Disruption

Michael Alan Hamlin

Posted on September 9, 2009

At 7:27 pm last Friday, I received word that Philippine President Gloria Macapagal-Arroyo had declared the following Monday a special non-working holiday. The holiday was declared to honor Iglesia ni Cristo executive minister Eraño Manalo, who was buried Monday. Iglesia ni Cristo is a Christian denomination founded by Mr. Manalo’s father in 1914. Political pundits say that the church’s estimated one million or so members vote as a block in national elections.

The decision to proclaim Monday was a political decision made by a deeply unpopular president, and raises a number of concerns. Although the line separating church and state is often blurry in the Philippines, the decision to honor the leader of a religious order whose membership accounts for slightly more than one percent of the population defies even faith-based logic, particularly in a country that has very serious productivity, investment, and economic development issues.

The sudden and unplanned disruption in the business week for this and other reasons was met with alarm, especially in the business process outsourcing (BPO) and semiconductor testing and manufacturing industries. These industries depend on an international clientele for revenues and have strict service and product delivery commitments. As a result, they just can’t suddenly go on day off. So representatives scrambled to arrange an urgent meeting with Department of Trade & Industry secretary Peter Favilla Friday evening.

It’s not hard to understand their panic. Both industries are subject to intense pressure on profit margins. Paying special, non-working holiday pay rates-a 30% premium-to workers can erase profits. Obviously, no investor is interested in doing business and creating jobs if he can’t deliver on commitments and make money doing so. As a result of the meeting with Mr. Favila, Malacanañg made another sudden announcement “exempting” the BPO and semiconductor industries from the special non-working holiday.

The BPO industry is the top job producer in the Philippines, and in dollar terms the semiconductor industry is a huge foreign investor. Semiconductors and electronics also account for about two thirds of exports. As a result, when these industries complain, even though they don’t employ nearly as many people as possibly attend Iglesia ni Cristo services every week, government typically listens.

But they are not the only companies adversely affected by politically motivated, sudden, and unplanned national holidays. According to the National Statistics Office, micro, small- and medium-size enterprises (MSME) account for 99.7% of all companies registered in the Philippines, and 70% of employment. Sixty percent of MSME’s are exporters. Exporters typically pay mandated minimum wages or better. Which means on special non-working holidays, these enterprises also pay an additional 30% on top of regular wages, or close shop for the day and everybody loses: the enterprise, the employees, and customers.

Many companies can’t close, however. Take, for example, those serving the BPO and semiconductor industries. BPOs may enjoy a day of exemption, but the retailers, restaurants, and transportation companies that serve them do not. Other enterprises also suffer. More people may be in the mall on special non-working holidays, but that doesn’t mean they buy more. And even if they do, the 30% premium on wages likely negates that advantage.

Then there is the matter of timing. Businesses hate surprises. They especially hate surprises that come after working hours on a Friday afternoon. For years, the business community has complained about government’s penchant for creating new, special non-working holidays. Now business must also anticipate the proclamation of these holidays without warning, or even a superficially good reason, it seems.

Over the next few months in the lead up to national elections in May, we’re going to hear a lot about how the Philippine economy weathered the global financial crisis, never quite entering recession. It’s important to remember some sobering facts whenever we hear this argument. And those facts are that in Southeast Asia, the Philippines comes in a far, dead last in terms of foreign direct investment. The economy would have crumbled if it weren’t for an estimated $18 billion in remittances sent by overseas foreign workers who can’t find decent jobs here. Increasing the ease of setting up a business remains a distant goal, and the Philippines is considered among the most corrupt countries in the world. And, the cost of an onion is higher than anywhere else in the region.

Addressing these issues requires leadership decisions. Not political ones.

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