MANILA, Philippines—The economy should pursue a development plan relying less on business process outsourcing (BPO), even if it has substantially boosted the services sector over the past decade, a ranking central bank official said.
BSP Deputy Governor Diwa Guinigundo said that while it has been prudent to generate more and more BPO investments for the sake of generating jobs and boosting income, the economy should pursue generating much more investments in industries such as manufacturing.
BPO investments, which are a type of non-equity mode (NEM) of investments, while easy to generate, are likewise easy to lose, according to Guinigundo.
Since companies could easily end contracts with outsourcing firms, jobs and income being generated by the BPO sector have been deemed less stable than those generated by industries.
“Let’s get more NEM investments, but let us create an environment where we can rely less on them and more on industries,” Guinigundo said.
He said this in agreement with comments from the World Investment Report 2011, launched on Tuesday, by the United Nations Conference on Trade and Development (UNCTAD).
According to the report, NEM investments have significantly contributed to the total foreign direct investments received by many developing countries like the Philippines.
The report said that in 2009, NEM investment activities worldwide generated about $2 trillion in revenues, adding that the figure for 2010 could be bigger.
“Cross-border NEM activity worldwide is significant and particularly important in developing countries. In most cases, NEMs are growing more rapidly than the industries in which they operate,” said the UNCTAD report.
The report also said, however, that while NEM investments have been helping drive economies of developing countries, heavy reliance on them carried risks.
“NEMs also pose risks for developing countries. Employment in contract manufacturing can be highly cyclical and easily displaced,” the report said.
The report also said some transnational companies might be outsourcing some of their job requirements to circumvent social and environmental standards.
The BPO sector, which includes the so-called sunshine industry that is the call-center subsector, has been credited for helping provide jobs over the past 10 years to offset weaker job generation in the past years by other sectors, such as manufacturing.
The Philippines last year surpassed India to become the world’s biggest call center player as more and more investments in the field were generated.