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DESPITE
the impressive growth rates registered by the services
sector in recent years mainly from the robust
business-process outsourcing (BPO) firms, the
Philippines cannot rely on it to achieve sustainable
gross domestic product (GDP) growth.
This is
the opinion of Philippine Institute for Development
Studies (PIDS) president Josef Yap and research analyst
Fatima Lourdes del Prado in a recent PIDS Policy Notes
publication.
The
authors said the government must continue supporting the
manufacturing sector, which is the true engine of
economic growth. “The Philippines, with its growing
number of call centers, seems to be emulating the
experience of India, which may be a case of
overspecialization and does not necessarily mirror the
experience of industrialized countries.”
The
authors said that “while the services sector cannot be
an ‘engine of growth’ in the Philippines, there are
nonetheless benefits to be gained from more in-depth
studies of its potential and sustainability prospects in
the country.”
The
publication said that from 1991 to 2005, the share of
the services sector in India grew from 40 percent to 52
percent of GDP, accounting for 63 percent of cumulative
increase in GDP during this period.
A large
portion of this growth was attributed to India’s
information-technology (IT) and IT-enabled services
sectors, which were able to capture the increased demand
from the
US
and other developed countries for this type of services.
However,
the authors noted that a very small portion of India’s
labor force is employed by the sector. In the
Philippines,
this is echoed with only 4 percent of the
Philippines’
total labor force absorbed by BPOs. It was noted this
was mainly due to applicants’ lack of skills.
The
authors added that the nature of jobs outsourced to
India seldom creates intellectual property for Indian
firms, if at all. This increases the possibility of BPOs
or contact centers to easily move out of India and, of
course, the Philippines. “Hence, fears about this growth
being unsustainable may not be unfounded.”
The
publication said the manufacturing sector is still the
true engine of economic growth in the country. The
authors explained that highlighting the importance of
the manufacturing sector will increase labor
productivity that would consequently increase the
capacity of the labor force to participate in
nonindustrial activities.
The
publication said only the Philippines failed to increase
the share of the manufacturing sector between 1980 and
2005 compared with Indonesia, Malaysia and Thailand.
This, the authors said, caused the country to lag behind
its Asean counterparts in terms of economic growth
during this period.
“Without
necessarily downplaying the significance of the services
sector, the statements above highlight the primacy of
manufacturing in economic development,” the authors
said. “It is therefore unwise to ‘abandon’ the
manufacturing sector in favor of the services sector in
order to lead the country to a high and sustained
economic growth.”
To
strengthen and accelerate the growth of the
manufacturing sector, the authors said there is a need
to consider measures to expand the manufacturing base.
They
cited recent studies showing that the diversification of
the economy, particularly the manufacturing sector, is a
necessary condition for rapid economic development.
“The use
of industrial policies should not imply that governments
make production and employment decisions. Instead, it
requires that governments play a ‘strategic and
coordinating role’ in the development of nontraditional
activities—activities where the underlying costs and
opportunities are unknown to begin with and unfold only
when such activities start,” the publication stated.
The
publication said policies should promote diversification
of production activities into new areas, facilitate
restructuring of existing activities and foster
coordination between public and private entities. |
