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e-Trends
By Michael Alan Hamlin
December 31, 2001
While 2001 may not have been the best year on record
for the Philippines, on balance it was far from the worst. Despite
the trauma associated with removing an elected president in a not-so-democratic
manner, the change in government probably saved the country from
a much gloomier year end than we're experiencing. Not so much as
a result of any substantive change in the way things are being run,
but because there is a perception of competence whereas before there
was none.
Economically, of course, things haven't changed much.
Foreign investment is way down, exporters are suffering, and traditional
manufacturers are hurting. The economy is growing, but it was growing
under the previous administration as well. In fact, the change in
administrations was largely irrelevant economically. It's just that
we seem a bit more respectable.
Unfortunately, being more respectable just isn't enough
to turn the country around in a dramatic way. First, there are external
factors, like the recession in the U.S. Obviously, no Philippine
administration can do anything about the American economy, except
pray that it gets better pretty quickly. Fortunately, the present
president is pretty adept at praying. We know this, because we hear
about it all the time. Let's hope those prayers are well intended,
and work.
There are other things the Philippines and its government
can do little about. For instance, it can't do much about economic
reform in China, which has had almost magical effect on its economy,
and the lifestyle of its people. The principal reason this is so,
of course, is that foreign investors are pouring somewhere around
US$40 and $45 billion a year into the country, creating new jobs
and opportunities. Interestingly, on a per capita basis, the Philippines
actually does better, with about US$7 per citizen invested by foreigners
versus less than $5 per Chinese citizen. But in absolute terms,
the Philippines gets about one percent of the investment China gets.
That whopping difference means several things. Massive
investment into China creates momentum, which contributes to a kind
of development synergy. All the parts come together pretty much
when they need to. As a result, China sucks up most of the attention
normally allocated to the developing part of Asia. To most investors,
China is developing Asia, and not much else is seen. That brings
us to the one other matter, which is there's not much money left
to distribute elsewhere in Asia.
The second set of factors holding the Philippines back
are internal, such as weak democratic institutions, a largely corrupt
and inefficient bureaucracy, and incredible political immaturity
manifest in weak political parties with fuzzy platforms. These political
factors are important economically because they hold back reform,
waste resources, and weaken the international competitiveness of
the country in attracting foreign investment. Our neglected educational
infrastructure threatens what international competitiveness the
country enjoys, because the Philippines' international competitiveness
has almost exclusively to do with its people, the way they are educated,
and the English they are supposed to speak.
Despite these hurdles to development, several investment
trends have emerged over the past couple of years that should extend
and strengthen over 2002 and beyond. While the level of investment
may seem puny compared to traditional FDI, the quality of investment
into the country is much more efficient at creating jobs, as I've
said before and we're hearing quite a lot from government officials
these days (without attribution, of course). This is a reason for
considerable optimism, even I believe. Another benefit is that the
jobs are generally higher paying, and generate greater value added,
than traditional manufacturing and assembly work.
The overall trend reflects the Philippines' principal
competitive strength, its people and the educations they receive.
While that advantage is rapidly deteriorating as other countries
pour massive investments into educational infrastructure, research,
and faculty, for now it makes a considerable difference in six areas
that the Department of Trade & Industry calls e-Services.
Notable with respect to this trend are a couple of
things. First, up until now, government has had very little to do
with them. In fact, in a real sense, government has largely been
both an irrelevant and disinterested non-player. Second, that seems
to be changing, mostly because a group of mid-level government officials
take their jobs seriously, and are working to promote the Philippines
in these six areas.
What are they? They are contact centers, shared financial
and accounting services (also known as backend offices), software
development services, animation, medical transcription, and construction-related
engineering and design. To give you a sense of how well they are
doing, consider call centers. As of 2001, industry sources estimate
that there are approximately 3,000 call center seats or work stations
in the Philippines that generate US$173 million in annual revenue.
By the end of 2002, the number of seats is expected to more than
double to 6,500, producing US$374 million. By 2004, those figures
will again better than double.
Sure, US$400 million or so doesn't seem like much,
until we remember that that's pretty much at par with total FDI.
And when we consider revenues from the other six service areas,
an impressive picture begins to build. And that's assuming that
the revenue figures captured are accurate. They are generally considered
to be understated, but that's another story. The bottom line? While
industry winners will continue to enjoy considerable prosperity
in the coming year, government can't stay irrelevant if that winning
streak is to be extended. And the best way government can become
relevant, is to do what's necessary to assure these sectors of the
intellectual capital they'll need to grow.
And that means increased investment in education.
(Michael Alan Hamlin is the managing director of consultancy
TeamAsia and the author of three books on Asian economies and companies.
His latest book is Marketing Asian Places, of which he is
a co-author (Wiley, 2001).)
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