Manila, Philippines, Oct 2, 2017 -- The business process outsourcing (BPO) industry in the Philippines -- a foreign exchange earner that includes call centers -- is facing a threat: investor confidence diminished by terrorism.
According to the latest official figures for approved foreign investments in information and communications (where BPO-related investments are recorded), there was a 34% year-on-year drop in the second quarter -- the fourth consecutive quarter of decline.
Philippine troops were mobilized in late May at the onset of the siege of Marawi in the southern Philippines by extremists linked to Islamic State.
Rey Untal, president of the Information Technology and Business Process Association of the Philippines, said "security concerns" have spooked investors. "I will not minimize those concerns," he told reporters. "They are contributing to the headwinds that we are experiencing."
The BPO industry has become a pillar of the Philippine economy in the past decade, contributing significantly to its upturn. Foreign companies have benefited from a low-cost workforce with good English-language proficiency, tax breaks, and a relatively stable political and security environment. Last year, the Philippines accounted for 12.6% of the global outsourcing market, generating $23 billion in revenues and employing 1.3 million people. The sector's significance means that a slowdown could easily shave 0.2-0.3 percentage points from gross domestic product next year, Credit Suisse said on Sept. 15.
The setback to the BPO sector has been evident in office rentals. In Metropolitan Manila, where most BPO companies are located, the sector accounted for just 41% of new office leases from January to August compared to 65% last year, according to Leechiu Property Consultants. Megaworld, a unit of Alliance Global Group, and the country's largest BPO office provider, confirmed a decline in demand but did not provide figures.
Investors have been unnerved by developments in Mindanao, and some BPOs opted not to expand in 2017. "That's primarily because many of their clients perceived the country risk profile of the Philippines [to be] climbing," said Chief Executive David Leechiu.
Foreign investments in Philippine BPO sector have been in negative territory for four consecutive quarters. The initial dip came after President Rodrigo Duterte showed hostility toward the U.S., which accounts for around 70% of the Philippine BPO industry's turnover. Donald Trump's victory in the U.S. presidential election in November with his protectionist rhetoric led to a further downturn, and the terrorism crisis in the southern Philippines dented the country's image of stability.
Posted by Veronica Silva Cusi, news correspondent
Date Posted: Wednesday, October 4, 2017
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