Inflows from BPOs Seen to Outpace Remittances
Before the end of 2020, the Philippines will no longer heavily depend on remittances from overseas Filipino workers (OFWs), but shift to the rapidly growing information technology-business process outsourcing (IT-BPO) sector to propel its economic growth.
Joey Cuyegkeng, senior economist at ING Bank, N.V., Manila Branch, said foreign exchange inflows from the IT-BPO sector could outpace the growth of OFW remittances “before the end of the decade.”
This trend could accelerate if global oil prices continue to shrink the economies of oil-exporting countries in the Middle East that employ a bulk of Filipinos abroad.
As it is, Cuyegkeng said there are already signs of weakening in OFW remittance flows although these are still growing at an average of 5 percent to 7 percent in the last 12 months.
This year’s OFW remittance inflows could grow to 5-6 percent, but dollar revenues from IT-BPOs are likely to expand by 12-15 percent, the ING Bank economist said.
While the OFW remittance growth last December came at a “surprising” 6.6 percent year-on-year growth, making the 2014 average growth at 5.8 percent which was in line with the Bangko Sentral ng Pilipinas’ (BSP) and market’s forecast of 5-6 percent, “OFW remittances are already starting to reflect the drop” in oil prices, said Cuyegkeng, showing the Philippine economy’s vulnerability.
When global oil prices started to come down in June 2014, the ING Bank economist said the market started seeing the familiar scenario during the global financial crisis in 2008.
During this period, oil prices fell by an average of 42 percent year-on-year, dragging down the growth of OFW remittance inflows to as low as 4.5 percent on the average.
The BSP projected that OFW remittances could grow by 4.5 percent this year, adding $25.4 billion the country’s foreign exchange reserves.
However, citing data from the Philippine Overseas Employment Administration, the BSP also said 43.6 percent of the 878,609 new job orders last year still came from oil-exporting nations such as Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar.
While offshore demand for Filipino workers with service, production, professional, technical and related skills remain, Cuyegkeng said another significant growth driver of the economy are the IT-BPO sector.
Export revenues from the IT-BPO sector more than doubled between 2008 and 2013, reaching an estimated $13.3 billion.
In his Feb. 23 “Market Views and Cues” report, Cuyegkeng said revenues from the sector could hit $18.8 billion this year.
Combined with OFW remittances, these structural inflows could add $44 billion to the current account surplus, turning around the country’s balance of payments (BoP) position.
“We expect a BOP surplus of $2 billion this year from a deficit of $3.4 billion in 2014,” he added.
The rapid growth of the IT-BPO sector is also creating positive ripple effects to the rest of the economy, boosting demand for commercial floor spaces, and underpinning the development of existing and new office parks in urban centers.
“The basic conditions of readily available educated manpower and internet telecommunications infrastructure are critical to the progress of this sector,” said Cuyegkeng.
He added that a relatively weak Philippine peso compared with the currencies of other outsourcing hubs and economies would also enhance the competitive advantage of the outsourcing industry, especially as “cost remains a key factor” in companies’ decision to outsource jobs abroad.
BSP earlier reported that cash remittances from OFs coursed through banks registered a record high of $2.3 billion, representing a 6.6 percent year-on-year increase in December 2014.
For the full-year 2014, cash remittances reached $24.3 billion, 5.8 percent higher than the level posted last year, breaching the 5-percent full-year growth forecast of the BSP.
Cash remittances from land-based and sea-based workers reached $18.7 billion and $5.6 billion, respectively.
The bulk of cash remittances came from the United States, Saudi Arabia, the United Arab Emirates, the United Kingdom, Singapore, Japan, Hong Kong, and Canada.
Personal remittances, meanwhile, reached the highest monthly level to date at $2.6 billion in December, posting a 6.4 percent year-on-year growth.
For the full-year 2014, personal remittances increased to $26.9 billion, higher by 6.2 percent compared to 2013.
Personal remittances represent the sum of net compensation of employees, personal transfers or other household-to-household transfers between Filipinos who have migrated abroad and their families in the Philippines (more commonly known as the “padala” system) and capital transfers between households such as for construction of residential houses.
BSP Governor Amando Tetangco said the sustained increase in personal remittances during the year was underpinned by the steady rise of remittances from land-based workers with work contracts of one year or more (5.5 percent) as well as sea-based and land-based workers with work contracts of less than one year (6.9 percent).
The robust growth of OF remittances continued to provide support to the country’s economy, with cash remittances accounting for 8.5 percent of gross domestic product (GDP) in 2014.
Tetangco said strong demand for skilled Filipino manpower contributed to the steady growth of remittances. Preliminary data from the Philippine Overseas Employment Administration (POEA) showed that the number of deployed OF workers for the year totaled 1.6 million.
Likewise, for 2014, the central bank head said the POEA reported that approved job orders reached 878,609 positions, indicating a 10.7 percent growth in job orders from the previous year’s level.
About 43.6 percent of the processed job orders were intended for service, production, and professional, technical and related workers in Saudi Arabia, Kuwait, the United Arab Emirates, Taiwan, and Qatar.
Meanwhile, as of end-2014, commercial banks’ tie-ups, remittance centers, correspondent banks, and branches/representative offices abroad reached 4,765.
Large overseas remittance flows have been a significant facet of the Philippine economy as these have been a major source of foreign exchange for the country.
But more than that, these remittances have also significantly helped spur private consumption, which comprises about 70 percent of the country’s total GDP.