Cebu is booming

CROSSROADS (Toward Philippine Economic and Social Progress) - Gerardo P. Sicat - The Philippine Star

Of the regions of the Philippines, Cebu island, its city – including Mactan – serves as the country’s alternate major metropolis. At a time when prospects for Philippine growth continues to improve, Cebu is in the lead pack among the regions.

“Economic drivers”. The major economic drivers of growth in Cebu in recent years have been tourism and the IT (information technology) sector. These economic drivers add more zip as well as base for growth.

The nation’s economy has been growing at around seven percent per year recently. The region’s gross regional product (GRP) grew 12.5 percent in 2010, 9.3 percent and 8.9 percent in 2012 and 2013, respectively.

Central Visayas (Region VII) consists of Cebu, Bohol and Negros Oriental. Cebu is the dominant and most prosperous. Fifty-six percent of Metro Cebu’s total economic output is due to industry. Services account for 36 percent. As a mountainous island, agriculture accounts for only eight percent of its output.

Though Cebu’s output dominates in the region, its growth has a positive impact on regional provinces. For instance, as tourism in Cebu grew, the potentials of Bohol and Dumaguete (in Negros Oriental) became even more marketable.

“Tourism: foreign and domestic.” Tourist visitor arrivals to the region has been growing at double-digit rates, creating an expanded demand for hotels and resorts.

Tourist arrival statistics to the Central Visayas is now close to three million, well in hand with expectations. The growth rate of tourist arrivals is in double-digit – almost 13 percent in 2012. Among the three provinces in the region, Cebu’s tourist arrivals dominate, with 76 percent. The rest is split between Bohol and Negros Oriental.

For years, Cebu’s visitors were domestic tourists. Foreign tourists are beginning to account for more visitors. Recently, they now account for 40 percent of total tourist arrivals.

Until tourist facilities improved with the construction of first class hotel facilities in Mactan island and the building of complementary resort destinations, the growth of foreign tourism was a minor part of Cebu’s tourism.

“The BPO (business process outsourcing) boom.” Part of the Philippine progress in the BPO industry expanded to Cebu from Metro Manila as the industry sought more qualified labor resources for its requirements.

The businesses that moved to Cebu initially consisted of call centers. Today, the industry consists of a broader set of firms that provide “back office” support business operations and in the development of knowledge-based applications. In 2000, the industry accounted for only 1,200 workers. By 2012, direct employment hired by the industry totals 95,000 workers.

The minimum wage rate – which for Cebu is around 37 percent lower than that of Manila.  – is of no relevance to BPO companies. They require workers with college education, who possess high skills or at least very trainable skills. For this, they pay a high entry wage.

At latest count, there are 96 companies that work in the BPO industry. Of these, 32 are call centers. They employ 45,000 workers. The five biggest locators – led by Convergys, Qualfon, Aegis PeopleSupport – account for direct employment of 24,200 workers.

There are 66 non-voice type companies. Non-voice operations are geared more to business operations and are more analytical and knowledge-based. Back-office work in business includes accounting and legal work, language translation, medical transcription, and technical support. Further, they include engineering design and development, content development, graphics and animation, and software development.

The position of Cebu as an educational center in the Visayas helped to attract information technology companies to set up in Cebu first. In turn, as the industries moved in, the major universities and training institutes banded as an Educational Development Foundation group to promote the further improvement of its human resources in relation to the industry need.

“Private sector led growth.” The growth of tourism, export-oriented manufacturing, the BPO centers is mainly private sector led. It is also fuelled in part by foreign direct investments, as most of the firms are foreign companies.

The channel for all the expansion of demand for IT companies and for tourism facilities is the expansion of construction projects – mainly private sector projects but some in the public sector – for infrastructure improvement.

In the tourism sector, the private sector is fuelled by Filipino capital. These are mainly small and medium enterprises. The luxury hotels brought in foreign capital but they have their local partners.

The right-mix of enabling conditions propelled this development. Many of the property companies that operate in Cebu have their origins in Manila. In general, Cebu based industries emerged stronger after the liberalization measures adopted by the government in the shift toward less protection and more efforts to engage the world in trade.

Cebu was forced to buy expensive products of low quality produced by import substituting firms in Manila before. Now it can source its needs from anywhere, at home or from other countries. Its own industries in the processing of home made goods reach the rest of the country.

Export manufacturing, BPO centers, and tourism services are essentially industries based on competition with the world economy and what others offer as reference point.

Many big property companies in Manila have moved in to help Cebu’s growth. The open lot at the former Lahug airport was eventually privatized. That real estate was developed by Ayala Land into what is now the IT Center in Cebu. Here is where most of the IT locators have moved.

The IT companies require high tech facilities and buildings with sufficient access to information technology. The IT center in Lahug area is a dedicated facility that includes the most important BPO companies in the country. The place is indistinguishable from Makati and Taguig at the Global City. Close by are eateries, hotels, businesses and shopping that provide support to the IT area.

Cebu is ranked 7th as among the best outsourcing destinations internationally. Manila is in the same list ranked third. In terms of employment, however,  the Philippines is topranked in terms of voice centers.

“Why the dynamic future appears secure.” A massive mixed use commercial center is rising in the new reclaimed land. SM is constructing major shopping facilities and a large convention center for Cebu.

It seems like a duplication of the major convention and commercial center that SM has built in the Mall of Asia in the reclaimed area of Manila. SM has a proven record in repeating commercial successes for its property investments.

Another property development in the same area is that of Filinvest. Many structures of medium rise housing is in the area. These SM and Filinvest projects promise orderly usage of the new land area. The reclaimed land has many potentials for new manufacturing and IT centers.

Megaworld has another IT center in a mixed use development reminiscent of its success in Eastwood City area in Quezon City. Again, this property company has been good at repeating its successes in these types of ventures.

[Note: Discussions with business groups represented by the presidents of the Cebu and Mandaue chambers of commerce and industry and others private persons, including the NEDA staff. Lack of space prevents me from discussing the antecedent factors that positioned Cebu for its present boom.)

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

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