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: <soriano.loreto@gmail.com>

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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conference Dec 2nd 2005 Manila-Singapore

(www.worldbank.com.ph)

Yahoo News: Yearly Mexican remittances drop for 1st time The Associated Press

(http://news.yahoo.com)

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.