Services to dominate economy up to 2010

REPORT FROM BUSINESSWORLD The economy’s reliance on services for growth will persist at least for the next five years until 2010, when gross domestic product (GDP) is expected to grow by 7.3%. This prognosis was contained in a paper National Economic and Development Authority (NEDA) Director-General Romulo L. Neri presented last week to the inter-agency Development Budget Coordination Committee (DBCC), which sets the government’s economic targets. ALSO A WEAKNESS But such reliance on services makes the country more vulnerable to world market fortunes. "This means the country can lose its control of the economy in an event of a global depression," University of Asia and the Pacific (UA&P) economist Leandro Tan said in an interview. "In this sector, there is no physical production because what is marketed is ’service,’ something that is heavily dependent on demand from external market, on how [services offered] are accepted." He said that, unlike growth in industry and agriculture sector, growth in services is harder to measure and is more difficult to sustain. There is no physical product in the services sector that can be sold to the domestic market in case of a global depression, unlike the agricultural and industry sectors. The services sector in the country is characterized by a large number of business process outsourcing (BPO) companies, particularly call centers. BPO has been defined as the process of tapping another firm to perform non-core business functions, usually using information technology in processing the requirement and the internet to transmit the transaction. Included in this industry are companies engaged in the business of call center; back office; medical, legal and data transcription; digital animation; software development and engineering design. PROJECTIONS The country’s BPO industry is expected to generate 1.2 million jobs and $12.4 billion in sales by 2010, from a total work force of 233,00 as of last January and $2.5 billion in annual sales, according to latest joint forecast from the government and the private sector. For this year, the industry is expected to employ 336,000 people, including 103,000 new jobs generated, reflecting a 44% growth from last year. Total industry revenues will reach $3.8 billion by yearend, according to the forecast. In the BPO industry, call centers will remain the largest employer in the next five years, accounting for 431,000 jobs out of the total 1.2 million jobs in 2010. Back office, medical transcription and digital content will follow with 342,000, 69,000 and 46,000 jobs generated in the same year. Industry group Business Processing Association of the Philippines (BPA/P), the Board of Investments (BoI) and the Commission on Information and Communications Technology (CICT) made the said forecast for the industry last January. STILL LEADING A copy of the paper Mr. Neri presented showed the government expects services to grow faster than industry and agriculture over the next five years. For this year, the services sector is expected to grow as fast as 7%, while industry is expected to grow only as much as 6.2%, and agriculture by 4%. GDP growth target for this year ranges from 5.5% to 6.2%. Next year, it is expected that the service sector will grow by a maximum of 7.5%, industry by 6.5% and agriculture by 4.7%. GDP growth is expected to come in at 5.8% to 6.6%. In 2008, the services sector is expected to grow by 7.4%, industry by 6.5%, and agriculture by 5.2%. GDP growth is expected to post from 5.9% to 6.7% that year. The following year, services sector is expected to grow by 7.7%, agriculture by 7.4% and agriculture by 5.4%, to result in GDP growth of 6.2%-7.2%. In 2010, at expected GDP growth of 6.3%-7.3%, the services sector is to grow by a maximum of 7.7%, industry by 7.6% and agriculture by 5.5%. NEGLECTED SECTOR Mr. Tan said economic growth in a country characterized by vast lands for planting should be driven by agriculture. Faster growth in agriculture can be achieved by equipping farmers with appropriate information and technology. Projections for each industry are part of a new set of macroeconomic assumptions the government has set for the medium term. DBCC expects economic growth to fall within a slightly lower range this year and the peso to be stronger versus the US dollar. GDP is expected to grow within a range of 5.5% to 6.2% this year, from the previous assumption of 5.7%-6.3%. – Paolo Joseph L. Lising/BusinessWorld