Policy continuity seen as main risk for ‘call center capital’

THE PHILIPPINES is now the call center “capital” of the world, Moody’s Analytics said in a recent report, displacing India as Filipinos prove to be a better option for skilled workers in the business process outsourcing (BPO) industry, but faces a crucial government transition, with continuity of anti-corruption efforts hanging in the balance.

In the March 24 issue of Capital Markets Research, Moody’s analysts said they expect the Philippines to remain one of the best performing economies in Southeast Asia, driven largely by its strong labor market as led by the BPO sector.

“The main strength of the Philippine economy is its burgeoning service sector. The Philippines has overtaken India as the call center capital of the world,” the report read. “Call centers in the Philippines are a growing component of global business process outsourcing, which in turn covers a much wider array of services, for instance in law and accounting.”

In March last year, Information Technology and Business Process Association of the Philippines Chairman Danilo Sebastian L. Reyes said the sector likely registered a 16% growth in 2014 to reach $18.1 billion to $18.4 billion in total revenues.

Other economists have said they expect BPO receipts to outpace that of remittances in the next several years.

“The movement towards business services points to advantages that the Philippines has over its competitors. It is an English-speaking country in which educational attainment is improving. People aged 35 or younger are much more likely to have post-secondary education than older demographic cohorts. This, combined with low wages relative to developed countries, gives it a comparative advantage in the provision of business services,” Moody’s analyst Jack Chambers said in his Asia-Pacific outlook.

Moody’s added that BPO receipts are “on the verge” of overtaking the growth in worker remittances, which has long been a major source of strength of the local economy.

Money sent home by overseas Filipino workers grew by 4.6% in 2015 to reach an all-time high of $25.767 billion, the central bank said. Such a pace is slower than the 7.2% growth logged the year prior, suggesting that remittances may have already moderated.

Remittances largely support household spending, which is the main fuel of economic growth.

While growth remained robust at 5.8% in 2015 — among the fastest seen across Asia — Moody’s flagged the persistent poverty in the country, noting that the expansion is “yet to filter down” to all Filipinos.

Poverty incidence stood at 26.3% in the first half of 2015, the lowest in nearly a decade, which translates to about 26 million Filipinos who earned less than the P10,969 per person needed to meet basic food and non-food needs in a month.

“The persistence of poverty comes in spite of the growing economy. This suggests that the gains from the higher output aren’t being felt equally by all strata of the income distribution. Indeed, the incidence of poverty is generally higher in rural areas than cities,” the report read, citing standing problems such as access to electricity.

ANTI-CORRUPTION EFFORTS

Looking ahead, the biggest risk to the outlook remains the sustainability of policies beyond the change of government, with the biggest emphasis on continuing anti-corruption efforts, which would free up public money for more social uses while also improving the ease of doing business here.

“If the Philippine economy is to continue expanding strongly over the medium term it will be necessary for President Benigno [S. C] Aquino [III]’s successor to carry the torch in some policy areas. Principal among these is fighting corruption,” Mr. Chambers said.

“The government has lost an estimated $23 billion in tax revenues from 1990 to 2011 due to corruption. President Aquino has focused on reducing the prevalence of corruption, and there are glimmers of progress on this front.”

The incoming administration should also work on further trimming its dollar-denominated government debt, Moody’s Analytics said, amid fluctuating costs in servicing debt due to volatile foreign exchange rates. –Melissa Luz T. Lopez, Reporter, Businessworld