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Philippines: Further Reforms In Services Sector Could Diversify Economy, Reduce Poverty—WB Report

MANILA, 6 JUNE 2011—In just a decade, the Philippines emerged as one of the best performers in services exports, particularly in business process outsourcing, thanks largely to its rich human capital and good telecommunications infrastructure. Further reforms in the services sector, particularly in travel and tourism, could provide more channels by which the country could diversify its economy, achieve high and sustained growth, and reduce poverty.

These are among the key findings of a World Bank study discussed today at a conference on the global trade in services held at the Asian Institute of Management (AIM) in Makati City. The conference was organized by the World Bank in partnership with the Ayala Foundation and the Business Processing Association Philippines (BPAP).

Titled “Exporting Services: A Developing Country Perspective,” the draft study, which will soon be published into a book, aims to figure out the determinants of developing country participation in service exports and identify strategies for success based on the experiences of countries including Brazil, Chile, Egypt, India, Kenya, Malaysia, and the Philippines.

“Service sector performance critically depends on human capital, the quality of the telecommunications network, and the quality of institutions,” said Mr. Sebastiẚn Sẚez, World Bank Senior Trade Economist and one of the authors of the report. “The experience of exporting outsourced business services in the Philippines shows that by creating an enabling environment where the private sector can deploy its creativity, developing countries can reap the benefits that services exports opportunities are opening.”

The Philippine experience shows that services are a viable option for export diversification, the report says. Trade in goods is no longer the only vehicle to diversify exports for developing countries. Services are also an option that is available to these countries.

Services exports as a percent of total exports increased from 9 percent in 1999 to 21 percent in 2009 in the Philippines. Its services exports rose by 3.6 percent on average per year during the period, higher than that of Asia as a group which averaged 1.5 percent per year. Unlike many developing countries, the Philippines has been a net exporter of services since 2006.

The Philippines is currently the third largest player in business process outsourcing (BPO) in the world, accounting for 15 percent of the global BPO market, after India (37 percent) and Canada (27 percent).

“That’s a tremendous achievement in just over a decade,” said World Bank Country Bert Hofman in his opening remarks. “The liberalization of the Philippine telecommunications sector in the early 90s improved the quality and efficiency of telecommunications infrastructure through greater competition. That’s a very important factor for the success of the industry. But the bigger story is really the rich human capital that the country possesses and which it has to continue to nurture.”

According to Mr. Fred Ayala, BPAP Chairman, the BPO sector currently employs close to 500,000 people and has generated about US$9 billion worth of exports in 2010. The industry, he said, has agreed on an aggressive goal of US$25 billion in annual revenue by 2016 and a direct workforce of 1.3 million. “There is an urgent need to develop supervisors, middle managers, and more skilled workers to respond to increasing market demand for a broadening array of knowledge-based, complex services,” Mr. Ayala said.

“Additional investments in human capital, strengthening of intellectual property rights through the passage of a comprehensive data protection law, and improvement of quality control may further promote the growth of high-value-added activities within the BPO industries not yet fully exploited in the Philippines and successfully tapped by other countries, such as India,” Mr. Ayala added.

The Report also highlights the importance of developing the tourism sector. Tourism accounts for about 6 to7 percent of the country’s Gross Domestic Product and directly employs about 3.5 million people. It says tourism could contribute more to help address poverty should reforms outlined in the National Tourism Development Plan (NTDP) are effectively implemented.

The study says major impediments to tourism competitiveness are largely associated with weak ground and air transport infrastructure—roads, railways, ground transport network, and airports. Weak physical infrastructure, it says, lowers accessibility to tourism destinations and discourages private sector investments in accommodation facilities.

Tourism Undersecretary Daniel Corpuz said the government has already started to put in place important reforms that will increase tourism arrivals in the country. He said country has implemented a liberalized air policy in selected international airports outside Metro Manila to promote greater tourism flows to the country. “More reforms are underway to transform the Philippines into a ‘must experience destination in Asia,'" said Undersecretary Corpuz.

He said that the NTDP seeks to improve market access and connectivity with the country’s major tourism markets, upgrade tourism transportation and infrastructure through public-private partnerships and improve tourism institutional and human resource capacities in the country.

“Tourism can be potent driver for economic growth and infrastructure development. Tourism is one of the top priorities of the government because higher visitor expenditure and investments in the sector create livelihood and jobs that helps reduce poverty,” said Undersecretary Corpuz.

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