Risk factors

Michael Alan Hamlin

Posted on December 2, 2009

The number of business process outsourcing (BPO) executives who say government corruption is the number one risk factor associated with doing business in the Philippines almost doubled between August and October. In an August survey, 11% of respondents said government corruption is the biggest risk factor associated with doing business in the Philippines. Less than three months later, that number had increased to 21%.

In both surveys, government corruption and negative perception of the Philippines followed the tight labor market as the biggest risk factors associated with doing business in the here. In light of the Maguindanao massacre of at least 57 unarmed women and men-including about 30 journalists-in an unthinkable act of political violence allegedly perpetrated by close allies of President Gloria Macapagal-Arroyo November 23, perception of government corruption and negative perception would likely increase if a survey were conducted now.

The reported massacre took place the day before the October survey results were released, and the scope of the massacre was still unclear to participants in a breakfast briefing conducted by the Business Process Outsourcing Association (BPA/P) of the Philippines and Outsource2Philippines (O2P) for senior BPO executives a week ago Tuesday (The survey was also conducted by BPA/P and O2P.). Much of the discussion focused on negative perception of the Philippines in light of natural disasters rather than those perpetrated by political rivals.

A local Maguindanao mayor, Andal Ampatuan, Jr., has been accused of masterminding the massacre. Mr. Ampatuan is the son of the governor of Maguindanao, Andal Ampatuan, Sr. The victims included women relatives and supporters of a rival political clan, the Mangudadatus, which wield political control over a neighboring province. Esmael Mangudadatu-whose wife, two sisters, and an aunt were victims of the slaughter-is challenging the younger Ampatuan for the governorship of Maguindanao in next year’s election. The Ampatuans are credited with helping Ms. Arroyo win the Maguindanao vote in the controversial 2004 election by a wide margin.

To gauge the seriousness of BPO executives’ concern with government corruption, aside from the dramatic increase in the number of executives who said government corruption is their number one concern, just slightly more respondents-23%-said that the tight labor market was the number one risk factor associated with doing business in the Philippines. Thirty-six percent of respondents said government corruption and negative perception of the Philippines are the top risk factors associated with doing business here, more than any other factor. Negative perception is at least partially the product of the perception of government corruption.

For years, the Philippines has scored increasingly poorly in annual assessments of government corruption. However, with the economy growing, remittances from overseas workers snowballing, and the BPO industry efficiently creating jobs, those warnings have largely gone unheeded. While corruption scandals regularly make headlines in media, there has been no real groundswell of support for addressing corruption, with the result that investigations into alleged wrong doing by government officials are soon forgotten despite general public antipathy.

With national elections looming and given the barbaric scope of the Maguindanao massacre-which has received broad international attention-that could change. In a Wall Street Journal opinion piece November 25, Washington Times opinion editor Brett M. Decker said the Maguindanao massacre is the product of poor governance by Ms. Arroyo’s administration. Locally, enraged critics have complained of slow action in the aftermath of the violence, further perpetuating the perception that government is more concerned with thuggish political expediency than good governance. There is a growing sense that the administration is faltering.

Ms. Arroyo’s increasingly tenuous hold on government is expected to continue to unravel as the elections near and her ability to use government resources to empower political allies begins to ebb. The chances of her anointed successor-former defense secretary Gilbert Teodoro-taking her place in a fair and transparent election are almost non-existent, if recent political surveys are to be believed. Administration allies have begun deserting Ms. Arroyo.

As they do, the groundswell of support for presidential aspirant Noynoy Aquino following the death of his mother, former president Corazon Aquino, increasingly appears to be sustainable. Mr. Aquino is a clear favorite in surveys. His support appears to be largely the product of voter fatigue with Ms. Arroyo, her allies, and perception of endemic corruption within her administration. However, Mr. Aquino’s chief attraction seems to be that he hasn’t been associated with corrupt practices, rather than any particularly positive accomplishment.

Perception of government corruption resulted in the overthrow of former president Joseph Estrada. Perception of government corruption is largely responsible for historic low approval ratings for Mrs. Arroyo. Perception of government corruption is hurting investment.

But will that change things? So far, voters appear to be saying it can. Investors are hoping that will be so.

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