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The World Bank has cast a critical eye on the success of the Philippine services sector -- where business-process outsourcing (BPO) and call centers are the flagships of the industry -- saying that it hides the government’s failure to nurture other economic sectors, which could reduce the country’s widespread poverty. In an East Asia update from the Washington-based lenders, World Bank-Philippines chief economist Eric Le Borgne says the nation’s services sector may be larger than those in China or Indonesia, accounting for 65 percent of the gross domestic product (GDP) and nearly half of total employment; but its growth does not benefit the larger population, as BPO employers concentrate on hiring educated and skilled individuals – who are not from poor families.
At best, Le Borgne says the BPO sector makes an indirect contribution to poverty reduction – through taxes that its workforce pays, which help the government to carry out social spending programs such as conditional cash transfers, and health and education schemes. The analyst contends that improving education still poses one of the biggest challenges faced by the government in the medium term, because even the BPO sector will benefit greatly from it. Le Borgne says that BPOs only hire a small percentage of applicants, because most still need further training in English or technical areas for call center operations.
The World Bank advises the government to pursue development programs in enhancing the country’s business climate, infrastructure, education and fiscal consolidation. It claims the lack of public investment in infrastructure for agriculture and transportation has meant little or no funding for critical sectors in industry and agriculture, which would benefit a larger segment of the population and bring about a decline in massive poverty levels. The Bank suggests the bulk of the services sector is just masking severe underemployment and very low productivity among the urban populace.
In its report, the World Bank notes: “In contrast to China and Indonesia, the service sector in the Philippines is large, but that reflects a failure to boost economic activity more generally, rather than a mark of success in diversifying the structure of growth. The Philippines was the most developed country in developing Asia in the 1950s, but sub-par rates of growth, coupled with policies protecting inefficient manufacturing based on excessively capital-intensive technology in the subsequent three decades, caused living standards to stagnate to levels that are now below all other middle-income countries in the region. Industry was unable to absorb the rapidly growing labor force, including migrants from the rural areas, leaving the service sector as the safety valve.”
Referring to the ‘masking’ effect, the Bank’s report continues: “A ray of hope has been offered by the success of the business-process outsourcing service sector, which in less than a decade has risen as a formidable global competitor to companies in India -- still the preferred destination for BPO. [But] more will need to be done to help BPO boost employment from 1% of the total in the country, however, and policies to be pursued will also facilitate the emergence of other higher value-added and high-productivity services and manufacturing. The education level of these applicants does not make them readily trained for BPO sectors. The government needs to improve the quality of the education system.” |
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