5-mo BPO investments down 35%

Political uncertainty seen contributing to decline in Peza registrations

By: Roy Stephen C. Canivel, Philippine Daily Inquirer , Jun 27, 2017

Amid fears of political uncertainty under the Duterte administration, new IT-BPM investments registered under the Philippine Economic Zone Authority (Peza) have fallen by more than a third in the first five months of the year, showing “alarming” signs of slowing down months after local concerns started causing jitters in the industry, a source familiar with the issue told the Inquirer.

From January to May, Peza-approved investments shrank 34.96 percent to P7.08 billion from P10.88 billion in the same months in 2016, reflecting the number of projects approved that also dwindled to 87 from 103 last year. This was based on the confidential Peza figures seen by an Inquirer source.

The source dismissed the idea that the drop was caused by trends in automation or artificial intelligence (AI), factors which have often been feared to be harmful to the Information Technology and Business Process Management [IT-BPM] industry, more popularly known as the BPO or business process outsourcing sector and regarded as the biggest private sector employer in the country.

“It’s all because of political uncertainty. This is not because of automation or AI, but the culmination of events that caused jitters from last year to materialize,” the source said.

The drop was in stark contrast to the otherwise bullish industry, which expects to reach $38.9 billion in revenue in 2022 after reaching $22.9 billion last year. The Inquirer tried to get the reaction of Peza officials, but they did not respond to requests for comment as of press time.

Prior to this, the only figures that Peza has so far provided to media were the overall investment pledges report for the first quarter of the year, which grew more than 50 percent to P51.34 billion from P34.11 billion in the same period in 2016.

While the Philippine Statistics Authority (PSA) has no data yet on overall investment pledges in the IT-BPM industry for the first five months, the available figures in the first quarter of the year would show that new investments have been sluggish.

Collecting all pledges gathered in seven investment-promotion agencies including Peza, PSA reported that pledges in information and communications technology (ICT) sector fell 34 percent to P4.18 billion in the first quarter from P6.34 billion in the same period last year.

This drop was primarily dragged down by pledges under Peza, falling 35.5 percent to P4.01 billion in the January-to-March period from P6.22 billion, data showed.

In both comparative periods, Peza accounted for the biggest chunk of pledges in the ICT sector, followed by the Cagayan Economic Zone Authority (Ceza) with more than P60 million worth of new investments.

Worries in the industry began when the Duterte administration took office last year, with the President threatening to have a “separation” from the United States —the decades-old ally of the Philippines and a major contributor of clients and employment in the IT-BPM industry—after then US President Obama criticized Duterte’s controversial war on drugs.

However, the latest hurdle that the industry faces is the comprehensive tax reform program of the Duterte administration, comprised of five packages that include proposals to broaden the base of value-added tax and to rationalize fiscal incentives.

The Information Technology and Business Process Association of the Philippines (IBPAP), the group which represents the industry, wanted to retain the status quo, raising concerns that this would drive investors away.

In a March position paper obtained by the Inquirer, IBPAP said the proposed changes under the first package “will materially affect the positive perception of the Philippine business environment and will impact, in an irreversible way, decisions to remain, expand or set up new companies in the country.”

In spite of these concerns, Trade and Industry Secretary Ramon M. Lopez said he would not support the side of IBPAP on the issue of tax reform under the first package.