Call Centers in Philippines, OFWs to Be Hit Worst by US Recession

Call centers and overseas Filipino workers, both lauded by the Arroyo government as economic winners, are seen to be the worst hit by an anticipated US recession and general slowdown in the world economy, according to independent think-tank IBON Foundation.

IBON research head Sonny Africa said that the country’s economy would be hurt by a foreseen US economic slowdown, particularly given the Philippines’ strong economic ties with the superpower. Africa said the US is one of the country’s top investment and exports partners. The US accounted for nearly 32% of total approved foreign direct investment in the first semester of 2007 and 17% of total Philippine exports from January to November 2007.

Africa said that the business process outsourcing sector, which is led by call centers, may experience job losses and pressure on wages to fall, and the same may happen to US subcontractors in the country’s export processing zones. The effect would be magnified further by how many Philippine exports to East Asia are actually intra-firm exports with the US being the ultimate destination. Major US firms with BPO operations in the Philippines include Accenture, Amex and AIG, while the US accounts for 14% of the total investments in export processing zones from 1995 to 2005.

Overseas Filipino workers’ remittances would also likely drop, which would further hurt the country’s growth by slowing domestic consumption. Africa pointed out that although the US is not a top destination for the country’s OFWs, most of the employing countries depend on US investments, such as trade centers like Hong Kong and oil-producing countries like Saudi Arabia. Further, OFW deployments may drop with a similarly expected slump in world economic growth, which has been slowing from 5.4% in 2007 to an expected 5.2% in 2007 and 4.8% in 2008.

These developments may also result in a bursting of the domestic real estate bubble of the past few years, which has been driven mainly by OFWs demand for housing and call centers, for office space.

“If there is a worsening of the fiscal crisis as a result of the slowdown of these two vital sectors, the country could experience a steep economic slowdown in the coming years,” said Africa.

He added that this scenario could have been avoided if only the country had developed stronger domestic industry and agriculture sectors, which would have created enough jobs to absorb displaced overseas workers. (end)