BPOs won't be economy's savior

- Boo Chanco -

I was recently in a luncheon discussion for a future issue of Tatler Philippines on the topic of what to expect for our economy. One of the participants gave a rosy update of the BPO industry and left us with the thought that they are doing just great… we are not even maximizing its potentials yet.

In other words, there are more BPO jobs out there that could take thousands if not millions of our young people out of unemployment. The educational system, we were told, is slowly but surely gearing up their offerings to shorten if not eliminate the training time needed before graduates can be absorbed by the BPO sector.

I remember asking Mar Roxas when he was still DTI Secretary what are the industries we have competitive advantage in. He was very bullish about one sector: BPO. Indeed, if credit is to be given, it was Mar as DTI chief who worked to place the Philippines in the consciousness of the international outsourcing industry.

There is no doubt that the BPO sector has through the years since Mar, contributed greatly to the economy. Young people fresh out of college are earning pretty good salaries and they have and are continuing to contribute to our consumer driven economy. 

The thing that bothered me was the thought that this strategy seemed like a quick fix solution pretty much like sending our workers abroad was in earlier years. Can we indeed allow our manufacturing sector to wither in the vine and still have good future where poverty is drastically reduced if not eliminated.

Oh well… here now comes an economist from the Asian Development Bank (ADB) with a warning that the Philippines should not be relying too much on the services sector, particularly business-process outsourcing (BPO). According to a Business Mirror story, the economist said this will not lead to the inclusive growth that we ought to be aiming for.

Norio Usui, ADB senior country economist, told a meeting of what’s left of our local manufacturing sector that despite the strong growth of the BPO sector since 2001, the country’s unemployment and underemployment rates have remained high. To the ADB economist, the country’s economy should walk on two legs: services and manufacturing if we want inclusive growth.

“If you will ask if the Philippines can join the growth club by skipping manufacturing, the answer is ‘No.’ You need another traditional leg, which is manufacturing. It should be both manufacturing and modern services,” Usui said in his presentation at the First Philippine Manufacturers and Producers Summit organized by the Federation of Philippine Industries (FPI).

From 2000 to 2009, Usui said the country achieved average economic growth of 4.8 percent, characterized by a fast-growing BPO sector but stagnating manufacturing sector. During that period, the BPO industry has grown to a $10-billion industry, employing close to half a million people.

But impressive as that growth was, the chronic problems in the economy lingered: high unemployment, slow pace of poverty reduction and stagnant investments. With the concentration on services, investments declined because the country missed out on the capital-intensive industries, Usui said.

“The BPO is a great help. But who can work at BPOs? It is biased to the well-educated. But what about those with less education, who can provide them jobs?” Usui asked. Manufacturing, on the other hand, has the capacity to absorb those that are migrating from the agricultural sector, the economist pointed out.

What the Philippines needs to do, he said, is to facilitate diversification in the manufacturing sector and not to concentrate much on electronics and semiconductor. “It is diversification not specialization,” the ADB economist said.

Indeed, the share of manufacturing to the country’s GDP plunged to 21.4 percent in 2009 from 22.2 percent in 2000 and 25.7 percent in 1980. Our neighbors in Southeast Asia increased the share of manufacturing in their economies. Contribution of manufacturing to GDP rose to 26.4 percent in 2009 from 13.5 percent in 1980 in Indonesia, to 34.1 percent from 21.5 percent in Thailand, and to 25.1 percent from 21.6 percent in Malaysia.

I guess it is easier to ignore our manufacturing sector. Saving this sector will require doing some heavy lifting to reduce our rather high power costs, to begin with. We need bright ideas on how to make our manufacturers competitive globally.

And that’s what we want to hear from our bright boys running DTI today.

Power rates

Ambassador Cesar Bautista, former DTI Secretary and untiring advocate for Philippine competitiveness e-mailed me with the news that there are things we can do to bring down power rates, an important matter that affects the competitiveness of our industries. Here are portions of his e-mail.

Boo… Contrary to what many believe, the cost of power can be reduced to a competitive level which would increase employment/livelihood opportunities. The attached minutes of the recent meeting of business experts in NCC/MAP is about a ‘starter kit’ of 4 simple proactive steps which can be initiated by officials to shave power cost by P5/kw-hr. We do not have to solve all of the many problems of energy before moving on to this proactive situation.

Secretary Almendras is open to the proposals of the private sector and will meet with our representatives, many of which were present in our working group meeting. We are hopeful that he will soon be the take-charge leader of this initiative.

That’s the good news, puede pala nating babaan ang power cost, with business experts working hand-in-hand with DOE/ ERC officials.

Here are the four things we must do to bring down power rates right away according to the minutes of a meeting of the Energy and Power Working Group of the National Competitiveness Council.

1) Open Access must be started as soon as possible to achieve free competition in line with the EPIRA Law with specific timetables. With mechanisms and data processes of ERC will be in-place to ensure compliance, Prof. Del Mundo suggested starting allowing 1 megawatt consumers to choose services from an independent electricity supplier. Mr. Ernie Pantangco reiterated that with the B2B system, we can help define who will be in charge of the budget and manpower of the outdated systems.

2) Energy conservation should be a national undertaking. With a defined reduction target e.g. 15% as was achieved during Sec. G. Velasco’s tenure. This will reduce power cost, pollution, power shortages, and improve investment efficiencies of generating plants.

Instead of the rule of thumb of increasing 15% power supply for every 1% growth in GDP, it may be sufficient to increase power supply by 1% only. The costs of overheads and maintenance or power generation account for a sizeable portion of electricity costs.

3) End royalty charges on extracted energies in line with what other countries are doing. This will make available to the industries, services competition power which will enable them to employ more Filipinos. It cannot be considered as a subsidy to power users, nor a violation of legal/ constitutional provisions, per our lawyers in their field.

While other countries subsidize their cost of power in order to reduce unemployment/ poverty, the Philippines is doing exactly the opposite.

4) Transformation of electric cooperatives to more business-like practice will cut off the politicization of this critical link in the distribution of electricity. This sector hall be required to define their Balanced Score Cards in the same way that some LGUs and other government agencies are already adapting.

Mr. Eliseo Santiago highlighted the importance of professionalizing the electric cooperatives especially in the Visayas and Mindanao since there are more cooperatives where their operations are controlled by politicians. The Commission on Audit reported that many electric cooperatives will not pass the standards of good governance.

The NEA is aware of this situation and will be a good principal in the cooperatives’ transformation towards improving public governance .

New Dentures

 Lal Chatlani sent this one.

A Pastor goes to the dentist for a set of false teeth. The first Sunday after he gets his new teeth, he talks for only eight minutes.

The second Sunday, he talks for only ten minutes.

The following Sunday, he talks for 2 hours and 48 minutes.

The congregation had to mob him to get him down from the pulpit and they asked him what happened?

The Pastor explains the first Sunday his gums hurt so bad he couldn’t talk for more than 8 minutes. The second Sunday his gums hurt too much to talk for more than 10 minutes.

But, the third Sunday, he put his wife’s teeth in by mistake and he couldn’t shut up...

Boo Chanco’s e-mail addresss is [email protected]. He is also on Twitter @boochanco

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