Who creates jobs?

Michael Alan Hamlin

Posted on June 2, 2011

Almost 80% of the more than 41,000 jobs to be created in the Philippines as a result of first quarter 2011 investment pledges will come from foreign direct investment. The money to create these jobs will come predominately from the United States (P6.7 billion), Japan (P4.7 billion), and Korea (P3.8 billion). Most of the investment will go to the manufacturing sector, specifically the assembly of semiconductors and electronics, which account for two-thirds of exports.

The information technology, business process outsourcing, and global in-house center (IT-BPO and GIC) industry will account for most of the jobs, however, with the industry expected to grow between 20% and 25% this year.

Although foreign investment pledges will create the majority of new jobs, Filipinos pledged far more than foreign investors for the quarter, approximately P140 billion. This investment is much less efficient in creating jobs—accounting for just 20% of total jobs to be created—probably because it goes to less labor-intensive industries, particularly real estate development.

The boom in commercial real estate, of course, is being driven significantly by the IT-BPO and GIC industry. These companies typically employ from a few hundred to many thousands of employees. Although employment numbers are confidential, anecdotal evidence suggests that employment in the industry’s 10 largest players varies from around 10,000 to more than 25,000 each. At the end of 2010, the industry employed 525,000 knowledge workers.

That many people require significant space to work, eat, and rest. And when they are not working they shop, eat, and drink—aside from sleeping, many in their new starter condos. Everest Group estimates that between two and three jobs are created for every IT-BPO and GIC position. If the industry achieves its goal of 1.3 million employed by 2016, it will be supported by approximately 3.2 million indirect jobs according to Everest and Outsource2Philippines.

It’s clear from these numbers that the majority of jobs created in the Philippines are the result of direct and indirect foreign investment. Moreover, this investment is also a substantial driver of domestic investment. The Philippines has a clear stake—and political imperative—to sustain and accelerate foreign investment to create jobs and catalyze local investment that supports foreign investors and their employees.

Unfortunately for the administration of President Benigno “Nonoy” S. Aquino III, foreign investment pledges were down sharply in the first quarter compared to the same period last year. The National Statistical Coordination Board (NSCB) said last week that pledges decreased 52.8%. Most of the decline was attributed to lower investment in Subic Bay Metropolitan Authority (SBMA) and Clark Development Corporation (CDC).

The investment declines in SBMA and CDC probably point to a downturn in semiconductor manufacturing investment likely attributable to continued economic uncertainty in the West as a result of high commodity prices and unrest in the Middle East. Investment in semiconductor and electronics manufacturing facilities rose sharply last year as demand increased in Asia and western economies appeared to be on the mend.

There is significant competition for semiconductor investment throughout Asia. Unlike IT-BPO and GIC, investors are largely unconcerned with whether workers speak English, demonstrate an affinity for western culture, and are comfortable with western business processes and legal and accounting standards. That investment will go where the labor is most affordable, operating costs—such as electricity—are low, and the regulatory environment is welcoming.

While investment in semiconductors and electronics is likely to recover as global economic conditions improve, the reality is that the Philippines’ hold on this sector is tenuous. How tenuous was demonstrated by the pullout of long-time investor Intel beginning in 2008. Another long-term investor—Texas Instruments—is reinvesting in the Philippines and building a US$1 billion facility in CDC. But that appears to have been a narrow and still controversial win.

All this suggests a number of things for the Philippines and Mr. Aquino’s administration. First, it’s critical to continue to improve the investment client for investors. Fortunately for the administration, Department of Trade & Industry (DTI) Secretary Gregory L. Domingo understands this need well, and works tirelessly to enhance the attractiveness of the Philippines to investors. That likely explains why the Board of Investments—a DTI trade promotion agency—reported an increase in first-quarter investment pledges.

Unfortunately, it’s not clear that legislators and local government officials—whose constituents’ jobs and livelihoods are at stake—understand quite as well. Moves to further obfuscate the Philippines’ archaic labor laws, increase local taxes, and remove investment incentives imperil the Philippines’ capacity for attracting investment and creating jobs. The logic is clear and incontrovertible.

Second, nurturing current investors so that they continue to invest in the Philippines is a sure-fire way to sustain job creation. Recruiting investors is just the first step in what can be an enduring process that benefits investors and Filipinos.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on TwitterFacebook and LinkedIn.). Copyright © 2011 Michael Alan Hamlin. All Rights Reserved.)


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