IMF Estimates Philippine Growth to Top 6% in 2016
By: George Llewellyn-Jones
Spurred on by domestic demand, the Philippine economy is performing the best out of the ASEAN-5, according to the IMF’s latest Regional Economic Outlook (REO). Gross Domestic Product is forecast for growth rates of 6.0 percent for 2016 and 6.2 percent for 2017. Underpinning these gains, higher public consumption and investment are pointed to as the drivers of demand as the country progresses from its rate of 5.8 percent in 2015.
Private demand is shown to be increasing as a result of low unemployment, low oil prices, and higher worker remittances. Private investment is also expected to perform well as infrastructure has developed and public-private partnership projects are on the rise. The Philippines didn’t suffer too badly from the spillover effects coming from China’s slowdown, however, the country needs to do more to catch up on regional export levels.
The major success story of recent years, and a key driver of economic growth in the Philippines, has been the business process outsourcing industry. Also known as IT-BPO (Information Technology Business Process Outsourcing), the industry now employs over 1.2 million Filipinos and is expected to overtake overseas Filipino worker (OFW) remittances as the largest input to GDP, having contributed U.S. $22 million to the economy in 2015.
The industry is normally classified into the eight following sub-sectors: contact centers, back office and knowledge processing services, data transcription, animation, software development, engineering development, and game development. BPO facilities are located mainly in Metro Manila and Cebu City. However, more of such facilities are being found in the smaller cities like Iloilo and Baguio.
The rise of the popularity of the Philippines as a BPO destination owes to its large English speaking workforce who are demographically young and whose wages are competitive in the BPO market. Additionally, the Philippines boasts a large degree of economic and political stability, which compliment government sponsored economic zones offering both fiscal and non-fiscal incentives for investors.
With an upcoming election, there are still issues in the BPO sector that the incoming administration needs to address. For a start, the sector requires a robust legal framework to prevent cyber-crime and protect labor rights. A consistent effort should also be made to promote the BPO sector as one of the Philippines’ pillar industries. The public too needs to understand and support the industry by creating an environment that facilitates BPO careers for graduates.
While future challenges should not be discounted, the Philippine BPO industry benefited from better information security and the rise of cloud computing that has brought with it lower operating costs. Wells Fargo and Verizon have expressed a vote of confidence in the Philippines as a BPO destination by opening BPO units in the country. The bulk share of BPO exports come from US-based companies although the Philippines is also responsible for 27 percent of total global BPO exports. The country is still playing catch up to India, which has a much larger BPO market but growth rates for the sector are high and are projected to be between 15 and 18 percent over the next three years.
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