Metro Manila: For pogo or bpos?

It is surprising that the Philippines has been ranked as the third best country in the world to invest in by the CEOWorld magazine, and yet the government seems to have turned down P159 billion of potential foreign investments and let go 50,000 jobs, and put to risk another P34.23 billion in the business processing sector (BPO).

It appears an administrative order (AO) issued last June 17 imposed a moratorium on economic zone developments in Metro Manila, catching both the Department of Trade and Industry (DTI) and the Philippine Economic Zone Authority (PEZA) flat-footed.

AO No. 18 aims to “promote rural development, ensure inclusive growth in the countryside, and create robust economic activity and wealth generation outside Metro Manila.”

Specifically, it bans PEZA from accepting, processing, or evaluating applications for the establishment of ecozones in Metro Manila, which a big chunk in recent months has been for information technology centers and parks used by BPO companies.

Denied appeals

In reactive mode, PEZA and DTI simultaneously scrambled to issue appeals with the Office of the President to reconsider parts of the AO. PEZA sought for exclusion of eight Metro Manila cities that still had no, or just a few ecozones, while the DTI pushed for an extension of two more months for applications already with the OP that were missing a few requirements.

The latest reply by Executive Secretary Salvador Medialdea on the appeals, though, makes the AO sound final and executory, thus denying both appeals made by the two government agencies.

This means that the potential P159-billion worth of new BPO applications processed by PEZA for location in Metro Manila will have to find alternative locations in other cities should they still wish to invest in the Philippines.

It also means that approved BPO ecozones now awaiting the President’s approval had to hurry to complete their requirements by July 17, or one month from the time the AO was issued, or take their chances for approval on a “case-to-case” basis.

Calculated move

AO 18 perhaps takes into account the fact that the global BPO sector has increasingly recognized the Philippines as an ideal location for expanding outsourcing needs, be it for call centers or back-office services.

Filipinos employed in BPOs, now numbering 1.2 million, provide top-notch services at lower cost, something that would be difficult to match by competing countries, more so in the United States under President Trump and his protectionist policies.

On the other hand, there has been a rise in office space demand in recent years in Metro Manila, with the forecast IT office space take-up this year falling short by less than half of demand. This shortage has translated to rising cost of rentals.

AO 18 assumes that available and future IT office space outside of Metro Manila will be able to accommodate recent and future ecozone applications by the BPO sector, and will not unduly prejudice the requirements of this billion-dollar sector.

Another story

There is another story that could be gleaned from AO 18. This year, the uptake for building space in Metro Manila is being hotly contested by the online gaming industry, particularly Philippine offshore gaming operators (POGO).

It seems that the Philippine Amusement and Gaming Corp. (PAGCOR) is on a roll with more foreign online casino operators wanting to set up their offices in the Philippines.

The number of licensed and prospective POGO is still no match for the number of IT-related business centers that are under the jurisdiction of PEZA, but the promise of much higher revenues for PAGCOR – and the government – is just too good to resist.

This year, PAGCOR remitted P16.17 billion of its earnings to the national treasury, of which about P6 billion were POGO revenues. PAGCOR’s online gaming sector is currently dominated by Chinese operators who largely tap the Chinese market addicted to e-gaming.

To operate their online gaming operations in the Philippines, Chinese operators are allowed to bring in Chinese employees who are able to speak and interact with Chinese clients, something that Filipinos cannot do.

POGO vs BPOs

The number of Chinese employees has grown so much as to put pressure on “office” space demand, and even rentals in Metro Manila where POGO prefer to operate. Buildings are being transformed into hostels that lodge Chinese workers, also giving rise to new restaurants that cater solely to these overseas workers.

Real estate companies in the Philippines are saying that rental take-up by POGO in the metro will likely equal that of IT-BPO companies this year, especially with the recent AO issued that freezes new ecozones by PEZA in the metropolis.

Metro Manila is now seen as the world’s third largest office market with preference given to POGO by the Philippine government. Some business sectors are uneasy about the whole situation, and this is not just because of the blip that has been created in rental valuation.

The future of POGO has yet to be tested, given the Chinese government’s distaste for anything that has to do with gambling, either in brick-and-mortar casinos or through online gaming. BPOs, on the other hand, have exhibited far more resiliency, and even the emergence of artificial intelligence has allowed this sector to find increasing value.

For now, the government is content to count its dividend earnings from PAGCOR, a government corporation that contributed the highest amount last year to its coffers. With the rising cost of running a government that is bent on propelling economic growth and achieving upper middle income status earlier than the original schedule of 2022, every centavo counts.

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