Pogo or no go

To Pogo or not to Pogo, that is the question—a question that has evolved into a favorite conversation piece among members of the business community and assorted observers of the passing scene. Related concerns include panicked observations about a perceived invasion by Chinese hordes overwhelming the country, the spike in housing and condominium costs due to the “price is no object, pay in cash” capability of the foreign workers, and the potential nosedive of the economy should China order a stop to Chinese citizens’ participation in our Pogo program. While many fears expressed and some conclusions reached appear to be more anecdotally than factually derived, they cannot be ignored.

Pogo stands for Philippine offshore gaming operator, conceptualized by Pagcor (not China) to enable the Philippines to capture a greater share of the growing, yet previously unregulated, online gaming pie.

Online gaming refers to internet games of chance, via network and software, exclusively for offshore-authorized players who have registered and established online gaming accounts with Pagcor-licensed Pogos. Filipino citizens, even those overseas, are not allowed to play.

Far from being an invading horde, there are presently only 60 licensed Pogos, all of which have Filipino partners that employ about 200,000 workers, approximately half of whom are from China to serve Mandarin-speaking clients. While there is an estimated 135,000 unofficial Pogo workers (including Filipinos), official and unofficial numbers combined represent a minuscule percentage of either Manila’s population or labor force. However, their seeming omnipresence is felt, particularly by those living in or frequenting Pogo hotspots that tend to concentrate in Makati, the Manila Bay Area, Pasig, Taguig, as well as areas surrounding military headquarters such as Cubao, Libis and Ortigas Center.

It’s no surprise that where the high-rise condominium buildings are, there the Pogos tend to be. It is estimated that Pogos now occupy nearly one million square meters of office space in Manila, representing about 8 percent of office stock. The real estate industry admits that Pogos saved the office space/condominium market that was edging toward an oversupply, which could have resulted in double-digit vacancy rates as early as 2017. However, Filipino real estate buyers may not be as ecstatic, since many have been priced out of the property market by the Pogo phenomenon that has spiked rental rates by as much as 80 percent, and commercial leases by as much as 50 percent.

On the other hand, the national government earns revenues from Pogo through Pagcor and the Bureau of Internal Revenue (BIR). Pagcor projects that Pogo licensing fees and royalties, already more than 10 percent of its total revenue last year, will rise to P8 billion this year. The BIR expects a monthly collection of P2 billion once all Pogo workers are registered and given tax identification numbers.

Clearly, Pogos represent both a boon and a bane. Downsides include the presence of several illegal Pogo operators, the relatively paltry number of Filipinos that Pogos employ, the spike in prices of real estate, and even the Chinese Embassy’s warning about illegally smuggled Chinese workers and cross-border money laundering.

But sensible controls, rather than anti-Chinese rants, are the best way to ensure that Pogo’s pluses would outweigh its minuses. The government has begun its part of this process by suspending the issuance of Pogo licenses, while the Anti-Money Laundering Council and the Bangko Sentral ng Pilipinas are examining Pogo activities. The Department of Finance and the Pogo industry have agreed on a framework that will align Pogo wages with Philippine income tax laws. The BIR is already starting to collect withholding taxes from Pogo workers, and Pagcor has expressed support for Pogo hubs as self-contained communities to be located in the Clark Freeport area and Kawit, Cavite.

The private sector, particularly the real estate industry, will have to exercise self-control by moderating its temptation to build ever more high-rise condo buildings mainly in anticipation of continuing vigorous Pogo expansion and demand for space. Otherwise, a sudden curtailment by China of Chinese nationals’ involvement in our Pogo program may find us having built a disastrous real estate bubble, reminiscent of Thailand’s whose bursting triggered the Asian financial crisis.

Roberto F. De Ocampo, OBE, is a former finance secretary and was Finance Minister of the Year in 1995, 1996 and 1997.

Business Matters is a project of the Makati Business Club (makatibusinessclub@mbc.com.ph).