Human Side Of Economics


(Part 1)

The country’s information technology and business process management (IT-BPM) sector, in tandem with the more than 10 million Overseas Filipino Workers (OFWs), will ensure that the Philippine peso does not go beyond P60 to $1 by the end of the year. As we approach the end of the year, there will be a real bonanza of US dollars boosting our international reserves, with the IT-BPM sector bringing close to $30 billion and remittances from OFWs going beyond $36 billion. As imports tend to slow down by the last quarter (goods for Christmas have to be imported much earlier), I consider forecasts of the foreign exchange rate breaching the P60 level as exaggerated, especially considering that the BSP has turned very hawkish and is expected to raise interest rates more aggressively than they have in the past. It is never too late to fight inflation. Our Central Bank has more than demonstrated in the past that it has all the tools to fight inflation.

Quoting from a very thorough study done by the Everest Group on the next six years of the BPO (business process outsourcing) sector, IT and Business Process Association of the Philippines (IBPAP) President Jack Madrid gave an optimistic forecast that their industry can grow by 8% annually in the next six years, growing in total revenue from $29.5 billion in 2021 to almost $60 billion by 2028. It will generate an additional 1.1 million in direct jobs by 2028, bringing the total employment 2.5 million from 1.4 million today. Contributing significantly to a more equitable distribution of income and employment opportunities, 54% of the additional employment will be in the countryside. In addition to those who will be directly employed by the industry, another 3 million indirect jobs are expected to be created in such areas as retailing, tourism and hospitality, transport and logistics, infrastructure, and real estate. In fact, the negative impact on the demand for office and residential units that will be caused by the outlawing of the POGO (Philippine Offshore Gaming Operators) sector can be partly counteracted by an increase in the number of BPO enterprises that are expected in the next two to three years.

It is notable that among US investors who pledged a total of $3.9 billion to President Ferdinand Marcos, Jr. when he was in the United States, a good number were from the IT-BPM sector. Already some 70% of IBPAP members have headquarters in North America. I can understand why Jack Madrid, the President of IBPAP gushed: “The Philippine IT-BPM sector is at the cusp of a new and exciting era and the future that awaits us is the brightest that it has ever seen!”

It is also a cause for optimism that both the government and private sector have manifested exemplary flexibility and resilience in adapting to new modes of working at home and working everywhere that have guaranteed an increasing supply of highly educated workers to this sector.

I have been privy to the six-year roadmap prepared by the Everest Group for the IBPAP that was turned over to President Marcos Jr. on Sept. 30. Let me summarize the main points of the roadmap which documents recommendations to the Government on what can be done in policy support, talent promotion, infrastructure development, as well as marketing and brand management. Because of its very strategic nature, it would good for the public to know and understand what each one can do to ensure that the ambitious plans of the sector will actually be implemented. Much can be done by various government agencies, educational and training centers, civil society groups, and LGU units to enable the Philippine IT-BPM sector to achieve its laudable goals.

If we are to give an award to the economic sector that was most resilient in surviving the global crises over the last 30 years, it would have to go to the Business Process (BP) and Contact Center (CC) industry of the Philippines. It weathered the dot-com bubble in the late 1990s, helping the Philippines survive the East Asian financial crisis of 1997. It then helped the country minimize the adverse impact of the Great Recession of 2008 to 2012. In 2010, the Philippines dethroned India as the world’s contact center capital by revenue and head count, despite the fact that India has more than 10 times the population of the Philippines. In the years since, the Philippines has attracted new customers such as Amazon, while leading players like Accenture, Concentrix, Teleperformance, etc. have expanded. It is now the leading location for contact center and business process services delivery, accounting for approximately one-fourth of the total full-time employees in offshore-nearshore locations. Employing approximately 1.4 million people at present, it adds 110,000 new jobs per year. The Philippine competitive advantage in relation to other countries comes from the availability of a large English-speaking talent pool with neutral accents (especially as compared to the Indians), cost arbitrage potential, and cultural affinity to the US, having been formerly an American colony.

The COVID-19 pandemic was in a way a game changer for the better. Before the pandemic, the industry grew at an average of 3% to 6% annually, reflecting a mature yet dynamic market with new revenue streams emerging with changing customer expectations. When the pandemic struck, the CC and BP industry in the Philippines remained mostly stagnant from both a headcount and revenue point of view. The primary reason for the subdued growth resulting from the pandemic was the earlier heavy reliance on large brick-and-mortar offices for round-the-clock operations and strict data security measures required by regulated clients such as banks and other financial institutions. Fortunately, the industry was among the very first to quickly adjust to the Work-From-Home (WFH) mode (and more recently Work from Everywhere). The industry also showed leadership in creative solutions to the strict lockdowns that were imposed by the Government at the beginning of the pandemic. Some BPO companies housed workers in hotels with private buses ferrying the workers around. At an overall level, some contact center players experienced lower volumes while others witnessed an increase in demand to new areas of growth, e.g., e-commerce and technical helpdesks.

In 2021, the sector was ahead of the curve by growing faster than GDP at 8-9% (GDP was less than 8%). This was due to pent-up demand, better than expected WFH approvals from clients, and growth in newer market segments such as e-commerce, healthcare, technology fintech, etc. These are the segments of the digitalization sector that will lead in the post-pandemic era, thus guaranteeing a continuation of the 8-9% annual growth rate or even more. The blessing in disguise of the pandemic was that it accelerated the digitalization wave in the Philippines with various CC and BP enterprises adopting digital solutions and automating processes.

The government sector in the Philippines is enthusiastically embracing digitalization. For example, in the health sector, the Government is rolling out various digital solutions such as COVID Vax Cert — a national IT System. National elections are also being digitally enabled. The new Bureau of Internal Revenue (BIR) Commissioner appointed by President Marcos Jr. is well known for her expertise and keen interest in digitalizing processes in the BIR, thus improving the delivery of services and minimizing opportunities for corruption.

With the shift towards complex service delivery, growing focus on digitalization, and, most importantly, upskilling/reskilling talent, the Philippines can expect to see its CC and BP sector growing even at double-digit rates in the coming years, making significant contributions to the generation of employment, foreign exchange earnings, and the dispersal of economic activities to regions outside of Metro Manila.

(To be continued.)


Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.