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Most Australian firms prefer the Philippines to explore offshoring opportunities, as opposed to other rival potential business process outsourcing (BPO) destinations in the region, such as India, according to a study by government think tank Philippine Institute for Development Studies.

Favorable geographical time zone, highly literate workforce, and competitive labor rates are among the reasons Australian firms are attracted to the Philippines for their offshoring needs, according to former PIDS visiting research fellow Peter K. Ross and businessman Mike O'Hagan.

The time zone in the Philippines favors Australian firms. It is the same as Perth, Western Australia, while there is only a two-hour difference to the Australian Eastern Standard time. This allows Australia-based managers to work with their Philippine-based staff in real time, they explained.

Likewise, they noted that Australian shifts are also popular with Metro Manila-based BPO workers, as the time difference allows them to arrive and leave work two hours before Metro Manila's main peak traffic times. In terms of geography, the two countries' proximity makes it easier for Australian managers to commute to and from the Philippines with less resources.

Philippines also has a highly literate and well-educated workforce currently increasing by around 600,000 tertiary graduates, including more than 3,000 public accountants annually. The variety of Filipino tertiary graduates also provides the varied skills that Australian SMEs need, such as the ability to speak in English fluently, Ross and O'Hagan added.

Meanwhile, offshoring to the Philippines also gives Australian firms huge savings, which the authors approximated to be around 70 percent in terms of labor costs. Based on their estimates, median labor rates in the Philippines for call center type of work is about eight times lower than in Australia.

While BPO rates are confidential and vary depending on client requirements and the employee's role and experience, evidence from this research suggests that the full cost of an administrative or customer service worker would be around AUD 15,000 to AUD 20,000 per year, less than half of the Australian salary for an equivalent job, they explained.

However, despite these advantages, the authors cited a number of challenges that the Philippine BPO sector needs to address. Government red tape, conflicting government requirements, poor infrastructure, traffic congestion, expensive and unreliable utilities, and biased adjudication of labor cases are among the red flags identified by the authors.

Many respondents said incorporating a subsidiary in the Philippines takes a lot longer than the target period of government agencies. They further spend a long time queuing in government offices to get recurring requirements approved. Many respondents also expressed disapproval about the overlapping and sometimes conflicting requirements from different levels of government, the PIDS study stated.

The lack of transport infrastructure and the high traffic congestion can also discourage potential investors in the Philippines. The study noted that commuting around Metro Manila is time consuming, with many workers spending three to four hours per day traveling to and from their workplace.

On top of these, utilities in the Philippines are expensive and not always reliable, according to Ross and O'Hagan. They noted that most BPOs in Metro Manila have to operate with back-up electricity generators to cover breaks in the electricity supply. They added that firms also pay higher Internet and electricity fees relative to what they would pay for similar services in Australia.

Another stumbling block identified by the study is the extensive labor law provisions in the Philippines that are strictly enforced in the BPO sector. They noted that adjudication of some labor cases tends to be biased in favor of employees.

In conclusion, Ross and O'Hagan said Australian firms represent an important and growing BPO market for the Philippines. Specifically, they noted that the Australian small and medium enterprise (SME) sector provides a relatively large market for the kind of micro-offshoring services being offered by Philippine BPOs.

Australia has a dynamic and highly competitive SME sector, which comprises 99 percent of its businesses. This sector likewise employs the highest percentage of Australian workforce at 70 percent. Specifically, the small business sector, or firms that have less than 20 workers, employs almost half of the workforce, the PIDS study stated.

If you wish to know more about this study, you may download a copy of the policy note here: http://dirp4.pids.gov.ph/websitecms/CDN/PUBLICATIONS/pidspn1702.pdf.

Photo credit: Rappler

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In a position paper submitted to Executive Secretary Salvador Medialdea, the country's economic managers argued against a proposed policy to provide free tuition to all undergraduates enrolled in state universities and colleges (SUCs). Secretaries Ernesto Pernia, Carlos Dominguez, and Benjamin Diokno noted that a wiser approach would be to fully finance the Unified Student Financial Assistance System for Tertiary Education (UNFAST) law. This alternative, they emphasized, is aligned with the position of senior researchers of state think tank Philippine Institute for Development Studies (PIDS).

In a recent policy note released by PIDS, Aniceto Orbeta and Vicente Paqueo outlined the disadvantages of supporting the free tuition fee policy.

Established in 2014, the UNIFAST is designed to "unify and harmonize all modalities of publicly-funded student financial assistance programs such as scholarships, grants-in-aid, and student loans for tertiary education".

Consistent with the views of Orbeta and Paqueo, the economic managers all agreed that the UNIFAST's design provides a more comprehensive alternative for enabling poor households to access higher education in SUCs.

UNIFAST provides full financing through the three types of financial assistance, which are applicable to both SUCs and private higher education Institutions. Entry would be determined by student test scores, assuring taxpayers that grants are only given to hardworking students who deserve it, and compliance with acceptable standards defined by the Commission on Higher Education.

In contrast, the free tuition policy fails to capture the complexity of higher education, and may result in unintended consequences.

"While we commit to the constitutional provision mandating the State to protect and promote the right of all citizens to quality education and to make such education available to all, we do not agree that providing an across-the-board free tuition for all undergraduate students in all SUCs is the best way to achieve this mandate," said Pernia, Dominguez, and Diokno in their statement.

Iterating points from the PIDS study, they pointed out several weaknesses of the free tuition scheme.

First, the cost of tuition covers only a third of what an average student needs to get through college each year. This will likely result in the unintended consequence of benefiting the "nonpoor students" attending SUCs.

"Only 12 percent of the students attending SUCs belong to the bottom 20 percent of the family income classification based on the Annual Poverty Indicators Survey," said the managers.

Orbeta and Pacqueo said this measly share of poor students in the SUC population has not changed, "despite the expansion of enrollment in public HEIs from 35 percent in 19990 to 52 percent in 2014".

In other words, the free tuition scheme is only going to benefit the children who already have access to SUCs. Those who do not have access will have to shoulder the bigger chunk of the costs of higher education, including living expenses and instructional materials.

Another unintended consequence would be the flight of richer students from HEIs to SUCs, which is bound to trigger a domino effect on faculty retrenchment, threaten the existence of HEIs, and ultimately result in the decline in 'overall quality of graduates'.

The managers pointed out: "Using government funds for tuition subsidy will effectively transfer the financial burden of free college education to the poor, given the regressive nature of the countrys overall tax incidence."

Lastly, the scheme is unsustainable. For 2017, the General Appropriations Act allocated PHP 8 billion for SUCs undergraduate enrollees. There are 1.4 million students enrolled in SUCs. The country would have to spend 28 PHP billion to cover the PHP 20,000 budget per head per annum.

In conclusion, the economic managers deemed the full financing of UNIFAST as a more targeted, more comprehensive alternative to the free tuition scheme.

If you wish to learn more about the policy note, you may download a copy here http://www.pids.gov.ph/policynotes.php?id=5785 and pubyear=2017

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The world faces great uncertainties ahead, with global trends in leadership shifting away from cooperation to protectionism. Despite the dubious times, global analyst and CEO of Difference Group, Dr. Dan Steinbock, believes the Philippines is on the right path to continue and capitalize on its positive growth.

At a seminar organized by state think tank Philippine Institute for Development Studies (PIDS), Steinbock detailed a foreboding outlook of the future. The radical polarization in the European Union over issues of immigration and unity, Beijing getting ready for the next Politburo, the impact of demonetization in India, and US President Donald Trump recalling policies and plans rolled out during the Obama administration, including the Trans-Pacific Partnership (TPP), have made it difficult to predict economic outcomes.

Under Trump, the US's withdrawal from the TPP and forcible renegotiation of the North American Free Trade Act (NAFTA) has put regional and global trade partnerships at an unease. Steinbock says the Philippines has to be mindful of the risks of new protectionist policies that can hit remittances and its offshore industries.

According to Steinbock, policymakers and leaders should strive to develop the country's manufacturing sector. A strong manufacturing sector will be able to not only sustain the country's consistently positive growth on average, it will also take the economy to the next level, and help the country reduce its exposure to external risks.

"Catch-up growth is slowing down," said Steinbock, "It is slowing down in the Tiger economies--it is slowing down in China. When that happens and the countries outside the region have less money to give, will the Philippines be able to grow?"

Politically, Steinbock opined that President Rodrigo Duterte's foreign policy has been pragmatic.
He added that changes concerning defense policies in the South China Sea and currency valuations in China will contribute to the drastic deterioration of US-China relations, placing the Philippines in a difficult situation in the middle.

Policymakers must pay attention not only to insulating the Philippines from the effects of geopolitical shifts but also to upgrading the country's capacity to deal with such economic and political shocks.

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The Philippines needs to develop an enabling "ecosystem" of policies and institutions to scale up social enterprises.

In a recent study released by state think tank Philippine Institute for Development Studies (PIDS), authors Marife Ballesteros and Gilberto Llanto remarked that social enterprises can be an important force in addressing the gaps between the country's paradoxical experience of positive growth and persistent poverty.

Ballesteros and Llanto, PIDS acting vice president and president, respectively, noted that the current policy environment has failed to capture the needs of social enterprises which in turn has hampered their growth. The emergence of community economies, which include social enterprises, presents a unique set of policy and institutional requirements.

Social enterprises, compared to for-profit enterprises and nonprofit organizations, are businesses that put communities at the center of their enterprise. At the core of their objectives include promoting social welfare, enabling sustainable development, and encouraging investments for empowering communities.
Currently, the United Nations has included community economy as part of its social and solidarity economy agenda, which gives attention and support to businesses that "can be vehicles for profit, people empowerment, peace, and other moral imperatives".

A 2013 survey by the Institute for Social Entrepreneurship in Asia reported that around 30,000 organizations in the Philippines may be classified as social enterprises. They are made up of firms in various forms, including social cooperatives, fair trade organizations, microfinance institutions, and trading and development companies.

Currently, there is a proposed bill in Congress that focuses on addressing the policy needs of social enterprises. Like the Magna Carta for MSMEs and the Barangay Micro Business Enterprises Act, the Poverty Reduction through Social Entrepreneurship or PRESENT Act includes important provisions on tax exemptions, special credit windows and guarantee funds, support for local government units, and other considerations like cash incentives for social enterprises that employ people with disabilities, comprehensive insurance for calamities, and resources from the government for comprehensive capacity building.

Ballesteros and Llanto explained that unlike the other two laws, the PRESENT bill does not promote the exemption of social enterprises from the minimum wage law. This is because they "are known to pay above the minimum wage and apply other fair trade principles".

However, the bill faces visceral challenges, including a question of definitions, where there is currently a "lack of agreement" on what differentiates social enterprise activities from those of for-profit and nonprofit entities. There is also a question of social enterprises overlapping with social protection policies and programs of the government.

That said, the authors acknowledge the potential of social enterprises as an avenue to respond to social challenges left unmet by existing entities"whether they are of the state, the for-profit sector, or the nonprofit sector.

"The Philippines has a social and cultural environment conducive for social entrepreneurship to emerge. This is largely attributed to the widespread focus in the country on the bottom-of-the-pyramid issues and the strong participation of the civil society and the private sector in social issues," concluded the authors.
It would beneficial for the Philippines to nurture that environment through sound policies.

If you wish to know more about this study, download a copy of the Policy Note from this page: http://www.pids.gov.ph/dp.php?id=5781 and pubyear=2017

Photo Credit: www.valenzuela.gov.ph





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If properly implemented, the government's National Greening Program (NGP) can help in reducing poverty and preserving the environment.

In a policy note released by state think tank Philippine Institute for Development Studies (PIDS), Senior Research Fellow Danilo Israel said there is high probability the expected outcomes of the NGP will be attained, if it is implemented efficiently and effectively and as planned.

The NGP was a priority program of the Aquino administration aimed at poverty reduction, food security, environmental stability and biodiversity conservation, and enhancement of climate change mitigation and adaptation. It had a total budget of PHP 31 billion for five years and aimed at planting 1.5 billion seedlings in 1.5 million hectares of land nationwide from 2011 to 2016.

As of June 2016, over 1.3 billion seedlings of various tree species have been planted in more than 1.6 hectares of open, denuded, and degraded forest lands. The PIDS study noted that the program exceeded its target area at 113 percent but fell short in its target seedling planted at 90 percent. These figures, according to the study, already equaled or even surpassed what the Philippine government had accomplished in reforestation in the past 50 years.

Considering the government's decision to extend the program to 2028, Israel said it is worthwhile to evaluate the NGP's performance and look at the issues and problems encountered during its implementation. Taking effective steps to improve its implementation will go a long way to ensure its success, he said.

The impact evaluation of the NGP conducted by PIDS estimated that the implementation of the program will result in a 0.3-percent increase in the total output of the economy in 2020, 1 percent in 2030, and 2.5 percent in 2050. The forestry sector is expected to post the highest output growth effect, which is estimated to reach to as high as 5.5 percent in 2050.

According to Israel, the NGP also has the potential to increase household income and decrease poverty. Almost three-fourths of households in NGP sites claimed there had been significant increases in their incomes. This was likewise confirmed by simulations done by PIDS, comparing business-as-usual scenario versus having the NGP.

In terms of employment generation, the NGP has provided 3.3 million jobs, around half a million of which are in upland and rural communities.

It also contributed in recovering forest areas. Using 2010-2015 figures, the Food and Agriculture Organization ranked the Philippines fifth among countries with most annual forest gain, with 240,000 hectares or 3.5-percent annual increase.

However, the study noted that while the NGP has been successful in planting seedlings, issues like low survival rate of trees planted and poor program monitoring have persisted. There have also been allegations of corruption among the Department of Environment and Natural Resources (DENR) and people's organization (PO) leaders, which created conflict within the community organizations in NGP sites.

Thus, Israel recommended a review of the design of the NGP, in terms of individual species and mix of tree species planted, tree spacing, and other important technical parameters. He contended that the design and tree species planted by the NGP are not always appropriate to the sites.

Likewise, he suggested the grant of additional incentives, such as harvesting rights, livelihood support, mechanism for long-term financing, and addressing tenure issues, to communities in order to sustain plantations. Further, the project should allocate enough funds for capacity building of the POs and for strengthening the capacity of the DENR personnel to monitor corruption in NGP activities, he added.

Lastly, Israel also emphasized the importance of placing the ultimate responsibility for all reforestation initiatives on the Forest Management Bureau (FMB). He cautioned against the conversion of FMB to a bureau and instead proposed the creation of a new agency tasked only with reforestation, possibly answering directly to the president.

If you wish to know more about this study, download a copy of the policy note from this page: http://dirp3.pids.gov.ph/websitecms/CDN/PUBLICATIONS/pidsdps1653.pdf.###