The Philippines at a crossroads

THE Philippines is at the crossroads.

What will determine whether or not we are going to catch up with our fast-growing neighbors in the next decade would hinge much on how credible the mid-term election in May would be. That’s how important this political exercise is. If we bungle this one, it would be doubly hard to recover the respect that we have started to gain as a result of our initial success in global outsourcing and electronics exports.

We say we are at the crossroads because it seems that the Philippines actually has what it takes to move forward a little faster. The recent Grant Thornton survey seems to confirm that. It says that currently the Philippines is ranked No. 8 among 32 countries for having “super-growth companies,” a rare honor that we currently share with the United States, Armenia, Ireland, United Kingdom, South Africa, Sweden, Canada, Singapore and Germany. Super-growth companies are those which enjoy more than average growth both in terms of turnover and job creation.

Our current ranking is actually 15 notches above our previous ranking, an indicator that—despite a lot of stupid things happening around like that ridiculous Ducat hostage-taking that made us the laughing stock of the world, continuing failure of the government to invest in strategic economic and social infrastructure, and the lack of depth in the campaigns for the mid-term elections—the Philippines still has some strengths that it can put to work so the country could move forward.

And what are these strengths? The Grant Thorton survey doesn’t say much but it seems that the latest report by Jetro is the best gauge.

The country’s edge is not about labor cost, Jetro says, for the Philippines currently has among the highest wages in the Asia Pacific region. It’s not telecommunications, for we have among the highest charges in the Asia-Pacific neighborhood. It’s not power, for we remain among places with the most expensive electricity rates. And its not taxes, for our regressive system still has among the highest rates in similarly situated countries.

Having enumerated all these factors of production (negative against us), it’s fair to presume that the real plus factor lies with the Philippine human resource—its people, many of whom are going abroad to take difficult jobs, and its entrepreneurs.

The Grant Thornton report points to the continuing transition of the Philippine economy from manufacturing to services as one major factor that pushed us to the top 10 ranking, but it’s certain its really about having the best talents around. It’s the same reason why even the Japanese have been recently exploring the possibility of outsourcing some of its operations to the Philippines, a trend currently being done largely by American and European companies.

That’s good news; it means that the country could see a more diverse market for its cyberservices industry that has been growing more than 50 percent in the last five years.

Having made that optimistic note, it’s crucial to stress, though, that there’s only so much that this sector could do to move the economy forward. We are already seeing its limits in terms of not being able to generate jobs that could soak up the jobless off the streets.

Leaders in the cyberservices industry are saying that the industry is supposed to accumulate close to a million jobs (about 900,000) by 2010, but it appears that such target is getting difficult to achieve by the day. In 2007, the total employment in the cyberservices industry is probably close to 300,000 and it’s simply mission impossible to generate 600,000 more fresh jobs in the next three more years.

Of course, most of the cyberservices firms are trying to go up the value chain by engaging in knowledge process outsourcing. That’s one smart way of maximizing the country’s gains in outsourcing. But this option by itself is getting dicey with the raging war for talents globally. Because of the rapid expansion of the knowledge economy at a global scale, human-resource officers worldwide are increasingly looking at expatriates as a source of supply of skilled labor.

These days, it’s so easy for talent-search agencies to pirate local engineers, accountants, mathematicians, information technology experts, aircraft mechanics, pilots, and medical professionals, and send them to Dubai, Bahrain, Singapore, London, Bahamas, New York and Australia. In fact, the Thornton survey has identified this trend as a major concern.

Meanwhile, it seems other sources of growth are showing signs of weakening. Telecommunications has been enjoying frenetic growth but it seems the market is showing signs of saturation. Telecom companies are now putting their bets on third-generation technology to carry on the mantle for growth but it appears that the uptake remains slow and some people see a plateau effect in the horizon.

The point is that we need to complement these strengths if only to meet the modest 5-percent to 6-percent growth rate we have achieved in the last three years. We need more foreign direct investments at a scale that has been achieved by our neighbors in the region, say $3 to $5 billion a year, or three to five times the highest we’ve attained so far.

We need more activities in the farms, the construction sites and the factories to boost the economy. But how do we do that?

First, we need to achieve political stability in the next three years that should usher in an orderly 2010 presidential election. We can only do that by holding a really clean and credible mid-term election in May. Certainly, the ball is in the hands of President Arroyo. If she wants to leave a good legacy and a graceful exit, this is her last chance to do so by ensuring that she won’t use her immense power and machinery to rig the elections.

A clean and orderly mid-term election would mean that parties and factions are likely to contest the 2010 presidential derby sans the baggage and bitterness of Edsa Dos and Tres. That should usher in political stability that we badly need for a high and sustained growth. (Prepared as Editorial for BusinessMirror, 3 April 2007)