Economics/Business Philippines Manila Gets Set for the Downturn | Manila Gets Set for the Downturn |
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| Written by Carlos H. Conde | |
| Friday, 21 November 2008 | |
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Often described as the sick man of Asia, the Philippines appears to be walking an economic tightrope again. Its currency has fallen sharply against the US dollar from a high of P44:US$1 to P50:US$1, a fall of 13.6 percent since August. Three of the pillars of its economy – call centers, electronics exports and inward remittances -- are all deeply exposed to the US economy, which is going into the tank. Yet, for now at least, Simeon Mari Sillona, a human-resource officer at an outsourcing company based here, says he isn’t worried. In charge of recruiting the company’s call center agents, he says his company has not scaled down its hiring nor has it lost any clients. “No one in my company has been laid off because of the financial crisis,” Sillona said. “So despite what we’ve been reading, things are actually looking up for us.” His company, the Nasdaq-listed eTelecare Global Solutions, is one of the leading outsourcing companies in the Philippines, with top US clients such as AT&T, Sprint and Dell. Although the company posted a 67 percent decline in profits in the third quarter, it was mainly due to expenses for its expansion. The company, for instance, has put up eTelecare Nicaragua and is looking to expand to other Latin American countries.
If only the 900 employees of another Manila-based call-center company who were laid off this week after a major client in the US went bankrupt could share Sillona’s optimism. Although the company, Advanced Contact Solutions, employs more than 4,000 workers in the Philippines, the firing of the 900 caused concern in the local outsourcing industry, with many considering it a portent of worse things to come. “This was due to declining business volumes from the ongoing US subprime financial crisis, as well as lingering customer concerns regarding a major US client which recently emerged from Chapter 11,” the company said in a disclosure on Thursday. The impact of the crisis is not limited to outsourcing. The electronics sector, which accounts for nearly 60 percent of the country’s export revenues, declined by 2.7 percent in September compared to the same month last year, according to the National Statistics Office. Garments, the second biggest export revenue earner, also fell by 5.9 percent. The US has been the primary destination of the two export products. Rosario Bella Guzman, executive director of the economic think tank Ibon Foundation, said in a recent paper that the Philippine economy will be affected by the global recession because “it is significantly linked to the US economy and other foreign economies” and that “it has basic weaknesses and vulnerabilities.” “The Philippines has varying degrees of economic dependence on other countries—90 percent of its total foreign trade and investment is with these countries—so there will be a cascading effect through various countries,” she said. As the crisis spreads across the globe, the primary worry now is its impact on the millions of overseas workers, whose remittances – more than US$14 billion in 2007 – are helping to keep the economy afloat. “In a global recession, immigrants are the first to go," Emmanuel Leyco, an economist at the Asian Institute of Management, said last week. However, Guzman hasn’t seen a drastic drop in the number of OFWs, as they are called here, saying that while they may be the first to get fired as the US economy worsens, “they will also be the first to be rehired in cheaper and lower quality jobs as the US economy continues to reel from the crisis.”
“What is likely, however,” she pointed out, “is that OFW remittances will slow down due to falling and negative incomes and social services and mounting debts in the host countries, particularly the United States.” Comments
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The Philippines looks at the global economic crisis with mixed optimism and alarm
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The Philippines should also encourage a diversification of its trade partners. The country is way too reliant on the United States, Japan, and now China and Korea. Latin America and more Europe, India, maybe some Middle Eastern countries would be good idea. ASEAN would be best, but most Philippine exports (electronics, see above) are still pricey for the average Southeast Asian.
However, the situation in the Philippines looks brighter than for other countries. Firstly is the fact that exports make a small percentage of GDP. While this is bad in the long term, because the export sector is currently so low, a fall in exports will results in less fall in GDP than, say, Singapore, where exports make up the bulk of GDP.
Secondly, while the Philippines trade partners and exports are not diversified, the 'Overseas Filipino Workers' are diversified. Filipinos work as nannies and domestic service in East Asia, construction workers in the Middle East, sailors on the oceans, and nurses in the West.
Nurses in particular could be strongly placed in this global recession. Nursing is generally considered an occupation immune to economic crises since people still get sick and hurt in a recession, so demand is still there.
If the Middle East manages to stay wealthy, then construction there could continue, too.
Additionally, outsourcing, the star of 'Resident' Filipino Workers, could stay strong, as foreign companies trying to cut costs move more of their business to the Philippines, where things are cheaper than at home.
So, in this case, the Philippines actually has some advantages.
Once the recession ends, however, the Philippines has to work hard to increase and diversify its exports and trade partners, making export the driver of the economy. Sending Filipinos overseas should not be seen as a panacea. Sending the Philippines' talent abroad only hurts the Philippines in the long term, as those workers would be far more useful teaching Filipino students, constructing new businesses and infrastructure in their own country, piloting and serving on Philippine ferries and in the Philippine Navy, helping Filipinos get healthier....
.... and being there to help raise their own families.