The Philippines has long been known for its large qualified workforce

Labour exports are usually thought of as signifying a lack of opportunity in the domestic economy, and countries that do so are often seen as tacitly admitting that they are unable to organise domestic production. Indeed, the Philippines initiated its policy of labour exports in the 1960s under dictator Ferdinand Marcos, largely because he was desperately short of hard-currency income and did not know how else to earn it. However, that the tide may be changing.

OLD STRATEGY: US immigration reform during the 1960s eliminated old race-based quotas and eased immigration for skilled workers in professions that were suffering from shortages. For the Philippines it was an opportunity to send large numbers of women to work as nurses in the US health care system and remit badly needed hard currency back home. The state invested heavily in nursing-education programmes that led to US-standard certification. During the 1970s, the Philippines began to send large numbers of mostly male labourers to work mainly on construction projects in the Middle East. Over the decades the locations and professions in which Filipinos work abroad have proliferated. The Commission on Filipinos Overseas estimated that in 2012, 4.22m Filipinos worked temporarily abroad. The commission estimated that another 4.9m ethnic Filipinos permanently live in other countries, including émigrés with foreign citizenship or permanent residency and their descendants, who are not counted among the Philippines’ population. Because a large number of permanent émigrés still send money to relatives in the Philippines, they are often lumped together with temporary overseas workers in estimates of total overseas Filipinos.

NEW OPTIONS: Advances in telecoms technology have made it feasible to sit at a desk in the Philippines and provide various kinds of services to customers anywhere in the world. In September 2014 the Philippines’ business process outsourcing (BPO) sector reached over 1m direct employees. The BPO sector has the advantage that all of its costs and its workers’ incomes are spent inside the country, but the disadvantage that most of its workers earn less than overseas workers.

The income earned from labour exports and émigrés has become a vital pillar of the economy. Remittances came to $17.6bn in the first nine months of 2014, up 6.1% over the same period of 2013, while in 2013 remittances were up 6.8% from 2012. In 2013, the BPO sector’s revenues came to $15.5bn, according to the IT and Business Process Association of the Philippines, the main industry association.

PROFITABLE TREND: Workers abroad are especially important to the development of rural areas, as workers who go abroad temporarily and leave their families at home tend to bring much more money back to their community than those who leave to Manila or other urban areas with their families. Workers abroad also tend to save up to invest in businesses at home, which in turn depend on the remittances their communities receive. As the importance of labour exports grow, many Philippine economists and business people have become unabashed supporters. Far from worrying about a “brain drain” or citing the large numbers of foreign workers as evidence of domestic failures, supporters of labour export tout it as evidence of the Philippines’ success in developing the human capital it will need to increase productivity, reduce unemployment and end poverty. Jose V Cruz, president and CEO of Amalgamated Investment Bancorporation, told OBG that overseas Filipino workers (OFWs) drive improvements in private higher education. He said, “There is a direct link between the spending of OFWs on their children’s educations, and the decisions by our top tycoons to each buy their own major university. It has become part of the universities’ business model.”

Ironically, the shift in thinking on labour exports comes as the traditionally weak manufacturing sector is beginning to grow faster than the rest of the economy. The manufacturing sector grew by 8.5% in 2014 in terms of real value added, 2.4 percentage points above the overall economy’s growth pace. Economists have argued for decades that the Philippines will not be able to catch up with its South-east Asian peers until its economy is solidly grounded with a strong manufacturing sector. But though supporters of labour exports are happy to see industrial sectors accelerating, they are not convinced that manufacturing is the only route to development, and they counsel against holding overly high expectations. Cristina S Ulang, head of research at First Metro Investment Corporation, told OBG, “Our competitive advantage is in the human capital model and export of labour. Maybe manufacturing is not really our strength, and that is okay.”

CHANGING TIDE: Philippine economists are calling for the concept of human capital to be taken into account in conventional official statistics to better reflect how the Philippines economy is developing. Although the concept of human capital is widely used by mainstream economists, the UN System of National Accounts (SNA) that governs how standard measures such as GDP and gross investment are calculated counts only physical capital. Most importantly, the concept of human capital treats education as investment, whereas the UN’s SNA treats education as consumption. Domestic economists are also rebelling against the convention of treating GDP as the primary measure of an economy’s success. GDP measures only the value produced on a country’s territory, excluding income earned on foreign territories by its residents. Thus, the income earned by overseas workers is not included in GDP.

DIFFERING FIGURES: The Philippines Statistics Authority (PSA) addresses the issue by giving equal prominence in its economic reports to GDP and GNI. GNI equals GDP plus income earned by Philippine residents working or investing abroad, minus income earned by non-residents working or investing in the Philippines. The PSA estimated that overseas workers earned a total of $63.4bn in 2014, up from $61.7bn in 2013.

The PSE calculated the difference between GDP and GNI, called net primary income, at P2.5trn ($56.25bn), or 20% of GDP in 2014, up from P2.3trn ($51.75bn) in 2013. The use of GDP or GNI can have a large impact on how one assesses the Philippines’ economy. For example, household spending compared to GDP makes Filipinos appear extraordinarily consumerist. Household consumption came to 72.5% of GDP in 2014, higher than in the US. But that ratio is arguably overstated because Philippine shoppers are spending money that is not included in GDP.

The ratio of household consumption to GNI looks more ordinary at 60.4% at current prices in 2014, but that ratio is arguably understated because it does not include temporary overseas workers in their host countries. This can also lead to widely differing views of the extent of savings and investment in the Philippines economy. A standard used by the IMF counts investment as the share of capital formation in GDP and gross national savings as investment plus the current account. By that method, Philippines investment was 19.7% of GDP in 2013, and gross national savings 36.2% of GDP in 2013. However, these figures do not include savings of income earned by overseas workers kept outside the Philippines.