Don't rely too much on BPOs, says ADB

By Max V. de Leon, BusinessMirror

Posted at Nov 25 2011 07:19 AM | Updated as of Nov 25 2011 07:01 PM

MANILA, Philippines - The Asian Development Bank (ADB) warned the Philippines against relying too much on the services sector, particularly business-process outsourcing (BPO), saying this will not lead to the inclusive growth that the administration is harping about.

Norio Usui, ADB senior country economist, said the government should have already learned from experience that despite the strong growth of the BPO sector since 2001, the country’s unemployment and underemployment rates have remained high.

To facilitate inclusive growth, Usui said the country should walk on two legs: services and manufacturing.

“If you will ask if the Philippines can join the growth club by skipping manufacturing, the answer is ‘No.’ You need another traditional leg, which is manufacturing. It should be both manufacturing and modern services,” Usui said in his presentation at the First Philippine Manufacturers and Producers Summit on Thursday at the InterContinental Manila in Makati City organized by the Federation of Philippine Industries (FPI).

From 2000 to 2009, Usui said the country achieved average economic growth of 4.8 percent, characterized by a fast-growing BPO sector but stagnating manufacturing sector.

During that period, the BPO industry has grown to a $10-billion industry, employing close to half a million people.

Despite the growth, the chronic problems in the economy lingered: high unemployment, slow pace of poverty reduction and stagnant investments.

With the concentration on services, investments declined because the country missed out on the capital-intensive industries, Usui said.

“The BPO is a great help. But who can work at BPOs? It is biased to the well-educated. But what about those with less education, who can provide them jobs?” Usui asked.

He said the manufacturing has the capacity to absorb those that are migrating from the agricultural sector.

What the Philippines needs to do, he said, is to facilitate diversification in the manufacturing sector and not to concentrate much on electronics and semiconductor. “It is diversification not specialization,” he said.

Josef T. Yap, president of the Philippine Institute for Development Studies (PIDS), said the share of manufacturing to the country’s GDP plunged to 21.4 percent in 2009 from 22.2 percent in 2000 and 25.7 percent in 1980.

Other Southeast Asian countries, on the other hand, increased the share of manufacturing in their economic growth. The contribution of manufacturing to GDP rose to 26.4 percent in 2009 from 13.5 percent in 1980 in Indonesia, to 34.1 percent from 21.5 percent in Thailand, and to 25.1 percent from 21.6 percent in Malaysia.

During the period, the Philippines, Yap said, failed to transform its economy and create backward linkages for the manufacturing sector through larger role of the small and medium enterprise (SME) sector.

Jesus L. Arranza, FPI chairman, said even in the United States, policymakers highlighted the importance of manufacturing sector in the economy. He quoted Michigan Senator Deborah Stabenow, who said, “at a time when we are losing manufacturing jobs in this country, we should be doing everything we can to help our manufacturers stay competitive. They are the backbone of the economy.”

“I hope our senators and congressmen will make the same statement,” Arranza told the BusinessMirror.