Philippines (un)competitiveness

Michael Alan Hamlin

Posted on June 10, 2009

Although much has been said of the Philippines’ economic resiliency in the face of the global economic meltdown, it’s important to view that resiliency in the proper context. First, the Philippine economy contracted at its fastest pace in two decades in the first quarter. Second, the Philippines may not enter recession this year-the Development Bank of the Philippines has forecast barely perceptible growth of 0.5%-but that won’t be due to the inherent strength of the domestic economy.

Even measly growth is not at all certain, and depends on remittances reaching last year’s level of $16.4 billion. The Central Bank believes that will be the case. But if remittances instead contract five percent as a Reuters panel of economists forecast recently, the economy could follow suit. And while the business process outsourcing (BPO) sector-the one truly bright spot in the economy-continues to grow at an impressive rate, the rate of growth is slowing.

Third, resiliency is nice in a prosperous economy. Resiliency is also better than the negative alternative in an economy characterized by widespread poverty and underemployment, but amounts to sustained economic dwarfism. I wrote last week of positive perception internationally of the global BPO industry, but the harsh reality is that there is little else to offer economic cheer, and BPO is not without its challenges-both merely perceived and otherwise-as a report in The Economist pointed out last week.

In that report, The Economist argued that one of the Philippines’ chief advantages in a global economy-a large, English-speaking workforce-has seriously eroded. The writer traced the problem to neglected educational infrastructure and the 1970s introduction of Filipino, “an artificial national language,” as the medium of instruction. To illustrate the argument, the writer referred to government-approved textbooks.

One such approved textbook for eight-year-olds reportedly reads: “The dog rolled on the floor so fast and fell on the ground. There it laid yelling louder than ever. The dog yelled on top of his voice.” Another textbook for 11-year-olds “mysteriously” advises: “Just remember this acronym-DOCSiShQACNMN-to make it easy for you to remember the order of adjectives in a series.”

The writer also correctly points out that it is not just the textbooks that are at the core of the problem. “Teachers have been flunking English for years. In 2004 only one in five teachers passed the English-proficiency test.” What the writer did not mention is that the teachers making up the one in five are now likely among the overseas workers that are sending home that anticipated $16.4 million. At best, many of them aren’t even teaching English here.

To be fair, government is applying measures meant to regain lost proficiency that include reintroducing English as the principal medium of instruction in schools. Unfortunately, since most teachers aren’t proficient in English and are further handicapped by those clearly inadequate textbooks, what takes place in the classroom is frequently and sadly hilarious. Students mimicking their teachers’ grammatical errors on social networking sites and in informal gatherings are far too common.

One remedial measure is having some focused but positive impact. Government efforts to underwrite remedial English classes for “near hires” in the BPO industry has given birth to a flourishing training sector. Training firms put near hires-job applicants who could otherwise be hired save for their inadequate English skills-through intense programs that typically last two weeks. One such firm-ExcelAsia-has grown rapidly in part because 80% of the near hires it trains are hired after completing the courses the company offers (Disclosure: ExcelAsia is a client of my firm.).

But much more-including retraining of teachers-must be done to reverse the decline in English proficiency and global competitiveness. This is a critically urgent issue. In the closely watched 2009 IMD World Competitiveness Scoreboard in which the Philippines dropped to 43 behind 29 Asia-Pacific countries and every country with a gross domestic product per capita of less than $20,000, the Philippines scored poorly in education and scientific infrastructure.

The Philippines did score well in terms of quality of labor, but other factors ranging from compensation to international experience are evaluated in that competitiveness category. And it is clear when it comes to availability of skills-a key factor in assessing quality of labor-that deteriorating educational infrastructure will make it impossible to sustain this year’s ranking.

The Economist writer suggests that the Philippine BPO industry isn’t convinced that government’s efforts so far to improve English proficiency are having much effect. Recent industry surveys suggest that’s probably not entirely the case. But it remains a serious problem, and not just for BPOs. Even the capacity for exporting people-a desperation measure necessary because the domestic economy can’t create enough jobs-will suffer if the Philippines doesn’t get education on track.

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