Wake me up before you POGO

The BPO (business
process outsourcing) industry was booming in the early 2000s where it helped
revive the Philippine economy. In terms of revenues, BPOs registered a revenue
growth rate of 43% in the period of 2005-2009 (annual average). The government
has relied on the BPO industry for economic growth but even that is slowing
down as seen in the decline of BPO investments in the country.

The slowdown may be
attributed to other countries offering better incentives for BPOs such as tax
cuts. The IBPAP (Information Technology and Business
Process Association of the Philippines) stated that the cost of operating Philippine BPOs is more expensive than
India by 17 percent. IBPAP estimates that the BPO industry will mature in
2022. 

A 2012 report by the
Asian Development Bank (ADB) has raised concerns on the BPO industry saying
that it was the fastest growing sector from 2005 to 2012 but only took in one
percent of the labor force.

But now, the government seems to be replacing BPOs with Philippine Offshore Gaming Operators (POGOs) as the future of the services sector.

The POGO matrix

POGOs are online gambling companies set up in the country but catering to mainland Chinese gamblers. To be a licensed POGO, one must apply for a license at the Philippine Amusement and Gaming Corporation (PAGCOR). Operators can either be a Philippine-based or a foreign-based operator.

A Philippine-based
operator has to present a Securities and Exchange Commission (SEC) registration
to acquire a license, while a foreign-based operator would need to partner with
a local gaming agent from the Philippines. Aside from other documentary
requirements the application fee for a POGO can range from US$120,000 to
US$500,000. This needs to be renewed every three years wherein the same fee is
still paid.  The local agent of the
foreign-based operator also pays an application fee of around US$60,000.

Aside from the POGO
itself, service providers also need to be licensed. These provide customer
relations, live studio and streaming, gaming software/platform, IT support, and
strategic support services to POGOs. Depending on what kind they are, service
providers also have to register with PAGCOR with application fees ranging from
US$30,000 to US$150,000.

There are currently 58
POGO operators registered with PAGCOR and 218 service providers. Preliminary
data from PAGCOR reports 87,054 POGO employees in the country as of September
2019. Meanwhile, the Bureau of Internal Revenue (BIR), using data from various
government agencies, reports 108,914 POGO employees in the country.

The government earns a
lot from application fees paid by POGOs, service providers, and even the local
gaming agents. They also earn from license fees and bond fees for POGOs.

Big revenues

In 2018, PAGCOR took
in Php6 billion from POGOs through licensing fees and royalties and this is
expected to increase to Php8 billion by the end of 2019. The BIR also reported
that they collected Php579 million-worth of taxes from POGO employees in 2018.
This tripled to Php1.8 billion in collected taxes from January to September
2019.

POGOs also contribute
to the rising real estate prices of office spaces. Data from PAGCOR reveals
that POGOs are mainly located in Makati and Pasay. Service providers are also
mainly located in condominium units in these cities. A typical POGO operation
needs 64 square meters (sq m) of space which is typical of condominiums.

Leechiu Property Consultants (LPC) revealed
in a report that in the last four
years, the cost of condominium units near the Manila Bay area increased by 80% from
the buying range of Php90,400/sq m – Php340,500 /sq m to Php113,000/sq m – Php432,000/sq
m. This is in line with the growing trend of POGOs being located in Makati and
Pasay. 

POGOs also made up the
biggest part or 38% of Metro Manila’s office space demand as of third quarter
in 2019, overtaking for the first time the IT-BPM (Information Technology and
Business Process Management) industry’s demand at just 30 percent. In 2018,
IT-BPM office space demand comprised 36% of transactions, while POGOs followed
at 24 percent.

With the slowing down
of BPO investments and even overseas Filipino workers (OFW) purchases of condominium
units, POGOs are boosting the slowing services sector as well as the real
estate sector. Because of this contribution to economic growth, the government
does not seem intent on stopping their operations. This is despite the
controversies surrounding POGOs such as money laundering, kidnapping incidents
and employing mostly Chinese citizens, and of course, gambling being a
parasitic economic activity.

The Chinese government
has already asked the Philippines to stop the licensing of all POGO operations
due to possible illegal activities. PAGCOR, however, has only suspended the
issuance of new licenses while continuing existing licenses and renewals. This call
from the Chinese government is a hypocrisy. China has banned gambling in its
shores, but operators only moved out of China and went to countries offering
better incentives. China still benefits from POGO operations due to employment
opportunities for its thousands of citizens who have low educational attainment
and cannot find work.  Chinese citizens
finding employment in the Philippines is better for the Xi Jin Ping government
since people’s dissatisfaction could destabilize its rule.

Meanwhile, a POGO Tax
Bill has already been approved by the House Means and Ways committee and awaits
deliberation. The bill will only slightly increase the annual gross corporate
income tax of POGOs from a miniscule 2 to 5 percent. It will also enforce that
POGO employees pay 25% in personal income taxes. If passed, the POGO Tax Bill
is claimed to increase the country’s gross domestic product by 1.2-1.5 percent.

Little help to PH
jobs

There has been a lot
of talk about Chinese workers in the Philippines, especially those working for
POGOs.  Majority of those employed under
POGOs are in service providers that mainly work in customer service. Because
most POGO clients are Chinese gamblers, proficiency in Mandarin is required. Of
the 87,054 POGO employees reported by PAGCOR, 71.5% are Chinese, 16.6% are
Filipinos, 2.6% are Vietnamese, and the rest are various other
nationalities. 

Government monitoring
and data on the extent and profile of POGO workers appears to be limited, as
seen by the varying employment figures of PAGCOR and the BIR. But various
reports indicate that most Chinese POGO workers come from far-flung Chinese
villages. With no other employment opportunities in Beijing, they enter POGOs
and are sent to the Philippines to work. Some even lack the proper documents to
work in the country. 

There are also
accounts of several Chinese workers staying in cramped condominium units. In
some cases, as many as eight workers stay in one 24 sq m-sized condominium unit
and have to sleep in shifts.  Moreover,
there are reports of Chinese nationals operating small shops inside
condominiums, such as small eateries that cater to Chinese POGO workers.

Rousing the economy

Decades of neoliberal
policies have weakened the Philippine economy to the point of being overly service
oriented while agriculture and manufacturing – productive sectors needed for
sustained national development and job creation – are left behind. 

POGOs may have
temporarily made up for slowing BPO investments but once POGOs slow down, what
comes next? It is turning out to be another service-oriented – and even
foreign-catering – industry that brings temporary and minimal benefits to the
country. That is unless the government prioritizes and develops Filipino
consumer, intermediate and capital good industries. The government can protect
our local industries rather than open up the country to foreign companies.

Upholding an
independent foreign policy is also important if we want to attain genuine
economic development. The Philippines can adapt to changes in the global
economy by shifting to domestic demand-driven growth. But unless government
overhauls its programs and policies to prioritize domestic industries and
agriculture and the people’s welfare, the same failed neoliberal policies will
be perpetuated. The Philippine economy and Filipinos will remain vulnerable and
dependent on big business interests and the vagaries of the global market. ###

Photo from onlinecasinoreports.ph

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