BPO can’t create enough jobs

If the Philippine government is serious in pursuing inclusive growth, relying on business-process outsourcing (BPO)-based growth alone will not help generate enough jobs and improve the lives of poor Filipinos, according to the Asian Development Bank (ADB).

ADB’s flagship annual economic publication, Asian Development Outlook 2012 (ADO 2012), said that while BPO firms and the entire services sector have been instrumental in making the economy grow in the past few years, the number of Filipinos who could be part of the BPO industry is limited.

“The BPO industry employs only about 1 percent of the labor force and it hires relatively skilled workers. Given the large, and increasing, number of underutilized workers with moderate skills, it is unlikely that BPO alone can drive inclusive growth,” it added.

The launch of the ADB report on Wednesday came on the heels of a statement by the National Economic and Development Authority (Neda) citing a projection by the Business Processing Association of the Philippines (BPAP) of an annual growth rate of 15 percent for the BPO industry over 2011-16.

Such growth rate, BPAP said, would generate 3.15 million direct and indirect jobs and taxes in the amount of $6 billion every year.

ADB said the services sector as a whole has driven Philippine economic growth since the 1980s.

But, it added, “Weak growth in [the sector] has suppressed economy-wide labor productivity, which rose by only 10 percent over the past 30 years.

“This implies that although [the services sector] has made the greatest contribution to economic growth and job creation, it is not necessarily associated with a rise in high-productivity employment on aggregate,” ADB said.

According to Norio Usui, its senior economist in the Philippines, the sector, particularly the BPO industry, can only employ Filipinos with college degrees. This means that other workers who only have high-school diplomas and moderate skills would not be able to contribute to the growth of the services sector.

“BPO is good for the economy but only a college graduate can get a job [in the industry]. How can high-school graduates or less educated workers benefit from BPO? There is nothing wrong with BPO, but the Philippines needs another source of growth that will benefit moderately skilled workers,” Usui said at the sidelines of the ADO 2012 launch.

“Given the increasing number of the population, increasing number of the work force, of labor in this country, the key is to create jobs. If people can get a job, they can improve their life,” he added.

The Philippines, however, is not alone in its fight against income inequality, ADB said.

It added that Asia’s rapid growth is leaving millions behind, widening the gap between rich and poor that “threatens to undermine the region’s stability.”

The report said that income divisions in the region showed that the richest 1 percent of households accounts for 6 percent to 8 percent of total income. ADB said close to 20 percent of total income went to the wealthiest 5 percent in most countries.

The Gini coefficient—a key measure of inequality—grew in the region’s three largest economies—China, India and Indonesia. From the early 1990s to around 2010, it increased from 32 to 43 in China, from 33 to 37 in India and from 29 to 39 in Indonesia. Considering the region as a single unit, the Gini coefficient has leaped from 39 to 46 in the last 20 years.

“Another 240 million people could have been lifted out of poverty over the past 20 years if inequality had remained stable instead of increasing as it has since the 1990s,” ADB’s Chief Economist Changyong Rhee said in a statement.

ADB expects the Philippines’s gross domestic product (GDP) growth to recover to 4.8 percent in 2012 and 5 percent in 2013, after posting a lackluster 3.7-percent growth in 2011.

The Manila-based multilateral development bank said this would be due to increased public spending, investment and private consumption. But ADB said long-standing structural weaknesses will remain an obstacle to reaching the government’s 7-percent to 8-percent growth target.

It added that the economy is still haunted by its slow progress on key Millennium Development Goals, rising income inequality, over-reliance on electronics exports and remittances and industrial stagnation.

“Remittances and lower inflation will sustain private consumption, and strong business sentiment will continue to support private investment. A pick-up in public investment and accommodative monetary policy will also aid the Philippine economy,” ADB Country Director for the Philippines Neeraj Jain said. “However, issues like poor infrastructure and weak governance must be tackled if the country’s economic gains are to benefit all.”

To overcome these obstacles, policy-makers must accelerate efforts to improve the country’s infrastructure, as well as the governance and the business environment, ADO 2012 said. These efforts could include policy reforms to create the right incentives and selectively targeted government support to boost output of value-added goods, and to increase the number of high-productivity, high-wage jobs.

Jain said that incentives must be given to industries that the government wants to grow in order to encourage investments.

ADB forecast GDP growth in developing Asia at 6.9 percent in 2012, rising to 7.3 percent in 2013. GDP—the total value of  goods and services produced in a country in a year—expanded by 7.2 percent in 2011 after growing 9.1 percent in 2010, as the region rebounded strongly from the global financial crisis.

The Philippine government is spending nearly a billion pesos to further boost the country’s BPO industry, which organized business said hit last year’s revenue and job-growth targets.

“Hitting the industry’s targets for 2016 would not be possible without the strong government support that we are now experiencing,’” BPAP President Benedict Hernandez was quoted as having said.

Hernandez, the chief executive of the country’s largest BPO-industry group, said the group has secured from the government a total of P925 million in cash grants and subsidies.

The statement said that P450 million came from the Technical Education and Skills Development Authority (Tesda). About P350 million was the allocation by the Information and Communications Technology Office of the Department of Science and Technology (DOST-ICTO). BPAP said the Commission on Higher Education (CHED) has also approved the offering of BPAP’s Service Management Specialization Track starting June 2012 and allocated about P125 million to state universities and colleges to implement BPAP’s IT-BPO programs.

BPAP also cited Cabinet members and lawmakers as having expressed support to the 450-member industry group.

“The support has been overwhelming and we are beefing up our team and resources to be able to effectively manage the programs that we have developed and that the government is supporting,” Hernandez said.

He added that they promise to “ensure we make good on our commitments to the government.”

Hernandez’s statements came a day after BPAP announced that the country’s information technology and business-process outsourcing (IT-BPO) industry ended 2011 with $11 billion in revenues, or 24-percent higher than in 2010, and employed 638,000, or 22 percent more employees in the same period.

BPAP said that with a high 20-percent growth from now until 2016, the country’s IT-BPO industry could hit $25 billion by 2016, contributing about 9 percent to the GDP and capturing 10 percent of the global IT-BPO market share.

The bulk of the growth last year came from the contact-center segment that BPAP said posted a 21-percent revenue growth in 2011 with 416,000 employees providing $7.4 billion in services to the world.

“Already the largest contact-center hub in the world, the sector….remained the largest sector of the Philippines IT-BPO industry at 65 percent of total industry.”

BPAP cited the Philippine Software Industry Association as having reported a 37-percent growth in revenues from IT outsourcing, compared with just 11 percent in employment growth.

“Anecdotal indicators also point to strong demand for Philippine IT services into 2012,” it said.

Another segment, health-care information management outsourcing services, was noted as having provided as much as $277-million worth of HIMO services to global end-users from the Philippines. This sector employs about 24,700, BPAP said.

The game development sector grew by 13 percent in 2011, reaching $8 million in revenues and employing almost 1,400.

Raymond Lacdao, BPAP executive director for industry affairs, was quoted in the statement as having said that growth also came from companies providing engineering services from the Philippines, which saw a 5-percent increase in revenues to $172 million. This segment employed over 9,000 in 2011.

“This is a second consecutive year of positive growth after a contraction in 2009, reflecting a recovery in global markets for construction and engineering design.”

Another segment, nonvoice BP and knowledge process (KP) services, was reported to have grown by 24 percent last year to over $2 billion in revenues and almost 130,000 employees.

But BPAP Senior Executive Director Gillian Virata described “these numbers” as “somewhat deceptive because we reclassified a chunk of high-value, nonvoice services to HIMO.”

Virata said the data showed that the industry has been steadily moving into high-value services.

The only loser among the segments was BPO in animation, with BPAP saying “the sector lost out to some contracts as global competition heated up in back-room animation services, particularly from countries like China that subsidize animation operations.”

BPAP quoted the Animation Council of the Philippines Inc. as having said its sector shrank by 10 percent to $128 million in revenues in 2011 while maintaining its headcount at about 8,600 animators. –Cai U. Ordinario and Dennis D. Estopace / Reporters, Businessmirror