Is PHs BPO Losing Competitiveness?

MANILA, Philippines - The business process outsourcing, (BPO), the country's sunniest industry, is slowly waning its competitive edge to India largely due to the appreciation of the peso against the US dollar compared to India's rupee, which has been devalued by as much as 25 percent, an economist said.

Economist Raul V. Fabella issued this warning during the ''Competitive Currency Forum'' organized by the Philippine Exporters Confederation (PhilExport) on Friday as exporters tackled what they believed as the ''oppressive'' foreign exchange rate policy of the Bangko Sentral ng Pilipinas.

''The foreign exchange has a very important impact on our competitor India in the BPO space,'' Fabella said. India used to be the global hub of BPO firms after it was by the Philippines, which is now the clear leader especially in the voice business.

Fabella pointed out that India's Rupee has devalued by 25 percent from January 2011 level of 44.67 to the current level of 55.62 against the US dollar.

''The trajectory of the Indian rupee has been downwards,'' Fabella said noting the rupee is geared for further weakening.

The Philippine peso, however, has been appreciating and is now hovering at below P42 to the dollar. This situation would make India more competitive than the Philippines, he said.

''Our BPO may not be able to hit the glorious targets and. Coupled with our appreciating peso that may not happen because they will be squeezed considerably,'' he said.

In 2011, the Philippines' IT-BPO industry generated more than $11 billion in revenue and employed almost 640,000 Filipinos.

Under the industry's roadmap, by 2016 the BPO industry t is expected to grow to $25 billion in annual revenue and employ 1.3 million, according to an industry road map.

In addition, Dr. Emma V. Teodoro, trustee of the Information Technology, Products and Services sectors, warned that in six years, the BPO industry will no longer be as attractive if the peso appreciates by three percent more.

BPO contracts are negotiated in US dollar terms and most of the current contracts with their clients were based on the P43-P42 level to the dollar.

The BPO industry is not the only affected export sector. Export leaders found themselves helpless in stopping the continued appreciation of the Philippine peso to its strongest in five years when it hit P41.68 billion the US dollar in the open market last month.

''The problem is bigger than the exports,'' said Sergio R. Ortiz-Luis Jr., president of PhilExport.

In one of the dialogues with top government officials including the panning chief and members of the Monetary Board, the policy making body of the BSP, it was revealed that had it not for the BSP intervention in the foreign exchange market, the peso would have reached P38 to the dollar.

''The BSP has admitted it has been losing money buying and keeping excess dollars entering the country to stem the rapid appreciation of the peso. It the past couple of years alone, it has lost P107 billion,'' Ortiz-Luis said.

Ortiz-Luis suggested for the whole economy to truly benefit from the strong peso, the BSP continue to pay in advance the government's billions of dollars in indebtedness and further relax the limits on the dollar purchases of private banks to ease the piling up of dollar remittances and export proceeds in the open market which is driving the peso even stronger.

The country's exports are expected to grow between 8 to 10 percent in 2012 from last year, but with the peso getting stronger exporters are starting to recalculate their assumptions.