THE OFW ECONOMIC ENGINE
PHILIPPINE REALITY & REQUIRED REFORM ARISING FROM
THE GLOBAL FINANCIAL CRISIS
Loreto B. Soriano Manila February 2009
Copyright 2009 Loreto B. Soriano This paper is part of a work in progress on OFWs and their influence on the Philippine economy and
society. It is to encourage discussion and development of a plan to institute policy reform and
legislation. The findings, interpretations, and conclusions expressed in this paper are entirely those of
the author.
The Author may be contacted via e-mail: <[email protected]>
Abstract
The OFW Economic Engine
PHILIPPINE REALITY AND REQUIRED REFORM ARISING FROM
THE GLOBAL FINANCIAL CRISIS
By
Loreto B. Soriano February 2009
The Philippines is not immune, but very susceptible to the global financial crisis.
Detrimental domestic effects will deepen as the country’s main economic fuel of
remittances starts to slow and decline. Overseas Filipino Workers (OFWs) job losses
will increase as less than 5% of OFWs are employed in recession-proof occupations.
Estimated ‘Professionals’ only represent a maximum of 15% of the total number of
overseas remitting Filipinos and this percentage could be considerably lower
dependent on the category definitions used in compiling relevant data. Much of the
OFW statistical data that has been used as the basis for official policy planning and
projections appears to be flawed and could be overstated.
Recent years of the record growth of remittances have been due in part to a shift from
unrecorded informal (non-banking) channels to officially recorded formal (banking)
channels, rather than the growth in OFW deployments. The exceptionally high
percentage of remittances to GDP of approximately 14% has exposed the Dutch
Disease that has plagued the Philippines for many years and illustrates the precarious
dependence the Philippines has on OFWs. However until now, remittances have not
provided the economic benefits to the country they should have.
Most other economic sectors are contracting and unless the Philippines can take
appropriate action to minimize the impending loss of OFW jobs and opportunities,
remittances will decline markedly. The inability of retrenched and inactive OFWs to
pay their financial commitments especially for real estate and education could cause
serious implications to these enterprises and put strain on the banking sector.
Domestic unemployment would increase with a steep decline in domestic
consumption causing greater poverty incidence. The option open to the Government
is to adopt a new economic model including depreciation of the peso and a low
corporate tax regime with an OFW component.
©2009 Loreto B. Soriano.
Title i
Copyright ii
Abstract iii
Table of Contents iv
Abbreviations 1
Author’s Foreword 2
A New Norm for Sound Domestic Policy 4
Introduction 5 Understanding the Imminent OFW Fallout from the Global Financial Crisis Domestic Background 11
The Global (and Philippines) Reality 13
Globalization Relationships and Effects 14
Immigration and Realignment Limitations 15
Middle East Challenges 16
Oil and OFWs 16
Predictive Trends of the Coming Declines 17
Understanding the Economic and Social Effects of Remittances
Remittances and the GDP 20
Dutch Disease 23
Negatives Versus Positives 24
Business Gains 25
Seeds for Disaster? 26
Devaluation 26
Remittances and Poverty 29
The OFW and their Families 30
The Educational Experience /Deficiency 33
Understanding the figures
Data Importance 36
Annual OFW Deployments 37
OFW Categories and Data 39
Occupational Structure of OFWs 41
Potentials OFW and Irregular ‘Layoffs’ 44
Remittances 44
Mode Versus Amount 46
Remittance Origins 48
Remittance Fees 49
Understanding the Philippines manpower marketing
Marketing Void 51
Preparing a Plan 51
Getting the Roles Right 52
Target Markets 53
Shipping and Cruise Ships 54
Dissipation of Resources 55
Getting Ahead with Technology 56
Understanding the Philippine Recruitment Agency’s Role
The Laws and Disincentives 57
The Structure 58
Fees 59
Perceptions 59
Liability Reversal? 59
Industry Association 60
A New Economic Model with an OFW Component 61
The Elephant in the Room! 64
References v
Addendum x
OFW Summit and Taskforce Planning xi
Abbreviations ADB Asian Development Bank BPO Business Process Outsourcing BSP Bangko Sentral ng Pilipinas CEPII Centre d’Etudes Prospectives et d’Informations Internationales CFO Commission on Filipinos Overseas CHED Commission on Higher Education CSR Corporate Social Responsibility DA Department of Agriculture DECPG Development Economics Prospects Group – World Bank DEPED Department of Education DFA Department of Foreign Affairs DHS US Department of Homeland Security DOF Department of Finance DOLE Department of Labor and Employment DOT Department of Tourism DTI Department of Trade and Industry DSWD Department Social Welfare and Development DZMM ABS-CBN 630khz Radyo EC European Community FDI Foreign Direct Investments FPIF Foreign Policy In Focus FRBSF Federal Reserve Bank San Francisco GDP Gross Domestic Product IAMTN International Association of Money Transfer Networks IHPDS Institute of Health Policy and Development Studies ICT Internet Technology and Communications ILO International Labour Office IMF International Monetary Fund IOM International Organization for Migration IPS Inter Press Service LGU Local Government Unit MEED Middle East Economic Digest NACLA North American Congress on Latin America NCR National Capital Region NEDA National Economic Development Authority NGO Non Government Organization NLRC National Labor Relations Commission NSO National Statistics Office NYT New York Times ODA Official Development Assistance OEP Overseas Employment Provider OCW Overseas Contract Worker OFW Overseas Filipino Worker OWWA Overseas Worker Welfare Administration PCIJ Philippine Center Investigative Journalism PIDS Philippine Institute of Development Studies PNA Philippine Nurses Association POEA Philippine Overseas Employment Administration POLO Philippine Overseas Labor Office SM Shoe Mart Corporation TA Taxation of Alliance, United Kingdom TESDA Technical Education and Skills Development Authority TF Taxation Foundation, USA UK United Kingdom UNESCAP United Nations Economic Social Commission for Asia and Pacific USA United States of America WB World Bank
Foreword
For many years I have witnessed the growing importance of the impact that Overseas
Filipino Workers (OFWs) have had on the economic and societal fabric of our nation.
As an OCW (Overseas Contract Worker) based in Saudi Arabia in the 80’s, I
experienced both the personal economic benefits and the domestic downside costs and
sacrifices our family endured by having an absentee spouse and father. From these
circumstances, I gained a perspective that has since guided my actions in ensuring
that OFWs and their families are treated fairly and correctly at all stages of their
momentous journey. I believe that every effort should be made to minimize family
disruption while still providing them the opportunity to obtain their financial goals.
Over the last two decades I have become deeply involved in the managed migration
of workers. I have become increasingly aware of the myriad successes of OFWs and
of course their problems, tragedies and hardships which for many will now increase
exponentially given the effects on migrant workers of the global financial crisis. But
the most important outcome of the combined efforts of all the Filipinos who have
worked overseas from the very beginning in the sixties is that successive Philippine
Governments have squandered the national development benefits of their remittances.
Poverty is still rampant and the originally explicit ‘temporary’ nature of sending its
citizens overseas has become permanent. Not all OFWs have gained financially and
the family fabric can sometimes come under strains that distance and separation
brings.
My advocacy that I am assertively bringing to OFWs and the overseas manpower
stakeholders’ including the Government is based on a new economic model with a
major OFW component designed to finally bring the right benefits to OFWs and the
nation.
Economically, the Philippines continues to rely on the export of our human capital.
Now we have become addicted and almost totally dependent on the benefits of OFW
remittances, regardless of the damage to our society, especially our family structure.
Empirical evidence demonstrates that benefits have not reached the distant provinces
or the poorest of this nation. Yet business conglomerates have been built and continue
to flourish from OFW remittances.
In fact the economic importance of remittances is so great that any downward trend or
disruption to their flow will have dire consequences to the daily existence and
endeavors of all Filipino’s. The current financial crisis is by far the most serious threat
to OFW’s and their remittances since the Philippines officially sanctioned exporting
labor nearly four decades ago.
Unfortunately the perception that the Philippine remittances will continue unabated
with slightly reduced growth is founded on incorrect premises i.e. that OFWs are
mainly professionals in recession proof occupations. The vast majority are not.
Some economists, financial executives and business interests point out that recessions
are part of the business cycle and the Philippines is largely insulated from this one and
any contraction will be short-lived. Some will even have you believe that the worst is
already over. These claims fall in the face of unequivocal global evidence to the
contrary.
Whilst I have every confidence in the long-term future of the Philippines we are
headed for a financial struggle that will test our commercial viability and social
structure. The effects of large numbers of laid-off OFWs and those whose contracts
are not renewed are unknown.
Only a few countries in the Middle East, using Government and sovereign funds may
be able to sustain much of their current infrastructure projects and OFW manpower
demand.
However this crisis provides us with the opportunity to initiate recruitment
stakeholder reforms and institute comprehensive plans to implement financial,
marketing, educational and social programs. This will help the Philippines manage the
contraction effects and allow us to combat fierce global manpower competition.
These reforms can be a positive influence in the formulation of a new Philippine
economic model that is currently being advocated by economists, society (including
myself), and some legislators joining the call.
Given this looming crisis I felt compelled to compile this paper and use my thirty
years of experience and knowledge in the industry to give stakeholders a realistic
overview on the Philippines’ biggest net economic contributor. This is not an
economic or academic paper but an effort to provide a layman’s explanation of the
OFWs and their importance to our nation.
Failure to act now to protect and sustain the OFW economic engine will cause great
political and social uncertainty in the Philippines and possibly affect our capacity to
be a major regional and global player in the future.
A New Norm for Sound Economic Policy
"It's not just disappointment and frustration, this is the greatest moment we have
because things need to be changed, it’s as simple as that. We don't want to go back
to the same normalcy that we're coming from. We will create a new normalcy
which will stay and keep on moving and change the world." AP, January 31st 2009
Nobel Peace Prize winner Muhammad Yunus, founder of the Grameen Bank in Bangladesh and the
father of micro-credit, saw a silver lining in the financial crisis, when speaking at the 2009 Davos
Global Forum debates.
“These remittances reflect the great demand and high respect for Filipino workers
around the world. Their contribution to the Philippines economy is most
significant- around 13.5% of GDP, the largest share of remittances to GDP, among
the top five recipient countries.”
“Remittances are making a critical contribution to the quality of lives of Filipino’s
and to the resilience of the Philippine economy. But over the years excellent
performance of remittances may have contributed to complacency in addressing
fiscal deficits and low productivity growth.”
“Migration should not be viewed as a substitute for economic development in the
origin country as ultimately development depends on sound domestic policy”
J. von Amsberg, World Bank Country Director for the Philippines, December 2005
Introduction
The new millennium signaled the final phase of the Philippines’ slide into the
seemingly irreversible dependence on remittances. No other major population country
relies on remittances as does the Philippines. Remittances are the fuel that drives the
country’s domestic consumption economy. With virtually no “cost of goods sold”
they have a foreign exchange value that is greater than net exports, Business Process
Outsourcing’s (BPO) net income, Foreign Direct Assistance (FDA), portfolio
investments and tourist income combined. This makes the current global financial
crisis and its effects on migrant workers critical to the economy.
The Philippines is exposed and under threat of a substantial downturn in demand for
Overseas Foreign Workers (OFWs) and must take steps to minimize the imminent
effects. The lack of obvious overseas manpower retrenchments and the continued
releases of positive statements on the current and future OFW deployments and job
opportunities have lulled the nation into believing that the Philippines will get through
the crisis relatively unscathed. But the reality is that the decline has already started.
Europe, North America and Asia are in economic crisis, a recession of unknown
duration and depth. The Middle East is in a very real contraction with Dubai’s six
year boom transitioning into crisis. These are the Philippines’ major manpower
markets accounting for 90+% of OFWs. North America is home to 90+% of all
Filipino immigrants. It is only a matter of time before declining remittances becomes
apparent.
Contrary to popular belief that OFWs are employed in recession-proof industries and
a high percentage of them are professionals, they are not. Only approximately 13% of
the total OFW workforce is composed of professionals and that figure is steadily
declining. The so-called ultimate “recession-proof” healthcare industry only deployed
9000 Nurses in 2007, which is a mere 3% of all “new hires.”
In fact, the Philippine overseas manpower industry is very susceptible to the effects of
the global financial crisis. As the lack of credit continues to lower global demand for
goods and services, it will increasingly determine the near and medium term
employment levels of OFWs. There will be high OFW job losses, little or no entry
made into new manpower markets, or any significant expansion of existing ones until
at least the fourth quarter of 2010. Just as the crisis has arrived here later than most
countries have experienced, the Philippine recovery will also start later as the demand
for migrant workers will only increase once each country’s local labor is unable to
supply their needs.
Conservatively, 10+% of the current OFWs and ‘irregulars,’ could lose their jobs. It
will take many months before the extent of the losses becomes clear. Remittances
(both formal and informal) could decrease by more than US$2 billion year on year
commencing April 2009. Salaries and or conditions of those workers who are retained
are at risk of being reduced and may also add to the decrease in remittances.
In terms of overseas employment, the industry is currently transitioning from minimal
contraction into a trough, which is likely to commence in the 2nd to 3rd quarter of 2009
and unlikely to commence exiting out of it until at least the beginning in the 4th
quarter of 2010, or six to twelve months after the major global economies commence
their exit.
The alarm bells that have been rung by overseas employment service providers
(OESP) for many years are now reaching crescendo levels on the incompatibility of
college, technical and vocational courses with international content standards and
practical instruction and training. The Philippines is producing unemployable
candidates for most OFW job orders and yet the myriad of nationwide schools,
continue to ignore job market realities.
Significantly graduates and existing candidates for local jobs will also be
unemployable, as today Philippine commerce increasingly complies with international
standards. The fact is that CHED has not aligned curriculums with global
compatibility and allows Filipino parents to pay fees to schools which are aware that
they will produce a majority of unemployable graduates. The result is most of the
existing POEA approved job orders can never be filled and when the global crisis is
over, the Philippines will only be able to supply low skilled labor that will be
subjected to unfavorable terms and conditions due to fierce foreign competition.
Many attributes of the OFW manpower industry have no basis or are
misinterpretations of the facts. Some may be inadvertent mistakes in data compilation
protocols, that when examined reinforce the claim that action to reform and
strengthen the industry is paramount now. Financial authorities have been aware for
many years that inconsistencies and protocol gathering deficiencies exist in much of
the OFW statistical data. Most statistical claims are believed to be upwardly biased.
An example still being erroneously stated is that the last few years’ remittance record
increases have been driven by a large increasing professional group of OFWs working
in recession proof occupations. In fact, professional deployments have declined by
45% in the three years 2005-2007 and less than 5% of all OFWs could be considered
working in recession proof positions, i.e. healthcare of which 70+% are employed in
Saudi Arabia. Significantly it is the lower non-skilled income groups that send
proportionately more remittances back to the Philippines and do it more frequently.
Record formal remittance growth is due largely to:
a) The acceptance, availability and subsequent use by OFWs of formal
banking channels away from non-formal channels such as couriers, hand
carry and padala transfer methods.
b) Banks gradually absorbing the non-formal remittances which could still be
as high as approximately US$5billion. Some international financial studies
peg it at up to $9b. (Giving a total of US$21-25 billion annually)
c) Increased wages, salaries and overtime being due to the increased
competition by employers for migrant labor. This has been especially
prevalent in the Middle East during their last 6 year boom of vertical and
horizontal developments,
d) Irregular overseas Filipinos obtaining greater access to formal banking
channels mainly due to improved banking products,
and not to “90% of new hires being professionals,” that is repeatedly being quoted by
various Officials in media releases and interviews.
Only some countries in the Middle East will provide sustained OFW employment.
Saudi Arabia, Qatar and Libya are the best prospects, followed by Abu Dhabi
although it is unlikely that there will be any increased employment opportunities in all
of these countries. This does however, assume that the average oil price does not fall
below $45 per barrel for more than six months, as this appears to be the minimum
price to ensure continuation of their developments. If it stays below that figure a
marked contraction could occur with high OFW lay-offs.
The record 27.8% increase in 2008 official deployments of 1.377 million is
impressive as it is confounding, given the diminishing global demand for labor,
especially experienced in the last quarter and the flat number (1.42% increase only) of
deployments in the previous high demand period from 2006 to 2007. The January
2009 deployment figure of 165,000 (up 25% from Jan 08 which was itself up 30+%
from 2007) requires a detailed analysis of its composition. Compilation protocols may
have created new and incorrect extrapolation formats.
The number of approved job orders (389,000) as at Dec 31st 2008, is also subject to
scrutiny given that multiple agencies receive approvals for a single foreign
employer’s new job order vacancies. This plus other job orders that are inflated or
redundant from inactive agencies or jobs that cannot be filled due to lack of qualified
applicants could substantially inflate the total number and create an upward distortion.
Analysis of almost all of the officially recorded data on OFWs and related matters,
appear to reveal significant gaps and many inconsistencies in pertinent information.
These details are necessary as tools for many Government and private sectors in
administering, planning and execution of policies of the stakeholders. It is likely
major discrepancies will become more apparent as the crisis deepens.
It seems appropriate that the mandated Government agencies, BSP, POEA, OWWA,
POLO, CFO, DFA and NSO need to have an inter-agency review of all OFW data
gathering procedures including the current scope of information obtained. New
protocols for detailing the data gathering procedures, parameters of information,
compilation and disbursement are required. It appears little or no progress has been
made on “Establishment of a Shared Government Information System for Migration.”
Competition from other labor exporting nations will be fierce. In many instances the
Philippine overseas employment industry will be unable or unwilling to accept some
proffered new job orders. This will be due to their inability to obtain experienced and
qualified applicants, or due to the unacceptable terms and conditions being offered by
foreign employers. The migrant worker market is already accepting lower standards
and employers will try to impose these in the hire of OFWs.
Illegal recruitment will flourish and potential OFWs will be charged substantial fees
by non-licensed agencies and be forced into taking loans from doubtful sources to get
any type of job. The family pressures for employment will be enormous. Without the
legal liability protection afforded by licensed agencies and the POEA, domestic
problems will occur if promised jobs don’t materialize or early retrenchment leaves
the ‘irregular OFW’ with unpaid illegal agency fee debt whether local or owed to the
employer’s overseas broker.
The “Dutch Disease” phenomenon that appears to have taken control of the economy
many years ago has worsened in the last decade. It is based on the impact of the high
growth rate of remittances, which has had the effect of appreciating the peso,
increasing imports and Government debt, discouraging domestic production,
encouraging smuggling and allowing conducive conditions for the growth of
corruption. In an International Monetary Fund presentation they illustrated Dutch
Disease as “Too Much Wealth Managed Unwisely”
Official remittances in 2008 were US$16.4 billion (BSP), through the formal channels
(banking) and if you add the most conservative non-formal estimate of US$2.5billion
of World Bank received through informal (non-banking) channels and therefore
unrecorded by BSP totals US$18.9 billion. The formal remittances could however
incorrectly include immigrant Filipino’s (particularly North American) real estate
investments and the investments of foreign retirees under the Philippine Retirement
Authority scheme. The banks reporting protocols are believed to allow discrepancies.
Today the ailing Philippine economy’s drug of choice is the daily dose of remittances.
At 13.8% of GDP (World Bank) and rising, Government relies on it. As the fuel of
the consumer demand society, banking, real estate and commerce need it. OFW
oriented education establishments, often with inappropriate courses, exist on it.
Reverse urbanization of OFWs is likely if the property market experiences high levels
of OFW default as a result of them becoming unemployed. They will be forced to
return to their ancestral roots if they are dispossessed as a consequence of their
inability to meet mortgage payments combined with declining market values that are
bringing negative equities. These potential “sub-prime” circumstances have arisen
through a combination of sales strategies to corner OFW ‘investment income’ and
real estate/banking relationships of low deposits, deferred terms and lack of risk
management, given that OFWs have no security of job tenure..
This will accentuate the decline of enrollments for private elementary, high school
and especially undergraduate education. Education is likely to experience a state of
financial difficulty due to dropping enrollments and some college closures during the
2009/2010 school year, as OFW lay-offs gather steam.
This state however may assist the authorities in implementing the already authorized
weeding out by the Commission on Higher Education (CHED) and the Department of
Education of all sub standard educational establishments. Emphasis is needed for
technical and vocational education, which requires urgent development to meet both
foreign and local standards and employer compatibility requirements. There is a
strong need to include considerable ‘on the job’ training. TEDSA type organized
classroom training alone is insufficient.
Domestic unemployment is increasing as global manufacturing demand declines and
will continue to do so at an accelerating pace. Slowing remittances will no longer be
able to fuel growth in the service sector and overall consumption will start to stall and
possibly stagnate. The “OFW Real Estate” market is particularly vulnerable to a
decline in remittances. Real estate companies and banks are already repackaging
OFW loans and even reputedly ‘down grading’ OFW investments to lesser
developments. Official GDP growth projections will not be realized.
External debt has increased ostensibly to meet 2009 debt payments, rice and corn
imports. More debt borrowing is being considered. Independent ratings institutions
estimate the budget deficit will double to P190+ billion. With real agricultural
production slipping, manufacturing in a serious decline and exports having its biggest
decline in twenty years in December 2008, the Balance of Payments heading into
negative territory and tax collections well short of budget, the country’s monetary and
fiscal policies now rely substantially on OFW remittances continued growth.
A new economic model including fiscal and monetary reform is necessary to address
the increasingly negative effects of the global financial crisis on the Philippine
economy and its disproportionate dependence on OFW remittances. It should be
based on a pro-Filipino trade model that provides some boundaries and stimulus to
expand domestic industrial and agricultural production, whilst utilizing the OFWs
knowledge, experience and monetary assets.
Accordingly it is also time to revisit the Philippine commitment to blanket
compliance with WTO rules and regulations. Not long term protectionism but a basis
to allow time for domestic production efficiencies to be achieved in both
manufactured and agricultural products. A little appreciated fact is that you can throw
just about any seed at Filipino soil and it will grow. Just chose the suitable climatic
region according to the produce and success follows. Few countries have this
advantage. Food security is not just desirable, but a must as the foundation of civil
order.
However to achieve real Philippine economic progress, the first practical step in
instituting a new economic model is for the Government to depreciate the Peso on a
fixed peg basis of P55:US$1, subject to a minimum time frame before allowing it to
float.
This will assist in domestic employment, agricultural and manufactured exports and
stimulate investments and stabilize declining consumer demand. OFWs who are on
reduced work schedules and unable to remit the same amount as previously will still
be able meet domestic financial obligations. It will ensure OFWs investment in
human capital will continue and reduce the expected turmoil in education. As OFWs
from poorer regions tend to remit home bigger average amounts than those from the
prosperous regions, the devaluation is very important in maintaining socio-economic
equilibrium in their communities.
The second step is to lower corporate tax and local currency interest tax and
substantially increase tax on FCDU interest and remove fringe benefit taxes. This will
have the effect of greatly increased foreign investment and the freeing of dormant
domestically held foreign currency and converting it into active pesos.
Overall the economic change required is to increase domestic manufacturing and
increase the local added value percentage of export processing industries (lower
imports) to ensure that the Philippines economy is put back on track and the benefits
of OFW remittances can be utilized effectively. Perhaps the impending crisis presents
the most important opportunity for this economic policy change and reform, in that it
is unlikely the political policies exercised in good times of steady consumption will be
carried on after the burgeoning contraction and the 2010 election.
To accommodate changes in policy as well as protecting existing OFWs there should
be harmonious labor accords developed between foreign governments and the
Philippine Government. Notably in 70%+ of the OFW countries there are no
minimum labor employment standards and laws.
This highlights the need for properly planned long-term policies that will be accepted
by the now very competitive markets. Changing Government social policies have also
dictated occupational changes or emphasis that in turn has affected locations and
employment practices and conditions e.g. from entertainers in Japan and domestic
workers in Hong Kong, to production workers in Taiwan and construction workers in
the Middle East.
Returned and ‘retired’ OFWs should be treated as productive assets and become part
of an OFW component in a new economic model utilizing their experience,
knowledge and their available investment funds by working under sustainable OFW
domestic programs that include agricultural (food centric) ones with community
based commerce.
Understanding the Imminent OFW Fallout from the Global Financial Crisis
Domestic Background All Filipinos can claim some connection to an OFW and their remittances. It may be a
family member, neighbor, client, friend or a more remote connection. Everybody
accepts that OFWs go overseas for work to be able to provide a better living for their
families.
What people don’t realize is that progressively, OFW remittances have become the
most important input of the Philippine economy, not just an important input. Any
fluctuation, even a relatively small reduction in their total value would likely have a
dramatic and long lasting effect on all Philippine citizens and not just the OFW and
their beneficiaries. Will there be any significant downturn in the new placement and continued
employment of Filipino OFW’s globally? Will foreign currency remittances decline
and if so what are the consequences? Simple questions, but if answered in the
positive, a series of potentially devastating economic and social results are likely.
Official pronouncements state that the Philippines is unlike most other countries due
to its much lower reliance on manufactured exports and high OFW remittance
income. It is claimed a substantial number of OFWs are employed in recession-proof
occupations. It is therefore they state, insulated from the increasingly negative effects
of the global financial crisis. Spokesmen claim record numbers of OFWs have been
deployed in 2008 (up 27.8%) and with new markets opening up for 2009, the demand
for Filipino workers will be sustained and in fact increased. (BSP, POEA, DOLE)
Remittances they state, will grow to record levels in 2009, although it is conceded that
the rate of increase may slow to 6-9% or in a worst case scenario be flat, down from
approximately 14% in 2008. Only relatively limited instances of OFW layoffs will
happen during the coming year. To date they claim, approximately five thousand have
lost their jobs since the crisis took hold in mid September. Not a big number,
considering the 1.378 million OFWs deployed in 2008. (BSP, POEA, DOLE).
Constantly the public is told that the banking sector fundamentals are sound and
Philippine banks are almost untouched by the financial fiasco in other parts of the
world. (BSP). International rating agencies with their positive analysis are used for
expert corroboration. Of course, it is not the monetary policies and soundness of
Philippine banks that determines the global demand and employment level of OFW’s.
Why is there this need to suppress negative OFW facts? Potentially realistic
projections and problems are ignored. Why is there no knowledge driven planning
and execution of realistic steps to minimize disastrous consequences?
Is it because the economic benefits of OFW remittances is by far the most important
fuel factor in the Philippine engine of sustaining life, government, civil order and
current politics, by protecting confidence in its consumer demand economy?
Philippine worker migration has been a safety valve against poverty driven unrest.
With rising domestic and OFW unemployment about to accelerate the increase in
poverty incidence will take hold. (Bello 2009). Newly released Bangko Sentral ng
Philipinas (BSP) statistics confirm this by showing that OFW remittances now
represent a whooping 13.8% of GDP at US$16.4 billion and increasing monthly as
other economic contributors fall.
Figure 1: Ratio of Remittances to GDP of Top Remittance Countries 2007
27.0
3
25.7
1
25.0
2.8
17.0
13.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
INDIA CHINA MEXICO PHILIPPINES
REMITTANCE $ BILLIONS % of GDP
Sources : ADB, World Bank
The year-end 2008 Balance of Payments was a minuscule $88m, down from an
estimated projection of US$2.5 billion just 3months prior. The trade deficit is likely to
exceed $13 Billion, external debt to $58billion and the Budget Deficit balloon out to
P190+ billion. The economic trade and foreign exchange indicators show disturbing
and or negative trends. BSP acknowledges that the OFW remittances are the only
bright spot.
Repeated statements from BSP, NEDA, and many Government Departments, demonstrate they are pinning their 2009 planning and predictions on “robust foreign exchange worker remittances inflows.” “Growth in remittances will still be positive with 6-9% growth.” “New deployments of OFW will increase by 500,000 (equal to 40% growth!) in 2009.” “New markets for Filipino workers are open now.” “Further, deployment in the medical-related fields, which are broadly seen as relatively recession-proof, is expected to remain strong,” “The labor department had lined up new markets for Filipino nurses and other healthcare personnel. It’s difficult to think that the double digit growth in OFW [overseas Filipino worker] deployment in 2008 would just dissipate in terms of the corresponding remittances in 2009.” (ABS-CBN, Inquirer, GMA, Philstar) Countries are named. Often the figures vary but they are always growth positive.
But now the first major and very tangible domestic negative signs of the global
financial crisis are starting to appear. Day after day there are large layoffs and news of
export manufacturing factories closures. European multi-national companies
operating in the country have reduced working days by 26%. Many of the affected
companies are global icons and have been used by the Government as proof of the
attractive business climate in the Philippines. News of OFW lay-offs that had
previously trickled in with the ominous characteristics of a major migrant worker
retrenchment has now become a daily depressing but largely subdued occurrence.
The Global (and Philippines) Reality The reality is that the Philippine economy is not insulated but susceptible to global
trends and pressures. Apart from some significant standouts, many high profile
economists, political scientists and Government spokesmen have taken positions to
support the line that the Philippines will ride out the global storm relatively unscathed
and OFW remittances will remain strong and continue to grow
Not so, as it’s all about supply and demand. Currently, global banks have insufficient
money or won’t lend (supply) to both commercial and personal clients for their
required expenditure (demand).
Generally there is a lack of confidence to proceed with anything new, unknown, or in
any venture deemed unnecessary. Even in the Middle East, which is the only realistic
regional market that can continue to sustain OFW employment, infrastructure and
development projects are being re-evaluated and some 70% of oil and gas projects
(approximately worth $2 trillion over the next 5years) have been put on hold, as have
many vertical projects (MEED, NYT).
Banks overseas have largely stopped new lending and extending credit. Investments
and their values continue to shrink. People are not spending, but paying down debt
and saving. The accelerator effect of money changing hands and therefore growing
global economies has slowed significantly.
Together the reduced money supply from banks, investors and consumers has reduced
overall demand for goods and services (retailers, hospitality, tourism), productivity
(manufacturing) and development (infrastructure, construction), plus the means of
transporting (shipping and air freight) the raw materials and items (commodities and
parts) needed to fuel all these activities.
Worker layoffs (OFWs) in these industries are now showing significant negative
trends and will be accentuated by the fact that migrant workers are traditionally the
first to go as employers and countries move to protect employment for their own
labor.
Whether credit problems originate in a country that doesn’t host any OFWs, or only a
limited number of them, or in an industry seemingly unconnected to OFWs, or
conversely it can be a major multi-industry OFW market, the ‘knock on’ effect is sure
and just as devastating to the Philippines managed manpower industry.
In globalization all economic inputs have a relationship regardless of location and
diversification. The degree and intensity of the effects are however variable and can
also be subject to political considerations of individual host countries.
From these assertions and realities, it is obvious that the Philippines, which is
disproportionately reliant on OFW remittances to sustain its economy, is at risk and
will be affected by the current economic crisis.
Let’s look at the crucial aspects;
• Will Filipino OFWs be retrenched or their contracts not be renewed? YES!
• Or if their contracts are renewed is there a possibility of reduced salaries and
benefits? YES!
• Will there be increased placements and new opportunity destinations for
Filipino OFWs in 2009? NO!
• Will remittance growth slow and possibly level off or drop in 2009? YES!
• Will the Philippines experience a substantial economic downturn contributed
in large measure by slower remittances commencing in the 2nd quarter 2009?
YES!
• Will there be a major shift in the hiring models used by foreign employers,
especially in the more resilient manpower markets of the Middle East? YES!
• Will the Philippines be able to supply suitably qualified and experienced
personnel for the job categories for which demand will remain high, such as
nurses, engineers, ships officers and skilled tradesmen? NO!
• Will retrenched OFWs opt to stay in their host country in an effort to find
other employment and eventually be unable to leave and become stranded due
to overstaying or having host country debts they are stopped from leaving?
YES!
OFWs who are employed in infrastructure development, construction, manufacturing,
tourism, hospitality and transportation (predominately dry bulk cargo and cruise
ships) are at risk in this economic recession. These are the first and deepest effected
industries and OFW’s are already being laid off from them. (IOM 2009)
Globalization Relationships and Effects Different scenarios also demonstrate that regardless of the direct or indirect
connection of an OFWs employer to the proximate cause of another employer’s
layoffs, the fallout can cause an ‘unseen’ ripple effect resulting in the same outcome
of lay-offs being forced upon the OFWs employer.
Take this recently published account of how devastating and how far reaching the
global recession can be even on a low cost, mass produced item such as children’s
toys causing seemingly unrelated lay-offs.
For example, how could toy manufacturers in China, who don’t employ any OFWs,
cause layoffs and un-renewed contracts for many OFWs in several different countries,
different industries and different employers?
Chinese manufacturers, based on previous years Western Xmas demand, geared up
for the known growth trend and purchased locally or imported raw materials. The
manufacturers either obtained credit or used their own cash resources and produced
millions of toys. Thousands of containers were filled and delivered to sea terminals,
freight booked and loading of container ships commenced.
Then in September the growing credit crisis became public, consumer confidence and
demand fell so US retailers, who were having trouble financing imports, cancelled
existing orders or simply didn’t order at all.
The result: Several thousand (almost two thirds of this sub-industry) Chinese toy
factories closed completely or shut down production lines. Thousands of containers
still today remain abandoned at the terminals, ships stranded and crews laid off (OFW
seafarers).
Foreign raw material and parts suppliers unpaid and their workers laid off (OFW
factory workers in Taiwan, South Korea etc.), temporary and permanent US importer
and retail staff laid off (OFWs). Other negative ‘knock on’ effects hit Chinese and
international container manufacturers, local and importer freight transport companies,
brokers, insurers etc.
Then there are the direct OFW lay-offs from construction companies, hotels, cruise
ships, factories. The list goes on. Only vital services such as the branches of
healthcare will be relatively untouched at current levels. But even this has been
affected in the private healthcare system in the USA where already their deep
unemployment has caused a reduction in people seeking medical treatment and
advice. The slowing demand has caused hospital overtime and swing shift-work, plus
some services to be cut back.
Immigration and Realignment Limitations Expected increases in new jobs and the relaxation of immigration and professional
requirements will not happen in the countries targeted by POEA and considered
attractive by applicants, i.e. Australia, New Zealand, Canada, UK, USA and some
European ones.
In fact many countries from Spain to Japan, are cutting back different categories of
these and other country’s work visas (e.g. UK’s foreign work visa quota is being
reduced by 200,000 and Australia’s 457 visa is currently under review) to ensure their
own citizens have priority over available positions. This is especially important for
those countries citizens who have been working overseas and either laid off or
relocated back to their home office. Even Taiwan is now trying to pass a law
requiring Taiwanese citizen worker preference. Malaysia has started deporting foreign
workers.
There are also historical/political ties between some countries that have preferential
worker migration laws and regulations between each other (e.g. some Commonwealth
countries; UK, Australia Canada, South Africa and New Zealand and their territories
and protectorates) that will make it very difficult for penetrating these markets. In
addition they extend the preference to include USA, Ireland, Italy and some
Scandinavian countries for nursing and other professional and skilled positions.
An important factor that is currently suppressing awareness of the critical state of
workers in many, if not most migrant manpower markets is the practice of the foreign
employers to protect at all costs their allocation of worker visas. These visa
allocations in many countries will be taken away from the employer if they impose
any retrenchment. As the visas are usually very difficult to obtain, the employers are
reluctant to lay off workers if they anticipate they will need them once an upturn in
the local economy allows them to return to there original state of activity.
Accordingly the employer will persuade the worker to remain employed under
substantially reduced terms and conditions or they will provide re-entry visas valid for
six months and give the worker a one way or return air ticket.
Middle East Challenges Already adding to the challenges of maintaining and opening new OFW destinations
is the realignment by global employers of their expat staff now accepting lesser
positions and the relocation of many functions back to their home country, e.g. design
engineers based in Abu Dhabi and Dubai being sent back to the UK. This reduces the
expensive employment packages they had to pay for example in many Middle East
locations especially Dubai (Saudi Arabia is the exception as it offers either free, or
subsidized worker and family accommodation).
Many Middle East projects have been delayed and tourism has dropped. Contracted
overseas workers are being retrenched, their contracts renegotiated, or not renewed
allowing the employer to downsize their overseas operations. Dubai construction and
real estate companies have been forced to put many projects on hold and have laid off
thousands of staff at all levels. Real estate values are dropping and negative equity
value mortgages especially for expat staff who were enticed into as low as 5% equity
purchases, are growing at an alarming rate. They can only exit provided they have
paid all debts incurred in Dubai.
Oil and OFWs The price of Middle East oil and gas will be a critical factor in the level of OFW
retrenchments and deployments. If the minimum viable price on which most of the
sovereign infrastructure developments are pegged, is breached, then the projects will
be delayed or cancelled. Based on media statements this appears to be in the range of
US$40-45 per barrel. New private sector vertical projects seem to have a minimum
price of US$60-65 per barrel. Recently King Abdullah Bin Abdul Aziz, the Saudi
Arabian Monarch said he “considered a fair price to be US$75 a barrel.” Oman State
projects will be affected if the price drops below US$45. (Gulf News, Jan 2009).
Canadian oil sands new developments are already out the picture as they are very
expensive to develop and require an oil price of $65-90. A very disturbing forecast by
Merrill Lynch is tied to the Chinese economy slowing drastically in 2009. Their
prediction is that oil could sink to US$30 per barrel, (NYT, Dec 2008). The OFW
Middle East market would drop dramatically for all except healthcare workers,
domestic helpers and a few maintenance and production engineers. (NYT Dec 08)
The global manpower scene is currently very fluid, with many stakeholders mulling
contingency plans and trying to predict their near and medium term requirements.
Many foreign employers are trimming middle managers and semi-skilled migrant
workers, even in the Middle East. Others are imposing shorter work hours and fewer
days, especially in the oil and gas industry. Professionals are staying put and not
moving to new employers.
Predictive Trends of the Coming Declines Overall global remittance growth has ceased. Mexico originally the largest recipient
has slipped to third and is now experiencing significant monthly declines since
February 08. Mexico’s remittances year on year November 08 decreased by 10.68%,
that is reflective of its dependence on USA jobs. Indian and Chinese remittances from
the USA are likely to be similarly affected. (NACLA, 2008)
The Columbian Central Bank has released figures showing remittances for November
2008 were down 31% from US$468 million in the same month of 2007 to US$321
million. It is believed this was due to the US crisis and the weaker Euro as Colunbia
has a significant work force in Spain who are experiencing a dramatic economic
downturn. (IAMTN, 2009)
Moscow has seen the departure of 25% of its 2 million ‘guest workers’ and one of the
main money-transfer agents Anelik, has seen a 30% drop in remittances compared
with the same period last year. Moldavia, which is Europe’s poorest country, is
predicting the return of more than a quarter of its 2 million migrant workers this year.
World Bank has stated that the negative trend in remittances to developing countries
will be greater in 2009. (AP Jan 2009)
The Philippines is the world’s 4th largest remittance beneficiary but has fewer
concentrations of unskilled OFWs compared to most migrant countries, except for
those in Saudi Arabia, (approx.1 million). There are a large number of immigrant
families in the USA but they do not remit at the same level or as regularly as
contracted OFWs. Due to a high volume of remittances transiting through New York
from many OFW countries, (Fig 2), it is not possible to determine their origin as the
receiving Manila banks only report that transfer from the USA. Accordingly BSP are
unable to assist in assessing trends.
Figure 2: Top 10 Countries of Origin of Remittances, 2007
0 1 2 3 4 5 6 7 8
TAIWAN
HONG KONG
SINGAPORE
JAPAN
UAE
CANADA
ITALY
UK
SAUDI ARABIA
USA
Billions
Source: DES-BSP
Regardless, with the global recession expanding, it will only be approx. 3 months
before a similar trend to that of Mexico’s occurs. Some countries official figures
already show significant drops in remittances to the Philippines. The GCC countries
showed a 15.4% drop from September. to October 2008 for Philippine bound
remittances. A10+% fall is probable although the World Bank is predicting a fall in
the range of 0.9% - 9%, dependent on price of oil, (Ratha 2008). Foreign banks
operating in the Philippines are predicting 8-20% drops for 2009.
‘Irregulars’ being out of work and/or not being able to return to their work site. This is
causing stranding of OFWs in third party countries such as Iran (Kish Is.) and Oman
in the case of Dubai workers. If mass layoffs occur, the Philippine Government may
have to step in and arrange repatriations from a multitude of locations.
Former legal OFWs have become “irregular” in some countries recently when they
have been laid-off and opted to stay in their host country in the hope of finding
alternative work. This leaves them open to the mercy of the unscrupulous
employment brokers that exist in many countries. The total number of irregular
overseas Filipino’s is unknown, but is usually estimated at approx 1.5 million. An
ADB remittance study speculates that number may be many times more. (Yang S.
2005)
However, official data shows a major drop in numbers of irregulars as shown in Fig.3
of the CFO’s compilation starting in 2005. The reason and substantiation for this
sudden change is not known. In fact given the change in many countries attitude to be
passive to ‘irregular’ workers in the hugely expansionist years from 2002 to mid
2008, this figure should have increased.
Recently released figures by the US Department of Homeland Security (Feb 2009),
claim that 300,000 “unauthorized migrants” from the Philippines are currently
residing in the US. This figure is twice that of the CFO estimate and is another
example of the apparent inconsistencies in the statistics affecting the three categories
of overseas Filipinos viz; Permanent, Temporary (OCWs+OFWs) and Irregulars.
Figure 3: Stock Figures of Filipinos Overseas 2000-2007
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2001 2002 2003 2004 2005 2006 2007
Thousands
0
1
2
3
4
5
6
7
8
9
10
Millio
ns
PERMANENT TEMPORARY IRREGULAR TOTAL
Source: Commission on Filipinos Overseas
Competition from other migrant export manpower countries, (which are non-
regulated unlike the Philippines), will increase as the crisis continues to grip. Workers
from these countries will likely accept lesser terms and conditions, creating additional
challenges to the maintenance of existing OFW placements and the deployment of
new ones.
Saudi Arabia as the world’s second largest source of remittances has realized the
enormous value these monies would have on their domestic economy if the contracted
migrant manpower spent a higher percentage of their income there. To capture this
income employers allow highly skilled workers and professionals to have their
families with them in Saudi. If this trend becomes accepted then this may cause a
lowering in remittances as this country has the greatest concentration of OFW
professionals and skilled personnel.
The social effects on the family members are unknown at this juncture but assuming
the family is there for 2-4 years it may be positive if the children are under high
school age.
Understanding the Economic and Social Effects of Remittances
The effect on the Philippines of remittances is not fully understood even among the
expert economists and sociologists who often proffer extreme and opposite theories
and opinions. This is not notwithstanding they can be working from the same
empirical data and creating the same form of regression modeling.
Economically however remittances have saved the Philippines from disaster but not
from bad outcomes. The income has largely allowed negative trends and doubtful
policy decisions to culminate in a neo-liberal economic model that has led to jobless
growth, the decimation of agriculture and domestic manufacturing and allowed an
import centric consumer driven economy.
It has been argued that migration has had little economic cost to the Philippines as it
has happened in periods of high unemployment. Assuming that is correct, the
Philippines is headed for a ‘perfect storm’ as local unemployment will continue to
increase in 2009 and be added to by high school students and college graduates.
Poverty alleviation that has been one of, if not the main justification for successive
Philippine Governments for the export of its citizens has had almost indiscernible
gains in most provinces.
In 2006 World Bank pointed out that the calculation of a country’s credit rating by
major international agencies also depends on remittance flows. The higher the
magnitude of remittance flows the better the credit rating rank the country could
reach. (Jongwanich: 2007)
This is a serious flaw economically for the Filipino nation as it allows the
Government to create debt instead of domestic production and employment.
Socially there is a detrimental effect on the family unit and especially young children
and teenagers when one or both parents are working overseas. The emotional and
behavioral downsides cannot be underestimated and they affect both parties so distant
from one another. Social costs also develop into economic costs.
Remittances and the GDP For the world’s 12th largest country by population, the Philippines incredibly ranks
near the top of countries with the highest % of remittances to GDP approximately
13.8%. (13.5%, von Amsberg, WB 2005, 13% FRBSF, 2008). (Figs.4 & 5) All these
other surrounding Sovereign States are tiny territories and small countries whose high
%’s are due to their almost complete lack of agriculture, industry, with little
consumption and almost no investment. It highlights the high dependence the
Philippine’s has on OFW remittances. (Jongwanich: 2007)
Figure 4: Top 20 Remittance Recipients of Developing Countries in
Asia and the Pacific 2003
0 5 10 15 20 25
KYRGYZ REPUBLIC
MYANMARMONGOLIA
CAMBODIA
TAJIKISTANKAZAKHSTAN
ARMENIA
AZERBAIJANGEORGIA
MALAYSIA
NEPAL
KOREASRI LANKA
INDONESIA
THAILANDBANGLADESH
PAKISTAN
PHILIPPINESCHINA
INDIA
Billions
Source : IMF
Figure 5: Top 20 Countries with Largest Remittances as Percentage (%) of GDP
Asia and the Pacific 2003
0 5 10 15 20 25 30 35 40 45 50
MALAYSIA
INDONESIA
THAILAND
CHINA
AZERBAIJAN
VANUATU
CAMBODIA
INDIA
KYRGYZ REPUBLIC
PAKISTAN
ARMENIA
GEORGIA
BANGLADESH
SRI LANKA
TAJIKISTAN
MONGOLIA
NEPAL
PHILIPPINES
SAMOA
TONGA
Source : IMF
This relationship to the GDP increases to 17.6% if there is an additional 30%
allowance for remittances received through the informal channels, cash to cash
couriers, padala and hand carry, (Burgess 2005). Most international associations
estimate much higher informal percentages for developing countries, but the
Philippine banking community has been progressively successful in capturing the
OFWs remittances at the ‘first mile’ or loading point through agents or their own
offshore branches.
Using the BSP 2008 total of US$16.4billion (banking channels) plus 30%, the total
would be US$21.32billion. (Fig. 6)
Figure 6: Relationship of Remittances to Other Philippine External Income
Remittances All Other Income
0
5
10
15
20
25
*2008 2008
Tourist Receipts
Portfolio Investments
FDI's
Net BPO Income
Net Exports
Remittance Informal
Remittance Formal
Input Sources: BSP / ADB / World Bank/DOT/INQ7
To contrast the value of the foreign exchange earnings;
• 2008 Est. US$50 billion Manufactured export goods (import content 87.5%)
therefore net value US$ 6.3billion
• 2008 FDI’s US$ 1.5billion
• 2008 Portfolio Investments US$ 0.7billion
• 2008 Est.US$4.8billion BPO income (repatriation 15%),
therefore net value US$ 4.1billion
2008 Est. Tourism receipts US$ 3.7billion
• 2008 Remittances (net formal $16.4 + informal $4.9) US$21.3billion
From this can be seen that formal remittances alone (excl. informal), are equal to the
net worth of manufactured exports, BPO income, FDI’s and portfolio investments and
tourist receipts combined. (Fig.6). Even the addition of $0.7 billion (2008 NEDA) of
ODA illustrates the dominance that remittances have in the Philippine economy.
Philippine exports have sunk below US$50 billion, with December 2008 declining by
40.4%, the biggest decline for twenty years and the balance of payments is headed for
negative territory. Foreign direct investments have reversed and portfolio investments
merely doing some low value hot plays while tourism is at best, stagnant. All of this
demonstrates that remittances are the economic fuel that the country relies on. Herein
lies the danger of having nearly all the nations eggs in one basket.
Not only has this massive foreign exchange income spoilt successive Administrations
by allowing them to avoid hard reform and potentially unpopular decisions, (Pernia
2008), it has allowed the invasion of an insidious disease; Dutch Disease which by its
nature includes many symptoms detrimental to good governance.
Dutch Disease This term arises from the socio-economic outcomes of countries that experience
sudden increases in foreign exchange income, usually due to the discovery and export
of minerals or mineral oils.
This can cause a strong appreciation of the currency leading to a drop in exports.
However remittances with very high growth rates (Fig. 7) have the same effect and
having no cost of development, no production cost and virtually no ‘cost of goods
sold’ makes it a more covert form of the disease.
Figure 7: Formal Remittances for the Period 1975 – 2008
0
5
10
15
20
25
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
*200
Billio
ns
Formal Remittances + 30% Informal Remittances
Source: BSP, ADB
“Too Much Wealth Managed Unwisely” (IMF 2003)
The main symptoms are;
• Lack of Government action to ensure the betterment of its citizens by means
of economic and social policies, laws and programs.
• Diversion of resources and reduction of Government providing goods and
services.
• Corruption growth throughout Government, commerce and extending into
society.
• Incurring sovereign debt and more expenditure.
(Abdih, 2008, Capistrano, 2007 Pernia 2008).
The prognosis is a steady deterioration in; application of the laws, unbridled
corruption, (Abdih 2008), a lowering of economic growth and citizens standards of
living, labor participation, appreciation of the currency, lower exports, (Jongwanich
2007), rising imports, smuggling and by default fosters anti-Filipino made
consumption.
The origins of the disease can be traced to the formal manpower export industry
beginnings by virtue of Presidential Decree 442 in 1974 as a “temporary measure” to
bolster a rapidly declining economy and relieve poverty. Two decades on and another
two Presidents had experienced the economic benefits to the Government of Overseas
Contract Workers endeavors. The benefits had become so well established that in
1995 a law was passed to cement the ongoing ‘temporary’ overseas employment. It
“does not promote overseas employment as a means to sustain economic growth and
economic development.” (Section 2c. Republic Act. 8042). (Go, 2002)
Since then another two more Governments have benefited from the dramatic increases
in remittances and signs of Dutch Disease became obvious. Then came the Medium
Term Development Plan 2001-2004 with the explicit statement on overseas
employment that it is a “legitimate option for the country’s work force. As such
government shall fully respect labor mobility including the preference for overseas
employment.” (Go, 2002)
Government policy was clearly defined in the POEA document “Overseas
Employment: The challenge of the Philippines 2000” and issuances from OWWA,
DFA and other concerned Government agencies.
The effect of promoting overseas employment to a permanent basis where it will take
generations to reverse has allowed the disease to spread to every part of the Philippine
body. Only a new economic model and institutional reform will act as the natural anti-
body.
Negatives Versus Positives In the Philippine situation the negative aspects of the high value and rapid growth of
remittances are clear. Three decades plus of remittance income totaling approx.
US$150 billion in foreign exchange, with nearly $100 billion of that in the last decade
through formal channels, (BSP). Add another estimated minimum of $75 billion,
($30b in the last decade), through informal channels and the negative aspects have:
• Allowed Government to avoid the real economic hard decisions and reforms
• Decapitated rural investment and created food security vulnerabilities
• Stilted manufacturing and encouraged industry into two dying Philippine
export sectors of electronics and garments.
• Discouraged domestic manufacturing
• Created a weak ‘added value’ (cheap labor) export sector
• Provided a continuation of a disastrous ‘no population management’ policy
• Encouraged imports of both legal and smuggled goods
• Allowed weak fiscal policies and collections to continue
• Allowed unnecessary and increased sovereign debt
• Allowed the peso to appreciate for prolonged periods
• Not provided poverty alleviation gains
• Led to the Philippines becoming the world’s biggest rice importer (now
importing corn is necessary as well)
• OFWs domesticity shifting from their provincial roots to NCR and other major
urban areas and surrounding provinces weakening their ancestral ties.
• Exponentially bred corruption
On the positive side remittances have:
a) Given the OFWs family members enhanced sustenance and living conditions
b) Provided OFW beneficiaries with private education
c) Provided OFWs real estate purchase/investment and building own homes
d) Driven consumption expenditure
e) Provided the Government and exporters with foreign exchange
f) Allowed better international financial ratings
g) Driven OFW micro commercial/investment enterprises
h) Provided community and business multiplier benefits
The Government is now looking to the sunrise BPO industry to add to their perceived
insulation from the present crisis. Unfortunately various forms of BPO operations will
also suffer from foreign client downsizing and closures. Overall lower demand may
take hold as client country political pressures force them reinstate the functions
contracted overseas. Approximately 85% of the income is from the USA and
European countries and therefore there will be added political pressure to transfer,
especially the contact centers back to their corporate home countries. It is believed
that incentives for companies doing this are to be included in ‘Stimulus’ legislation
being submitted to the US Congress. It is unlikely that BPO income will provide a
cushion to offset the expected downturn in remittances. The reality of Dutch Disease
will be exposed.
Business Gains Many legitimate business sectors have benefited from the massive influx of both the
formal and informal remittances, but none more so, than the Asian/Filipino version of
the West’s ‘Blue Chip’ conglomerates.
Remittances have fed the Filipino Taipan’s business conglomerates, and been the
building blocks to allow them to expand exponentially. It is no coincidence that most
of their enterprises are based on capturing the majority of OFW income. Banks, real
estate, mall retailing, and colleges are the high profile examples. Their expansion has
mirrored the growth of the OFW cash input into the economy.
The high-density OFW residency locations are where the Taipans put their shopping
malls and real estate developments, (Ang 2008). These are locations in or surrounding
the National Capitol Region and the major population cities that have drawn many
OFWs and their families from distant provinces on the perception that their socio-
economic conditions will improve.
It is therefore not surprising that the Zobel’s, Gokongwhei’s, Sy’s, Ty’s, Lucio Tan
Andrew Tan and Andrew Gotianun (plus several aspiring ones), have almost identical
businesses to protect and are currently working to avoid potential staff lay-offs,
falling sales and mortgage defaults in their real estate and banking arms.
Their associated banks are underwriting OFW targeted real estate development loans
and extending OFW mortgages. This has made them keenly aware of the debt
deflation of the US home mortgage market and they too will be affected if OFW
remittances slow, defaults increase and the real estate market starts to tank. This will
create expanding portfolios of negative equity mortgages. Some estimates claim OFW
condominium purchases account for 50+% of all sales and defaults are starting to rise.
Seeds for Disaster? The real concern about this is that Philippine banks lending to the OFW market either
directly or indirectly, are creating a similar scenario to that of the cause of the US
financial crisis. Low equity, (some with no deposit), deferred terms and even multiple
property selling to a single OFW has been growing as competition between the real
estate developers has reached its pinnacle although it is now declining with thousands
of potential defaults in the offering. In the US banks granted mortgages under these
same type conditions to unqualified borrowers. OFWs could also be seen to be
unqualified as they have no job permanency, only six months, ten months, one, two or
three year renewable contracts at the option of the foreign employer. Even recent
actions by developers in transferring OFW and Overseas Filipino’s purchases from
upscale developments to lower priced ones will not solve offshore Filipinos’ inability
to sustain mortgage payments if they have lost their jobs.
Therefore the seeds already exist that could cause a collapse of the OFW real estate
market holdings and initiate a credit crisis if very high OFW layoffs occur and a large
number lose their ability to service their 10-25 year mortgages. So in fact the same
unsound financing fundamentals as the US sub-prime market appear to have taken
root here, with little or no regard to long term risk analysis and adverse scenarios.
The socio economic impact to OFWs and their families of this happening would be
devastating and would most likely force affected OFWs to wait for new overseas
opportunities and extend their originally planned number of years they were prepared
to stay overseas. It would be appropriate for the banks and real estate companies to
institute new financing models to protect OFWs from entering into commitments they
don’t appreciate and are unable to comply with.
Devaluation Countries with Dutch Disease normally avoid even a minor devaluation as firstly it
has a negative effect both on Government legitimate importing and on smuggling
which are now the lifeblood of Philippine consumption. Simple illustrations of this
are; 20+years ago a shopping trip to Divisoria would have on sale 90+% Filipino
made goods. Today the reverse is true i.e. 90+% imported (mainly from China). Then
take SM, 20+ years ago you would have found the merchandise was 95+% Filipino
made, today the reverse is true with 80+% imported, once again mainly from China.
Secondly, the massive Philippine external debt encourages a policy of peso
appreciation to allow attractive debt servicing and increased borrowing as a substitute
for poor fiscal enforcement collections.
Remittances lead to a real exchange rate appreciation (Lopez 2007) and large
remittance values can impact the macroeconomic stability and specifically carry a
potential for Dutch Disease phenomena, (IMF’s 2005 & World Bank’s 2006
Economic Outlooks). The macroeconomic adverse effects are;
• Expansion of the non-tradable (service) sector and contraction of the tradable
sector
• Widening of the current account deficit
• Weaker monetary control, inflationary pressure and sectoral allocation of
investment. (Yang 2007).
The 1997 Asian crisis and subsequent currency devaluation by the Philippines and its
key neighbors arose from Thailand’s devaluation caused by its ailing economy and
political turmoil. This forced export competitor countries to follow suit to stay in the
international market place. Even with devaluation it took 5 years before remittances
recovered, (Fig. 8). It is interesting to note that the real effects of the crisis were not
felt until some 15-18 months after its start.
Figure 8: The Effect on Remittances of the 1997 Asian Crisis and Devaluation
0
2
4
6
8
10
12
1997 1998 1999 2000 2001 2002 2003
Billio
ns
BANKING NON-BANKING (ESTIMATE)
Source: ADB / World Bank
The effect for OFWs was an appreciation of his primary income against the peso but
the gain depended on the exchange rate to the US$ of the host country. Over the
fifteen months to October 1998 following the depreciation, the currencies of Taiwan,
Singapore and Japan rose by 26%, 29% and 32% whilst Malaysia and Korea fell
slightly by 1% and 4% against the peso. But the depreciated peso had increased the
OFW peso income by 50% in the same period. This spurred OFW investment in
human capital (particularly education) and entrepreneurship, leaving household
consumption expenditures unchanged, (Lopez 2007, Yang 2007).
During the period between 2004-2007 formal remittances were recorded as increasing
by 50% with a large part of this attributed to additional money sent to offset the
reduction of disposable income received by beneficiaries, due to the appreciation of
the peso. However since the appreciation was 33% and there was high domestic
inflation, the net real result was only 3%. (DECPG, WB 2008).
Figure 9: Currency appreciation in the major remittance receiving countries
LCU/US$ (Jan 2004 – 100)
75
80
85
90
95
100
105
2004M
01
2004M
06
2004M
11
2005M
04
2005M
09
2006M
02
2006M
07
2006M
12
2007M
05
2007M
10
MEXICO PHILIPPINES INDIA
Source: World Bank
Figure 10: Increasing cost of living Consumer Price Index (Jan 2004 – 100)\
95
100
105
110
115
120
125
2004M
01
2004M
06
2004M
11
2005M
04
2005M
09
2006M
02
2006M
07
2006M
12
2007M
05
2007M
10
PHILIPPINES INDIA MEXICO UNITED STATES
Source: World Bank
The OFWs remittances and manufactured exports income will both be affected and
that will translate into the overall Filipino’s everyday economic survival.
The first step to curb the rot of Dutch Disease and protect remittances and stimulate
the economy: Devalue now and peg it to US$1:P55! At no cost to the nation and
taking into account the expected decline in remittances of 10+%, a devaluation of
approximately 17% will inject an additional P7-8 billion per month directly into the
economy.
A valid approach to devaluing the peso to offset any long-term possible negative
effects is to fix the peg rate for a minimum period of two years. This approach will
provide a “natural protection” to exporters and BPO operations by giving them time
to develop new products and markets while the global crisis plays out. For OFW
families the extra money to spend will drive local consumption. (Diokno, 2008). In
addition to devaluation major tax adjustments are necessary to provide strong
incentives for foreign investment and domestic industrial and agricultural production.
Remittances and Poverty Do remittances reduce poverty? This question has been debated by countless experts
and economists with disparate results. Regression modeling and empirical evidence
have not been definitive and often have been contradictory. Studies based on Central
and South American countries have tended to show a direct correlation between
remittances and poverty alleviation. Findings in the Philippines have been similar but
are less positive. Possibly it should be said that poverty causes remittances.
This is a reasonable conclusion, as the Philippines has the highest rate of outward
migration relative to population of any country in East or Southeast Asia (Lucas
2001). The volume of departing OFWs has broadly matched the increase in the
domestic labor force over 20+ years, (Burgess, 2005). In the period from 1994 to
2001 more Filipinos actually found jobs overseas than were added to the number of
employed persons in the local market, (Go 2002).
Rural development has been impacted marginally and remittances have not been
properly utilized into productive and investment uses, (Ang 2008). Negative effects
were found in two studies (Chami 2003 and validated by Burgess 2005). The opposite
was found in a World Bank cross-country analysis whereby an average of a 10%
increase in the share of remittances in a country’s GDP is associated with a 1.6% drop
in poverty incidence, (Adams 2005). However as OFWs tend to come from the not so
poor households, this percentage may be much lower in the Philippines. (Pernia 2006)
Studies have found that most OFWs tend to come from the more affluent provinces
and from upper middle class to upper low class families. (BSP 2006, Pernia 2008)
(Fig.11). It is also established that the more developed regions send more OFWs
overseas resulting in greater total remittances (Pernia 2006), but OFWs from poorer
regions tend to remit home larger average amounts than those from richer regions.
(Pernia 2008 Mellyn 2003)
Some professional OFWs even come from the lower upper class but they tend to
become permanent immigrants later on. This accounts for the negligible economic
gains found in the distant and poorer provinces. (Ang 2008) “Currently remittances
seem to increase inequality in the Philippines.” (Jongwanich 2007).
Possibly a mitigating reason that remittances have not had the expected beneficial
effect of alleviating provincial poverty is the apparent direct relationship of the OFWs
provincial location to their occupation.
Figure 11: Provincial Distribution Percentage of OFWs 2005-2007
0
2
4
6
8
10
12
14
16
18
20
NC
R
CA
R
Regio
n I
Regio
n II
Regio
n III
Regio
n IV
Regio
n V
Regio
n V
I
Regio
n V
II
Regio
n V
III
Regio
n IX
Regio
n X
Regio
n X
I
Regio
n X
II
AR
MM
Cara
ga
2005 2006 2007
Source: National Statistics Office, Survey on Overseas Filipino Workers
Yet remittances received in the provinces have a bigger multiplier effect as rural
households typically consume more local goods than urban receiving households.
(Pernia 2008)
The economic gains to the nation, if properly administered, are considerable. The
poverty situation is mentioned in brief to illustrate the necessity for a new economic
model that uses an OFW component. This is to be balanced between domestic
manufacturing and consumption and renewing provincial commerce. There is a need
to include long-term agricultural stimulus policy provisions and the funding necessary
for agricultural research so that the Philippines can regain food security.
The OFW and their Families
The looming downturn and subsequent loss of new overseas employment
opportunities will affect the three categories of OFWs and their families:
a) Those currently employed overseas
b) Those on leave, or taking an extended break between contracts
c) Permanently returned and laid-off OFWs (incl. those with un-renewed
contracts
Although seemingly insulated from the financial woes that b) and c) are likely to face,
even a significant percentage of category a) will face similar problems. The likelihood
of greatly reduced work hours will mean substantially less remittances. (IOM 2009)
The amount of the reduction may well have been used for investment in both real
estate and education leaving money only for food, clothing, utility bills and other
‘bare necessities.’ Even healthcare will be largely put aside.
There is a strong possibility that the impact on domestic investment and human
capital will be considerably more pronounced than is currently contemplated.
Category b) OFWs may find anticipated re-employment is no longer possible and
their hope of providing ongoing financial support for their families sustenance and
investments has evaporated. Category c) will find domestic employment elusive as
returning OFWs are viewed as unsuitable for domestic employment. There is a social
jealousy that the OFWs have made their money and opportunities should be given to
‘locals’ first. They are also seen as culturally ‘Western’ superior.
All of these circumstances, plus the growing publicity of diminishing opportunities
will drive categories b) and c) to seek overseas employment before the effects of the
crisis worsens and becomes openly apparent. If they are unsuccessful through
legitimate channels, the OFWs will go the illegal recruitment route or travel directly
overseas to search for work individually (and if a job is obtained their status will most
likely be illegal/irregular).
The Government “banned countries” such as Lebanon, Afghanistan, Iraq and Nigeria
and others similarly dangerous, will be increasingly ignored by aspiring and laid-off
OFWs and will provide a fertile market for illegal recruiters and dubious foreign
employers. Already there are 15,000 Filipinos working in Iraq, up from the 4000
OFWs before it was banned. Banned countries appear to always attract OFWs and
previous irregulars due to the lure of expected higher salaries. There may be
insufficient Government funds available, or the political will to stop the illegal
trafficking given the value of the resulting remittances being just as important as
traditional remittances.
Other less obvious negative outcomes affecting the OFW financial and family fabric;
• Renewed trade in Filipina ‘entertainment’ trafficking due to family pressures
especially in the poverty stricken provincial areas. Korea is alleged to be the
next Japan in this regard. Private sector agencies currently are prohibited to
recruit for Korean employers.
• With the likely significant income reduction to schools, overall education
standards will suffer and a lack of funds for designing new courses and
teaching new ‘in demand skills’ will not happen.
• The possibility of OFW ‘related’ crime increasing especially by the
‘extended” OFW beneficiaries now without any possible means of support.
• As the credit crisis in the USA and Canada deepens, the flow of remittances
from immigrant families to their second-degree relatives here will decrease
markedly. This money source has been a major factor in college education,
real estate growth and health care.
• Many of the three hundred thousand plus Filipino citizens (DHS; 2009)
‘permanently’ in the US (CFO 2007 figure is 155,000) whose immigration
status have become or always were irregular are now facing the effects of the
credit crisis and losing their capacity to survive. Remittances will be affected
and even some individuals will be forced to return to the Philippines.
There will be a reversal in the drift to the main cities by OFW families who will lose
their capacity to meet the much higher urban costs and be forced to return to their
provincial towns. To date many do not go back to their ancestral bases because they
believe their only hope of employment is in Manila and surrounds, or the other major
urban centers in Visayas and Mindanao. They will start to go back as the contraction
deepens.
Approximately 60-70% of OFWs originally come from the provinces, (Go, 2005). It
is estimated 10-20% of new OfW’s (their families) shift to the National Capital
Region sometime before or during their first two contracts. The constant drift to the
urban areas deprives the provinces of their OFW earned economic benefits.
Some OFWs are now ‘second generation’ but the vast majority has been unable to
obtain jobs, unlike their parents 20+years ago due to declining educational standards
and incompatible content of courses. OFWs have been major contributors to
education and educational ‘pre-need schemes with a significant percentage of their
remittances supposedly purchasing good educations for their children. They have
ended up as the victims both ways. The dislocation of OFWs having to take their
children out of school due to lay-offs will present a range of social problems to all
family members arising from humiliation, rejection and a loss of direction.
Government schemes for micro lending to laid-off OFWs do not provide any medium
or long-term solutions, or do they address utilizing the talents of the affected OFWs or
provide any provincial economic benefits. They are less likely to borrow. However
the effects of income shocks through currency fluctuations and devaluations have
shown increased entrepreneurial investment. (Yang D. 2005).
Many OFWs have unfortunately fallen prey to many money scams, multi-level
marketing schemes and pressure real estate deals that have resulted in their losing
their remittance investment funds. Dealing at a distance and through relatives is
fraught with financial danger. There has never been or even envisaged a holistic
approach in providing social and business welfare protections to the nations most
valuable economic asset.
The Educational / Experience Deficiency An unanswered national and industry challenge for several years is the increasing and
unsatisfied demand for skilled workers and professionals. The Philippines can’t fill
many of these (currently included in the POEA approved job orders of 389k positions
Dec. 08), simply because of
• A lack qualifications and/or insufficient working experience.
• College and technical/vocational courses do not match the market
requirements.
• A lack of any form of apprenticeships and insufficient ‘on the job training’
Competitor countries are adapting while the Philippine education system continues to
allow incompatible and sub-standard courses and curriculums to be maintained.
Many overseas employment opportunities abound in sub-specialties of various
occupations but the Philippines education system is either ill equipped and/or
unprepared to offer corresponding courses to the demand but rather do a “one course
fits all” mentality. This has lead to a disastrous oversupply of unemployable
graduates. Examples of ‘in-demand’ are plentiful e.g. a tiny number of schools offer
courses for Respiratory Therapists or Civil Laboratory Technicians (materials testing)
etc. Similarly welding and pipe fitting courses although now more available are often
incompatible to foreign requirements.
The last decade has seen an explosion of schools and colleges spring up throughout
the country as a consequence of the demand created by OFWs wanting to give their
children a private education. This is often as a preparation to them becoming second
generation OFWs. However many of these establishments have the reputation of
student factories whose staff are inexperienced and under or unqualified. Their
specialties and curriculums have been based on assumed international demand that is
often perceived but unsupported by research or fact.
First the wave of these establishments specialized in IT, and then nursing and
caregivers, then HRM and then BPO sub specialties. The results their students
achieve are usually well below international standards and don’t come up to even
national standards as evidenced by Dep’t Ed and CHED examination results.
There were 200 applications for new nursing programs 2004-05 and 450 nursing
schools operating then, (IHPDS 2005). Only 20 nursing schools throughout the nation
had an 80+% average pass rate of their students for five years from 2000-2004, (PCIJ
2004). The financial crisis could assist CHED in the necessary elimination of sub
standard schools and colleges through dropping rolls attrition. The passing rate for the
licensure examinations is in the low 40%’s down from 55.8% in 1998.
During this 10year period hundreds of thousands of nursing students have failed the
licensure and of the ones that passed (average 55,000+ yearly from 460 schools) less
than half are eventually absorbed into hospitals. Interestingly there are only approx
300 hospitals with teaching programs (PNA 2007/8/9). The question arises about how
the remaining 150 schools comply with practical training. Are non-tertiary hospitals
used?
Of the approx 900,000 Philippine college graduates annually, only 5-10% are
employed in jobs consistent to their course. Probably only 30-40% will find any
employment. The vast majority of graduates will remain unemployed. Some might
obtain rotating contractual fast food jobs.
Tens of thousands (possibly several hundred thousand) of nurses and other medically
trained persons who do not qualify for OFW positions due to lack of hospital ward
and practical experience, will have no job. Many of the new nursing graduates end up
paying the hospital for a job in a desperate attempt to get the necessary ward
experience. This circumstance is a global rarity and reflects badly on the country’s
health system. Client countries are increasingly wary of Philippine health education.
Many graduates will never be considered due to the local reputation of their college,
the preference of the employer to some colleges, or the host country’s ‘approved
colleges only’ regulations. This has a direct correlation to the results performance of
the colleges.
Maritime colleges also have varying educational standards and results, churning out
approx. 15,000 graduates annually. Only about 5,000 new ratings will be absorbed
into mainstream shipping employment each year. The others, mainly from provincial
maritime colleges either attempt to ‘retrain’ in Manila by attending new maritime
courses or enter hospitality courses with the goal of eventually obtaining service
positions on cruise ships. The residue, take any employment or simply do nothing.
There is a serious gap in the education system that persists in having curriculums that
are unsuitable to provide their graduates with the possibility of employment. OFW
families have invested, borrowed and sacrificed to educate their children. It is a
contract with both the Government (that the courses offered are based on
internationally accepted curriculums) and the educators (that their teaching standards
comply with required TEDSA and CHED protocols). If either party does not meet
these minimum implicit requirements, it becomes a form of moral and ethical failure
that the nation pays for in lost opportunities and subsequent social problems.
Unfortunately business philosophy and pragmatic management modeling has not
produced the desired and required beneficial results in most private education
institutions. When big business including the conglomerates bought or set up schools
and colleges, they either continued the existing programs and/or omitted to research
what the demand for graduates was. Producing non-employable graduates of courses
for which there is no demand could be viewed as unethical and merely a method of
generating cash. This is an example of the symptoms of Dutch Disease. Regrettably
contrary to the pronouncements that 90% of OFWs are professionals, they are not and
OFWs are therefore susceptible to believing their sons and daughters will be afforded
an education that will prepare them and provide them with gainful employment.
Overall there is a strong necessity to expand TEDSA type re-training courses in many
specializations. Vocational / technical education must be encouraged and designed to
meet both local and international standards and market demands. Apprenticeship type
schemes (on the job training) devised and supported by the private sector would be a
guiding and positive influence on the education system. (Go 2002). These could be
totally Government-funded using existing Government assets, or subsidized in private
sector technical institutes, colleges and universities or a combination of both.
The recently floated move that is supported by CHED, to extend college courses for
nurses, engineers and architects etc. from 4 to 5years, is incorrect. It is the quality of
the course, not the length of it, that matters. This appears to be an avoidance of the
closing of sub-standard schools and colleges that CHED has been tasked to
implement over the last several years. The more cynical interpretation of
commentators has been that college owners are hoping to increase or maintain income
in the face of predicted dropping 2009/10 rolls.
The extra years of schooling in many countries occurs during the elementary and high
school stages, not college. Their undergraduate degree courses are normally 3years in
duration with standards that are still higher than the Philippines. This is due to the
longer more detailed curriculum taught by better equipped teachers who undergo
more rigid regimes of qualifying standards for being able to teach at specific levels.
Philippines is near the bottom of developing nations in its funding for education.
Understanding the figures
Data Importance The importance of having the ability to utilize sound and comprehensive data on all
aspects of the Philippines managed overseas manpower sector is essential. BSP,
NEDA, DFA, DOLE and other Government agencies, LGU’s, commerce,
international multilateral organizations and academia formulate policy, budgets,
ratings, planning and studies etc. Unsound data processes and gathering protocols,
compilation and insufficient information fields cause distortions that eventually can
have a negative impact on the economy.
The existing OFW information fields are now too few, outmoded and not sufficiently
detailed. There is no harmonization of categories, required information or protocols
for determining OFW statistics between the agencies. An example would be the
occupational statistics for POEA deployments that have been condensed into only 8
categories, (Fig.12) One of those categories is for Professionals and Technical
workers but it includes the broad description of skilled personnel. Accordingly you
have entertainers, welders, some specialty construction workers, nurses and IT
engineers, etc. all in the same category.
Figure 12: Deployment of Newly Hired OFWs by Skills Category, 2007
14%0%
4%3%
35%0%
3%
41%
Professional and Technical Workers
Administrative and Managerial
WorkersClerical Workers
Sales Workers
Service Workers
Agricultural Workers
Production Workers
For reclassification
Source : POEA 2007 Statistics
Virtually all OFW related information and statistics are derived from POEA, the CFO
and the annual survey done by the National Statistics Office (NSO) since 1993 on
returning OFWs, (Survey of Overseas Filipinos: SOF). Their information and the
remittance figures from the BSP are used for profiling, management planning and the
basis for domestic and international conditioning. Often statistics released from
POEA are immediately taken up by other Government Agencies and used as a basis
for economic predictions and financial projections. An example is the announcement
by BSP (Jan 2009) that 90% of deployments for the first 10 months of 2008 were for
professionals and skilled workers. This would be a huge departure from the previous
year. Since their peak of 35% in 2001 professional deployments have declined to
approximately only 14% of new hires in 2007, (Fig 13).
This highlights the problem of restrictive categories as included in professionals are
also entertainers, singers, dancers and musicians who apparently account for approx
20% of that figure. True professionals probably account for less than 40% of the 14%.
Figure 13: Professional Deployments to Total New Hires 2002 – 2007
0
20
40
60
80
100
120
2002 2003 2004 2005 2006 2007
Thousands
0
50
100
150
200
250
300
350
Thousands
PROFESSIONALS TOTAL NEW HIRES
Source: POEA
Incorrect perceptions of the OFW market characteristics have gained traction over the
last several years and transcended the reality, e.g. “most of the annual deployments
are professionals in recession proof occupations” when in 2007 in excess of 86% of
deployed OFWs were employed in low skill positions.
These data defects and their negative effects have been identified in numerous studies
(Martinez 2005, BSP) and well known to successive Philippine Administrations but
claimed lack of funds has meant sub-standard information has been allowed to
continue which may be viewed as aiding Dutch Disease. BSP in several international
statistical conferences has made presentations in which they acknowledge that POEA
data is subject to “upward bias” and NSO’s annual Survey of Filipino’s Overseas
needs to be redesigned. (BSP / Gonzaga 2005, Guerrero 2006, 2008)
Annual OFW Deployments POEA released statistics state 1,376,823 OFWs were deployed in 2008. This is a
remarkable 27.78% increase over the same period last year and against 69%. for the
preceding decade (Fig 14). Put another way the average daily number of OFWs has
increased from 2,952 in 2007 to approx 3,772 in 2008. It took a decade from 1998 to
have the same approximate percentage increase as reputedly was achieved for 2008
alone.
New hires had been stated to have increased 15.5% from 355,637 to 410,805 for the
eleven months of 2008. However 2007 new hires are shown in POEA’s Annual
Report as 313,260 down 1.39% from 2006’s 317,680.
Figure 14: Annual Total Deployments of OFWs 1975-2008
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Millio
ns
Source: POEA
December new hire deployments were stated to be 61,000, which is significant given
that it is traditionally the quietest deployment month due to Middle East holidays and
the extended Philippine Christmas Holiday period. That would make the total of new
hires for 2008 471,805 or a 50.61% increase. However a further release stated new
hires increased by 115,149 from 2007’s figure of 313,260 to 428,429, or a 36.75%
increase. Another release then stated that 89,799 were deployed in December 08. If
there were 61,000 new hire deployments for December 08 that would leave a balance
of approx. 28,000 of re-hires.
Perplexing to many stakeholders is data covering October November and December
in 2008 plus January 2009. In fact similar trends in recent years show the same
apparent inconsistencies. Record deployments are announced. However the long
major Muslim holidays of Ramadan and the Haj followed by Christmas in the
Philippines occur during October through to December. As the Middle East represents
70+% of total deployments so traditionally over the last three decades there had
always been a low deployment during the last quarter due to these holidays and the
reluctance of employers and OFWs (whether new hires or rehires) to be deployed
until the new year. During the Muslim holiday period it is extremely difficult to
secure seats as Middle East give preference to Muslim Pilgrims. The January 2008
figure was 30% up on 2007 and is difficult to comprehend given the global decline for
migrant workers.
As difficult as it is to reconcile these facts and figures, they still draw an incomplete
and possibly incorrect picture due to gaps in the data gathering fields, which allow
items that need separation to meld into broad categories. OWWA membership figures
should be able to be used as an audit of deployments but they too are based on the
protocols of POEA acting as OWWA’s membership registering and fee collection
agent. Accordingly OWWA’s figures are subject to the same inherent gaps in
recording data protocols. POEA also processed approx 1.5 million OFW exit
clearances in the first 11 months of 2008.
OFW Categories and Data The composition of the OFWs deployed annually over the last few years is
approximately
1. 200,000-300,000 sea based workers
2. 400,000-500,000 rehire’s
3. 300,000-325,000 new hires
Sea based workers category includes service personnel such as waiters, entertainers
etc. working on cruise ships. Actual seaman and officers sign on for 6, 8, or 10month
contracts and usually have 6 months off between assignments.
A maximum of 5000 graduating ratings are absorbed into the main active roster of
approx 6 50,000 seamen annually leaving some 10,000 odd graduates that fall by the
wayside and end up working as service personnel on cruise ships or are just absorbed
into the Philippines un and under employed. Approximately 30% of the worlds’
850,000 sailors are Filipinos at any given time.
Rehires are those staying with the same employer but renewing their 1,2 or 3 year
contract. Many in this category have ‘rolled over their contracts many times. 95%+
would have originally gained employment through a licensed recruitment agency but
when rehired by their foreign employer, the OFWs are then able to process their exit
clearance directly with POEA, if they have returned to Philippines on leave.
New Hires denotes a successful candidate gaining a job with a new employer, but this
could be the new hire’s second, or third, or fourth or even more times as an OFW with
multiple employers. It is a misnomer that renders this category as potentially quite
inaccurate. Some occupations especially in construction and development see
considerable OFW movement between employers and therefore the OFW would be
counted as a new hire each time he moves to another one.
The New Hire category would be of considerable value as a tool in the various
planning and evaluation processes, if the protocol for whether an OFW qualified for
inclusion was clearly defined.
Also it is possible that OFWs on holiday or compassionate leave are inadvertently
included as rehires when they get their exit clearance. (Guerrero, 2005, Gonzaga,
2006, 2008) Another double counting can occur when an OFW already has been
issued an exit clearance and then opts for a different position usually from a different
agency. These instances could account for some of the 27.76% deployment increase
in 2008. There is no mechanism to track the status of ‘end of contract’ OFWs and
their multiple rehiring, new hire or just their return.
POEA has announced they had a December 31st 2008 balance of approved job orders
totaling 389,000 after 61,000 New Hires were deployed during that month. However
the ongoing monthly totals are likely to contain some distortions that increase the real
total:
• Foreign employers have appointed two to as many as five local agencies to fill
its vacancies. Those agencies would all file identical applications for the same
job order and receive separate approvals. Therefore an order for 100 vacancies
will most likely show up as an order for 200-500 vacancies.
• Approved job orders stay current for 4 years, so its possible many of these
positions will be for ones that cannot be filled due to a lack of experienced and
qualified candidates.
• New accredited agencies must produce proof of a so-called ‘virgin order’ for
at least a hundred jobs. Often this requirement is not fulfilled through
enforcement, or the agency does not continue business but the order remains.
• Foreign employers inflating their real or current requirements to avoid having
to apply multiple times to POEA for approvals.
The bottom line is that the current database system does not allow for obtaining
sufficiently accurate and meaningful statistics on the movement and characteristics of
OFWs. Much of the statistics are derived from surveys rather than transactional
records.
BSP and other Government agencies base much of their predictions and future
monetary and economic modeling on the statistics released by POEA and the annual
survey of OFWs by the NSO and CFO. An example of the range of figures taken from
2007 (Fig.15) shows OFWs (not including Permanent or Irregulars) presently
overseas as;
Figure 15: Temporary Filipinos’ Overseas 20007
CFO 4,133,970
NSO 1,747,000
*POEA 1,874,000
Source: CFO, NSO, POEA
As land based are on 2 year contracts as opposed to the sea based of less than one
year the estimate for POEA is therefore land-based 788,000 (2006) + 811,000 (2007)
+ sea based 275,000 (2007) = 1,874,000 approximately (excluding irregulars). This is
still probably understated as there are over 1,000,000 OFWs in Saudi Arabia alone.
The differences are large and affect any reliable ability to analysis the state of the
“Managed Migration Industry.”The CFO figure appears to have a totally different
basis, yet because of its title it is taken to constitute approximately the same group of
Filipinos as NSO use, (OFWs+OCWs) or POEA (OFWs only).
Little or no progress has been made on the “Establishment of a Shared Government
Information System for Migration.” as mandated under Section 20 of Republic Act
No 8042 of 1995. Also there appears to be little progress by the mandated government
agencies under EO 446, to adopt an efficient accurate fully integrated deployment
data management system covering both new and re hires that incorporates the ability
to provide complete self audited statistics on demand.
BSP being one of the mandated agencies has the resources to assist POEA in this
endeavor. This would ensure that BSP complies with its special responsibility to
protect its financial reputation and monetary role to ensure the veracity and accuracy
of the information it provides from its own and other Government sources. It is also
the agency that has the financial capacity to drive the process.
The importance of the statistical protocols, compilation, accuracy and integrity of
all OFW figures cannot be overstated.
Occupational Structure of OFWs In the early 1900’s, Filipino’s were off to work in the Hawaiian sugar and pineapple
plantations as the first migrant workers. In the 1930’s they expanded to California as
fruit pickers, which was probably the embryonic start of the now substantial enclave
of Filipinos in Northern California, in and around San Francisco. Following the
Second World War a second wave of contract migration commenced with the
reconstruction of US bases in several countries. The Vietnam War and the expansion
of Subic and Clark Bases brought about the creation of a pool of experienced
engineers and fitters that eventually found their way into Iran (until the Shah’s fall in
Feb1979) and Saudi Arabia oil construction projects as the military demand softened.
Eventually after the opening up of several Asian country opportunities for mainly
domestic helpers, the trail followed still followed the oil money. After the 1978 oil
price shock, the funds generated massive Middle East (mainly Saudi Arabia)
developments and created a demand for skilled workers that the Philippines was able
to fill due to the added benefit that is workers were fluent in English. (Capistrano
2006)
The occupational trend had gone from
1. Agriculturalists in the USA to skilled construction and engineering personnel,
(which has always been maintained in the Middle East) to;
2. Domestic helpers in Asia and the Middle East and entertainers in Japan, to;
3. Factory and production workers in Taiwan S.E.Asia to;
4. Professional healthcare workers in the USA, Saudi Arabia, UK and several
other countries.
More professional deployments flourished until 2001 and then started a downward
trend, which continues. Philippine and foreign government political/social policies
have had a considerable influence on the make-up of the occupational demographics
of OFWs especially in the last decade.
Significant changes have occurred with;
• Predominately female entertainers being restricted from working in Japan
• Minimum salaries being imposed for domestic helpers
• Direct hiring policies through POEA
These and other administrative orders and directives have often occurred with limited
or no consultation with stakeholders, or have come into effect due to local or foreign
pressure groups, some without a direct personality in worker migration matters.
As can be seen by the occupational structure in Fig. 16, Professionals represent only
8.6% and based on the Temporary category (Fig. 3) for 2007 of 1,747,000 that gives a
total of 150,242. Engineers, entertainers, nurses and medical technicians make up the
bulk. These numbers come from the NSO annual survey of overseas Filipinos but
uses different categories and 10 of them, not 8 as used by POEA. Also the survey uses
a relatively small sampling base and extrapolates the figures.
Figure 16: Occupational Structure of OFWs 2005 – 2007
Major Occupation %
2005 2006 2007
Officials of Government 2.4 3 2.8
Professionals 8.8 8.7 8.7
Technicians and Associates Professionals 8.1 7 6.8
Clerks 4.5 4.2 5.5
Service Workers and Shop and Market
Sales Workers 13.7 13.5 14
Farmers, Forestry Workers and Fishermen 0.2 .3 .3
Trades and Related Workers 14.5 14.6 13.2
Plant and Machine Operators and
Assemblers 14.5
13.9 12..8
Laborers and Unskilled Workers 33.1 34.3 34
Special Occupations 0.2 .1 .1
Source: National Statistics Office, Survey on Overseas Filipino Workers
To further illustrate misunderstandings on healthcare workers and using nurses as the
biggest sector, over the last five years approx 85% of nurses have gone to the Middle
East on two-year contracts at an average rate of approximately 8,500 per annum with
nearly 70% going to Saudi Arabia. That would infer that no more than 18,000 OFW
nurses are in the Middle East at present. Assuming that other medical staff are even
on a one to one ratio that would give a total of 36,000, which would indicate the
global total of all contracted OFW medical staff is presently only approximately
40,000. The number of nurses deployed to the US in 2007 was only 186 and the
average over the period 2000 – 2007 was 237 per year. (Only 38 nurses were
deployed to the UK in 2007)
Annual nursing deployments have declined from 13,822 in 2001 by 35% to 9004 in
2007 (Fig. 17). Medical worker deployments are the main basis for the claim that
OFWs are in recession-proof occupations. Yet they represent less than 3% of total
annual deployments, (new hires + rehires + seafarers).
Other professionals are small in number and would not be able to provide any
protection against lay-offs or maintaining remittance levels. Teachers are also
insignificant in deployments and their original target market of the USA is extremely
difficult to penetrate due to the current immigration restrictions.
Figure 17: Deployed Nurses 2000-2007
0
2000
4000
6000
8000
10000
12000
14000
16000
2000 2001 2002 2003 2004 2005 2006 2007
KSA UK USA ALL COUNTRIES
Source: POEA
Statistics for engineers only, (engineering is not considered to be a recession-proof
occupation) are not currently available but assuming they are even triple that of
nursing staff, you still would only reach the total deployment figure of approximately
14%. The percentage of professionals in 2008 is unlikely to be 90% of new
deployments as now claimed, as the trend shows diminishing professional
deployments for the last few years, still holds. Official records show a 54% decline
from the 2004’s 94,147 to 43,335 in 2007.
Permanent Filipino migrant medical personnel and other professionals who left the
Philippines in the 70’s, 80’s and 90’s have swelled the ranks of remitters, but it is not
known how many are still employed and at what level they remit.
But all these figures illustrate:
a. ‘New hire’ deployments are composed of approximately. 14% professionals
and not the 90% figure used in media releases, (including entertainers
approximately 3% and nurses and medical staff representing a maximum of
3%, leaving all other occupations including non-professionals at 8%).
b. Nurses and medical staff as the main recession-proof occupation only
represent approximately 2% of total deployments and possibly a similar
percentage based on ‘permanent plus temporary’ overseas Filipinos
c. The weakness of the available data and the substantial gaps in defining
categories and having detailed occupational figures. Potential OFW and ‘Irregular’ Layoffs It is important to establish the most realistic if not accurate deployment figures in
attempting to establish the parameters of the upcoming crisis.
Most OFW contracts are for two years, so if we use 1 year’s deployments as the
average and double it, means currently there are about 2.3 million OFWs employed
overseas. In addition there are around 2.5 million immigrants in the US (to be
conservative we have taken 60% being 1.5 million only as remitters) and another 1.2
million irregular Filipinos working globally and remitting income home.
(The DHS has just released new figures showing that 570,000 Filipinos have legal
residency in the US. This low figure is probably due to the declining “first
generation” Filipinos having produced second and third generation US Citizens).
So if we take a conservative approach and use 10% of 5 million OFWs, ’ irregulars,’
and those laid off, means approx 500,000 workers who potentially wont be remitting
anymore with an annual loss of up to approx US$2 billion to the economy, based on
US$400 per month, (a very conservative estimate from Mellyn 2003 at $389). The
majority of them will have to be re-absorbed into the Philippines without the
likelihood of obtaining any jobs.
This basis is definitely unscientific and subject to some doubt, but it is conservative
given that international studies done on remittances and migrant workers give vastly
higher estimates of irregular overseas Filipino workers that are remitting regularly to
the Philippines.
Remittances
Remittances are the lifeblood for the Philippines, as unlike other major beneficiary
countries with large populations the percentage of remittances to GDP is
exceptionally high. In fact the official amount exceeds by some way the combined
income of exports, BPO and tourism, plus FDI’s and portfolio investments.
BSP remittance statistics for 2008, total US$16.4 is based on 95% transacted through
the formal banking system and 5% through informal channels. This is the basis they
have been using since approx 2005. Prior to that they estimated 10-20% for informal
remittances despite in many of their own presentations and media releases, they
acknowledged up to 30%.
The Philippines is identified in remittance studies as a country whose central bank
does not measure informal remittances and it is believed that even the formal
remittances recorded through the commercial banking system is unlikely to capture
the real total, (Martinez 2005). The exact amount of remittances cannot be determined
with any certainty due to the banking system capturing only part of the total and the
balance being a variety of informal and unrecorded methods, (Go 2002).
In 2004, a survey by the National Statistics Office showed that 76% of remittances
were through the formal channel, (Yang S. 2005). But ADB, World Bank, and IMF in
a number of studies made as far back as 2003 estimate that the total remittance value
to the Philippines was as much as US$14-25 billion and not the US$7.6 billion then
claimed by the BSP, (Mellyn 2003 Bagasao 2004). This was based on 50+% being
transferred or couriered through unrecorded non-banking methods and extrapolating
of the base number of remitting OFWs including Filams, the estimated amount of
each transfer multiplied by the number of times per year. This basis is similar to a
World Bank study in 2006. (Jongwanich, 2007)
Currently World Bank estimates approximately US$2.5 billion or 15% informal
remittances. Twelve months earlier they were estimating 20% informal (US$2.6
billion) remittances, (Ruiz, 2008). In 2005 a DOLE survey done in conjunction with
the Philippine Consular Offices determined that between 25-30%, or US$3billion at
that time was sent through informal channels, (BSP, 2005).
A somewhat confusing revelation pointed out in an IMF Working Paper showed that
workers remittances as recorded in the Balance of Payments was US$7,2billion, yet
Current Transfers (from 2.75 million Filipino US permanent residents) only amounted
to US$0.2billion, (Burgess, 2005). This seems insignificant and open to review given
the claims of the real estate industry that this category is their largest client base. It is
possible that Fil-Ams and foreigners real estate investments are incorrectly recorded.
Several studies have suggested that there has been a stable informal remittance level
of 30% for some years, (Burgess, 2005), (Fig. 18). Assuming the validity of these
institutions range of remittance values, then the relationship to GDP is in the high
teens and would indicate clearly the pre-eminent position remittances have had in
Philippines economic growth for many years.
Today only 6 banks control an estimated 80+% of formal remittances. This is due to
their ability to offer their own or their agents, convenient foreign locations for OFWs
to transact their remittances. In 2003 ADB estimated 6 banks had 90% of the
business, (Mellyn 2003
Figure 18: Total Remittances Incl. 30% Non-Formal (Non-Banking) 2000-2008
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 *2008
Billio
ns $
BANKING NON-BANKING
Source: BSP / ADB
Mode Versus Amount A major distortion in the official remittance figures showing continued increases,
month on month, year on year, is more attributable to the shift in the mode of transfer
from non-banking, to official banking channels. (FRBSF, 2008)
This has been due to
• Growth of OFWs deployed
• Accessibility of load points to OFWs
• Increased data capture
• Reduction in remittance costs
• Currency depreciations
(Ratha, 2008)
The alternative remittance systems (ARS), are commercial and private couriers,
padala,, returning OFW friend’s hand carry and end of contract hand carry (therefore
none of these methods are recorded). (Bagasao, 2004, Mellyn, 2003)
World Bank, IMF, Asian Development Bank, UN and other studies on remittance
have all highlighted the significant percentage of informally transferred remittances,
(Capistrano 2006). This would increase their percentage value in terms of GDP and
reinforce the fragile nature of the Philippine economy in relation to any decline in
global growth.
The problem with estimating the non-formal remittances is that there is no basis for
calculation or reliable measurement of the number of illegal overseas Filipino’s who
are remitting and only semi-scientific surveys on returning OFWs. Studies have also
found that even formal remittances are not fully recorded especially those transacted
through dual debit and stored valued cards, (Martinez 2005). Fig: 20 tends to confirm
the conclusions of the past ADB, World Bank and IMF studies that approx 30%
informal remittances has remained reasonably constant despite the huge growth of the
formal remittances.
Figure 19: The Remittance Industry –Key Phases
It follows then that while there has been greater access and use by OFWs of banking
channels, either the informal (non-banking channels) were much greater than
originally estimated, or the informal channels have been successful in keeping their
market share.
Figure 20: Total Estimated Remittances of OFWs of April-September 2006 and
April-September 2007
0
20
40
60
80
100
120
2007 2006
Billio
ns -
Peso
s
CASH SENT CASH BROUGHT HOME IN KIND
Source : National Statistics Office, Survey on Overseas Filipino Workers
Other studies in 2003/4/5 have also shown that the Bangko Sentral ng Pilipinas has
gaps in its data gathering especially regarding the originating country, proper
identification of category and non-banking transactions, but BSP indicated to
researchers that there were no initiatives to change this. (Martinez, 2005, Yang s.
2005, Bagasao 2004, Mellyn 2003) This is understood to still be the situation.
Remittance Origins Although OFW’s work in some 190 plus countries throughout the globe, the main
source of remittances come from the countries of the Middle East, Europe, South East
Asia and North America.
Despite official figures published by the BSP showing the USA as the main remitting
country, this camouflages the fact that many foreign and Philippine banks use New
York banks for their dollar nostro accounts to transmit and credit ‘remote beneficiary’
banks with which they have no direct settlement agreement ability. There is also the
possibility that transferring through these banks mainly located in New York is an
opportunity to share the charges and gain on any timed float.
Saudi Arabia is possibly now the main originating remittance country whose banks
mainly have their nostro accounts in New York for onward transmission and
settlement. It is believed that Saudi and the USA both remit approximately 40% each
with the USA in decline and Saudi Arabia in the ascendancy.
Figure 21: Stock of Major Concentrations of Filipinos Overseas by country 2007
0 500 1,000 1,500 2,000 2,500 3,000
ITALY
HONG KONG
KUWAIT
SINGAPORE
QATAR
JAPAN
UK
MALAYSIA
AUSTRALIA
CANADA
UAE
SAUDI ARABIA
USA
Thousands
Source : CFO
In fact there are relatively few true OFW’s in the USA as most remittances come from
immigrant families to 2nd degree Philippine relatives. POEA’s figures show only
128,000 OFWs and 155,000 ‘irregulars’ as of 2007 in the USA. However studies have
indicated that remittance flows are generated by the entire stock of Filipino migrants
and not just the contracted OFWs. The amounts remitted by Filipinos based in the
USA are influenced by their temporary or permanent status and their length of stay,
(Go 2002). This would tend to confirm that the informal remittances are still at a
reasonable percentage level given the mobility of the permanent migrants in traveling
“home” with cash.
As a large percentage of remittances regardless of their origin, transact through New
York bank’s such as Citibank and JP Morgan, both of which have come close to
collapse recently, it appears that several days transfers are at risk at all times. The
amount at risk, dependent on the month, could entail as much as approx US$50
million. Remittance Fees
It is well established in studies by many organizations, including World Bank, IMF,
ADB, GAO and UN agencies, that the front end charges to OFWs imposed by
overseas transmitting banks and remittance companies and the recipient Philippine
banks and disbursement companies are in most cases unfairly high, (Bagasao 2004).
Philippine banks specializing in remittances have expanded disproportionately in the
last decade to those banks that have been unable to gain a foothold in this
extraordinarily lucrative financial market.
“At 12.5% of GDP in 2006 remittances are largely responsible for…..generating
strong fee income for a banking system that had historically weak profitability.”
(FRBSF, 2008) The top 6 have approximately 80+% share of total remittances and
fees. In addition they are able to expand their income by selling OFWs other products
such as credit and debit cards, insurance, car and house finance. (five out of the six
banks rate 1-5 as the Philippines largest). Overall fees to remit to the Philippines are
generally lower than a lot of countries due to competitive pressures and the use of
technically advanced products (GAO, 2005).
Total annual bank income (fees + foreign exchange gains + float gains) may be as
high as an incredible US$1.5 billion net to the Philippine banks (i.e. excl offshore
agent income), with the fee component of $750million to $1billion, (Based on the
extrapolation of Bagasao 2004). 2008 bank remittances reached US$16.4 billion. The
fees allow the banks great latitude in transacting decisions in their other income
streams. The non-bank fee transfers are very difficult to estimate as no recent studies
have been published on the various parameters. Their market share is likely to be in
the 10-15% range with OFW hand carried approximately 2.5-5%.
This would indicate the OFW remittance value is about US$21 billion based on only
approx 4 million remitters @ $525 x 10 transfers annually, as opposed to using the
8.7 million ‘stock of Overseas Filipinos’ most often used in remittance studies. World
Bank determined the 2003 average remittance to the Philippines was US$389 (x 12).
Most studies have given estimates that fees and charges range from 4-20% due to,
• The relatively low individual remittance value which is subject to minimum
and flat charges
• Currency conversion at both first and last mile
• Unseen bank income from the remittances being included in its float funds
(banks are lending bulk remittances by not crediting them directly to
beneficiary accounts and probably using them in overnight inter-bank lending
or treating them the same as funds for commercial paper etc. etc.) (Fig. 22).
Figure 22: Fees & Charges in the Remittance Process
It is quite standard for an OFW and their beneficiaries to be subject to 3-5 ‘charges’
for each bank remittance and 2-4 for non-banking transfers. These occur through
currency exchange spreads at the first and last miles, middle mile and straight fees
plus of course the banks and transfer companies having the gains of the transfer whilst
its in their ‘float’ accounts. (Bagasao 2004)
The OFW faces foreign exchange spreads The foreign exchange spread applied by
Manila banks for domestic transactions ranges from .07% - 1.5% with most charging
1% all the while earning from keeping clients remittances in float accounts for 3-
7days. Some offshore spreads could go as high as 2.7%. (Bagasao 2004)
A study by World Bank (Martinez 2005), on developing countries central bank
remittance policies, the Philippines has the legal authority to impose caps on fees for
last mile charges. Currently they only require the banks to clearly show charges on
their web sites on the premise that competition will ensure that fees are reasonable.
Philippine banks have adopted a dual overseas (or first mile) strategy using a
combination of their own retail remittance centers and using agent remittance centers.
They are not in competition with each other and therefore the banks don’t care what
an agent charges, as the Bank’s own remittance overseas ‘loading center’ pricing will
be similar to their agents, from whom they may also receive a commission.
Remittances lead OFW and their beneficiaries to purchase other bank products,
ensuring that this client group is the most important to the bank and yet they have no
ability to create influence or competition and are not treated as preferential clients.
It is acknowledged that Philippine banks have profited immeasurably and owe much
of their growth to remittance income and its several sources of fees, currency spreads
and float gains. The 6 largest Banks dealing in OFW remittances are the biggest
stakeholders in the industry after the Government and will need to apply resources for
the continued protection of this, their major and most profitable income stream.
Understanding the Philippines manpower marketing
Due to the last few decades growing demand for English speaking labor with a
reasonable education and solid experience, the Philippines has been able to expand
from the ‘domestic helper and entertainer’ supplier, to provide workers for many
other occupations and professions.
The demand has come from ‘everywhere.’ In fact it is impossible to go to just about
anywhere around the globe no matter how remote, without meeting Filipinos.
Filipinos have been the preferred employees. It’s been a phenomenon few countries
can emulate. But that is fast changing.
Marketing Void Times have been so good, the demand so constant, that many Philippine stakeholders
had a relatively negligible marketing input. The recruitment industry and the
Philippine Government have generally had low levels of invested in marketing
activities, or planned or attempted to understand and evaluate their markets, their
customers or their OFWs. It is almost completely reactive. The industry is simply
based on order taking. Many markets were in fact opened by influxes of ‘illegal’
Filipinos and only became an official OFW destination subsequent to the ‘illegals’
(now termed irregulars) establishing a reputation for Filipinos’ being excellent
dependable workers.
Few recruitment agencies travel to their markets, none actively research the global
manpower market. POEA does some overseas trips dealing almost exclusively with,
foreign Governments, State Governments or quasi Government entities. Foreign
official manpower delegations from various countries also visit POEA in Manila.
These contacts lead to agreements being successfully consummated but they don’t
usually lead to significant, or many deployments due to the parties acting for
nonspecific employers, or regions, or industries.
Preparing a Plan Both the agencies and POEA have no in-depth international marketing expertise and
therefore little or no sensitivity to detect changing market conditions and are forced to
be totally reactive.
Now the global financial crisis and increasing competition is forcing the industry to
act immediately on a planned program or forever lose the Philippines preferred status
in English speaking manpower supply. It is an excellent opportunity to reform and
modernize.
Other economically challenged countries from every corner of the globe have seen the
benefits derived, by India, China, Mexico and the Philippines as the big recipients of
remittances. In Europe ‘Eastern Bloc’ countries such as Romania used their entry into
the European Community to gain worker access to the United Kingdom, Spain,
France, Germany and Italy. Bulgaria another member of the EU sent 1.2million
workers (15% of their population) mainly to Greece and Turkey.
However a large reverse worker migration started in the third quarter 08 throughout
Europe as millions including those from Romania and Bulgaria, returned to their own
countries as layoffs increased, job vacancies dried up and the cost of living in Western
European countries too high to try to ride it out in the hope of finding fresh work.
Many markets are now closed.
Infrastructure and various construction and development projects throughout the
globe, including the Middle East are either not being pursued or being halted mid-
stream as credit availability ceases. Seventy percent of oil and gas projects on the
drawing for the next 5 years worth US$2 Trillion have been put on hold and only
Middle East Government owned ones are progressing, (NYT).
India, Pakistan, Bangladesh, Indonesia, China, Mexico, Peru, Brazil and the former
Eastern Bloc countries are now the major manpower suppliers with a much larger
number of smaller countries now actively exploring possibilities for their under and
unemployed workforces.
The Philippines is the only managed manpower exporting country requiring that its
migrant workers be subject to the host country’s labor laws and that the foreign
employers provide base benefits including return airfares and other base benefits. In
some countries special conditions are imposed such as minimum salaries above either
legal requirement or market price. Foreign employers will increasingly turn to non-
regulated unskilled and semi-skilled workers from other countries as they cut costs.
To counter this, the Philippines must provide workers with higher skills and
competency, matching education curriculums compliant with international
requirements and standards. The stakeholders must provide the correct foundation and
make funding and planning commitments now to meet these global market demands.
Getting the roles right The December 08 Administrative Order 247, instructing the POEA to shift from a
regulatory emphasis to market development and specifying target markets was
extraordinary. It reinforces the contention of the necessity of research, market
intelligence, consultation and planning.
For the POEA to be effective in its envisaged global manpower-marketing services
role, its mandate must be reformed, its functions rationalized and it must be given the
budget and tools to attract top level experienced international marketing research and
services staff.
Their role must be macro at a level of promoting the industry much like the Dept of
Tourism in their highly successful WOW campaign. The individual agencies must be
responsible for their own lower level marketing and sales programs.
There is an increasing intrusion by POEA in acting as a private sector agency (up
46%) for Name Hires (direct ‘new hires’ wherein they deal as the recruitment agent
for foreign employers) and as the recruiting agent for government to government
arranged schemes (GPB hires) as in the case of Korea. Both categories need
immediate review. In the GPB cases it appears POEA have negotiated terms far less
comprehensive than are inherent in private sector agency contracts with foreign
employers.
To ensure that foreign employer enquiries received overseas by POLO and other
Philippine Legation Offices are dealt with fairly it is important to have these posts
manned by career personnel. Target Markets The immediate marketing strategy should be based around the current successful
traditional markets of the Middle East, in which the Philippines has the knowledge
factor and is already compliant with their laws and regulations, (Fig. 22). Philippine
overseas recruitment agencies will have to firstly concentrate on finding and obtaining
job orders that don’t require additional or special qualifications to those that are
already supplied. Even this region is still susceptible to a major down turn especially
in vertical developments.
The Abu Dhabi Chamber of Commerce is predicting 45% of their real estate projects
are under threat of being put on hold or cancelled. Kuwait is in a crisis mode with
several financial institutions having serious survival problems. Oman is reported to be
in the red and needs the oil price to increase above $45 and stay there. The vast
majority of Dubai’s developments have been put on hold with a growing number of
projects cancelled altogether.
However the governments of Saudi Arabia (with its six new cities), Qatar, Libya and
possibly Abu Dhabi, have the capacity and are in fact still pursuing major
infrastructure projects. Some Middle East Governments and entities are also quietly
continuing and expanding various external developments, especially in tourism.
Saudi Arabia is the best prospect for all healthcare workers. Salaries and benefits
continue to improve in their highly modern and well-equipped Government and
Military hospitals and they provide excellent preparation and training for those
waiting for the US to open up. In fact 90% of OFW healthcare workers now go to the
Middle East. But that is only approx 9000 per annum.
Figure 23: Deployment of OFWs Top Ten Destinations New & Rehires 2006 – 2007
0 50 100 150 200 250 300
BRUNEI
KOREA
ITALY
TAIWAN
SINGAPORE
KUWAIT
QATAR
HONG KONG
UAE
SAUDI ARABIA
Thousands
2007
2006
Source: POEA
Some private healthcare institutions in the Middle East may have difficulty in
maintaining their current staffing levels as they are affected with the downturn,
especially those with a strong expat patient list and large expat staff.
In essence the Philippine manpower industry concentrate on established known
demand and that means the Middle East, which in broad terms is the most
compatible region given the Philippines past experience and ability to understand,
comply and supply their needs. Other countries and regions need to be researched and
evaluated in order to prioritize the best prospects rather than perceptions of available
open markets as shown next. Shipping and Cruise Ships Global shipping is in a state of uncertainty compounded by the building of 6,000
(equal to 60% of the worlds ocean going fleet of tankers carriers and container ships)
new ships by 2012. Recent announcements indicate as many as more than half of
these will not be financed and are being put on hold, or not commenced. The industry
needs US$300 billion for new ships and US$300 billion for secondhand ship
transactions in 2009 and less than US$100 billion has been raised. (Dow Jones Focus,
Nov 2008). Bulk dry tankers and container ships are deeply affected by the crisis and
employment possibilities for ratings for them (which are already highly oversupplied)
are not expected to improve but possibly drop marginally. Bulk liquid tankers should
maintain close to current demand levels. Overall the demand for senior officers and
captains will continue to increase as new vessels come into service as there is a
definite under-supply in this category.
Cruise tourism is showing a strong downward trend and it is expected there will be
layoffs of the various categories of service personnel employed on the cruise liners.
Apart from securing the new shipping lines and the existing line’s new vessels, this is
a very mature market with the Philippines already supplying approximately 28% of
the world’s seamen and would not require any additional marketing and sales activity.
Dissipation of Resources To ensure that marketing resources are utilized in the most efficient way, it is
essential that before making forays into supposedly fertile occupational categories and
country prospects, that they are researched and evaluated. Circumstances have
changed in the last six months and will continue to require constant monitoring.
The previously identified attractive new opportunity countries reputedly offering new
jobs such as UK, Canada, Australia New Zealand and some European ones are largely
closed to OFW’s. All of these countries are in recession and have either already taken
action or have declared they will, to protect their own worker citizens and greatly
restrict temporary and permanent foreign worker entry. The UK alone estimates 600k
job losses in 2009, climbing to 1 million in 2010. (Refer Addendum for updates on
some of the often identified hot prospect countries)
Seasonal work in tourism and agriculture in Australia and New Zealand is being filled
mainly by Commonwealth citizen backpackers and limited special season visas given
to some preferential European countries. The dairy industry in New Zealand keeps
being held up as a prospect but is highly unlikely to have any available jobs as its base
dairy price, which is a global benchmark, has declined from $7.70 to an estimated
$5.10 in February 2009. This 33% decline will preclude any prospective employment.
Australian mining is suffering a massive decline in demand for its minerals with lay-
offs continuing. BHP has recently announced the deferment of developing the world’s
largest open cast, (Australian, Jan 2009). The South Australian Government for
example is under public scrutiny for proposing to allow only 50 Pacific Islanders to
work on some farms. This is despite that Australia has a treaty to allow the entry of
Pacific Islanders workers. Australia and New Zealand do not appear to be short-term
prospects.
Canada’s oil sands in Alberta are uneconomical to develop under a global oil price of
US$65-$90 a barrel. Obtaining work visas are a distinct problem and the length of
time taken from job order to deployment has progressively extended to more than
twelve months. There is often the additional problem of having to deal with a
Canadian ‘broker.’ In all there is a considerable diplomatic effort to be undertaken in
streamlining the procedures before any real inroads can be made. They have also
shown a strong willingness to hire Brazilians and Mexicans over the last 18months.
Other countries that are presently being considered by Government such as the UK,
France, Italy, Norway, Spain and several other European countries are experiencing
either severe recession conditions or unprecedented reverse migration. Already
unemployment in all these countries is climbing to crisis levels. Any jobs on offer will
be few and probably highly specialized precluding any ‘in country’ marketing
investment by POEA and OEP’s. Rather today’s advances in ITC/Video, is
appropriate.
Unless there is a ‘force majeure’ of “Katrina” proportions requiring skilled oil & gas
workers, the USA will remain a very distant and unobtainable destination, for all, but
a few Filipino OFWs.
Nurses applying for work in the USA are still restricted by stalled US immigration
legislation (Congress Bill HR5924) and it is unknown if there are any adverse
implications due to the incoming Democratic Administration. Since 2000 approx
1900 nurses have been deployed for an average of 237 per year. The legislation is still
at the initial committee and sub committee stages and it is unlikely to be passed in
2009. Healthcare staff is having overtime work and benefits cut and as in other
occupations, migrants are finding the cost of living too high with some opting to
return to their own country. Nursing qualifications have changed in New Zealand and
additional ward experience and academic study costing approximately NZD$20,000
is now mandatory, leaving existing foreign nurses who became caregivers as a step
towards accreditation, unable to comply.
All countries and occupational specializations currently identified as priority
prospects (except Guam due to the expansion of the US military base expected to
commence in 2010 subject to US and Japanese agreement), need very careful
evaluation to confirm that there is a reasonable chance of obtaining job orders from
them that can be supplied. This is necessary before’ above the line’ resources are
used.
Getting Ahead with Technology Within the last twelve months giant strides have been made in real time distant virtual
communications. Now there is less necessity to travel internationally to meet clients
and contacts as much of the administrative work and meetings is being done by visual
audio interfacing over the Internet.
The cost savings just to an applicant in not having to travel to Manila to submit and
have papers processed and then be interviewed is significant. It could also influence a
prospective OFW that there is no need to consider shifting the family from their
province.
This and several other technological advances are currently being developed. All will
provide superior data management and information disbursement systems with
innovative connectivity with stakeholders that should become the industry standard.
Understanding the Philippine Recruitment Agency’s Role
Recruitment Agencies (dealing with land based employment opportunities) now
known as Overseas Employment Service Providers (OESP’s) have always had a high
profile as an industry. Most often that profile is associated with negative events that
have happened to aspiring OFWs and less frequently in rare termination disputes.
In the current global crisis it has switched to the practices of OFW foreign employers
in Asia and Middle East Countries and their home country agents or brokers.
Philippine OESP’s, POEA, DOLE, POLO and OWWA are also being held to
account. Sometimes this is correct and fair, but other times it is on matters completely
out of their ability or capacity to influence an outcome. Assisting OFWs in dealing
with seemingly unjust foreign practices and laws is a delicate situation fraught with
often-unexpected difficulties.
Recent events both in the Philippines and overseas due to retrenchments and changing
working terms and conditions, have highlighted the need for the Industry to review its
policies and implement reforms. In 1969, 3,694 unregulated Filipinos left for overseas
work but it wasn’t until 5years later that the Labor Code of the Philippines was
enacted. This established the Philippine managed overseas manpower industry under
the Overseas Employment Development Board. It was originally a Government
enterprise including the matching of workers and employers, but it became too large
and in 1976 this operation was relinquished to private agencies, (Capistrano 2008,
NSO).
The Laws and Disincentives All agencies are required to be licensed and are subject to formidable, if seemingly
draconian laws and regulations that are limiting factors and the major disincentive in
the growth and development of the industry. The agencies and owners are subject to
cash bonds, criminal penalties, civil liabilities (joint and several) with the foreign
employers and are subject to a low proof threshold by complainants. The agencies
also have to interact with POEA as Regulator, Administrator and competitor as
POEA are authorized to deal and obtain job orders directly from foreign employers
and foreign government entities. POEA’s ‘Name Hire’ activities dealing with foreign
employers, has inexplicably increased substantially over the last few years to the
extent of a 46.53% increase from 2006 to 2007. (POEA, 2008)
The global crisis has brought to light the difficult situation private agencies and
POEA are likely to have in defending themselves under provisions R A. 8042. Both
will have a problem to provide documentary evidence to ensure incorrect claims don’t
prosper.
These factors have forced owners and directors of agencies to limit their exposure and
personal potential liabilities. As an industry it is unique in that its shareholders and
directors have unlimited personal monetary exposure for agency debts over and above
their equity. There is also specific criminal and civil legislation with penalties directed
at agencies, their shareholders, officers and employees.
The Structure The industry is divided into two distinct parts, sea-based and land-based. The
manning agencies (dealing with sea based OFWs) number about 350 and are
responsible for arranging the hire of approximately 270,000 ratings and cruise line
service personnel and around 10,000 officers, annually. This is an average of 800 per
agency although the smaller ones only place between 150 and 250 per annum while
the largest places 18,000 plus.
The land based agencies number approximately 1010 and they place some 350,000
OFW’s, annually, which is an average of 345 per agency. A high percentage of
agencies survive on only 150 to 200 annual placements. Unlike the manning agencies
that have common international protocols and regulations, this part of the industry is
very complicated dealing with disparate countries, laws, regulations, business
practices, occupations and employers. In addition they are subject to Philippine laws
and regulations administered by POEA.
The landscape of the land-based agencies can be described as follows:
• Agencies who don’t charge successful applicants any fees, as they are paid
by their foreign employer clients
• Agencies who have a small percentage of job orders that require charging
successful applicants the legal fee equivalent to one months salary with
balance of job orders having no fees as they are paid by the foreign
employer
• Agencies that charge all successful applicants a fee as the foreign
employer pays no fees.
• Agencies that are nominally Filipino by using dummy owners but are
foreign owned, some by the foreign employer others by foreign country
specific “brokers and agents” These agencies charge fees to successful
applicants.
• Agencies that are tied to country specific “brokers and agents.” These
agencies charge successful applicants fees.
The last two categories attract the most attention due to the high fees and perceived
unfair salary levies and fee loan terms and conditions imposed on their successful
applicants. However, in most cases it is not the Philippine agency that these monies
go to, but to the overseas “brokers and agents.” This practice is the only avenue of
placing applicants many Asian countries such as Taiwan, Hong Kong, Malaysia,
Singapore, Brunei, Indonesia and China.
Fees Some recruitment agencies enter into salary fee deduction schemes with successful
candidates. Other agencies require the full fee be paid before departure. If the
departing worker is unable to pay it from family or private sources the agency will
most likely have knowledge of unregulated lending companies that advance the fees.
Market conditions have gradually been altering the fee basis charged by local
agencies specializing in professionals and skilled workers. Foreign multi-nationals,
which are often public companies, are required to adopt a Corporate Social
Responsibility (CSR) policy, which includes Human Resource doctrines such as being
an Equal Opportunity Employer.
This has led to foreign employers giving higher salaries and better terms and
conditions to OFWs. It has also meant that the employer pays the agency fee and
there is no burden to the OFW.
Perceptions Most of the un-ethical or illegal practices stem from unlicensed, illegal recruiters and
not those that are agencies registered with POEA.
Other illegal or irregular recruitment practices and activities often appear to come
from foreign owned licensed agencies through non-compliance of existing rules and
regulations. Major problems also arise from direct foreign employers often from
banned OFW countries, using Filipino connections to recruit directly in the provinces.
Foreign owned agencies also actively scour the provinces using Filipino employees to
scout for suitable areas from which to draw mainly unskilled workers that will accept
very low salaries and conditions in unfamiliar jobs.
Most female ‘service’ workers are recruited for low-level jobs often from remote
areas. Many then become victims for human trafficking with promises of restaurant,
household or caregiver positions. Their exit from the Philippines and entry into their
country of destination is facilitated by way of tourist visas and often fake
documentation.
Problems affecting OFWs are nearly always attributed to the Philippine agencies
when in fact a large proportion are more properly directed to and are in fact required
to be handled in the first instance in the host country by POEA (GPB’s), DOLE,
POLO or OWWA. Agencies have often been a convenient target for other interested
parties when Government-to-Government agreements, or foreign country practices or
laws preclude or dictate the method and rules of doing business.
Liability Reversal? The POEA 2007 statistics show an increase of 46.53% over 2006 for Name Hires
(direct hiring by POEA acting as the foreign employers Philippine agent). This
appears to raise the question whether POEA takes on, or is endowed with the same
personality and legal liabilities that would normally rest with the private sector
agencies under Section 10 of the Act (R A 8042). This liability may also apply to
‘rehires,’ as on completion and expiry of the OFWs original contract facilitated
through the private sector agency, it (the original agency) is absolved of any further
liability. It is reasonable to conclude that the law will not deprive a citizen of his or
her rights that are already established simply by the fact that they are required to deal
with the Government.
This appears to expose POEA and its Officers jointly and severally with their foreign
employer clients or contracted foreign parties, to direct liabilities for up to 2 million
OFWs potential claims especially due to retrenchment in the current global crisis.
This is regardless of whether POEA is extracting placement fees or not as it is acting
as a private sector competitor. In addition it is not precluded from liability under
Section 10 of R.A.8042. Proposed legislation before the House and Senate further
enforces this position. Industry Associations However the history of agencies and their workings and those of their industry
associations has been reactive rather than proactive. The number of these associations
is considerable. They represent specific manpower markets, countries and even
occupations resulting in the lack of a unified approach to dealing with Government
and other stakeholders. The Federated Associations of Manpower Exporters (FAME)
as an umbrella organization is the closest to being the voice of the land based industry
by having nine associations as its members. The sea based umbrella organization (also
known as FAME) is a complete composite of their associations.
Individual associations can and do act independently with the result that arriving at a
consensus often comes after the fact which dissipates the effectiveness of their
objectives. However the industry is currently striving to rationalize many aspects of
their business methods and operations and be able to assist the Government and other
stakeholders by making strong representations and recommendations to handle the
current crisis.
As most of the agencies are very small, they have not kept pace with innovative
technology which will likely be a defining issue in their survival in both the global
downturn and recovery as especially low cost communications for distance
interviewing will become paramount.
.
A New Economic Model with an OFW Component
The Philippines’ current economic model is based on import consumption with the
rewards funneling to a small percentage of interests and substantially fueled by OFW
remittances. For thirty year, successive governments have squandered the OFW
endeavors and the foreign exchange they have contributed and in doing so, failed to
make any real impact on poverty alleviation and real socio-economic growth.
But that economic model is under strain, its basis under question and its components
under performing or barely in existence.
The basic components included in an economy that tackles poverty, human capital
and food security, (Tweeten);
a) Governance; security, order and stability, honesty and competence of
public administration, property rights, competitive business.
b) Macro Economics; fiscal responsibility, monetary restraint, appropriate
taxation
c) Globalization; properly valued foreign exchange, open economy, free
trade
d) Infrastructure investment; all weather roads for food security and
commercial activity, bridges, seaports, airports, electricity, water.
e) Public services; agricultural research, human resource investments and
health clinics
f) Environment; sustainable development
Those components shown in red denote inadequate or zero Philippine compliance.
Adhering to all these components would ensure poverty, hunger and disease are
successfully dealt with, domestic production would increase, labor migration would
lessen and OFW investment and reintegration schemes implemented, provincial
development pursued and human capital programs of health and education
implemented. It would also be appropriate to add to the above components the
unrestricted availability and broadcast of correct Government information.
But of course it’s not that easy with the pervasive culture of corruption that
undermines the Filipino’s quest for social and economic progress and justice. The
nation must accept the hard socio-economic choices and momentary sacrifices to
change direction away from the wealth creation that arises from the country’s Dutch
Disease.
The overall model must reflect lessons learned from the global crisis. There must be a
balance between globalization and the need to promote and stimulate growth from
within. Unfettered neo-liberalism has contributed to the waste of the benefits the
OFW foreign exchange remittances should have been used for. Instead Government
policy has promoted an anti-Filipino product psychology in favor of blanket imports.
The foundation must be pro-Filipino by encouraging domestic industrial and
agricultural production with a trade development program similar to New Zealand
Trade and Enterprise (www.nzte.govt.nz/), which is a highly successful holistic
model. Agriculture needs a completely new approach to expand production
As an immediate starter stimulus, transitioning into a long term major domestic
development strategy:
• The Peso should be de-valued to a fixed peg of P55 to US$1 for a
minimum period of two years to protect against the downturn of remittances
and provide disposable domestic income to invigorate Philippine domestic
manufacturing and consumption.
• Corporate tax needs to be reduced by 25% to a flat rate of 24% to
encourage investment and increased tax collection. The current rate of 32% is
one of the worlds highest. Most major countries that reduce corporate tax, gain
greater revenue. (TA, 2009).
• Interest and yields tax on all deposits and monetary instruments reduced
by 50% to10%.
• FCDUs (foreign currency deposit units) tax to be increased by 250% to
20%
• The removal of all corporate fringe benefit taxes
This will provide a greatly increased return of FDI’s and portfolio investments but
also importantly the return of Filipino’s monetary assets that have squirreled and
hidden offshore to be re-invested in local industry, agriculture and other domestic
enterprises. Domestic jobs and education enrollments will be preserved and domestic
consumption will improve (therefore increased E=Vat collections). Productivity will
increase, as will wages and salaries. ODA loans and grants will start to return. The
combination of devaluation and the tax moves will encourage the movement of
currency holdings to convert to pesos at a known short, medium and long term
rate/value.
China has successfully used their currency as an economic domestic tool and an
international sales weapon in global trade for the last two decades to discourage
imports and promote exports. By having a 15-20% depreciation followed by the
imposition of a fixed rate provides a large measure of stimulus and indirect
competitive protection to get domestic inputs and investment on a new growth mode.
Significantly in 2008 they lowered the corporate tax rate to 25% (TF, 2009) According to a KPMG study the global average corporate tax rate is 23.2 percent in the European Union, 26.6 percent in Latin America, and 28.4 percent in the Asia Pacific region. Twenty-three countries cut their corporate tax rates in 2008 alone, including Canada, China, Columbia, the Czech Republic, Denmark, Germany, Hong Kong, Israel, Italy, Malaysia, New Zealand, Singapore, South Africa, Spain, Switzerland and the United Kingdom. (TF, 2009)
Government needs to embark on a stimulus program using these strategies as they
will provide immediate jobs for returned OFWs (especially using their engineering
and construction skills) and the domestic unemployed and commence small projects
for building nationwide infrastructure for farm to market roads, irrigation projects,
schools, and health clinics. It could provide access to non-politically influenced
finance for the provincial development of entrepreneurship in activities such as
innovative machinery, water systems, renewal energy using OFW talent etc. All
programs should initially be low value “shovel ready” for immediate implementation.
Progressively medium and major industrial and agricultural projects will begin.
The OFW holistic model component could be based on specific OFW fund generated
investment vehicles. The model is formed on the collective experiences of OFWs that
provides a bond to allow a share /collaborative/interaction and social innovation
model. This will strengthen the family, the community and be a leading weapon in
fighting poverty and providing agriculture and manufacturing infrastructure. Even
more importantly it will compliment the new Government’s human capital programs
of provincial health and education.
In this or any economic model chosen, the large businesses that have built their
extensive enterprises on the OFWs remittances have a major incentive as stakeholders
to participate and provide tangible support in funds and resources for sustainable
economic programs that can also continue to benefit their businesses.
The Philippines has this semi-dormant untapped OFW talent pool, which is highly
trained and practical. Their skills were honed in surviving in often hostile but
definitely always challenging foreign environments.
Currently OFWs that have opted not to return overseas are viewed as having done
their stint and are of no further use. Many find it difficult to settle back in. Even
relatively young skilled and professional former OFWs rarely find work consistent
with their qualifications and experience. In fact they are looked upon as unemployable
and social outcasts. Yet OFWs are current and continuing assets of incalculable value.
The country has expert returned OFW nurses to teach under reintegration programs
and turn those unemployable students into candidates, (IHPDS 2005). Graduate
nurses and other healthcare graduates can be employed throughout the provinces and
thus gain their necessary job experience for acceptance overseas. Similarly there is
every type of specialty engineer and tradesman to upgrade student skills assist in
aligning training and practical experience with foreign employer requirements and
standards.
These experts can contribute in special small-medium scalable OFW projects
nationwide that will benefit the country socially and economically. These should be
the infrastructure projects funded by Government and not political bridges to
nowhere.
Most of the returned OFWs have provincial roots. By reversing the perception today
that urbanization is better, we can provide agricultural schemes and cooperatives for
OFWs to invest and actively participate in.
Turn the land around; invest in rice and new crops and new seeds with high
germination characteristics. Instead of the Philippines exporting for free, its scientific
and agricultural breakthroughs to the very countries it ends up buying the very same
produce from, utilize IRRI and the various Philippine international and local
research institutions working for the country.
Rural infrastructure investment percentage of the gross value added agriculture 2000-
2005 sunk to .07% and farm gate to market infrastructure and irrigation left largely
undone. Instead feeding its population the Philippines has become the world’s biggest
buyer of rice by importing an estimated 2.7 million tones in 2008 costing $1.3Billion.
Now corn has to be imported, (IPS). OFW economic benefits have not reached the
poorest provinces.
Commerce and Government are bound morally and ethically to support all creditable
OFW sustainable programs especially food centric ones.
The OFW manpower engine must continue to serve the nation and the nation must
serve the best interests of the OFW. Building part of a new economic model using the
remittances financing power, direct OFW investments and the OFW talent assets
makes sound business and social sense.
It is highly unlikely however that OFWs will invest in Government or bank bonds as
currently being advocated by vested financial interests as OFWs foreign exchange has
been squandered for too long. They want more direct control of the use of their
money than to see it consumed by Dutch Disease. The Elephant in the Room! To-date OFWs have not shown any strong indications of becoming a cohesive
collective body to use their numerical strength and financial clout to gain social,
political and economic influence. Times have been progressively good for them and
provided they have been able to achieve their family financial goals they have
remained quiet. But they are the silent ‘elephant in the room.
That could change quickly if OFW and their families come to realize, how just about
every sector of commerce, government and society have been profiting off the benefits
of their income which was gained through a sustained diet of sacrifices and difficult
endeavors. The catalyst would be across the board layoffs and loss of new
employment opportunities resulting in OFWs being unable to pay financial
commitments and the subsequent loss of their assets and inability to send their
children to private schools and colleges.
For nearly forty years stakeholders have not afforded OFWs any form of protection in
their domestic dealings either with them or on behalf of them. No institution or
commercial entity has demonstrated any concern that OFWs being at a distance are
subjected to and fall prey to dubious business practices and outright scams. There
should be mechanisms in all major commitments that ensure the veracity of the ‘deal’
and the complete understanding by the OFW of the risks and the potential liabilities
inherent in them. Many OFWs lose their entire assets through being unable to be “on
the spot” when they or their families become involved in disadvantaged schemes.
Signs of the predicted adverse trends are starting to multiple. In addition to the
downward import/export trade figures, Philippine international passenger travel is
diminishing, accelerating monthly to Novembers 08, 4.6% down. As OFWs constitute
the largest block of passengers, this may prove to be a combination of laid-off
workers not wanting to, or not able to return, less new deployments and OFWs
staying put.
It is well past time to upgrade a forty-plus year old socio/economic model and re-
caste it to provide all stakeholders their true roles and just rewards. It is obvious that a
common holistic strategy to sustain and protect the main fuel of our economy must be
agreed and implemented with haste. Omission or delay will create the conditions for a
downward spiral of a collapsing economy and encourage social unrest.
Despite the complicated Diaspora of OFWs, in nearly 200 countries, communications
are making it possible for them to gradually become a cohesive sector in their own
right. There has never been a better opportunity for OFWs to unite and gain the
economic, social and political influence they should have always had. OFWs unlike
any other sector, have the capacity to achieve real change for the country, as without
them the Philippines will crumble into a third world entity, unable to be considered
even as a developing nation.
The Filipino nation and especially the stakeholders owe Utang Na Loob to all
past and present OFWs, as they are not just “Heroes” but hard working decent
people trying to provide a better life for their families in the face of tremendous
obstacles, hardship and exploitation.
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(www.worldbank.com.ph)
Yahoo News: Yearly Mexican remittances drop for 1st time The Associated Press
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Addendum
OFW Summit & Taskforce Planning
Objectives:
1. To prepare and execute a plan to sustain OFW employment.
2. To expand OFW opportunities in the eventual global economic upturn.
3. To provide domestic opportunities for returned OFWs in productive
employment and investment.
Strategies: 1. To define, realign and reform responsibilities, functions and duties of the
prime OFW industry Government stakeholders i.e. DOLE, POEA, POLO,
OWWA.
2. To define and recommend necessary but compatible co-opted functions and
duties of DFA, DTI, Dep. Ed, CHED, TESDA, DOF, DA, DWSD.
3. To rationalize the private sector recruitment agency industry (Overseas
Employment Service Providers / Recruitment Associations (OESPs) and their
practices.
4. To recommend and foster far-reaching legislation that consolidates
regulations and functions into a cohesive single independent Government
OFW body using POEA as the vehicle.
5. To enlist the tangible resources of private sector enterprises that have
substantially gained by the endeavors of the OFWs over the last decade and
who are now exposed to substantial problems if the manpower crisis goes
unchecked.
6. To formulate an OFW Economic Component Model.
First Steps:
• Immediately hold an industry stakeholder forum/summit including
representatives of organizations that could provide valuable inputs and
expertise in identifying commercial and social problems and presenting
potential solutions.
• From the forum participants (and others co-opted) create a Task Force whose
main function is to formulate and influence government with
recommendations to help offset the economic and social effects of expected
OFW layoffs and reduced deployments. OFWs should be included.
• The Task Force in conjunction with the OESP’s organizations and POEA
immediately research and reevaluate existing and potential markets and have a
brief prepared identifying practices to maintain market leadership (e.g.
realigning skills education) and targeting new potential markets and
maximizing existing ones.
• Encourage POEA to actively police and enforce the regulations pertaining to
the actions of illegal recruiters, OESP’s and Foreign Employers, especially in
direct hiring, which can often include Government banned countries.
• Encourage POEA to keep the hiring regulations and procedures on a level
playing field for all, including revisiting its mandated policy of allowing itself
to be an OEP to a number of foreign quasi government employers.
• OESP’s need to bring their representative bodies into a collective approach in
addressing these and all industry matters.
• Hold consultative meetings with OFW Government Agency representatives
and explore solutions to respond to the changing overseas manpower market.
• Discuss with POEA the removal of current practices and processes that are
obstacles to foreign employers including streamlining and simplifying the
complete placement process.
• Conduct consultative and coordinated marketing and market intelligence
gathering. Prepare overall findings and disseminate to stakeholders.
• Hold initial discussions with and enlist the cooperation of Dep. Ed, CHED and
TESDA on the necessity of the education system to amend curriculums and
practicum’s (On the job training/Apprenticeships) to ensure compatibility in
meeting accepted international requirements and matching supply with
demand.
• Investigate the possibility of Government subsidized or free retraining of the
millions of current unemployable graduates and technical students. Many of
our existing and targeted markets require specific education and practical
experience for which our current candidates do not qualify.
• Prepare a plan for legislators to initiate a scheme to for teachers who became
domestic helpers and caregivers in S.E Asia, inexperienced nurses who need
to obtain on the job experience, returning doctors, engineers etc. to all be put
under Government funded programs to be based mainly in the provinces to
repair and upgrade the social and civil infrastructure and supported by other
OFWS.
• Raise funds and resources from stakeholders and if appropriate seek funding
from international Aid Agencies, ADB, World Bank etc. for task research and
implementation.
• Research the viabilities of forming enterprises including cooperatives based
around OFW’s investing in projects involving their provincial roots especially
in agricultural.