The rapid growth of the IT-BPO (information technology-business process outsourcing) industry and the remittance inflows from overseas Filipino workers (OFWs) will fuel the Philippine to become a $1-trillion economy by 2029.
This is according to a new analysis by Rajiv Biswas, Asia-Pacific chief economist for IHS, at the recently concluded World Economic Forum (WEF) in Jakarta, Indonesia.
The Philippines economy has the capacity for robust long-term economic growth to average around 5.5 percent per year over the 2016 to 2020 time horizon, the analyst said. IHS forecasts that total GDP per person in the Philippines will rise from around $3,000 in 2015 to around $6,000 by 2024.
?This has considerable implications for the size of the Philippines consumer economy. These significant increases in per capita GDP will create one of Asean?s largest consumer markets of the future, as the middle class rapidly expands over time. This will help to attract foreign direct investment by multinationals into the Philippines manufacturing and services industry,? Biswas stated.
The two key growth drivers for the local economy are the rapidly growing IT-BPO sector and the strong flow of remittances from Filipino workers abroad, the analyst noted.
The export revenue from the IT-BPO sector has more than doubled between 2008 and 2014, reaching an estimated $13.3 billion.
The competitiveness the Philippines in this industry has been particularly helped by the large pool of university-educated workers as well as the strong English-language skills of the workforce.
In the Philippines, the export revenue from the IT-BPO sector has more than doubled between 2008 and 2014, reaching an estimated $18 billion in revenues by 2014 with the total number of employees in the IT-BPO industry exceeding 1 million. By 2016, the Philippines IT-BPO industry is projected to have 1.3 million employees.
The rapid growth of the industry is also driving economic development in a number of cities across the Philippines, with Manila and Cebu now ranked among the world?s leading IT-BPO hubs, the analyst firm said.
Meanwhile, remittances from Filipino workers abroad rose to a new record level of $26.9 billion in 2014, up 6.2 percent on the 2013 level, providing a key source of strength for the Philippines balance of payments.
Overseas worker remittances are a key driver of GDP growth in the Philippines, as they provide support consumer expenditure and also residential housing construction, IHS observed.
An estimated 35 percent of annual worker remittances are flowing into new residential property purchases, which has created robust expansion in the residential construction sector in major cities in the Philippines in recent years, with momentum expected to remain strong in 2015-16.
Meanwhile, the rapid growth of the IT-BPO industry is also creating positive transmission effects for the rest of the economy, including for the commercial property sector, with rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centers, said IHS.
The gross value of construction grew by an estimated 10 percent in 2014, with continued rapid growth forecast for 2015.
?While the current growth drivers of the Philippines are the IT-BPO industry and the strong and stable remittances of the overseas Filipino workers, the long-term outlook for the future development of the Philippines will be heavily dependent on the ability to make the manufacturing sector more competitive and to mobilize both foreign and domestic investment flows into the manufacturing sector,? Biswas said.
?This will require considerable improvement of the business climate, with the Philippines still ranked very low globally on the World Bank?s Ease of Doing Business rankings,? he added.
A key challenge for the Philippines is to improve the business climate for foreign investment, the analyst said. The Philippines is ranked 95 on the World Bank?s global Ease of Doing Business Index for 2015, which surveys 189 countries worldwide.
?While the Aquino government has made efforts to improve this ranking, there is still a great deal of work to do to improve the overall competitiveness of the Philippines to attract large inflows of FDI (foreign direct investment),? he said.
However, the Philippines did make tremendous progress during 2014, with FDI investment surging by 66 percent to $6.2 billion. Biswas said a key priority for the Philippines must be to attract greater FDI into the manufacturing sector, in order to boost employment growth and make the country a competitive Asean manufacturing export hub. This, he said, will help to reduce poverty rates by boosting jobs growth and household incomes.
?Another key challenge for the Philippines is to boost infrastructure investment, in order to create high quality transport infrastructure for roads, ports and airports, as well as for power generation and transmission, which are essential for boosting growth in manufacturing and services. Tackling urban crime must also be another key priority, in order to make the Philippines a more attractive environment for foreign investment and tourism,? Biswas said.