Tuesday, September 26, 2006

Philippine outsourcing is undergoing transformation!


By David Llorito, Debbie Pepito & Louise Francisco
Research Staff, BusinessMirror

The country’s cyberservices industry appears to be undergoing a transformation. According to BusinessMirror’s Job Ad Index in August, not only is the much-ballyhooed sector getting bigger, it is also expanding into other business activities that may soon blur the difference among the different types of outsourcing services.

For August, BusinessMirror’s Jobs Ads Index rose 18 percentage points from its base in June, driven largely by the continuing demand for workers in cyberservices, construction and engineering, manufacturing, and hotels, restaurants and resorts. For the month, total job ads reached 31,177, about 30 percent of which came from the cyberservices sector. In June, the base on which the index is computed, total job ads reached only 26,216, yet even then cyberservices already accounted for a third of the want ads.

Since May, the research staff of the BusinessMirror has been monitoring job advertisements in the Philippines as a way to determine labor demand, business confidence and the performance of the country’s economy in general. Every day, the research staff has been tallying job-ad placements in the Manila Bulletin, the Philippine Daily Inquirer and the Philippine Star, as well as those posted on Internet job sites jobstreet.com.ph, jobsdb.net and bestjobs.ph, classifying the ads by industry and occupation.

This research effort is inspired by the Help Wanted Index developed by the Conference Board, a New York-based nonprofit organization that “disseminates knowledge about management and the marketplace to help businesses strengthen their performance and better serve society.”

Outsourcing transformation
Since 2003, prospects of the cyberservices industry have been constantly reported as being hampered by a skills crunch. Yet results of the Job Ads Index in the last three months continue to buck this observation. In August, for instance, jobs advertisements posted by the sector grew 54 percent from its base in June, an indication of its continuing robustness.

For one, the volume of business at the country’s call centers is constantly expanding. Dell Inc., the American computer manufacturer that operates a call center in Pasay City, for instance, continues to hire call-center agents as it targets to have a 1,400-man labor pool. Currently, it employs 900 call-center agents. Next year, it is set to open another call-center operation to provide additional technical support for US consumers. The new site is expected to take its first customer calls in February 2007. Staffing plans for the new location are already being finalized.

“Our Pasay City team has done an excellent job in answering customer questions and solving their issues, delivering Dell’s outstanding customer experience that comes with the direct relationship between us and our customers. That is a major factor in our decision to expand our investment in the country,” said Richard Hunter, Dell’s vice president for Americas customer experience and support.

Added country manager Michael Garrison: “We continue to exceed growth plans and are focused on improving the customer experience. We need experienced problem solvers who can simplify and resolve increasingly complex technical and customer-care challenges for home consumers.”

Besides Dell, other heavy job advertisers in the cyberservices sector are Ab Systems, Teletech and Advanced Contact Solutions.

But the sector isn’t just about call centers these days, as there is a growing trend toward other outsourcing activities. Although more than half (52 percent) of the 9,192 job ads posted by the cyberservices sector in August were for call centers, hiring activity was also robust in software development and other IT-enabled services (40 percent) and back-office processing (5 percent). The remaining 5 percent of cyberservices job ads were for animation, medical transcription, and engineering design.

And as the scope of services expands, pretty soon it may not be that easy to classify companies as purely call centers. Accenture, for example, which primarily does software development and back-office work, recently opened its own call center, while call centers like People Support have ventured into medical transcription. Client Logic is also venturing into medical transcription.

“I think there will be a convergence of activities,” observes Frank Holz, chief executive of consultancy firm Outsource2Philippines. “A lot of these guys are doing call-center work but they’re also doing BPO [back-office] work for the same client. So on one hand, you’re doing the back-office accounting or you’re doing an HR function. Pretend that somebody has a question about that, they can call in and you got the call-center activity related to that also.”

Holz predicts that although call centers will continue to expand, these companies will eventually venture into other types of BPO work. “The future isn’t as bright [for call centers] as it is for the other types of activities. You might find some arguments on that but that’s how I see it. If you have a certified public accountant doing the books for a company, that’s worth a lot more than a call-center person answering requests for information,” he said.

Perhaps that’s why call centers are now exploring markets other than the English-speaking world. For instance, Link2Support in Eastwood City, Libis, has been posting job advertisements for Korean technical support representatives. The company already has 10 Korean call-center staff.

“The account itself services mostly English-speaking countries but we do have customers in Thailand, Indonesia and Korea, so we thought putting agents who speak other languages was a good idea,” said Raymond Deato, Link2Support’s human-resource specialist for foreign-language accounts. “Koreans, for example, do not speak English that well, so they would really be more comfortable speaking to a technical support representative who can speak Korean.

“It’s just harder for us to recruit because we’re a technical support account, so we have to consider an applicant’s technical background,” Deato added. “The others are mostly customer-care accounts, so kahit ano’ng course pwede dun. But we do have Spanish-speaking Filipino agents. Marami naman kasi ang mga mestizo dito. It’s just for the Thai, Indonesian and Korean accounts that we have foreigners.”

Convergys, one of the biggest call centers in the country and a Fortune 500 company, has also been seeking multilingual customer-care representatives, particularly those who can speak Mandarin, Fookien and Cantonese. Emerson, an engineering design-outsourcing firm, was also looking for customer-services associates who are fluent in German, French, Italian and Mandarin for Sykes, Emerson’s call-center partner.

There are also those like Prime@ Technology Specialists Inc. that are seeking helpdesk analysts who can converse in Nihonggo and English, while Nihon Software Outsourcing Vision Inc. is in the market for Nihonggo-speaking finance and administrative assistants.

BPO work has become so popular that several entrepreneurs have ventured into setting up their own call centers out of their homes such as Aicom Solutions (telemarketing), Get-A-Filipino (inbound and outbound calls, data processing and medical transcription), Freedom Telework (back office), Agi (Internet content provider) and Jump2Top (Web development, online marketing).

“We have an office coming up in Ortigas area…but the process is taking time and we need to expand quickly, so we thought that home-based operations would be great for our company,” said Roque Lim, sales and marketing assistant of Aicom Solutions. “We did corrective actions first and tried home-based operations and it worked!”

Lim stressed that this is just temporary but he obviously enjoys the convenience of the present setup.

“It’s so convenient, comfortable and flexible…. I can work in pajamas,” said Lim. “At the same time, you don’t have to have the hassle of traveling, no transportation cost. When you work in call centers, there’s a graveyard shift, and when you go out, it’s kind of dangerous. Working at home, you may feel uncomfortable working graveyard shift but you are safe.”

Factories and hotels
Apart from cyberservices, hiring in the construction and engineering sector also continues to be strong with job placements totaling 5,125 in August, a 22-percent jump from its base in June. As in the last three months, however, the bulk of these jobs—85 percent—are overseas, mostly in the petroleum industry in the Middle East and Nigeria—no doubt an effect of oil money being funneled back into oil and gas exploration, as well as modernization activities by the Gulf states.

The manufacturing sector also continues its hiring binge, with 3,037 job-placement ads in August, an increase of 22 percent from its base in June. Major advertisers include companies in food, furniture and fixtures, printing and publishing, chemical and chemical products, and metals. About 20 percent of the total manufacturing jobs are for overseas positions. In fact, most of the job placements in several industries such as rubber products, petroleum and coal, and nonmetallic mineral products are for abroad.

Business at hotels, restaurants and resorts seem to be doing well, too, given that the job ads in the hospitality industry rose 38 percent in August from its base in June. The continuing rise in visitor arrivals and the ripple effect generated by the outsourcing industry are among the main factors cited by the hospitality industry. The Hyatt group, for instance, is on the hunt for a banquet manager, a restaurant manager, a chef de partie, as well as engineers and accountants.

“This is more in response to the general growth in business demands,” explained Eugene Tamesis, director for marketing at the fairly new Hyatt Hotel and Casino Manila. “The manning levels when we started hotel operations in 2004 have grown in line with the demands of the business operations. Now with a fully operating hotel, the manning levels also have to be in accordance with the level of operations in our rooms, food and beverage and other operations.”

Tamesis said Hyatt’s occupancy has been rising since it opened two years ago. He said the hotel’s occupancy was at 51 percent at the end of 2005 and is expecting to increase to 65 percent by the end of this year.

“Our hotel has the highest growth percentage in the industry,” he boasted. “Our figures in 2005 were quite modest compared to the others but this year, we are already performing at the same level as our more established competitors.”

Hotels in the business districts of Makati and Ortigas are enjoying close to 90 percent occupancy, owing to the burgeoning outsourcing industry, sources said. Numerous executives from global outsourcing companies are coming to the Philippines to check on their operations, as well as oversee their training programs, thus boosting hotel business.

“Unfortunately, most of the BPO offices are located in Makati and the Ortigas areas,” conceded Hyatt’s Tamesis. “Therefore, growth from this segment is not expected to be as significant in the Manila Bay area, where none of these types of offices are located. However, we do have bookings from the BPO industry from our ‘Gold Passport’ members, Hyatt’s frequent-guest program, where they accumulate points from the number of stays they make in different Hyatt hotels all over the world. But the numbers are not as significant as compared to our traditional supportive industries belonging to shipping and manpower, embassy, government, pharmaceutical and gaming.”

As in the last three months, the global job market continues to weigh on the results of the Job Ads Index. Overall, a third of the job ads were for overseas. This pattern has been consistent in the last three months.

Besides construction and engineering, more than half of the jobs advertised for sectors like health and social work, nonmetallic mineral products, water transport, air transport were for overseas placements.

Nevertheless, ads for local placements are also on the rise. This largely observed in sectors such as agriculture (154 percent), mining and quarrying (51 percent), games and leisure (23 percent), media and entertainment (87 percent), and advertising and promotions (131 percent).

Even the real-estate sector is also enjoying growing confidence as it posted a 40-percent rise.

“There’s really a continuing recovery in construction and real estate in the last three years,” said Mark Taylor, operations officer of Sterling Construction and Development Corp., which produces prefabricated building materials. “In terms of revenue, we expect to grow 100 percent this year.”

Sunday, September 24, 2006

Philippines: from coco chips to microchips

On July 27, Paul Otellini, president and CEO of Intel unveiled to the world its latest and advanced microprocessor, the Intel Core 2 Duo and Intel Core 2 Extreme, packing 291 million transistors yet consuming 40 percent less power. This microprocessor enables computer users to perform several tasks faster, such as writing emails while downloading videos or music and scanning for viruses. What he didn’t tell is that a significant volume of these new microprocessors are assembled, tested, packaged and shipped from the Philippines.

Yes, Filipinos engineers and workers are capable of doing this high-tech stuff.

And more. Each year, Filipino workers and engineers produce 72 million magnetic heads, 36 million, 30 digital signal displays responsible for processing all the calls for mobile phones, 11 million liquid crystal displays, and 11 million optical disk drives. The electronics industry supplies 10 percent of the world’s semiconductor manufacturing business, 50 percent of the world’s production of 2.5 inch hard disk drive, and 10 percent of the world’s production of 3.5 inch hard disk drive. One hundred percent of the brain of cellular phones, of Nokia phones, is done here in the Philippines by Texas Instruments.

Why are we citing these statistical information? It’s to remind us that, despite of the usual political circuses performed by politicians, the Philippines is no longer what it used to be. It has changed a lot and for good. And certain, the country’s electronics industry, together with other globalized sector of the economy, is part of that changing landscape that we Filipinos should be proud of despite the country’s rambunctious politics.

In 1975, about 75 percent of the country’s exports are agriculture-based; these days, 66 percent are composed mostly of electronics. We have gone a long way from selling coconut chips to exporting microchips. This is not to disparage the farms, for its still a very important component of the economy and it pays to nurture them to ensure a broad-based growth. What we are saying here is that the Philippines has diversified a lot. It’s something that we need to encourage even more. Greater diversity means greater growth opportunities.

The industry now exports US$27 billion worth of electronics, mostly components and devices, electronic data processing, consumer electronics, automotive electronics, communication and radar, office equipment, telecommunications, control and instrumentation, and medical and industrial instrumentation.

Eight of the world’s top chipmakers (Texas Instruments, Intel, Philipps, Fairchild, Analog, Sanyo, On Semi and Rohm) and four of the world’s largest producers of hard disk drives (Hitachi, Toshiba, Fujitsu, and NEC) are in the Philippines. Mitsumi—probably the biggest employer next only to the government with its 17,000 workers—manufactures computer peripherals like CR-R and CD-RW. And equally big firms like Amkor, Epson, and Lexmark are here producing integrated circuits, terminal printers, and printheads.

Sure, the industry is still dominated by the Japanese and American investors but Filipino-owned companies are starting to get into the picture. Currently, there are 883 firms doing electronics, 247 of which are locally owned, producing lots of products including time recorders, power supplies, electronic ballasts, global positioning system tracking devices, among others. Firms like Integrated Microelectronics, Ionics, PSI Technologies, and Fastech are Filipino-owned.

Of course, critics have been saying that electronics “don’t have much linkages” with the rest of the Philippine economy. They say that most of the components or inputs of these companies are imported. But these criticisms miss the whole picture. The industry directly hires 400,000 people, provides business opportunities and generate jobs in other sectors like logistics, software development, banks, transportation, food, and beverages. And it provides the much needed diversity that the country needs to grow.

And there’s enough elbow room to grow. Right now, the Philippines actually has a budding silicon design and development industry. Companies like Intel, Rohm, Sanyo, Easix and Bitmicro are into integrated circuit design; Texas Intruments and Fairchild are into integrated circuits packaging and design; Lexmark, Easiz, and Blue Chip are into module and product design; and firms like Canon IT and Tsukiden are into firmware. The country’s test and packaging design capability for microprocessors, digital signal displays, and logic devices has also been strong. And there’s a growing base of suppliers for hard disk drives.

One might probably wonder how the Philippines succeeded as an electronics exporter. A state from one electronics industry executive should provide the explanation: “The Philippines, compared to its neighbors, doesn’t have good infrastructure. It doesn’t have good governance. But it has the best people.”

Which brings us to the main point: there’s nothing wrong with the people. There’s nothing wrong with their entrepreneurial zeal and willingness to work hard. The problem is with governance. If the country’s political leaders could do something about it, the Philippines could achieve more.

Monday, September 18, 2006

It's governance, stupid!

ONCE again, the World Bank has released another study which should clearly tell the government where to look if we really want to go forward economically.

Titled “Governance Matters, 2006: Worldwide Governance Indicators,” the study clearly shows that countries high in the ranking on six governance indicators are also the ones enjoying better economic growth, which should also mean higher standards of living for their people.

These variables include voice and accountability measuring political, civil and human rights; political stability measuring likelihood of violence; government effectiveness measuring the competence of the bureaucracy and the quality of public service; regulatory quality measuring the incidence of market-unfriendly policies; rule of law measuring the quality of contract enforcement, the police, the courts and incidence of crime; and control of corruption measuring the abuse of power for private gain including petty and grand theft and the capture of the state by elites.

In terms of voice and accountability, top-ranked in Asia-Pacific are Taiwan, South Korea, Mongolia. The bottom dwellers are Myanmar, North Korea and China. The Philippines is at the middle.

In terms of political stability, those with the highest percentile rank in the Asia-Pacific are Hong Kong, Singapore, Taiwan and Malaysia. The bottom dwellers are the Philippines, Indonesia and Myanmar.

In terms of government effectiveness, the top ones are Singapore, Hong Kong and Taiwan. Among the bottom dwellers are Myanmar, Laos and East Timor. The Philippines is in the middle.
In regulatory quality, the top performers are Hong Kong, Singapore, Taiwan. Those at the bottom are North Korea, Myanmar, Laos. The Philippines again is at the middle.
In rule of law, the top performers are Hong Kong, Singapore and Taiwan. Among the poorest performers are Myanmar, North Korea and Cambodia. The Philippines is somewhere at the middle—but lower than China.

And finally, in terms of control of corruption, the top performers are also Singapore, Hong Kong and Taiwan. The bottom dwellers are Myanmar, North Korea and Cambodia. The Philippines once again is somewhere at the middle.
What do these rankings suggest?

Countries at the top of the ranking are those that have achieved a high level of sustained economic growth for several decades. These countries have advanced and high-tech economies and their peoples are richer, enjoying better quality lives. Those near the bottom are usually poorer and their peoples live miserable lives.

The message therefore is very clear. If we want to improve our lives as a people, we should have better governance. That means we should have better government officials.

In simpler terms, we should have national and local leaders who are accountable and who don’t kill dissenters. The practice of extrajudicial killings, especially of activists and journalists, should stop. The government should have a clear program to address this once and for all.

We should have political stability. And what better way to achieve this than addressing the continuing legitimacy questions? In May next year, the Philippines will have a midterm election. Is the Comelec credible enough to preside over a clean and honest one? And, until we see the real thing, talk in government about computerizing the next election will be considered just that—talk.

Government effectiveness certainly plays a great role in economic growth and development. Sad to say, the government, even if it preaches the need to rejuvenate the countryside through massive spending on “super regions,” doesn’t actually have the energy and the ingenuity to put those plans on the ground. This year alone government boasts it actually has P30 billion to spend for crucial infrastructure projects and programs.

The latest information from the National Economic and Development Authority, however, shows that government has only spent P2 billion.

Oh, some bureaucrats must be living fantastic lives looking at their navels, biting their nails, and enjoying their weekly spas while the farmers and the entrepreneurs have to struggle with poor roads, bridges, crowded ports, sluggish public service!

And yet, in the midst of such underspending on crucial socioeconomic services, some geniuses in government could actually get the President to do some spending in the wrong area: how? By repealing her successor’s executive order, which rightly limited the task of providing microcredit to government financial institutions (GFIs), thus encouraging the private sector to provide financing for small and medium enterprises, and correcting a decades-old setup that drained the coffers of government nonfinancial agencies and government-owned and controlled corporations. The repeal, through EO 558, has stirred a hornet’s nest in the private sector, and worried sick our finance and monetary officials who wish to avoid the fiscal nightmares of the past.

On Sunday Finance Secretary Gary Teves who complained about the EO “clarified” that it was a “location-specific order,” after all, one covering only the 47 poorest towns that won’t be serviced by the private sector anyway. But people wait and watch.

A few weeks ago, the World Bank released its report comparing the ease of doing business across countries worldwide. As usual, the Philippines was among the least conducive places. Imagine having to go through a gauntlet of 11 procedures within 48 days just to register a shop selling porridge? This is the main source of corruption in this country and the government had better do something about it before we slip further into the gutter.

And if there’s one factor that really riles investors, it’s the utter lack of palabra de honor among government people, the constant flip-flopping and the unpredictable change of policies midstream. This has become such an international issue among Europeans that no less than the President herself had to “explain” everything to Angela Merkel, the German Chancellor. Well, talk is cheap and investors have yet to see a clear signal on the government going straight on the issue.

Nevertheless, Filipinos are great entrepreneurs. In the last 10 quarters, the Philippine economy has been growing within the 5 percent to 6 percent gross domestic product growth range, courtesy of those dogged entrepreneurs and farmers who simply have not given up despite all the odds. But we could do better than this if only the government shapes up. And soon!

Saturday, September 16, 2006

There's no such thing as Islamo-fascism!

Since George Bush adopted the term “Islamo-fascism,” every else started using the term without examining its meaning. In truth there is really no such thing as Islamo-fascism and using it doesn’t serve any purpose in the so-called war on terror both in theoretical and practical sense.

Was Saddam Hussein “Islamo-fascist”? No. Saddam was despotic but not Islamic. His party was totally secular. Does fascism applies to him? No. His “nationalism” was probably just a pretext. Totalitarian control over Iraq’s political, social, cultural, and economic seems to be there, a major variable in fascism. The cult of personality is also present. But did Saddam glorified the race, state, and the nation and encourage mysticism the way Hitler of Mussolini did? These variables are not clear. Iraq under Saddam doesn’t seem to posses the Sorelian syndicalism that is, theory, should be part of the true characteristic of fascism.

Is Iran Islamo-fascist? I don’t think so. The syndicalist character is not present. Iran is no industrial society and its leaders do not pretend to lead a working class movement seeking to transform capitalism into an economic force for some millenarian future. For all its authoritarian tendencies, rulers like the Ayatollahs and President Mahmoud Ahmadinejad do not seem to have complete control over all aspects of political life in Iran. It’s not a one party state. In fact, there are elections in Iran and there are several political parties, contrary to true nature of fascism. It’s probably an ersatz democracy; but it’s not totally totalitarian.

The Taliban regime was definitely ruthless and attempted to impose control over all aspects of Afghan society. But was Taliban “Islamic”? Some Muslim moderates say the Taliban’s actions and its excesses may not be Islamic. But granting that it is, was it fascist in the real sense? Definitely not because Taliban does not glorify the race; Islam in fact preaches the umma or the universal community of believers. For Muslims, their community and sense of brotherhood transcend beyond races and class. It is in the same sense that Al Qaeda could never be classified Islamo-fascist.

In short, countries like Iran, Iraq under Saddam, and Afghanistan under the Taliban as well as groups like Al Qaeda are not Islamo-fascists. Some of them are probably Islamic but not fascists. But all of them are probably just authoritarians and plain despotic in the same manner that other countries and groups claiming different religions are. The term itself does not exist except in the minds of some wise-asses in Washington DC.

Bush advisers may have thought that using Islamo-fascism to categorize the enemy of the West coming from Islamic countries would score propaganda value. On the contrary, attaching Islam to any label would simply create a backlash in the Muslim world. It may just convince the moderates in the Muslim world that the West is really after Islam and not just against the terrorists. Terrorists belong to various sects (Sunni, Shiite) and are not monolithic; putting them under one “Islamic label” would force them instead to unite forces against the “free world.”

Solution? Why not just call the terrorists terrorists? That’s what they really are. In theory and practice, terrorism refers to the strategy of using terror as a means to undermine people’s trust and confidence in the established order. Terrorist is a better term because that way you take away the religious and cultural undertones. And it could be applied to anybody who bombs trains, plains, buildings and shopping malls regardless of ideology, religion and creed.

Thursday, September 14, 2006

Drifting to the edge

THERE seems to be no end to the government’s embarrassment from the spate of lectures it has gotten from foreign institutions and organizations— lecturing us to shake up, shape up and change or else the world will leave us behind. The latest comes from no less than Juan Jose Daboub, managing director of the World Bank, who came here from his perch in Washington, D.C., to warn us about how strengthening regional competition is steadily making us bite the dust.

“The strength of regional competitors sounds an alarm bell that this country cannot afford to ignore,” he said. “Time wasted, reforms lapse, large segments of the population with untapped potential, continued tolerance of corrupt practices, will have a real price, not just in lost income and lost market share, but lost opportunity for millions of Filipinos.”

But of course, the message from the top WB honcho, one that has been obvious years ago, is only the latest. Last week, WB’s private sector financing arm, the International Finance Corporation, announced that the Philippines has among the lousiest business environments in Asia-Pacific because of the increasing tangle of regulations that the government has put in the way of entrepreneurship. It’s funny that an entrepreneur has to take 11 steps and completes the process of registering his business in 48 days. It’s funnier still that the government doesn’t seem to recognize the problem. After the announcement of that study, one expected the government to initiate a program to address the problem, or at least dispute or reckon with it. But, no reaction. It’s as if the IFC is just dreaming crazy dreams.

Last week, stakeholders in the mining industry canceled their big international conference after their frustrations about the government’s flip-flopping and indifference reached a breaking point. They thought all along that since the government has formulated a “minerals action plan” it would firm up its policy about the industry. The private sector, led on by government, conducted road shows all over the globe and when the investors came, they found MalacaƱang suddenly disinterested—or at least, mouthing interest while sending conflicting signals.

Of course, the French, the Spaniards and the Germans have been complaining about the mixed signals and inconsistent policies. They have been reaching out to the government functionaries but they don’t seem to get across.

What’s happening here? This is alarming because it means two things. First—it means that international observers are finding that this country, specifically its leaders and policymakers, are dozing off while other countries are scrambling to reform their policies and procedures. And second—it seems to suggest that the government is in total disarray and drift. It portrays an administration that has totally lost its energy to do its job, to perform even its basic functions, even just to attend meetings.

When leaders of international organizations—people who are steeped in diplomatese—speak about what’s wrong with us we better listen hard. That means they see a boat being carried away by the current of sheer inertia, drifting dangerously toward the edge, and everyone onboard seems to have totally lost situational awareness.

Monday, September 11, 2006

Is the Philippines a stalinist society?

IS the Philippines a Stalinist society or what? Just by looking at the regulatory barriers being put up by the government on business activity, one might think Filipinos live under a highly regimented, bureaucratic and authoritarian form of government and not a free society.

On the other hand, we are probably not a free society. Consider the findings of the International Finance Corporation, the private investment arm of the World Bank, on the “ease of doing business” released the other day:

It takes 11 steps to launch a business over 48 days on average. In the rest of the Asia Pacific Region, one only needs eight steps over 46 days. In advanced countries, particularly the members of the Organization for Economic Cooperation and Development (OECD) composed of the United States, Britain, Japan, Belgium, Australia, Canada, among others, all one needs is six steps over 16 days.

Surely, an entrepreneur would need to get licenses and permits to operate a business. An entrepreneur in the Philippines would need 197 steps and 23 days to complete the process. In the Asia-Pacific Region, all it takes is 18 days, and in the OECD countries 14 days.

You want to register a property? It takes eight steps over 33 days here against only four steps over 86 days in Asia-Pacific. In OECD, it takes five steps over 32 days.

Even closing a business takes a lot of hassle. The process takes almost six steps over 38 days, as against two steps over 23 days in Asia-Pacific. In OECD, one only needs a step to close a business over seven days.

The report also highlights the “rigidity” of the country’s labor markets, indicating the entrepreneurs’ difficulties in hiring and firing, thus hindering the creation of more jobs.

Overall, the Philippines ranked 126 over 175 countries, indicating a certain unfriendliness to business and entrepreneurship. When ranked per category, the IFC report shows that the Philippines ranked 108 in terms of ease to start a business, 113 in dealing with licenses, 118 on the employment of workers, 98 on registering a property, 101 on getting credit, 151 on protection to investors, 101 on paying taxes, 63 on trading across borders, 59 on the enforcement of contracts, and 147 on closing a business. Worse, we ranked 121 in 2005, an indication that we are not reforming our bureaucracy!

Conclusion? Despite our pretensions to private-sector led development, this country is not yet fully open for business. Nobel Prize economist Amartya Sen argues that the citizen’s freedom to transact business with one another is part of human rights.
Development, according to Sen, is all about choice and certainly this tangle of regulations suggests that the state is depriving the people of their right to grow and prosper.

Right now, the Philippines is saddled with a lot of challenges: joblessness, high underemployment, high cost of living, diaspora of skilled professionals, poverty, rapid rural-to-urban migration, criminality, low quality of life, and low tax intake.

The State could not address all these problems. These are essentially economic issues that could be addressed quickly by higher economic growth. When entrepreneurs are free to set up business, and the regulatory environment are conducive, they are going to hire people who would have the purchasing power to buy goods and services and send their children to school, thus setting up an upward spiral of economic activities. When people find it easy to set up shop, they are likely to register their business, thus boosting the country’s tax base. These are fairly simple truths that the government needs to recognize and do something about.

In the last State of the Nation Address, President Arroyo said that the government is allocating billions of pesos for mega infrastructure projects. That is nice, except that the roads, bridges and highways and structures that such government money will build will not yield optimal economic returns to society if entrepreneurs are shackled by crippling regulations.

Supposedly, reforming the tangle of regulations is easier to achieve. The government will not spend much effecting these changes. All the government needs to do is muster its will for change and streamline its operations.

Wednesday, September 06, 2006

Those lazy bankers!

Are the country’s banks serving well the country’s development needs? Policymakers should closely consider this question. Last week, no less than Romulo Neri, the country’s top economic planner who said that banks so far has been engaged largely in “lazy banking” or content on harvesting profits off people’s purchases of cellular phones and appliances at the expense of “project financing” (funding tangible development projects) for that the country needs for economic takeoff.

Neri said the country the country now is awash with cash, a significant portion of which are OFW money, and that the country’s savings rate is now high at about 30 percent of GDP as compared to about 20 percent in 2000. Had banks been more engaged in project financing, the county could have achieved better performance than the 5.6 percent growth rate that the country has achieved in the first half, thus creating enough jobs to make a dent on joblessness.

The Philippine economy has been growing within the 5-6 percent range at least in the last ten quarters. It’s not as good as China’s or India’s but that growth rate is decent enough to enrich certain sectors. Certainly, the banking sector is one of those beneficiaries of a buoyant economy. In fact, within the same period, the banking sector has been growing at double digit rates, reaching even as high as 27 percent in the third quarter of 2005. The banking sector, therefore, never had it so good. But where did the banks get those impressive growth rates?

Apparently, not so much from lending. In the first half of the year, loans outstanding by commercial banks barely grew by 1 percent. Lending on productive sectors of the economy like agriculture were stagnant (loans outstanding to agriculture grew only by 2.8 and to manufacturing by -7 percent in the first six months of the year). They probably got those impressive growth rates from handling remittances from overseas workers, and financing consumption like cellular phones, cars, and other purchases through the credit cards.

From this statistical information alone, one could see why Neri is complaining about the weak performance of banks. It shows that banks are simply too happy making money off the sweat of OFWs and ordinary workers without taking the risk of investing in tangible and job-creating projects.

What explains this very conservative behavior? One explanation is probably lack of confidence in the short and medium prospects of the economy. But this explanation is funny because the Philippine has been doing quite well in the last two years. Latest survey by the Bangko Sentral ng Pilipinas indicates that the private business sector is optimistic about the future.

The usual suspect of course is the high percentage of non-performing loans among banks’s lending portfolio. However, it shows that the banks’ NPL ratios have actually been improving in the last few years. In May, for instance, the banks’ NPL is down to about 7 percent, a significant improvement from last year’s 11 percent.

The most plausible explanation probably is low capital base among banks. Neri seems inclined to believe this angle. Solution? Why not raise the bank’s capital base by allowing infusion from investors? This sounds so elementary but it’s a scenario that is not likely fly given the nature of ownership in Philippine banks. Banks usually are family-owned hence raising their capital base would dilute ownership, something that most families don’t like.

The ultimate solution therefore lies with opening the banking sector to more competition. This could be done in several ways like allowing one hundred percent ownership by foreign investors. Another is by liberalizing the opening of bank branches to introduce more market competition. And the best is combining the two policy measures. If anybody could invest in sari-sari stores or in a manufacturing plant producing hotdogs without the government telling them how much percent ownership they could have and where to put their plants, government should allow the same rules of the game within the banking sector to introduce more competition and efficiency.

Saturday, September 02, 2006

Heroes from the farms

Old story, new script.

IN the first half of the year, the country’s gross domestic product (GDP), the value of goods and services produced and traded within the country’s borders, grew by 5.6 percent. The story here is that the Philippine economy remains resilient despite the crippling global prices of crude oil, and has proven capable of staying within the 5-6 percent growth rate band since the last 10 quarters.

The script has slightly changed: from the call centers and telecommunications, the upward push came largely from the farms. That’s encouraging because a farm-based growth is a propeople and propoor growth.

Why propoor? It’s because the farm sector’s high growth rate came from the double-digit growth of palay, corn, banana, fishery and forestry. Producing these stuff are the activities done in the rural areas mostly by poor farmers. Overall, the country’s economic growth remains broad-based, with the industry sector growing 5.1 percent and services 6.1 percent. Exports and the outsourcing industry have contributed significantly. So are the dollars remitted back home by overseas workers.

And how does that growth rate compare with our neighbors in the Pacific? Try this: Indonesia: 5.2 percent; Taiwan, 4.6 percent; Hong Kong, 5.2 percent; South Korea, 5.3 percent; Malaysia (forecast), 5.5 percent; and China, 10.9 percent. Of course, the Philippine economy has proven capable of growing within that range in the last five years. That proves the point that the Philippine economy is no longer “the laggard of Asia.”

To whom are we going to credit this encouraging piece of news? To the farmers, the agribusiness entrepreneurs, and the private sector in general. That’s precisely their accomplishments and not by anyone else. God or nature, of course, provided good climate but it was the farmers who sowed and reaped. So the credit is really theirs. For long, this has been a people’s economy and it seems it will continue this way until the country has produced statesmen who could make things happen for the good of the greater majority. When we could have those statesmen is a big question right now.

The government spin doctors might try their hand at conjuring images showing them responsible for these encouraging numbers. But the national accounts say something else. The government is supposedly expected to put money where its mouth is but in the second quarter, government consumption hardly grew at 0.4 percent and government construction was at 2.1 percent. It means government was not spending enough to push up growth.

Construction in general declined by 2.1 percent and this is because private construction declined by 7.1 percent. This is understandable because the private sector in the construction industry takes its cue from government. It’s nice that Romulo Neri, director-general of the National Economic and Development Authority (Neda), was honest enough to admit this fact and, at Thursday’s press conference on the national accounts, he was crossing his fingers that government agencies could spend more in the next few months to boost the economy further.

What’s preventing the government from spending more money to boost the economy? The government is operating on a reenacted budget which, because of inflation, is necessarily lower than the previous year’s government money. But that’s not even the issue. Government in fact, as Neri admitted, is short of P30 billion in terms of spending performance. Take the National Irrigation Administration as an example. This agency has P20 billion money for irrigation projects alone. It’s almost nine months into the year now and NIA has so far used only P2 billion pesos. It means that the government bureaucracy simply doesn’t have the absorption capacity to handle projects more efficiently. Again, this simply proves the point that the bureaucracy has been more of a hindrance to progress than an agent of growth and development. Should the government really want to get credit for the country’s economic growth, it should start looking within itself.

It will certainly find that a lot of the peaks and valleys in the income accounts may be traced to some policy skew, some inefficient system, or some bureaucrat who’s either very competent or very dull or lazy.

Meanwhile, most people who have been used to carrying the economy on their backs just go their own way regardless of whether government is pushing them up or pullin them down. They’ve been so used to being left to their own devices it really shouldn’t matter so much anymore. And that’s the sad part.

At bottom, true wealth may only be generated when people can look to somewhere, anyone among their leaders, for hope.