that the program can create “at least 100,000 new jobs next year.” That may seem ambitious, but efforts like these that create conditions to foster entrepreneurship and attract smart but small investors shouldn’t be taken lightly.

Collectively, these efforts can help shift the Philippines away from dependence on people exports, and make it a producer of sustainable value-added exports. More to the immediate point, they will help the Philippines save itself by creating more jobs.

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