Two items on the agenda of newly installed US President Donald Trump are causing some concern in the Philippines – his executive order on immigration and his avowed policy to tax overseas US entities. It should be pointed out, however, that at this stage these concerns are largely based on speculation. No definitive policy has been set out so far that clearly shows the Philippines will figure prominently in the fallout from either of these two directional shifts. That said, it’s worth keeping an eye on them.
The former concern relates to Filipinos working in the US – along with the money they send back home to the Philippines. This amounts to around 10% of gross domestic product (GDP). The latter concern centres on the future of the Philippine-based business process outsourcing (BPO) into which American companies kicked roughly 75% of the US$22 billion earned by the sector last year – a sector which contributed 6% to GDP.
Of course, if these important revenue streams ultimately do fall into Trump’s firing line, the effects will quite seriously impact the Philippine economy. The US, the largest source of remittances, accounted for some 43% of the US$26.8 billion plus sent to the Philippines by Overseas Foreign Workers last year. With regards to the BPO sector, if American companies reduced or withdrew their business completely, this would hit not just services-sector earnings but employment and prices in the country’s office rental market – particularly in Manila.
Right now, however, it’s too early to say if any of that will happen – that said, clarity is being sought. At this stage, though, this is what we know.
Trump’s immigration brake, which he applied last Friday, only affects people coming from seven Muslim-majority countries – namely, Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen. In other words, the Philippines is not on that list. However – and here’s where the speculation comes from – at some future date Trump might seek to expand the list to include countries which the US State Department has categorised as ‘terrorist havens’. And among these is the Philippines, specifically the southern Mindanao region. Others on this list include Afghanistan, Egypt, Indonesia, Mali and Pakistan.
Currently there are more that 3.5 million fully-documented Filipinos living and working in the US. However there’s an estimated further 1 million in the country illegally, and this demographic might well end up being repatriated; though that’s not going to happen overnight, if at all. Philippine President Rodrigo Duterte had them in mind when he said “I wont lift a finger to help them”. The fact is there’s very little he could do to help them in any case if they become the subject of deportation orders.
The point he was making – deliberately missed by his opponents – is that Filipinos must be properly documented when travelling overseas and must abide by the immigration rules of the countries they’re visiting. He was using Trump’s policy to underscore the need for them to attain the proper legal status. The Philippine immigration service stops hundreds of thousands of citizens from leaving the Philippines each year. This crackdown was beefed up under the previous administration of Benigno “Noynoy” Aquino following pressure from foreign governments – countries where Filipinos had been swelling the black economy – to ensure people travelling to their jurisdictions were bona fide tourists or workers.
Throughout his election campaign, Trump stated that he would cull his country of all illegal migrants – predominantly singling out people from Mexico and countries in Central and South America. While he’s doing that, however, he’s unlikely to offer any special dispensation to Filipinos working illegally in the States.
With regards to US companies’ overseas operations, Trump’s stated target are those that produce goods overseas and sell into the US – carmakers being a prime target. He’s threatened manufacturers of such goods with a scorching 35% tax. But nowhere has he ever mentioned targeting services, the category under which BPOs fall. That doesn’t mean it won’t happen; it means that at this stage nobody knows and it’s pure speculation to assume he has them in mind.
The BPO sector in the Philippines is a huge success story and its economic contribution has been steadily gaining on that of remittances. Currently employing 1.3 million workers and still growing, the Philippines today is a world leader in this global US$140 billion business. So of course if getting on for half of that income were to disappear, it would decimate the country’s services sector. And as we mentioned earlier, this would also kick on into other areas of the economy such as real estate.
There have been claims from some quarters that the commercial office-space market is already slowing as a result of a wait-and-see policy by BPO operators who were either looking to enter the Philippines or expand their existing Philippine businesses. They’re apparently unnerved by Trump’s rhetoric on repatriating business back to the US.
Behind much of the speculation, however, is the American Chamber of Commerce. Recently it told financial-services provider, Credit Suisse, that US BPOs have put their expansion plans on hold, though it didn’t name any specific companies. Well, that’s par for the course; nothing to verify, so its not exactly ripping analysis.
In September, AmCham Philippines put out this statement. “The American Chamber of Commerce of the Philippines voices growing concern over developments that could harm the long-standing optimism of American business to invest in the Philippines”. Adding that Duterte’s War on Drugs and the death toll associated with it was damaging the country’s image, it continued, “… and some investors are now asking whether this campaign reduced the rule of law”. No evidence, of course to support any of that either.
In fact, the only thing we can accurately deduce from those ‘anecdotes’ is that AmCham is no more keen on Trump’s presidency than it is on Duterte’s. But then we knew that anyway.