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Philippine call centers sound alarm over Duterte’s Manila zone cap

Philippine call centers sound alarm over Duterte’s Manila zone cap

Ban on creation of new low-tax areas intended to push outsourcers into provinces

Cliff Venzon | Nikkei Asian Review | June 29, 2019

While some call centers have opened outside Manila in cities like Davao, the outsourcing remains concentrated in the capital.   © Reuters

MANILA — Philippine outsourcing companies are raising alarm about a move by President Rodrigo Duterte to halt the creation of special economic zones around the capital, the latest step in his efforts to promote development in other parts of the sprawling archipelago.

Since his successful election campaign in 2016, Duterte, a native of the far-south city of Davao, has pushed an agenda of decentralizing political and economic activity from congested Manila.

What is formally known as the business process outsourcing sector is concerned that call centers and software support service centers may not be able to find the infrastructure and manpower they need in other parts of the country.

“There is going to be a near-term detrimental impact,” Rey Untal, president of the Information Technology and Business Process Association of the Philippines told reporters earlier this week. “A lot of growth [was] poised to happen in metro Manila this year.”

Companies operating in the zones benefit from special tax breaks. In the first quarter, BPO companies took up 102,000 sq. meters of office space in metro Manila, more than half the area rented out in the period, according to data from Leechiu Property Consultants. With online gambling companies also bidding for space, Leechiu tallied an office vacancy rate of just 5.6% in the capital.

Of the 396 zones in operation in the country as of February, 70% catered to BPO companies and 167 were in metro Manila.

Untal said outsourcers had looked to take up 450,000 sq. meters of space for the year as a whole. But the president’s order could cause his group to lower its forecast for the BPO sector, already among the country’s largest employers, to grow to $38.9 billion in revenue and 1.8 million workers by 2022.

The American Chamber of Commerce of the Philippines said it was “concerned that the [president’s] order will constrain the growth of a vital industry by attempting to force companies to locate to areas currently lacking available facilities and skilled workforce.”

“The result will be reduced overall growth and lost jobs and income for the country,” said John Forbes, a former U.S. diplomat who is now a senior adviser to the chamber.

Industry revenue was stagnant last year, at an estimated $24.5 billion, amid a fight over another government proposal to trim tax breaks that benefit BPO companies and tensions with the U.S.

According to the president’s order, existing applications for special zones will still be processed and incomplete applications can still be supplemented for 30 days.

Charito Plaza, head of the Philippine Economic Zone Authority, said she will try to persuade Duterte to extend that grace period for at least six months. She said applications for 42 new zones have been completed but not yet approved by Duterte. Another 131 applications are in process.

Some observers see potential in the president’s push for the BPO sector to disperse, with wages and rents notably lower elsewhere in the country.

“In the longer-term, we would expect BPO companies to more seriously consider having offices outside of metro Manila, due to the incentives, lower costs and access to new labor markets,” said Morgan McGilvray, senior director at real estate consultancy Santos Knight Frank.


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