PH’s POGO problem

BY BEN KRITZ, TMT, Manila Times, Aug 13, 2019

VERY soon, within a timeframe that can be measured in months if not weeks, the controversial issue of Philippine Online Gaming Operations (POGOs) is going to be resolved, and in a manner that will badly bruise a number of business sectors and government agencies for their lack of foresight.

The topic came up in my recent conversation with Finance Secretary Sonny Dominguez, and while some of what emerged was “on deep background” as we like to say in this business, it is reassuring that the nation’s chief bean counter is under no illusions whatsoever as to the scale, significance, and implications of the POGO phenomenon.

The sore point for the public, of course, is the glaringly obvious fact that the mysterious call centers that have sprouted across Metro Manila and other economic zones are only “Philippine” in the sense that they are physically located here; their management, staffing, and market is otherwise wholly Chinese. The sudden appearance of thousands of Chinese workers has been unnerving, which might not be the case were it not for the continually well-publicized maritime territory dispute between the two countries; as things stand, however, it has the look and feel of a colonial-style invasion.

According to the DoF, the sector contributes about P2 billion per month in tax revenues at present, following a rather lengthy process of identifying the operations and the individual workers they employ. Officially, there are about 138,000 POGO workers, virtually all of them foreigners; unofficially, Sec. Dominguez estimates that number accounts for no more than half of the actual POGO workforce.

Dignified professional that he is, Dominguez of course would not throw any colleague agency under the bus, but it does not take a great leap of imagination to see that the blame for the inevitable disaster the POGO boom will collapse into should be equally shared by the Philippine Economic Zone Authority (PEZA) and the Philippine Amusement and Gaming Corp. (Pagcor).

These two agencies’ greed for posting short-term numbers opened the floodgates, and have made a complete mockery of both their mandates. The preferential locations of POGO enterprises no more fit the working definition of “economic zones” than if they were located in China itself, and as for Pagcor, its willingness to hand a license to anyone willing to pay for it has enabled dozens of little hustlers to skirt entire fistfuls of laws, not just here and in China, but probably other places as well. And, as the Finance chief did point out, the lack of proper attention to relevant legal and regulatory matters from the outset has made the work of other concerned agencies such as the Bureau of Internal Revenue, Bureau of Immigration, and Department of Labor and Employment that much harder.

It is likely that the only reason the Chinese government, which has stern laws against gambling and has been waging an aggressive anti-corruption campaign for years, has not already cracked down on the online gaming business here is that it hasn’t yet figured out how to go about it, a presumption that Sec. Dominguez agreed with. He also pointed out another factor that might force our Big Red Neighbor to act even sooner than anyone imagines. Due to the trade war with the United States, China has good reasons to horde its foreign exchange; a lot of it is now leaking out through the Philippines, and that whole will be plugged, probably sooner than later.

When that happens, the direct effect on the government will be tolerably moderate. “I can handle it,” Dominguez said of the inevitable loss of the P2 billion per month tax revenue, pointing out that while it was certainly undesirable, it was but a fraction of total government revenues being collected at a rate of P11.2 billion per day.

The indirect effect on government income, and the direct impact on the wider economy will be a great deal more severe. The biggest loser, as Dominguez noted, will be the real estate sector. The influx of POGO businesses and their workers has soaked up a great deal of the glut in office and high-density residential property, and at above-premium prices; the rapid disappearance of that business is likely to put more than a few developers in tight straits. Likewise, the loss of upwards of 200,000 consumers of everything from electricity and water to Jollibee burgers and movie tickets is going to make a dent in the wider economy, with a corresponding dip in other revenues such as VAT and excise taxes.

There are already warnings that the crackdown is coming. China within the last week has aired pointed “concerns” over reports that Chinese workers are being exploited in POGO businesses.
Malacañang has handled that topic in completely the wrong way, recommending that any complaints ought to be filed through normal legal channels for labor issues here. This amounts to the administratio n shooting itself in the foot, because what this has done, in effect, is tacitly accept Philippine responsibility for a wholly Chinese problem.

That just makes it easier for China to carry out a crackdown, because it shortcuts the development of the technical problems of regulated online gaming; China can simply pull the plug based on unacceptable working conditions, and blame the Philippines in the process. Now that the issue has come to the forefront of public attention, that ax may even fall before the quarter is out, creating another headache for policymakers trying to get this country’s economic growth back on track.