TCR Volume 1 Issue No 2

Analytic Research by the Center for Strategy, Enterprise & Intelligence

We have lowered our long-term sovereign credit rating on the United States of America to AA+ from AAA.

~ Standard & Poor’s

In Omaha, the U.S. is still triple-A. In fact, if there were a quadruple-A rating, I’d give the U.S. that.

Vol. 1. No. 2 • August 15- 21, 2011

~ Billionaire investor Warren Buffett, hours after the downgrade

WORLD 02 Triple-A No More

Assessing the U.S. sovereign rating downgrade

06 The Gene in the Bottle

NATION

Can biotechnology bring food security?

• Consolidation in the global seed industry =

control over food supply • Biotechnology in the Philippines • Developing countries: the world’s biotech breadbaskets?

• Food: the ‘hidden driver of world politics’ • Food security and climate change

BUSINESS 22 Steep Climb to

14 Battle Against Human Trafficking Manila makes progress, but still has lots to do

• What is human trafficking?

• Just how widespread is human trafficking • New challenges make eradication more difficult

Can the Philippines make the top 30 in world business by 2016?

18 The Beginning of the End of Plastic Bags?

Competitiveness

• A concern echoing around the globe • Biodegradable plastics • Going green

26 Promises, Promises, Promises

PPP after one year: Where are the projects?

Philippine outsourcing aims to stay in the lead

29 Business Process Outsizing

NEWS ON THE NET Philippines attains all-time high 1st semester palay, corn harvests The Philippines has achieved recordbreaking harvests of palay (unmilled rice) and corn for the first six months of 2011. Agriculture Secretary Proceso J. Alcala said palay production for the first semester of 2011 topped 7.577 million metric tons (MT), which is 14.4 percent more than last year’s volume of 6.621 million MT for the same sixmonth period.

China says hit by 500,000 cyberattacks in 2010

PLDT: Proposed IP policy to harm Internet services

BEIJING, China - China said Tuesday it was hit by nearly 500,000 cyberattacks last year, about half of which originated from foreign countries including the United States and India. The news comes just days after US firm McAfee said it had uncovered a massive global cyber spying campaign it described as a “five-year targeted operation” by one unnamed actor -- which many analysts said was China.

MANILA, Philippines - The proposed circular on Internet protocol (IP) peering policy of the National Telecommunications Communications (NTC) may lead to the degradation rather than the improvement of Internet services in the country, according to telecommunications leader Philippine Long Distance Telephone Co.

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Center for Strategy, Enterprise & Intelligence provides expertise in strategy and management, enterprise development, intelligence, Internet and media.

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Triple-A no more

Assessing the U.S. sovereign rating downgrade

By Ricardo Saludo

What’s the difference between a letter and a plus sign? For governments, financial institutions, and global investors, quite a lot, especially for those keeping and trading billions of dollars in erstwhile triple-A-rated United States Treasury bills.

For decades, the T-bill has been the riskfree store of value for countries, companies, capitalists, central banks, and the custodians of currency reserves. Reason: its triple-A long-term rating, the highest given by the leading credit evaluation agencies — AAA for Standard & Poor’s (S&P) and Aaa for Moody’s Investors Service — and a widely acknowledged mark of assured repayment.

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So when S&P announced on August 5 a onenotch downgrade to AA+ for U.S. Treasuries, due mainly to concern over future political squabbling again threatening default, the vanished third letter shook global markets.

Along with Europe’s financial woes over Greece’s near-loan default, the T-bill downgrade led to $4 trillion in lost value based on Morgan Stanley’s MSCI global stocks and bonds index. That was equivalent to the combined annual economic output or gross domestic product of the continent’s most worrisome ‘PIIGS’ economies: Portugal, Ireland, Italy, Greece, and Spain.

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So is it the end of the Starred and Striped world as we know it? Will the dollar lose its standing as the world money backing national currencies and pricing international commerce? Is America also on the way out as the planet’s top dog economically, politically and militarily? And what about the global economy, especially the growth, investment, inflation and jobs prospects for developing nations like the Philippines? The CenSEI Report will tackle all three questions in separate issues, starting with this issue’s analysis of the dollar’s global role.

Buffett the true believer. The greenback and the U.S. of A. are far from becoming history, if you ask America’s most successful investor, Warren Buffett. “I don’t get it,” said the Moody’s shareholder from Omaha, Nebraska, of its rival S&P’s rating cut. “In Omaha, the U.S. is still triple-A. In fact, if there were a quadruple-A rating, I’d give the U.S. that.” And Buffett puts his money where his mouth is: he said in a CNN report that $40 billion of his investment company Berkshire Hathaway’s $47 billion in liquid holdings is in T-bills, along with most of his personal cash and equivalent assets.

For its part, Moody’s has maintained its toprank Aaa grade for the U.S. The agency saw

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Triple-A no more

as a first step toward addressing America’s fiscal problems the Aug. 1 agreement between Democratic and Republican leaders to raise the debt ceiling and gradually reduce the budget deficit. Moody’s also considered “the unparalleled diversity and size of the US economy and its long record of relatively solid economic growth”, and the dollar’s “global role ... which underpins continued demand for U.S. dollar assets, including U.S. Treasury obligations.” The agency also pointed out that despite its mammoth debt and current economic malaise, the U.S. was not hugely worse off than other large Aaarated countries.

Still the global benchmark. What about the role of T-bills as the main global store of value? In a July 27 report just days before the S&P downgrade, London- and New York-based Fitch Ratings credit agency, argued that U.S. Treasuries “would likely retain their standing as the benchmark security that anchors global fixed-income markets,” even with a lower rating of AA, at least in the medium term. One big reason: as the Fitch chart below shows, no other financial instrument can match the size and liquidity of the $9.3-trillion T-bill market, which gives investors and institutions a global pool of ready buyers and sellers of Treasuries.

But like S&P, Moody’s has a negative outlook for the U.S., pointing to a possible future downgrade.

S&P will be checking if the national debt rises faster than its own projections, while Moody’s will watch four concerns: if fiscal discipline weakens, if agreed deficit reduction measures are not taken in 2013, if the economic outlook worsens significantly, and if federal spending escalates beyond current forecasts.

There certainly won’t be any major selloff, especially since most of the major holders of T-bills are either institutions barred by policy from selling or investors with few other safe instruments to stash money in, as CNBC explains. Moreover, Fitch says a drop in rating to AA may not have much impact on trading or market appetite for a debt instrument, as S&P’s downgrade of Japan to AA+ in 1998 (like its current action on the U.S. debt) and further to AA in 2001 showed (see Fitch graph on the next page).

In May this year, S&P further announced a negative outlook for Japan as its public debt exceeded 900 trillion yen, or about $12 trillion below the total U.S. public debt of $14.3 trillion, 4.5 times Tokyo’s borrowings in 1990, when

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a financial crisis began Japan’s two-decade stagnation, and more than twice the ¥400 trillion in debt since the 1998 downgrade. It seems that prolonged economic malaise and the loss of one letter ‘A’ does not diminish investor appetite for state bonds of the leading industrial countries.

Nor did Washington’s first round of debtceiling brinkmanship in the mid-1990s, when many American lawmakers even argued that meeting sovereign credit obligations was not the top fiscal priority. “Are U.S. Treasuries Free of Default?”, a 2001 paper in the Journal of Financial and Quantitative Analysis, argued that the 1996 partisan clash over then-President Bill Clinton’s balancedbudget bill had no impact on T-bill market values beyond the short-term volatility during that first fiscal confrontation between a Democrat in the White House and Republicans in Congress.

A greenback world for now — but not forever. Nonetheless, while the Treasury bill’s position is secure for several years, the world will likely seek other stores of value, especially if the U.S. fails to right its fiscal ship. That happened to British gilts after mammoth wartime debt and post-war decolonization began the decline of Britain’s economic clout and global stature over the past half-century. Certainly, that’s the tune coming out of China, the second biggest holder of Treasuries and the largest abroad, with $1.16 trillion (the U.S. Federal Reserve has the biggest hoard: $1.6 trillion).

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A day after the Aug. 5 downgrade, the Chinese news agency Xinhua blasted Washington: “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets.” Xinhua urged curbs on “gigantic military expenditure and bloated social welfare costs.” The agency added: “A new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”

Meanwhile, the S&P and Moody’s counterpart in China, Dagong Global Credit Rating Co., announced another downgrade for U.S. Treasuries, to A from A+ in its July rerating of the debt. It was Dagong’s second downgrade since giving T-bills an initial AA rating in July 2010. And there could be more declines: Dagong kept its negative outlook on U.S. debt from last November.

In fact, there are influential entities in the U.S. who favor reducing the world’s reliance on dollars as the denomination for international reserves and trade. As early as two years ago in a July 2009 study, the Congressional Research Service of the U.S. Congress already expressed growing concerns in Washington over China’s mountain of T-bills, up tenfold in the past 10 years, though it did not expect Beijing to unload its hoard or even reduce purchases.

In a policy memorandum for the New Yorkbased Council on Foreign Relations in February, economics professor Moritz

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Schularick called for sanctions against countries piling up excessive currency reserves, and measures to reduce the need to keep such massive funds as a defense against financial turmoil and speculative attack.

Schularick noted that China, South Korea and India held reserves equivalent to 50%, 35% and 20% of their GDPs, when 5% should be enough.

Beyond downgrades and dollars. For now and many more years, however, the world is probably stuck with the greenback as the preferred store of value and safe haven during crises and instability. To be sure,

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diversification into a range of sovereign and other fixed-income instruments would be a sound move, whatever happens to U.S. Treasuries. Deutsche Bank cites Asian bonds as one emerging safe haven.

But rather than looking for better ways to denominate investment portfolios, what the world needs most are economic policies and initiatives that spur, sustain and spread growth, while addressing unsustainable imbalances and creating real value, not illusory financial gains. That will be the subject of our succeeding report on world economic prospects and their implications for the Philippines and other emerging economies.

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Can agricultural biotechnology save the developing world from poverty and hunger?

By Tanya L. Mariano

A recent study trumpeted the economic and environmental benefits that biotech crops have provided in the 14 years since they were adopted, and added that the technology has made important contributions to global food security.

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Can agricultural biotechnology save the developing world from poverty and hunger?

The report, GM crops: global socio-economic and environmental impacts 1996-2009, released by UK-based research group PG Economics in June, maintains that biotechnology has boosted the income of the million farmers who have adopted it, through better agricultural productivity and profitability, and contributed to climate change mitigation by reducing the use of harmful insecticides and herbicides and lowering greenhouse gas emissions.

According to the study, biotech crops increased crop production and value by US$10.8 billion in 2009 and US$64.7 billion for the 14-year period, mainly due to yield gains, which contributed US$36.6 billion, and reduced production costs. In 2009, less fuel use and reduced tillage resulted in the removal of 17.7 billion kg of carbon dioxide from the atmosphere, “equal to removing 7.8 million cars from the road for one year.” In the same year, the 393 million-kg decrease in pesticide use reduced by 17.1% the environmental impact of herbicides and insecticides, the study claims.

“Farmers (mostly in developing countries) have been able to both, improve their productivity and economic returns, whilst also practicing more environmentally-friendly farming methods,” the report declared.

The report, Global Status of Commercialized Biotech/GM Crops: 2010, by the International Service for the Acquisition of Agri-Biotech Applications (ISAAA), echoed PG Economics’ positive findings, and goes as far as to say that “the most important potential role of biotech crops will be their contribution to the Millennium Development Goal (MDG) of ensuring a secure supply of affordable food and the reduction of poverty and hunger by 50% by 2015.”

Global hunger declining, but still unacceptably high. According to the United Nations Food and Agriculture Organization, in 2010, there were 925 million people suffering from undernourishment. Although there were more fewer undernourished people than in 2009, the numbers are still “unacceptably high,” it said. Of that estimated 925 million, 578 million, or 62.4%, were from Asia and the Pacific (see graphic).

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Global hunger declining but still unacceptably high Millions of people (as of 2010)

Developed countries 19

37Near East and North Africa 53 Latin America and the Caribbean

239 578

Sub-Saharan Africa

Asia and the Pacific

Source: UN Food and Agriculture Organization website

Feeding a growing population. The FAO acknowledges that there is currently still enough food for everybody, but many do not have access to it. According to Hunger Notes, a World Hunger Education Service online publication, this is because many lack the income to buy enough food, or the land to grow it.

However, there may not be enough food for long if agricultural productivity is not enhanced.

According to the FAO report, Growing Food for nine billion: FAO at work 2009-2010, food production will have to increase by 70% to feed a population of nine billion people by 2050. This is a huge challenge, given that food production depends on finite resources such as land and water.

Moreover, the developing world may be particularly vulnerable to future food shortages, as 90% of projected population growth will likely happen in developing and emerging economies, according to Beyond Economic Growth: Meeting the Challenges of Global Development, a book created with the help of the World Bank.

Can biotechnology help developing countries? In Feeding the Developing World in the Next Millennium: A Question of Science?, a paper from the 1999 “Biotechnology and the Poor” international conference convened by the Consultative Group on International Agricultural Research (CGIAR)

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and the US National Academy of Sciences, authors McCalla and Brown write: “Biotechnology is one tool in our arsenal for feeding the world in the future. It is a solution not without problems, but it is one we cannot afford to ignore... If we turn our backs on modern biotechnology we may exacerbate malnutrition and micronutrient deficiency problems in developing countries.”

In short, experts at the conference seemed to agree that biotechnology has significant potential for the uplift of lives in developing countries, but they also agreed that it poses many risks.

Transparent and inclusive food-safety policy, regulatory process needed. In a 2001 working paper published by the Asian Development Bank (ADB), the authors urged governments and funding agencies to continue and increase investments in biotechnology to help reduce poverty and improve food security in Asia over the next 25 years, but added that, “an open, transparent, and inclusive food safety policy and regulatory process is required.”

The report outlined key issues in agricultural biotechnology, including the potential environmental, socioeconomic, and food safety risks it can pose and the ethical concerns it raises. It also provided recommendations on how the technology can be safely adopted by developing countries. The report also reminded readers that the Biosafety Clearing-House, which was created by virtue of the Cartagena Protocol on Biosafety, is especially useful for developing countries in terms of capacitybuilding, as it facilitates the collection, sharing, and dissemination of information on risk assessment and management.

According to the authors, several countries already have food safety risk-analysis procedures in place that generally conform to

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the standards set by the FAO/WHO Codex Alimentarius Commission, which was established in 1963 to ensure fair-trade practices in the food trade, and to promote coordination of all food-standards work undertaken by international government and nongovernment organizations.

In its aforementioned 2010 Growing food for nine billion report, the FAO said that, “relevant modern biotechnology has the potential to speed up the development of improved crops, which may increase yields, improve crop and food quality, and/or decrease crop losses.” In the same study, it also reported that global crop yields increased 50% from 1965 to 2000 due to improved plant genetics.

However, back in 2005, Director-General Jacques Diouf, addressing Danish food and agriculture journalists, said that GMOs are “not the priority for reducing the number of hungry by half by 2015.” That sentiment was echoed in Agriculture at a Crossroads Global Report, a 2009 study by the International Assessment of Agricultural Knowledge, Science and Technology for Development (IAASTD).

For its part, the US Agency for International Development (USAID) takes a conservative approach, and says on its website that countries that want to utilize biotechnology should have safe access to it but that decision makers should be equipped with the necessary resources to make informed assessments.

By collaborating with developing countries in agricultural programs, USAID integrates technological development with policy reforms to ensure the safe and effective application of biotechnology.

‘Great promise’ but still a need for greater public investment. For its part, the World Bank saw “great promise” in biotechnology, but in its 2008 World Development Report: Agriculture for Development warned that, because investments are mostly coming in from the private sector, commercial interests might overshadow the needs of the poor. Hence, there is a need to increase public investments both in the international and national levels, and to further improve the regulation and risk-evaluation of this technology.

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Consolidation in the global seed industry = control over food supply?

In a recent study entitled “Visualizing Consolidation in the Global Seed Industry: 1996 – 2008,” the author, Dr. Philip Howard of Michigan State University, discussed how multinational corporations, with Monsanto leading the pack, over the past 40 years have monopolized the world’s food supply by gaining majority control over the seed industry. One suggestion to remedy the situation is to put an end to the practice of granting patents to living organisms. However, the private sector provides a huge chunk of the investments in biotechnological research. Disallowing big corporations to patent seed technologies might discourage them from funding further research, which means the public sector will have to step up its research and development efforts.

Here is a graphic representation by Dr. Howard that illustrates how the seed industry is very much dominated by big chemical and pharmaceutical companies, particularly the “Big 6” – Monsanto, DuPont, Syngenta, Bayer, Dow, and BASF. It shows that such companies, represented by red circles, either own or partially own a great portion of seed companies, depicted by blue circles. The connecting solid gray arrows signify complete ownership, while dotted gray arrows mean partial ownership.

To support developing countries that want to further harness their biotechnological resources, the UN launched the International Industrial Biotechnology Network (IIBN) in 2010.

ture, wider crop adaptability, and improved nutrition,” critics cite “environmental risks and the widening social, technological, and economic disparities as significant drawbacks.”

In a nutshell, a solid consensus on how to balance biotechnology’s potential benefits with its potential adverse effects is still nowhere in sight.

More details on the arguments for and against biotechnology’s role in agriculture can be found on the FAO website.

In a 2005 paper, ActionAid International, an international anti-poverty non-governmental organization, warns that biotechnology could actually harm small farmers in developing countries and exacerbate economic, environmental, and social problems if “innovations are driven by profit rather than by need-oriented research and development.”

No to GMO? According to the IAASTD, whereas advocates “cite potential yield increases, sustainability through reductions in pesticide applications, use in no-till agricul-

For its part, Greenpeace, an environmental activist group, has been tireless in its campaign to prevent the commercialization of biotech products, even destroying biotech

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plants being tested in facilities in Australia and the Philippines. On the topic of genetic engineering, Greenpeace argued: “While scientific progress on molecular biology has a great potential to increase our understanding of nature and provide new medical tools, it should not be used as justification

to turn the environment into a giant genetic experiment by commercial interests. The biodiversity and environmental integrity of the world’s food supply is too important to our survival to be put at risk.”

An independent organization, GMWatch, has questioned the validity of PG Economics’ and

Biotechnology in the Philippines Modern biotechnology in the country dates back to the 1960s, when propagation techniques for mutant makapuno coconut, orchids, and bananas were developed in the University of the Philippines - Los Banos campus, according to the Biotechnology Coalition of the Philippines.

In 1979, the Philippines established its first biotechnology research and development institute and, in 1990, became the first in ASEAN to adopt a regulatory system for biotechnology with the creation of the National Committee on Biosafety of the Philippines (NCBP).

In 2002, the Department of Agriculture issued Administrative Order No. 8, or the “Rules and Regulations for the Importation and Release into the Environment of Plants and Plant Products derived from the use of Modern Biotechnology,” to safeguard human and animal health and the environment. In December of the same year, the government approved the commercial planting of Bt Corn.

Today, the Philippines is one of 17 biotech “mega-countries” growing 50,000 hectares or more of biotech crops, said the ISAAA’s 2010 report.

Table 1. Global Area of Biotech Crops in 2010: by Country (Million Hectares)

According to the study by PG Economics, the Philippines recorded an accumulated farm income of US$107.8 million from 1996 to 2009 from insect-resistant corn and herbicide-tolerant corn. In 2009, total area planted with biotech crops reached 279,000.

BioLife Magazine reported that, in the next five years, the country will likely be introduced to two new biotech crops: the vitamin A-rich “Golden Rice,” and Bt eggplant, which is currently in the testing phase.

New biotech innovations on corn, papaya, sweet potato, and banana are also expected to be introduced within the next 10 years, according to the magazine.

Currently, the country imports biotech corn, soybean, canola, cotton, potato, and sugar beet (Philippine Bureau of Plant Industry website).

Rank Country

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Area

(million hectares)

USA*

66.8

Brazil* Argentina* India* Canada* China* Paraguay* Pakistan* South Africa* Uruguay* Bolivia* Australia* Philippines* Myanmar* Burkina Faso* Spain* Mexico* Colombia Chile Honduras Portugal Czech Republic Poland Egypt Slovakia Costa Rica Romania Sweden Germany

25.4 22.9 9.4 8.8 3.5 2.6 2.4 2.2 1.1 0.9 0.7 0.5 0.3 0.3 0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1 <0.1

Total

Biotech Crops Maize, soybean, cotton, canola, sugarbeet, alfafa, papaya, squash Soybean, maize, cotton Soybean, maize, cotton Cotton Canola, maize, soybean, sugarbeet Cotton, papaya, poplar, tomato, sweet pepper Soybean Cotton Maize, soybean, cotton Soybean, Maize Soybean Cotton, canola Maize Cotton Cotton Maize Cotton, soybean Cotton Maize, soybean, canola Maize Maize Maize, potato Maize Maize Maize Cotton, soybean Maize Potato Potato

148.0

*17 biotech mega-countries growing 50,000 hectares, or more, of biotech crops

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ISAAA’s claims, saying these research groups are being funded by entities that have a stake in the biotech industry, and that the ISAAA, in particular, is allegedly being funded by such industry giants as Monsanto and Bayer.

A list of donors on ISAAA’s website shows a mixture of public and private institutions, including biotech corporations, official agriculture programs from Kenya and the Philippines, the US Department of Agriculture and USAID, and international organizations such as UNESCO. The future of biotechnology. The truth is, fourteen years since biotechnology’s commercialization, experts still don’t see eye to eye on this controversial topic.

The aforementioned 2009 IAASTD report, a major study endorsed by 58 countries, said that, “Crops derived from GE technologies have faced a myriad of challenges stemming from technical, political, environmental, intellectual-property, biosafety, and traderelated controversies, none of which are likely to disappear in the near future.”

In the end, governments around the world agreed that biotechnology is but one component of a wider strategy that should include conventional breeding, organic agriculture, and other forms of agricultural research.

“However useful these innovations might be, biotechnology per se cannot achieve development and sustainability goals. Therefore, it is critical for policy makers to holistically consider biotechnology impacts beyond productivity goals, and address wider societal issues of capacity building, social equity and local infrastructure,” the study said.

Not a simple relationship between food supply and population. Moreover, quoting Indian economist and Nobel Prize winner Amartya Sen, the report concluded, “Hunger is not explained by a simple relationship between food supply and population, as adverse agricultural conditions, poverty, political instability, alone or in combination, are contributing factors.”

As evidence of the complexity of the problem, the FAO reported that from 2005

Developing countries: the world’s biotech breadbaskets?

According to the ISAAA report, 19 countries out of the total 29 that plant biotech crops are developing countries. In 2010, developing economies grew 48% of global biotech crops and by 2015 are expected to exceed developed countries in hectarage.

Also in 2010, 14.4 million out of the total 15.4 million farmers that grew biotech crops were small resource-poor farmers in developing countries, said the study.

The top biotech planters in the developing world are China, India, Brazil, Argentina, and South Africa, with a combined total of 63 million hectares planted with biotech crops in 2010, cornering 43% of the global total.

In large developing countries, government investments in agricultural biotechnology research are also increasing rapidly, according to the IAASTD. China, Brazil, South Africa, Malaysia, and India are making substantial investments, with China making the biggest increase in investments at less than 300 million Yuan in 1995 to more than 1.6 billion Yuan in 2003.

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Can agricultural biotechnology save the developing world from poverty and hunger?

to 2007, the hunger rate in developing countries remained constant at 16% of the population despite significant reductions in poverty rates. The FAO has a comprehensive review slated for this year to try to explain this discrepancy and enhance future hungerreduction policies.

In other words, there is still no silver bullet for killing poverty and hunger.

It should be also noted, however, that while debates surrounding its use to enhance our crops show no signs of dying down anytime soon, it looks like biotech crops are here to

Food: the ‘hidden driver of world politics’ Today’s food crisis may cost us more than just our dinners.

Food is increasingly affecting the dynamics of global politics, and scarcity and spikes in food prices are fueling the unrest that is toppling dictators and causing massive land grabs, according to Lester R. Brown, President of the US-based non-profit environmental research group, Earth Policy Institute.

In The New Geopolitics of Food, an article published in Foreign Policy Magazine’s Food Issue, Brown said that, in a world where scarcity is the new norm, the ability to produce food provides tremendous political leverage.

The food crisis of 2011 is caused by factors that increase the demand for food, on the one hand, and factors that make it harder to increase supply, on the other. According to Brown, threatening food security are rapid population growth, changing consumption patterns due to an expanding middle-class, competing use of grains for biofuel production, climate change, and harmful agricultural practices such as over-irrigation, over-plowing, and land mismanagement that are causing water tables to fall and turning once fertile lands into arid deserts.

On top of all this, yields in agriculturally advanced countries such as Japan, Britain, France, and Germany, have plateaued despite the use of the best yield-raising technologies available. It seems that agricultural technology at current levels of sophistication has reached its maximum potential.

The first signs of trouble, said Brown, came in 2007. Due to the rise in grain and soybean prices, many exporting countries, such as Russia and Argentina, imposed export bans to safeguard their food supply and lower domestic prices, while importing countries had to enter into long-term grain-supply agreements with exporting countries. Recently, the Philippines renewed its 3-year agreement with Vietnam for the annual supply of 1.5 million metric tons of rice until 2013.

In 2008, high-income nations such as Saudi Arabia, South Korea, and China turned to buying or leasing land in other countries on which to grow their grains, and by 2009, the total area involved in such land deals reached almost 140 million acres.

Because most of the land deals were made with poor and already food-scarce nations where land is cheap, such as Sudan and Ethiopia, the result was a socio-political climate that fostered civil unrest and resourcebased conflict.

A series of investigative reports by the California-based think tank Oakland Institute showed that large-scale foreign investments in Africa are displacing farmers, ravaging natural resources, causing food insecurity, and worsening economic and political instability throughout the continent.

According to the author of the report, what human rights and environmental groups call “land grabbing,” the World Bank calls “agro-investment.” The World Bank is reportedly the biggest promoter of foreign direct investments in Africa.

Brown maintained that solutions must treat the causes, and not just the symptoms, of food insecurity. Climate change needs to be mitigated, population growth must be curbed, and sustainable agricultural practices must be implemented if we are to feed a billion mouths and keep heads cool.

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Food security and climate change It’s no longer just a matter of feeding the entire world. The pressing need for climate-change mitigation requires that food production systems balance productivity and sustainability. The 2010 floods in Pakistan and the drought in Russia, both of which increased global food prices and threatened food supplies on top of causing massive damage to life and property, should serve as a reminder of the urgency of the matter.

stay. As the Consultative Group on International Agricultural Research put it, ever so conditionally: “The use of biotechnology to genetically improve crops is still controversial, but the pressures on the world’s agricultural systems may hasten its acceptance, with all the appropriate biosafety precautions in place.”

Climate change disrupts the delicate balance between food supply and demand. Because agriculture is extremely dependent on weather conditions, climate change affects all four dimensions of food security: availability, accessibility, utilization, and food system stability, according to the UN Food and Agriculture Organization (FAO) report, Climate Change and Food Security: A Framework Document. The most obvious impact it has on our food supplies is the biological effect on crop yields. Crop ecologists estimate that every one-degree Celsius rise in temperature above the season’s ideal levels reduces yield by 10%.

Aside from reducing crop yields, high temperatures also encourage pest and weed proliferation, and put additional strain on water supply by increasing the moisture requirements of crops, said the International Food Policy Research Institute (IFPRI) in their 2009 report, Climate Change: Impact on Agriculture and Costs of Adaptation.

By increasing the frequency of extreme weather events, climate change raises global food prices, according to a March 2011 IFPRI policy brief. An increase in the price of major agricultural crops – rice, maize, wheat, and soybeans – will lead to subsequent increases in the price of other goods, such as livestock feed, for instance, which in turn will increase the price of meat.

The IFPRI warned that, by 2050, climate change if not averted will reduce calorie availability to below year 2000 levels, thereby increasing child malnutrition rates.

On top of its effect on food security, climate change also adversely affects the livelihood of agricultural workers, who make up 36% of the world’s total workforce, reported the FAO in Climate Change and Food Security.

In Southeast Asia, climate change projections indicate that the worst is yet to come. According to the Asian Development Bank, by 2100, climate change will increase the region’s mean temperature by 4.8 degrees Celsius and sea level by 70 cm, relative to 1990 levels, and will cause damage equivalent to losing 6.7% of GDP every year.

Unless we bolster efforts to cut greenhouse gas emissions today and improve our resilience to the ills of climate change, our very survival will be subject to the whims of increasingly erratic weather.

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Philippines off US trafficking watch list, but anti-trafficking fight far from over

By Tanya L. Mariano

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The U.S. State Department has removed the Philippines from the watch list of problem countries in its latest Trafficking in Persons (TIP) report released June 27, citing significant efforts to comply with minimum standards for the elimination of human trafficking.

says Blas Ople Policy Center president Susan Ople.

The report upgrades the Philippines from Tier 2 watch list category to simply Tier 2.

Had it not bolstered its anti-human trafficking measures, the Philippines would have been relegated to Tier 3 status, the lowest rank, which comes with sanctions, including withdrawal of nonhumanitarian, nontraderelated aid worth an estimated US$250 million,

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Philippines off US trafficking watch list, but anti-trafficking fight far from over

Significant progress in prosecution and prevention. In their 2011 report, the State Department recognized the country’s significant progress in prosecuting traffickers. Twenty-five offenders in 19 cases were convicted in 2010, up from nine convictions in six cases in 2009. The government also stepped up efforts to expedite the disposition of pending cases, with the Department of Justice (DOJ) and the Supreme Court (SC) both issuing directives to seed up and prioritize trafficking cases.

Furthermore, criminal cases were filed against some government officials found to have been involved in trafficking. It was also

in 2010 that the Philippines saw its first conviction in a labor-trafficking case, according to the International Labor Organization Country Office for the Philippines.

In the area of prevention, the latest TIP report cited the government’s efforts to promote awareness of trafficking issues through training conducted by the Philippine Overseas Employment Agency (POEA). POEA’s efforts include pre-employment and pre-deployment orientation seminars for prospective and outbound Filipino overseas workers, and antiillegal recruitment and -trafficking seminars for local government units, law enforcement personnel, prosecutors, recruitment agencies,

What is human trafficking?

Human trafficking is defined by the UN Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and Children (the Palermo Protocol) as “the recruitment, transport, transfer, harbouring or receipt of a person by such means as threat or use of force or other forms of coercion, of abduction, or fraud or deception for the purpose of exploitation.”

Both the Palermo Protocol and the Trafficking Victims Protection Act (TVPA) recognize that “people may be trafficking victims regardless of whether they were born into a state of servitude or were transported to the exploitative situation, whether they once consented to work for a trafficker, or whether they participated in a crime as a direct result of being trafficked.”

The following is a chart that can be used to assess whether or not individual cases constitute trafficking. “If one condition from each category (process, way/means, and goal) is met, the result is trafficking. For adults, victim consent is irrelevant if one of the Means is employed. For children consent is irrelevant with or without the Means category,” the US State Department says. The chart was developed by the Solidarity Center based on the Palermo Protocol’s definition of human trafficking.

Process

+

Way/Means

+

Goal

Recruitment

Threat

Prostitution

Transportation

Coercion

Pornography

Transferring

Abduction

Violence/Sexual Exploitation

Harboring

Fraud

Forced Labor

or

or

or

or

or or

Receiving

or or

or

and

or

or

and

or

Deceit

Involuntary Servitude

Deception

Debt Bondage (with unfair wages)

or or

Abuse of Power

or or

Slavery/Similar practices

Major forms of human trafficking according to the US Department of State include forced labor, sex trafficking, bonded labor or debt bondage, involuntary domestic servitude, forced child labor, child soldiers, and child sex trafficking.

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Philippines off US trafficking watch list, but anti-trafficking fight far from over

non-government organizations, and community members.

The POEA also created additional antitrafficking units, and funded and increased dedicated staffing of existing task forces in airports, seaports, and hotspots around the country.

For the first time, Congress funded the antitrafficking programs of the Inter-Agency Council Against Trafficking (IACAT) and the Department of Social Welfare and Development appropriating the equivalent of US$550,000 of the 2011 national budget for this purpose.

Just how widespread is human trafficking?

There are about 2.5 million trafficking victims at any given time, according to a 2005 ILO report. The US State Department in its 2007 TIP report puts the number at 800,000 people trafficked across national borders annually, and says that other estimates range from 4 million to 27 million.

The figures vary because, according to the UN, the “crime takes place underground and is often not identified or misidentified.” CNN adds that it is difficult to accurately define the extent of human trafficking because victims are essentially “a hidden population” that is reluctant to self-identify.

Below are some human trafficking facts and figures gathered by the UN.GIFT from the following sources: the UN Office on Drugs and Crime’s Global Report on Trafficking in Persons, 2009, the Counter-Trafficking Database of the International Organization for Migration (IOM), and an ILO-published working paper, Forced Labour and Human Trafficking: Estimating the Profits.

• Sex trafficking is the most common form of human trafficking, comprising 79% of cases • 65-75% of victims are female • Majority of victims are between 18 and 24 years old • The recruiter in 54% of cases was a stranger to the victim; in 46% of cases the recruiter was someone known to the victim • Trafficked forced labor yields US$31.6 billion in global profits annually

The IACAT is the government body tasked with coordinating and monitoring the implementation of the Anti-Trafficking in Persons Act of 2003.

In March, it launched a 24/7 nationwide anti-trafficking hotline designed to respond to crisis calls from victims.

Government continues anti-trafficking efforts. The Philippine government welcomed the U.S. report and vowed to strengthen its stance against human trafficking, according to a report by The Associated Press.

In April, the Department of Labor and Employment (DOLE) and POEA launched Citizens’ Watch Against Illegal Recruiters and Human Trafficking, a program that enlists the services of law interns from various law schools in Metro Manila to assist complainants in case documentation.

Most recently, DOJ Secretary Leila De Lima reversed a ruling by her predecessor and dismissed 18 Bureau of Immigration (BI) staff members allegedly involved in trafficking activities.

There has also been talk of expanding and strengthening the Anti-Human Trafficking Act of 2003, with the filing of Senate Bill No. 2625 in December by eight senators.

According to Senator Loren Legarda, one of the bill’s sponsors, the amendments would expand the list of acts that are considered as promoting trafficking, increase legal protection for victims during various stages of investigation and remove the confidentiality privilege for the accused.

Why the fight is far from over. Despite these positive and promising developments, the Philippines still has a long way to go in its campaign against human trafficking, particularly due to a huge backlog of cases – 338 at the end of the TIP reporting period.

Meanwhile, according to the website humantrafficking.org, the number of Filipinas trafficked abroad range from 300,000 to 400,000, along with another 60,000 to 100,000 children, while the number of Filipino and foreign child victims in the Philippines range from 20,000 to 100,000.

The inefficient response of local police and anti-trafficking hotline staff is illustrated in a story posted on the website of STEER

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Philippines off US trafficking watch list, but anti-trafficking fight far from over

New challenges make eradication more difficult The human-trafficking menace becomes more daunting as the modern world is confronted with newer challenges that make eradication of human trafficking more difficult.

In its 2007 report, the State Department took note of the random factor in transnational trafficking, saying that “traffickers are seizing upon any targets of opportunity for exploitation and relying on vast distances and cultural and linguistic differences to increase the vulnerability of victims.”

The use of modern technology has also made trafficking more easy.

The 2008 TIP report discusses how new technologies, i.e., mobile phones and the Internet, facilitated the sale of a 17-year-old girl for commercial sexual exploitation.

In early August, US authorities announced the arrest of 52 people charged in connection with an online community of pedophiles that promoted the sexual abuse of children around the world, including the Philippines, by creating an private online bulletin board and having members post graphic images of children 12 years old and younger.

Furthermore, there have been fears that the economic fallout from the global financial crisis of 2008 and the shaky recovery since then may lead to an upsurge in human trafficking activities by increasing both the supply and demand side of human trafficking.

This fear was echoed locally, in a 2009 report on the Integrated Regional Information Networks website.

(Strengthening the Enabling Environment to Improve Response to TIP and Related Cases) Project, a U.S. Department of State-funded special project of the Philippine office of the Solidarity Center, an international non-profit organization that promotes workers’ rights.

The Trafficking in Persons report adds that rampant corruption and an inefficient justice system still hinder the resolution of trafficking cases, while NGOs have reported a “lack of understanding of anti-trafficking laws among judges, prosecutors, social service workers, and law enforcement officials” themselves, resulting in a huge backlog of pending trafficking cases.

At a June anti-human-trafficking seminar in Davao City, U.S. Ambassador Harry K. Thomas, Jr. told the gathering of judges and prosecutors that 25 convictions was not something to celebrate. “Yes, we have made progress, but we cannot drink champagne,” the Philippine Daily Inquirer quoted him as saying.

“Along with a possible upsurge of criminality as joblessness and poverty spread, there could be a rise in cases of human trafficking,” lawyer Ferdinand Lavin, chief of the National Bureau of Investigation (NBI) Anti-Human Trafficking Division, was quoted as saying. “People will be more aggressive in finding jobs and human traffickers will take advantage of the situation,” he elaborated.

From the first TIP report in 2001 up to 2003, the Philippines kept its Tier 2 status, but in 2004 was demoted to the watch list due to the government’s failure to provide evidence of improved efforts to curb human trafficking.

In 2006, the Philippines was taken off the watch list because of significant progress in the implementation of its Anti-Trafficking in Persons Act of 2003, and in the prosecution of human traffickers – in 2005, the period reviewed in the 2006 report, the country saw its first sex-trafficking conviction.

However, in 2009, the country was put back on the watch list due to a low number of convictions of trafficking offenders despite an increase in the number of cases filed in court.

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18

The beginning of the end for plastic bags?

By Marishka Noelle M. Cabrera

If you’ve been to your favorite supermarket lately, you might have thought you saw posted announcements charging more for extra bags, encouraging shoppers to reuse bags or to bring their own bags or containers.

It’s not your imagination.

In October, supermarkets began to observe the ‘No Plastic Bag Day’ once a week, after the Department of Environment and Natural Resources signed a memorandum of agreement with the Earthday Network Philippines and 12 major supermarket chains.

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Back to the bayong? In April, Senator Loren Legarda filed Senate Bill 2759 (the Total Plastic Ban Act of 2011), which if passed, will prohibit the use of non-biodegradable plastic bags by supermarkets, groceries, public markets, restaurants, fast food chains, department and retail stores, and other similar establishments, with corresponding penalties for violators.

In advance of that national initiative, however, localities have been acting on their own in trying to curb the use of plastic bags.

In January, Muntinlupa City became the first local city to implement a citywide ban on plastic bags and polystyrene (styrofoam) containers. Towns in Nueva Ecija will also

implement a plastic-bag ban. Other cities and towns have reportedly adopted similar bans already, namely Batangas City in Batangas, Carmona and Imus in Cavite; Sta. Barbara in Iloilo; Biñan and Los Banos in Laguna; Burgos in Pangasinan; Lucban and Infanta in Quezon; and Antipolo City in Rizal.

In Pasig City, the ordinance banning the use of plastic bags for dry goods and regulating it for wet goods was approved last year and is now taking effect. Likewise, the Laguna Lake Development Authority (LLDA) issued a board resolution banning the use and distribution of “thin-film, single-use, carryout, non-biodegradable plastic bags” in the Laguna Bay region.

So what’s up with plastic bags?

The environmental impact of plastics.

When the first plastic bag was created from polyethylene in the 1950s, it seemed inevitable that this cheap, lightweight item would become part of everyday modern existence.

Since then, the plastic bag has become a symbol of thriving urban consumer consumption, emblazoned with brands and store names and carrying everything from groceries to clothes to various and sundry little items for us to carry back home.

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Decades later, however, it has become the tip of an iceberg of plastic junk menacing the world’s aquatic life, and quite literally, a manmade, petroleum-based blight on the earth itself.

Around 500 billion to one trillion plastic bags are used every year, and it takes between 450 to 1,000 years for plastics to break down in a landfill, according to the World Wildlife Fund (WWF). A Greenpeace study, Plastic Debris in the World’s Oceans, estimates that at least 267 different species suffered due to entanglement or ingestion of marine debris or solid waste that found its way into the ocean, including plastics.

More alarming is that plastic items, once thought to float in oceans for years without decomposing, do in fact break down because of exposure to sun, rain, and other environmental factors, thereby contributing to the ocean’s contamination, according to a study reported by BBC. The WWF explains that most plastic bags are made of polyethylene, which makes them non-biodegradable. They do break down under exposure to sunlight, but into smaller toxic particles that can contaminate soil and water and find their way into the food chain.

In response to environmental concerns about plastics proliferation, the Global Plastics Associations, a worldwide coalition of plastics-industry associations, declared that “plastics should be responsibly used, reused, recycled, and finally recovered for their energy value.” Furthermore, it said, plastics as marine debris are a result of poor waste management and insufficient recycling facilities.

A concern echoing around the globe

The reactions from local businesses. The Philippine Plastics Industry Association (PPIA) is opposing a complete ban on the use of plastic bags, saying that the industry is in fact willing to work with local governments for its proper disposal by buying back plastic products for recycling.

Rising global concern over the proliferation of plastic bags has compelled countries to ban or tax their continued use.

Ireland, for example, imposed taxes on plastic shopping bags in 2002. The BBC reports that the “plastax” has slashed the country’s use of plastic bags by more than 90 percent, and brought in millions of euros in additional revenue. That same year, Bangladesh banned polyethylene bags after they were found to be clogging the country’s drainage systems, greatly contributing to massive floods in 1988 and 1998.

“The issue should not be against plastic bags, but should be viewed as a discipline issue,” PPIA president Crispian Lao told The Philippine Star. He also pointed out that the move will affect plastic-bag manufacturers, which account for at least 60 percent of the local plastics industry. (The PPIA is a member of the Global Plastics Associations, and a signatory to the afore-mentioned declaration.)

In March 2007, San Francisco became the first city in the United States to ban plastic shopping bags, as reported in SFGate.com. In January 2008, The New York Times reported, China announced that effective in June of that year, it would ban stores from giving free plastic bags to customers, in order to encourage the use of cloth bags and shopping baskets. The Huffington Post reported that on New Year’s Day of 2011, Italy’s ban on single-use plastic bags went into effect.

For its part, the Philippine Chamber of Commerce and Industry (PCCI) is urging the government to further study the proposal, and for the National Solid Waste Management Council, through the National Ecology Center, to evaluate and identify first which products are unsafe before “implementing a sweeping ban and environmental levy scheme on plastic bags,” according to a

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The beginning of the end for plastic bags?

Philippine Daily Inquirer report. Moreover, the PCCI fears that such a ban would affect about 300 plastic-bag manufacturers and processors and some 175,000 workers.

Reaping the ban’s benefits already.

Meanwhile, Muntinlupa City has since reported reaping the benefits of a plastic and styrofoam-free city. Six months after the ban,

Biodegradable plastics Conventional plastic bags are often made of polyethylene, a petroleum-based, non-biodegradable material. In the quest to find alternatives to the conventional plastic bag, companies are coming up with what is called biodegradable plastic, or simply, plastic that can be assimilated back into the environment within a period of time after its useful life.

One such biodegradable plastic is the oxo-biodegradable plastic. The Oxo-biodegradable Plastics Association, in its briefing paper, describes oxo-biodegradable plastic as no different from regular plastic except that it has a “pro-degradant formulation [that] is added to 99% polymer at the factory”. The formulation is said to turn ordinary plastic at the end of its useful life into a material that is biodegradable in the presence of oxygen and sunlight, “in the same way as a leaf”.

In the Philippines, BioMate, an additive that makes plastics biodegradable, was issued the Environmental Technology Verification (ETV-013) by the Industrial Technology Development Institute under the Department of Science and Technology. Manufactured by First in Colours Inc., BioMate is said to degrade plastics via a twostep process. First, the plastics break down due to oxidation, and then it “biodegrades after attaining a molecular weight suited for consumption of microorganisms.,” meaning that the plastic is converted to water, carbon dioxide, and humus.

But are biodegradable plastics really as eco-friendly as they claim? The European Plastics Recyclers Association cautions that these kinds of plastics bags may actually bring more harm than good. The Guardian’s environmental blog Greenwash discusses two main criticisms: First, “some research suggests that the bags don’t degrade as well as claimed,” and second, “priming plastic bags for destruction is itself an ecological crime” since plastic bags use up a lot of oil and energy to make in the first place. Further, biodegradable plastics can only fully decompose under certain conditions. In landfills, where most plastics end up, oxygen needed to induce the process is scarce, while the humidity can practically halt degradation.

Eco-plastics company BDP says that some biodegradable plastics decompose into toxic or harmful substances, and that in order to for the plastic to be truly “green,” it has to be compostable.

In contrast to biodegradable plastics, bioplastics are made from natural materials like polylactic acid (PLA) derived from corn. PLA is both renewable and, in principle, compostable, or it can “break down under certain conditions into harmless natural compounds,” as discussed in the Smithsonian Magazine’s “Corn Plastic to the Rescue.” The article notes that, “In some ways, corn plastic is clearly easier on the environment,” since it uses less energy to produce than conventional plastics, contains no toxins, and generates fewer greenhouse gases.

Industry experts are still unsure if corn plastics can indeed hold up in the long term.

It may be too early to tell whether or not ditching the traditional plastic bag for its biodegradable counterpart is a sustainable option, but while the debate is ongoing, the Discovery eco-blog Treehugger maintains that reusable canvas bags are the best alternative. Citing an Australian study, canvas bags are said to be “14 times better than plastic bags and 39 times better than paper bags, assuming that canvas bags get a good workout and are used 500 times during their life cycle”.

In any case, kicking the plastic-bag habit may still be the way to go. As advocated by the World Wildlife Fund, it basically boils down to the 3 Rs: Reduce, Reuse, Recycle. Simple solutions, such as refraining from using plastic bags when you don’t really need them and instead replacing them with organic reusable bags, or using plastic bags as many times as possible, can go a long way.

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The beginning of the end for plastic bags?

the Muntinlupa City government says that flooding in the area has eased and the amount of garbage collected has been reduced.

Going green Whether you’re in the business of plastics or not, adding a little bit of green to your corporate image goes a long way. This is the reason why more companies are turning their corporate social responsibility programs into ways of saving the environment, such as ABS-CBN’s Bantay Kalikasan, the Development Bank of the Philippines (DBP) being ‘The Bank for the Environment’, the Manila North Tollways Corporation Tullahan River Project, Boysen Philippines’ KNOxOUT paint, which is proven to absorb noxious fumes and gases from the air, and Coca-Cola Philippines’ plant billboard along EDSA that is said to absorb air pollution.

In Entrepreneur magazine’s 10 Trends That Could Change Your Business, green is in. “If you’re not thinking about all the ways to go green, you’re way behind the curve,” it says. Capitalizing on “sustainable profitability” is another thing. This concept sparked the rise of eco-businesses in the Philippines like Pedala, a messenger service using bicycles; Messy Bessy, a line of safe, non-toxic, biodegradable household cleaning products; Thriv, bamboo cotton sports apparel; and many others featured in the blog Pinoy Green Academy.

Even big companies are riding on this trend in hopes to capture a growing eco-conscious demographic. In an effort to minimize plastic bag use among its customers, SM Supermalls launched its own line of reusable shopping and tote bags. At 35 pesos each, SM patrons can carry their groceries and other purchases in these polypropylene bags.

Metro Manila Development Authority chairman Francis Tolentino lauded the move, declaring in a Philippine Star report, “The MMDA strongly encourages local government units to adopt similar strong measures such as these to combat the dangerous effects of environmental degradation which leads to massive flooding and climate change.”

Needed: a new consciousness about waste. In the end, whether or not plastic bags should be taxed or outright banned in the Philippines, it shouldn’t be denied that the burgeoning threat to the environment is something that must be addressed, beginning with developing a consciousness about how much waste we generate and what we can do to minimize its environmental impact.

Investing in recycling facilities, encouraging and supporting industries that make use of scrap materials to make new products, efficient waste collection, promoting and practicing waste segregation and disposal are just some ways that both the public and private sector can work together.

With the environment in the balance, one can’t afford to sit idly by and not do their part.

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The Philippines: Scaling a steep slope of competitiveness

By Verbo Bonilla

Last May, the National Competitiveness Council set a goal of leading the Philippines to the top 30 to 50 countries in terms of competitiveness by 2016.

the Philippines placed 85th out of 139 countries surveyed, ahead only of Cambodia among eight ASEAN countries covered.

Other surveys and studies on country competitiveness similarly find the Philippines approaching the bottom rankings: The Swiss-based International Institute for Management and Development’s IMD World Competitiveness Yearbook last May, where we dropped to number 41 from number 39 out of 59 economies, ranking lowest among the ASEAN countries it covered; the International Finance Corporation’s Doing Business 2011 Survey, where we slipped to number 148 from number 146 out of 183 countries, and; Asia Competitiveness Institute’s ASEAN Competitiveness Report 2010, which

In setting this goal, Bill Luz, the privatesector co-chairman of the coordinative body, wrote in a column in the Philippine Daily Inquirer, “Tracking these surveys and improving our rankings in them are important,” noting that major investors look at global surveys such as the World Economic Forum’s Global Competitiveness Report before making investment decisions.

The Philippines’ current standing in various global surveys. In the WEF’s Global Competitiveness Report 2010-2011,

The most problematic factors for doing business

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Access to financing ................................. 24.6 Inadequate supply of infrastructure........... 21.2 Corruption............................................... 15.0 Policy instability......................................... 9.8 Government instability/coups..................... 9.8 Inefficient government bureaucracy ........... 5.7 Inflation ................................................... 5.5 Inadequately educated workforce.............. 2.8 Crime and theft......................................... 2.8 Poor work ethic in national labor force....... 2.5 Foreign currency regulations...................... 1.7 Restrictive labor regulations........................ 1.4 Poor public health...................................... 1.4 Tax regulations.......................................... 1.1 Tax rates................................................... 1.1 0

5

10 15 20 PERCENT OF RESPONSES

25

30

Note: From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

Source: The Global Competitiveness Report 2010-2011 © 2010 World Economic Forum

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The Philippines: Scaling a steep slope of competitiveness

ECONOMY EVERVIEW REGION INCOME CATEGORY POPULATION GNI PER CAPITA (US$)

East Asia & Pacific Lower middle Income 91,983,102 1,790.00

TOPIC RANKINGS

DOING BUSINESS 2011 RANK

148

DOING BUSINESS 2010 RANK

146

CHANGE IN RANK

-2

DB 2011 Rank

DB 2011 Rank

Change in Rank

Starting a Business

156

162

6

Dealing with Construction Permits

156

124

-32

Registering Property

102

102

no change

Getting Credit

128

125

-3

Protecting Investors

132

131

-1

Paying Taxes

124

133

9

Trading Across Borders

61

68

7

Enforcing Contracts

118

118

no change

153

153

no change

Closing a Business

Source: Doing Business 2011 data for Philippines

placed the Philippines at number 89 out of 132 countries.

The NCC’s goal is ambitious, to say the least. Reaching the top third in these surveys means keeping up with countries such as China, Thailand, Spain, and Italy, and edging out the likes of Vietnam and India. It means making a marked improvement, particularly in those indicators where we consistently measure poorly.

Most of these surveys and studies on country competitiveness agree on where the Philippines needs to improve: • logistical infrastructure – critical for facilitating and even determining the very kinds of economic activities in a country.

• political institutions – the maturity of political or governance institutions influences the stability of investments • transaction flows – the efficiency with which transactions are conducted between businesses and the government can dampen or boost business initiatives In a conscious attempt to raise our competitiveness, the Aquino administration last June announced that the indicators from the WEF report have been mapped to the Philippine Development Plan 2011-2016 and matched to relevant government agencies.

“The competitiveness indicators will be used in our agency’s results matrix, which will

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become the basis for monitoring and assessing the country’s performance,” said Rolando G. Tungpalan, National Economic and Development Authority deputy director-general, in a BusinessWorld interview .

Recently, President Aquino has approved the 2011 Investment Priorities Plan (IPP), which lists 13 preferred activities, including the government’s flagship Public-Private Partnership program, that are entitled to special incentives.

Government needs to do more, and quickly. Indexing our agencies’ performance to competitiveness indicators is a good start, and may prod agencies to perform better.

Even then, without the corresponding institutional and regulatory reforms, they are bound to fall short of the target. Government agencies can, after all, only do so much within a given policy environment.

IPP: Ineffective hodgepodge of incentives? Meanwhile, the hodgepodge of incentives that is the IPP has so far proven ineffective, judging from the foreign direct investments we have been attracting in the past.

Figures cited by Arangkada Philippines 2010, an advocacy paper of the Joint Foreign Chambers of the Philippines, show our country attracting the lowest yearly and accumulated foreign direct investment among ASEAN-6 countries – Indonesia,

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The Philippines: Scaling a steep slope of competitiveness

Malaysia, the Philippines, Singapore, Thailand, and Vietnam – since 1990. And early this month, the Bangko Sentral ng Pilipinas reported a 15.1 percent decrease in foreign direct investment for the first four months of 2011 compared to the same period last year.

An ADB paper that focuses more on the incentives aspect of competitiveness, Philippines: Strengthening Investment Climate and Competitiveness, even recommends the abolition of the Investment Priorities Plan, and the rationalization of incentives, contrary to recent government action.

Improving the country’s competitiveness requires more than just recalibrating agencies’ performance.

Administrative and legislated reforms needed for competitiveness. In an April 2010 policy monograph titled Economic Reforms for Philippine Competitiveness by the Faculty of Management and Development Studies of University of the Philippines’ Open University, administrative and legislated reforms are needed to improve our macroeconomic stability, ensure adequate infrastructure, enhance government efficiency, and lower the cost of government and business transactions.

Among 23 recommendations the paper makes are: • rationalization of fiscal incentives • amendments to the Electric Power Industry Reform Act (EPIRA) • infrastructure financing • simplified net income taxation scheme • amendments to the Internal Revenue Allotment system • amendments to the Build-OperateTransfer Law (BOT) • an anti-trust act • creation of a Department of Information and Communications Technology • a Freedom of Information Act • a Political Party Reform Act. Perhaps not surprisingly, an Asian Development Bank (ADB) paper titled Philippines: Critical Development Constraints makes quite similar recommendations, although its focus is on Philippine development as whole, and not just on improving competitiveness. Specifically, the paper recommends administrative and legislated reforms to expand the fiscal space, accelerate infrastructure development, institute good governance, expand the industrial base and make opportunities more equitable through education and training.

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Improving the country’s competitiveness requires more than just recalibrating agencies’ performance. It requires crafting a sound legislative agenda and mustering crucial reforms through Congress, something that is often difficult to subject to any target or time schedule.

What has our government done then in terms of pursuing these critical reforms? Early this year, the LegislativeExecutive Advisory Council (LEDAC), an assembly that sets government’s legislative agenda, met and decided on 23 priority bills of the Aquino administration. It is encouraging to note that some of the bills recommended by the studies above were included in the LEDAC list, including amendments to the EPIRA, consolidation and rationalization of fiscal incentives, and amendments to the BOT Law. However, at the end of the first regular session of the 15th Congress, only four of the priority bills -- and none of the 23 UP Open University-recommended bills – have been passed. In his 2011 State of the Nation Address, President Aquino also failed to disclose any plan to raise Philippine competitiveness, much less discuss these priority bills.

Clearly, the Aquino administration must set improving Philippine competitiveness as a major concern and work more closely with Congress in getting its priority bills passed into law.

Beyond legislative reforms, however, is a more fundamental issue. Also cited as a major reason for the Philippines’ inability to attract high levels of foreign investments is the 40% foreign ownership restriction set by the Philippine Constitution (Article XII) on strategic sectors of the economy, such as in mining and public utilities.

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The Philippines: Scaling a steep slope of competitiveness

A World Bank report titled Investing Across Borders: Indicators of Foreign Direct Investment (FDI) Regulation, for instance, cited our country as having one of the strictest regulations on foreign ownership, second only to Ethiopia. Noted economist Dr. Bernardo Villegas also opined, in a Philippine Daily Inquirer column, that the constitutional restriction is a “major explanation” why FDIs are low in the Philippines. Dr. Villegas then challenged the Aquino administration “to lay the groundwork for the amendment of the many unreasonable restrictions contained in the Philippine Constitution.”

and passage into law of deep-seated reforms.

Overcoming the weaknesses pointed out by the various surveys and studies on competitiveness cannot be done by simply drumming up incentives and launching new projects.

Meanwhile, pending revision of the Philippine Constitution, the Arangkada paper recommends “creative but legal solutions” and the exploration of exceptions to the 60-40 foreign equity rule for public utilities.

Not just a matter of more incentives and more projects. Clearly, raising Philippine competitiveness to the top third rung of the global rankings requires more work from government, involving the adoption

For instance, improving the country’s logistical infrastructure requires funds that will become more readily available with infrastructure financing, a simplified taxation scheme, and the Fiscal Responsibility and Amendments to the IRA acts recommended in the U.P. Open University paper. Our political institutions, meanwhile, could be improved with reforms such as the Freedom of Information Act and Political Party Reform Act. While we understand that the required changes cannot be done overnight, the next few years will be vital in making headway on these crucial reforms. Failure to make significant progress will relegate our country to the bottom of the rankings once again, and further impair our ability to pull up alongside our neighbors.

Business impact of rules on FDI, ASEAN-6 rank, 2009-2010 1 1

SINGAPORE

2010-11 2009-10

VIETNAM

29 27

MALAYSIA

31

43 39

THAILAND INDONESIA

44

41

49 98 97

PHILIPPINES 0

20

40

60

80

100

120

Source: WEF Global Competitiveness Reports; Total number of countries evaluated: 2009-10 (133); 2010-11 (139)

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The long road to PPP

By Verbo Bonilla

1) NAIA Expressway (Phase II) linking the Skyway and the Manila-Cavite Coastal Expressway (₱10.6 billion); 2) DaangHari – SLEX Link Road, a 4-km road from Alabang to Bacoor (₱1.6 billion) ; 3) MRT/LRT Expansion Program: Privatization of LRT 1 Operation & Maintenance (₱7.7 billion); and 4) NLEXSLEX Connector, an elevated expressway running above the train line from Caloocan to Makati (₱21 billion).

The government’s February 2011 audio-visual presentation on Public-Private Partnerships, uploaded to YouTube.

Over a year ago, President Benigno S. Aquino III hailed public-private partnership (PPP) as a major development thrust of his new administration. “We will make sure that the Build-Operate-and-Transfer projects will undergo quick and efficient processes,” he said in his first State of the Nation Address.

“With the help of all government agencies concerned and the people, a process that used to take as short as a year and as long as a decade will now only take six months.”

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Today, none of the 10 initial PPP projects have been bid out, despite tentative schedules for rollout throughout this year. The lone project set for bidding, the LRT-MRT light rail management contract, was deferred, just as the implementing agency, the Department of Transportation and Communication, was welcoming its new Secretary, former senator and Aquino running mate Manuel A. Roxas.

Delay tempers initial optimism. The delay has tempered somewhat the optimism that greeted PPP at the Infrastructure Philippines investors conference last November, which announced 10 projects for 2011. Since then, the list has been streamlined to focus on a first batch of four projects:

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The reality is setting in, that there is much preparation to be done before even one project goes on the block, such as implementing guidelines, bid documents and feasibility studies.

Really ready for PPP? In asking “Is the Philippines really ready for PPP?” former Justice Secretary Alberto Agra, now with Forensic Solutions, a think tank offering services in the fields of policy, law reform, advocacy and governance, points out that a decision process has to be undergone before concluding that PPP is the proper way to go for any project. He also lists 11 assessments that should have been done by the public implementing agency before the government selected the above-mentioned projects.

While citing the benefits of PPP, the ADB Public-Private Partnership Handbook also lists four broad categories of PPP preparatory work: legal, regulatory, and policy frameworks; technical issues; institution- and capacity-building; and, commercial, financial, and economic issues.

The preparatory work is meant to ensure that the PPP projects, which require substantial amounts of money over years or decades, can provide returns for both the public-sector and the private-sector partners.

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The long road to PPP

Questioning the strategy itself. Beyond PPP implementation issues, there are also experts and academics questioning the strategy itself.

The Asian Development Bank, a noted PPP proponent, in its recent report, “Philippines: Private Sector Assessment,” called attention to constraints in PPP implementation in the Philippines, i.e., unclear policy and regulatory framework, a cumbersome government approval process, and a lack of bankable projects.

A University of the Philippines School of Economics discussion paper, “Determinants of Outcomes of Public-Private Partnerships in Infrastructure in Asia” (March 2010), examined cross-country data from the World Bank on private participation in infrastructure, and cites six major factors that can affect PPPs: 1) the macroeconomic environment; 2) incentive issues; 3) political risk; 4) fiscal capacity of government; 5) firm-embodied traits; and, 6) reasons such as regulation and credit risks.

Still others ask whether other, more traditional, procurement procedures would have yielded better results and at less costs. The leftist Freedom from Debt Coalition, in its position paper, cites the Philippine experience on problematic PPP projects in arguing for alternatives such as Labor-Based EquipmentSupported technology and public-public partnership.

A 2006 report by the New Zealand Treasury that finds there is “little reliable empirical evidence about the costs and benefits of PPPs,” a finding that seems supported by a review of relevant literature. A more recent Portuguese study, “Do Public-Private Partnerships Create Value for Money for the Public Sector?” (2010), shows that public-private partnerships did not add value for money and that traditional procurement would have been less expensive for Portugal.

Has the Aquino administration done its homework? Amid all these concerns, the question to ask might be: has the Aquino administration done its homework for the PPP program? The government would like us to think so, even as Finance Secretary

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Cesar Purisima, in saying that PPPs are on track despite delays, said in a BusinessWorld report: “We want to build a good, sustainable foundation. We don’t want our projects to be questioned and not stand scrutiny.”

In laying the groundwork for PPP, the former BOT Center was reorganized into the PPP Center and tasked with overseeing the PPP program. The PPP Center website lays out the process flowchart for project approval and bid. In terms of incentive issues and regulatory risks, the PPP Center, in the frequently asked questions section of its website, lays out the government’s preference for solicited over unsolicited proposals and the guarantee offered against regulatory risks.

With regard to government’s fiscal capacity, the issue is whether the Philippine government will be able to stand by the required counterpart funding given its low fiscal standing. To ensure adequate funds, the government aims to set up a Philippine Infrastructure Development Fund with the help of international financial institutions.

In terms of risks from the macroeconomic environment, the government in its Philippine Development Plan 2011-2016 states a commitment to a stable macroeconomic policy.

The concerns of prospective PPP investors, however, tend to be longer than six years, and need more assurance beyond general statements of policy.

The Aquino administration assures prospective investors that the risks associated with PPPs are being minimized by government. In addressing political risk, President Aquino’s speech at the infrastructure summit promised that deals would now be done “in the broad light of day”, where rules are clear, honest and transparent, in contrast to alleged “backroom deals” in the past.

Reviewing, cancelling, renegotiating, alarming. Despite those assurances, President Aquino recently alarmed the foreign investment community when he reviewed three contracts, then canceled a Belgian-funded lake-dredging project, ordered a Frenchfunded ports contract renegotiated, and a Chinese-financed rail line reassessed — all due to alleged contract anomalies.

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The long road to PPP

Those actions prompted a warning from Hubert d’Aboville, president of the European Chamber of Commerce in the Philippines, who told the ABS-CBN News Channel that the government was hurting investor confidence by renegotiating contracts done in good faith and in accordance with the law.

Negating foreign ownership = ‘economic suicide’? Another development may give foreign investors further pause. Late last month, in a case questioning foreign shares in Philippine Long Distance Telephone Co. (PLDT), the Supreme Court ruled that under the Constitution, the 40%-foreign-ownership limit for public utilities applies to common (voting) shares, rather than both common and preferred stock, which was the decadesold working definition of a venture’s total capital. PLDT chairman Manuel V. Pangili-

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nan, whose group also has stakes in power giant Meralco, water provider Maynilad, and expressway operator Manila North Tollways Corp., called the decision “economic suicide.”

In his 2011 State of the Nation Address, President Aquino also failed to report anything about his flagship PPP program, a significant omission that was not lost on a group of businessmen, as reported in the Philippine Daily Inquirer.

For now, however, PPP is still a go. The government recently issued assurances that the much-awaited partnerhip program guidelines are under way. But investors are getting tired of yet more pledges to roll out the program. Until one deal actually gets done and without any hitches, PPP might still come to stand for “promises, promises, promises.”

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Keeping the Philippines a top BPO destination: What will it take?

By Marishka Noelle M. Cabrera

Based on the 2010 IBM Global Location Trends report, the Philippines has surpassed India as the leading business process outsourcing (BPO) investment destination in terms of estimated jobs. With industry and government efforts to promote the BPO sector apparently paying off, the question for the Philippines then becomes how to stay a top BPO destination.

Since its beginnings in the early 2000s, the worldwide BPO industry has become a US$280-billion market as of 2009, and is projected to be worth US$479.3 billion by 2016, based on forecasts from Outsourcing Opportunities in the MENA Region, a study by the Dubai Outsource Zone and global research firm Frost & Sullivan.

Information and communications technology (ICT) and the BPO industry are symbiotic, with the outsourcing market thriving on continued ICT improvements. Because of rapid advances in ICT, companies are now able to do business beyond the confines of

physical space. Companies in North America and Europe can now outsource the work of entire departments to locations across the globe, where labor and operating costs are significantly lower.

The local BPO industry, at a glance.

Along with other developing countries, the Philippines has benefited from this global phenomenon, raking in a total of $8.9 billion in revenues in 2010, according to the Business Processing Association of the Philippines (BPAP) publication, Philippines: The New Outsourcing Hub. Still, the Philippines will lag behind China and India in terms of revenues. Canadianbased ICT think tank XMG Global predicts that of the offshoring segmentâ&#x20AC;&#x2122;s projected $144.8 billion in 2011 revenue, India will account for 42.5% of that revenue, or $61.5 billion, China will account for 31.5%, or $45.7 billion, while the Philippines will account for 7.4%, or $10.7 billion.

Global Market Size (2009 â&#x20AC;&#x201C; 2016) US$ billion

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280

290

2009

2010

320

2011

340

2012

375

2013

405

2014

Source: Frost and Sullivan

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Keeping the Philippines a top BPO destination: What will it take?

BPO Industry at a Glance, from the Senate Economic Planning Office places the number of companies in the industry at 618, with export revenues of US$6 billion by the end of 2008, from only US$1.4 billion in 2004. BPO companies include contact centers and backoffice services, along with data-transcription, animation, software, engineering, and gamedevelopment operations.

Percentage Distribution of BPO Companies, by sector, 2008 Transcription 22%

Animation 8%

Information Technology 19% Engineering Services 7%

Back-Office 13%

Contact Center 31% Source: Business Processing Association of the Philippines (BPAP)

The BPAP website lists top BPOs, including SPi Global, the largest Filipino-owned BPO; the Ayala-backed eTelecare Global Solutions Inc.; back-office operations of major international corporations such as IBM, Accenture, Convergys, and Hewlett-Packard Phils.

Corp.; and contact centers such as Teleperformance, Teletech, and TELUS International Philippines.

The local BPO sector is touted as a sunshine industry; the BPAP, in its Philippine IT-BPO Roadmap 2016: Driving to Global Leadership, predicts that the local BPO sector can expand, from US$15 billion to US$25 billion in revenues, with 900,000 to 1.3 million jobs by 2016, through stronger “industry effort and government support.”

Competitive advantages and disadvantages. In comparing the Philippines with other BPO locations in Asia, Eastern Europe, and Latin America, the 2005 McKinsey Global Institute report, The Philippines’ Offshoring Opportunity, cited the country’s competitive advantages: strong Englishlanguage skills, a more American accent than that of their counterparts in India, familiarity with Western culture, and a large pool of suitable graduates for various fields, e.g.,

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generalist call-center jobs, finance, accounting, and engineering.

The House of Representatives policy advisory Philippine BPO-IT Industry Performance and Prospects observed that the Philippines, despite having the highest electricity cost in Asia, remains competitive because of its low Internet, broadband, and office space rental costs. However, the 2009 study also posited that the Philippines is still lagging behind in terms of governance and business environment, i.e., scoring high on perceived corruption and low on perceived government transparency (see Tables 3 and 4, on the next page).

The study also cited a poor investment environment, i.e.., the average time it takes to start a business (58 days, compared to the Asian average of 34), and the shortage of qualified labor arising from a low hiring rate (6% to 10%) combined with a turnover rate of 18%.

A promising future, but not without problems. Even with a promising future, challenges continue to test the resiliency of a sector whose contribution has increased the country’s GDP by as much as 0.2 percentage points, based on Q1 2004 to Q2 2007 data of the National Statistical Coordination Board.

78 75 72 69 66 63 60 57 54 51 48 45 42 39 36 33 30

GDP Growth, with and without BPOs, 2004-2007

GDP w/ BPO GDP w/o BPO Q1

Q2

Q3

Q4

04-05

Q1

Q2

Q3 05-0

Q4

Q1

Q2

06-07 Source: NSCB

The busy month of June. In June, National ICT Month, President Benigno Aquino III appointed a new commissioner to join the Commission on Information and Communications Technology (CICT), which was created in 2004 by then-President

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Keeping the Philippines a top BPO destination: What will it take?

Table 3. Infrastructure for BPO, Cross-Country Comaprison Electricity Costs for Industrial Clients, 2006 (US $ per kWh)

Int.â&#x20AC;&#x2122;al Flnxed Telephone Costs, 2005 (US $per 3 min. to the US)

Internet Costs for 20 hrs. Dial-up per month, 2006 (US$)

Broadband Cost (US$ per 100 kbits/per month)

Office Rent Costs, 2007 (US$ per sqm. per year)

0.170

--

1.81

1.90

379

--

2.93

9.75

1.47

489

Asian Countries Philippines PRC India

--

0.41

6.78

3.56

1,301

Thailand

0.066

1.64

6.95

2.57

259

Indonesia

0.059

3.08

17.26

5.32

172

Malaysia

0.065

0.71

7.39

2.63

--

Singapore

0.096

0.70

11.74

0.25

1,102

South Korea

0.065

0.84

10.49

0.03

835

Taiwan

0.057

0.55

8.45

0.18

446

Brazil

0.122

0.77

25.98

1.20

--

Canada

0.055

0.48

8.90

1.08

577

Czech Republic

0.094

0.50

18.76

--

437

Mexico

0.099

2.61

20.05

6.24

436

Hungary

0.105

0.99

11.04

2.76

484

Ireland

0.122

0.59

31.06

--

1,223

Poland

0.073

--

11.27

1.27

741

Non-Asian Countries

Source: Institute for Management Development (WCY 2008)

Table 4. Governance, Cross-Country Comparison Corporate Tax, Rate on Profit, 2008

Bribing & Corruption

Corruption Perception Index (CPI) Ranking, 2008

Transparency of Government Policy

Asian Countries Philippines

35

0.94

141

1.58

PRC

25

2.08

72

4.64

India

34

1.82

85

3.87

Thailand

30

1.95

80

2.70

Indonesia

30

1.75

126

3.63

Malaysia

26

3.77

47

4.53

Singapore

18

8.41

4

7.70

South Korea

25

3.30

40

3.66

Taiwan

25

3.44

39

3.42

Brazil

25

1.33

80

2.62

Canada

34

6.64

9

5.43

Czech Republic

21

2.29

45

3.94

Mexico

28

1.86

72

4.00

Non-Asian Countries

Hungary

16

2.40

47

2.64

Ireland

12

6.00

16

5.88

Poland

19

2.35

58

3.65

Russia

24

0.47

147

2.71

South Africa

29

1.88

54

4.00

Note: 1 Perception survey, the higher the index score, the lesser likelihood that bribery and corruption exist and viceversa 2 Perception survey, the higher the index score, the more transparent government policy is and vice-versa Source: IMD (WCY 2008), Transparency International

Gloria Macapagal-Arroyo through Executive Order (EO) 269 and with a mandate to plan, coordinate, and regulate the promotion and development of ICT systems in government institutions.

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On June 29, the CICT announced its Philippine Digital Strategy 2011-2016 to serve as a roadmap for government initiatives in the field of technology in the next five years. Highlighting the need for amendments to existing legislation to spur the growth of the industry, the

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Keeping the Philippines a top BPO destination: What will it take?

plan proposed that ICT development be handled by a new Department of Information and Communications Technology.

Surprisingly, however, the CICT itself was demoted the next day, from a Cabinet-level commission to an office under the Department of Science and Technology (DOST).

The CICT head will now be replaced by an executive director who has yet to be appointed, according to a Philippine Daily Inquirer report. Presidential Communications Operations Office Secretary Herminio Coloma announced that the Aquino government was not keen on creating a new department due to the administrative costs, GMA News reported.

With the government’s reluctance to create a new department specifically to handle ICT concerns, industry groups are wondering about the present administration’s ICT strategy.

The quick turn of events prompted Senator Eduardo Angara, chairman of the Senate Committee on Science, Technology, and Engineering, to express his dismay. “Time will soon tell whether the downgrading of ICT is one of the short-sighted actions of the present administration,” he said in a commentary published in The Manila Bulletin.

Amid the criticism, DOST Secretary Mario Montejo assured the BPO industry that “the department will continue to push and support the IT-BPO industry,” as reported in the Philippine Daily Inquirer.

Industry doubts about government reorganization. However, Atty. Jocelle Batapa-Sigue, chair of the National ICT Confederation of the Philippines, believes that the subsumed ICT office “will not be as efficient” as before. “The DOST is ridden with bureaucracy. Now that ICT concerns [are] no longer a presidential concern but simply an office concern to be run by a mere executive director, things would be entirely different and slow,” she told GMA News.

Sigue noted the involvement of the CICT in preparing cities outside the National Capital Region (NCR) that were included in Tholons Top 100 Outsourcing Cities in the World, i.e., Cebu (4th), Davao (69th), Sta. Rosa (88th), Iloilo City (98th), and Bacolod (100th).

Identifying and addressing systemic problems. In his paper Strengthening Offshoring in the Philippines: Issues and Concerns, Professor Jorge V. Sibal of the University of the Philippines School of Labor and Industrial Relations (UP SOLAIR), underscored a few challenges, such as the mismatch between school curricula and industry demand, high attrition rates of contact-center workers, and lack of competent personnel for middle- and upper- managerial positions, among others.

A decline in the number of competent English-speaking professionals, attributed to the country’s declining quality of public education, is another apparent hurdle. In “E for English”, The Economist writes, “Callcentres complain that they reject nine-tenths of otherwise qualified job applicants, mostly college graduates, because of their poor command of English.”

The key to meeting the challenges ahead is to make the BPO industry sustainable both as an economic driver and a provider of viable careers for skilled workers.

Bridging the skills gap and anticipating future industry needs. Industry groups are calling for closer industry-school ties to bridge the skills gap. BusinessWorld reports that in order to “ensure a steady stream of employable graduates,” BPO stakeholders are calling for measures

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Keeping the Philippines a top BPO destination: What will it take?

that include an industry-government fund to subsidize universities raising standards for BPO-related disciplines.

“There is an urgent need to develop supervisors, middle managers, and more skilled workers to respond to increasing market demand for a broadening array of knowledgebased, complex services,” BPAP chairman Fred Ayala was quoted as saying, as part of an upcoming World Bank publication, Exporting Services: A Developing Country Perspective.

“Additional investments in human capital, strengthening of intellectual property rights through the passage of a comprehensive data protection law, and improvement of quality control may further promote the growth of high-value-added activities within the BPO industries not yet fully exploited in the Philippines and successfully tapped by other countries, such as India,” he continued.

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A KPMG paper The Indian ICT Industry believes that innovation in business model and processes, and in ‘go-to-market’ strategies are the keys to meeting the challenges of this highly competitive sector. IBM, likewise, advises BPO locations to be aware of changing market dynamics. They should be able to respond and adapt to emerging trends relevant to their own situation as an investment haven.

Meanwhile, an Asian Development Bank study titled Transforming the Philippine Economy: Walking on Two Legs cautions that while riding on the wave of the booming global BPO industry is integral, it is not the economy’s “savior,” one of the reasons being that it cannot accommodate the employment needs of unskilled workers. Rather, it would take the development of both industry and services to cure “chronic problems” of high unemployment, slow poverty reduction, and low investment, and induce a “higher, sustained, and more inclusive growth”.

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