Our slowing inflows
For many years, we have taken some comfort in how remittances sent home by our overseas Filipino workers (OFWs) help make up for our weaker export earnings and foreign direct investment (FDI) inflows relative to our comparable neighbors. Then came revenues from the business process outsourcing (BPO) industry as well, which, like OFW remittances, none of our neighboring countries have in the large volumes we have. While these have indeed been a boon to us, emerging trends point to an imperative we cannot escape: We simply must shape up on the traditional and more durable sources of foreign exchange inflows: exports, tourism revenues and FDI.
It’s urgent for several reasons. First, we have fallen further and further behind our comparable neighbors on these traditional inflows, while corresponding outflows especially via imports just keep growing. Meanwhile, inflows via remittances and BPOs appear to be slowing down, and may soon start falling. Remittances growth is down to 3- to 4-percent annual growth, after having averaged well into the double digits in the last decade. BPO annual earnings growth is also now in the low single digits, peaking over 20 percent in past years. Industry leaders no longer see the earlier set revenue goal of $40 billion by 2022 as realistic, after barely earning $25 billion last year. These flows cannot be the answer to our persistent shortcomings on exports, tourism revenues and FDI inflows, where the gap with our neighbors just keeps widening.
The Trump administration’s professed aim of “bringing jobs back home” to the United States translates to a policy bias against outsourcing, at our expense. But the bigger threat comes from rapid advances in artificial intelligence. With voice synthesis technology getting more sophisticated, even call center agents’ jobs are on the line, with artificial voices now even able to mimic natural-sounding voice inflections and human expressions (like “aahs” and “umms” within sentences). For this reason, there are already urgent calls to begin planning for a “post-BPO future.”
Third, FDI flows are generally falling, and it’s not only happening in the Philippines. It’s bad enough that various factors including inferior infrastructure, governance issues, policy instability and legal restrictions continue to deter foreign investors from locating here. On top of that, US protectionism and the US-China trade war have dampened the impetus for large companies to “export” certain operations overseas, disrupting global and regional cross-border value chains.
Thus, even Indonesia, Malaysia and Singapore saw FDI inflows drop in 2018. Vietnam and Thailand, on the other hand, appear to be benefiting from the trade war, attracting many companies relocating production out of China, thereby boosting their FDI inflows.
Let’s take a look at the essential numbers. Back in 2005, we had the lowest export earnings ($41.2 billion) among the five original Asean members. We trailed behind Indonesia’s $85.6 billion, Thailand’s $110.2 billion, Malaysia’s $141 billion and Singapore’s $383.7 billion. We were still doing better than Vietnam then (with $32.5 billion). There are no comparable data on tourist expenditure receipts, but we had the lowest tourist arrivals back then at 2.6 million, against Indonesia’s 5 million, Singapore’s 8.9 million, Thailand’s 11.7 million and Malaysia’s 15.7 million. Even then, Vietnam was already attracting more visitors (3.5 million) than we did. At the time, our remittances of $10.7 billion and BPO revenues of $2.4 billion actually covered less than a third, or $31 billion short, of Indonesia’s $44-billion export advantage over us.
Last year, or 13 years later, Indonesia’s exports exceeded ours by $111 billion, earning them $180.2 billion against our $69.3 billion. Vietnam, previously behind us, had already gone past Indonesia with $243.2 billion, while Malaysia had $247.4 billion, Thailand $252.5 billion and Singapore $411.8 billion. Meanwhile, our combined remittances of $28.9 billion and BPO revenues of $24.7 billion fall even further below our export shortfall versus Indonesia, and are in danger of a downturn in the years ahead.
There’s a lot of shaping up we need to do if we are to start measuring up to our peers on all these. This is the pressing change we must put our collective minds and efforts into.
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