Laid low by oil: Economy sits on shrinking OFW dollars
DOLORES, QUEZON — The last patch of sunlight falling on his tired eyes, Gerardo S. Balaguer sat on his unpainted balcony at dusk — exhausted from another day of toil for a nearby village where more bamboo huts are being replaced with modern homes of Western influence.
At 53 and two decades after returning home from Riyadh, Mr. Balaguer earns his keep by laying bathroom tiles and installing wooden fixtures — the same skill set he said had earned him a slot among a batch of 300 construction workers from Dolores town who were sent to oil kingpin Saudi Arabia in 1984.
“Naghahanap si Ople nun. Tatlo lang kami dito sa Dolores na nakuha ( Ople was looking for construction workers. There were just three of us here in Dolores who qualified),” he said, referring to a time in history when the Philippines was in the throes of economic recession and the labor export policy engineered in the 1970s by then Labor Minister Blas F. Ople was the major driver of dollar inflows needed to support the country’s ailing balance of payments position.
“Itinayo namin yung King Fahad Medical City ( We built the King Fahad Medical City),” he narrates as he offered this journalist a bowl of “pinaltok”, a dish made from coconut milk and perhaps among the last few remnants of what once was this town’s thriving copra industry.
Barely building a nest egg, Mr. Balaguer and his family of eight partly live off remittances sent by a son working in Oman and a daughter in Hong Kong — just his neighbors in this formerly coconut-producing village where the scent of copra long evaporated and dust from new homes being built or from speeding motorcycles bought through OFW (overseas Filipino worker) money instead filled the air. If its reliance on remittances were to be the basis, the town of Dolores will be a microcosm of a consumption-driven economy that could be left vulnerable without the dollar inflows.
But remittances’ shaky end in 2015 — at a low single-digit clip — is turning out to be an ill omen for what’s to come.
Eight economists — from the World Bank, universities, foreign banks and local lenders — are of the consensus that remittance growth this year will slow, if not pause, from the high single-digit pace of the past years. Business- World’s poll yielded an estimate of 3% remittance growth for 2016, slowing from the last year’s 4% expected by the Bangko Sentral ng Pilipinas (BSP). The 11-month tally so far is up by an annual 3.6% to $22.8 billion, easing from 2014’s 5.9%.
The BSP itself had recast its remittance growth forecast to 4% both for 2015 and 2016, from 5% before.
The culprits: falling oil prices, currency devaluation, and tighter financial regulation especially in the US.
The nagging and most imminent risk of them is oil — the magnet that drew in Filipino carpenters and engineers in the 1970s will be the same force that will drive them away as governments and companies in the Middle East — a region that accounts for 45% of OFW stock — soften investments and trim headcount.
“Given developments in the Middle East, the number will be revised down to 4% or 5%,” said Gareth Leather, a London-based economist at Capital Economics, which initially penciled in a 6% remittance growth forecast.
“The main cause is the Middle East. The fall in oil prices forces governments to slash spending,” he said.
Crude oil faced a turbulent January when prices sank to a 12-year low — below $30 per barrel — amid a global glut.
The World Bank, which in October offered a 5.5% forecast, now said it too is reviewing its remittance growth projections. “This [oil’s fall to below $30/ barrel) is unprecedented. Noone expected this to happen,” World Bank senior economist Karl Kendrick T. Chua said in a phone interview on Jan. 29.
Documents obtained by BusinessWorld from the Philippine Overseas Employment Administration (POEA) show that the Labor
department is factoring in its assumptions a possible escalation of the crisis in the Middle East where about 1 million Filipino workers stand to lose jobs.
By POEA’s estimates, roughly 2.2 million workers ( half a million of which are new hires) flew abroad for jobs last year, up from 1.832 million in 2014. This year, however, it expects the lot to shrink to 1.886 million, the document read.
AMID GULF WAR, ‘BOSS ASKED ME TO STAY’
Still, Mel L. Candano, officer-incharge at the POEA’s planning division, said throughout his almost 30 years in government service, he had seen employers try to make Filipino workers stay despite crises and policies by host countries like in Saudi Arabia, where companies are told to prioritize Saudi nationals over expatriates in hiring.
POEA data showed OFW whose contracts were renewed rose to 943,666 in 2014, from 166,884 in 1984.
“There’s propensity for foreign employers to keep their Filipino workers because it’s cheaper for them. You see that in the data for rehires,” Mr. Candano said.
It’s something that Manuel Valle can easily relate to. A driver to a distant relative of the Saudi royal family and then later supervisor for his boss’ upholstery business in Al Khobar, Mr. Valle survived the 1990-1991 Persian Gulf War — largely a battle for large oil reserves apart from Iraq’s attempt to cancel debt it owed Kuwait.
“Naguumpisa ’ yun ng alas- 5 ng hapon, nakapila ’yung mga jet fighter. ’ Pag pinasabog ng mga Amerikano ’yung Scud missiles, eh parang bagong taon ang liwanag. Nagmamaneho ka man o nasa field, dapat naka- gas mask ka at baka alpasan ’yung chemical ( The bombings start at 5 p. m., jet fighters in queue. When the Americans fire the Scud, the skies lit up like it’s New Year. We had to wear gas mask),” Mr. Valle, now 69, said.
He was referring to the aerial bombardment of the US and its western NATO allies against Iraq in January 1991 as part of a military offensive to deter Iraqi leader Saddam Hussein’s possible attack on Saudi Arabia after successfully occupying neighbor Kuwait.
Mr. Valle said he and his Filipino comrades had wanted to leave but flights were grounded and his boss — whom he drove to safety in Riyadh from Al Khobar — offered him higher pay.
“Nagdadasal lang para makauwi ng Pilipinas. Hindi kami makasibat dahil wala namang sasakyan ( We were praying that we could go home safely. But there was no option but to stay),” he said.
The POEA said the government is working on bilateral agreements in regions outside the Middle East — Southeast Asia and Africa — that could absorb workers who would be laid off.
“There are push and pull factors,” the World Bank’s Mr. Chua said. “It’s quite hard to see the overall picture because remittances come from oil-exporting countries. But a big part also come from oil-importing countries, so the net effect is uncertain.”
STRONG DOLLAR, TIGHTER SCRUTINY
Remittances traditionally had been, in economists’ parlance, acyclical such that they continue to flow in the face of economic downturns and would logically be larger when the peso weakens as more OFW households end up having more cash for every dollar sent from abroad.
But a new behavior could be emerging, noted the BSP, so that in dollar terms, inflows shrink as the greenback gains, aggravating falling oil’s toll on remittance growth.
“The other reason why there’s continued remittance slowdown is the depreciation of the third currency… and the dollar is appreciating. An OFW would ask his family, how much is the tuition? If P10,000 for instance — and because the peso is weaker — he might just send $150 instead of $200 because his family still gets the same P10,000,” BSP Deputy Governor Diwa C. Guinigundo said in a Jan. 25 interview.
“But this is based on anectodal evidence from OFWs. We asked our partner banks their own experience in Hong Kong and Singapore,” he said.
And as foreign banks sever ties with money transfer companies amid tighter controls aimed at curbing money laundering and terrorist funding, remittances are hurt too.
Documents from the BSP showed that in the past two years, 32 Philippine remittance providers (money transfers and banks included) covering 84 accounts were closed by 33 foreign banks in 13 countries — from the US, to Hong Kong, Australia, New Zealand, Canada and UK. It is a concern, the BSP said. “Without these bank accounts, the operations of Philippine money transfer operators and other remittance service providers abroad are largely affected because these depository accounts play a critical role in transmitting funds abroad to local beneficiaries here,” read a BSP paper that BusinessWorld obtained.
Listed Philippine National Bank (PNB), among the top three domestic banks generating the largest remittances, said it is among those that shut down business abroad.
“The [ remittance] market share of PNB has gone down,” PNB Vice-Chairman Felix Enrico R. Alfiler told BusinessWorld in an interview on Jan. 19.
“Having said that, I can say that the market share of the whole banking system has gone down because the nonbanks and new players that are not regulated as much as the banks are, they’re very keen to do remittance business without having to satisfy banking regulation so they can lower remittance charges and make the exchange rate more competitive.”
BPO EARNINGS TO TAKE UP SLACK
The dollar-earning OFWs have been keeping the country’s balance of payments in surplus, which the BSP said could be at $2 billion for 2015, even as it revised downwards the current account component to $8.9 billion, or 3% of gross domestic product (GDP), following changes to its remittance growth assumption.
Another surfeit could be logged this year, at $2.2 billion, with the current account in surplus at $5.7 billion owing to larger import volumes, the BSP earlier said.
But where remittances failed, another dollar earner could take up the slack: the business process outsourcing (BPO) sector, economists said.
“The effect of remittances on GDP and current account will wane over time,” Bernardo M. Villegas, economist at the University of Asia and the Pacific, said in an e-mail interview.
“BPO earnings, growing at 15% to 18% annually, will definitely surpass OFW earnings starting 2017,” he said.
Emilio S. Neri, Jr., lead economist at BPI which also has remittance businesses abroad, said: “Outsourcing will continue to grow at a hefty pace but not enough to cover for the slowdown in remittances until at least another 10 years.”
The volley of comments from economists has a common theme: There will be more jobs at home.
“We expect overseas remittances to make only a small contribution to future domestic consumption growth. Better employment opportunities may prompt many overseas Filipinos to return home, compensating for slowing remittance growth,” said Jeff Ng, an economist at Standard Chartered.
But the BPO industry requires mostly professionals that are still outnumberd by laborers and lowskilled workers.
And so, carpenter Mr. Balaguer, echoing the sentiment of most households in the village of Dagatan whose sustenance mainly comes from dollar remittances, said: “Kung puwede lang,
babalik ako sa Saudi (If there’ll be a chance I’d go back abroad.)”