Wake me up before you POGO

January 9, 2020

by Jose Lorenzo Lim

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

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

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

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

The POGO matrix

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

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

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

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

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

Big revenues

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

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

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

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

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

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

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

Little help to PH jobs

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

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

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

Rousing the economy

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

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

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

Photo from onlinecasinoreports.ph