May 3, 2016

2016 Presidential Election Put the Country's ICT Growth Hanging in the Balance

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With the presidential election happening in a week, the country's ICT growth once again hangs in the balance. Election years in the Philippines have traditionally been both a boon and a bane for the country's ICT sector. While there is an election ban for major projects, there are great opportunities for ICT vendors and service providers due to election-related projects and various spending measures. However, elections also drive end users, particularly the enterprise sector, to a wait-and-see attitude toward spending, and some are forced to downgrade or altogether scrap any major ICT-related expenditure due to uncertainty.

Over the past two presidential elections, we have seen the country's ICT spending experience differing fates. In 2004, the year Gloria Macapagal-Arroyo won as president, ICT spending grew 12%. The following years reached a plateau of 5–7% ICT spending growth, with 2008 seeing a high of 15% growth. In 2010, Arroyo's successor, Noynoy Aquino, put a stop on most government projects to implement various checks and balances. This resulted in an ICT spending growth of only 5% at the end of 2010. After a similar 5–9% growth in the following two years, 2013 saw 27% growth on the back of government-led projects, fiscal reforms, and anti-corruption measures that led to improvements in the country's international ratings and rankings.

"This year, IDC sees that the total ICT spending growth in the country will hover between 8% and 10%. Barring any major wildcard events such as natural disasters, a worldwide recession, or a political revolution, IDC believes that the country's ICT sector is headed toward a positive ICT outlook at the end of 2016 and beyond. Although there may be short-term uncertainties, the country's momentum toward ICT adoption is well on its upward track, brought on by the rise of millennials, disruptive technologies, the impact of the business process outsourcing (BPO) industry, demands from small and medium-sized enterprises (SMEs), and the impact of next-wave cities," says Jubert Alberto, country head, IDC Philippines.

However, IDC cautions that such an ICT growth path may be dwarfed by short-sighted and drastic strategies that look only at the immediate six to eight months after the elections. Ill-planned strategies can make the economy even more vulnerable to external shocks, and "rocking the boat" too much with radical policies and questionable methods may result to instability and hurt domestic viability and investor confidence.

With these, IDC underscores the following key areas on which the next administration should focus to aid the ICT sector to continue on its upward trajectory:

  • Prioritize the establishment of the Department of Information and Communications Technology (DICT). "This move is crucial if the government wants to ensure that the ICT sector, which is among the most profitable divisions of the Philippine economy (projected to contribute US$50 billion in revenue in 2016) and the top drivers of employment growth, will be secure in the coming years. If created, the DICT will be the primary government entity to plan, promote, and help develop the country's ICT sector and address issues concerning Internet connectivity, communications services, data privacy, cybersecurity, and cybercrime — functions that are currently divided among several disparate agencies," says Sean Paul Agapito, associate market analyst, IDC Philippines.
  • Develop large-scale ICT initiatives. Compared with other ASEAN countries, there are no large-scale initiatives that could greatly impact the ICT market. "However, iGovPhil and MITHI are good ways to start. What we can do is help local ICT vendors to gain a strong foothold in the local, regional, and global scenes so their top-notch IT skills can be recognized. The government should also support ICT adoption in non-IT industries such as resources and agriculture. It should have a vision of digital agriculture in the long term, wherein farmers can sit at their homes waiting for a message on their smartphones saying their crops can now be harvested. However, this should be done gradually. What's important is that there is a collaboration between the public sector and service providers," says Alon Anthony Rejano, associate market analyst, IDC Philippines.
  • Address the country's connectivity problem on major scale. The government must put regulations on how to speed up the Internet connection in the country. The government should exercise its authority to penalize telcos that do not provide the Internet speeds they have promised. "In addition, support for the entry of any global telco in the Philippine market is also needed to spur competition. This will ultimately give consumers better services at lower cost. But in the same vein, the government should endeavor to shorten the process of starting a business in the country and cut red tape surrounding the establishment of telco infrastructures such as cell sites and fiber builds," Rejano adds.
  • Take cybersecurity more seriously. The latest hacking incident involving a governmental entity, which saw sensitive information of millions of Filipino voters leaked online, highlights how the Philippines is severely lacking in terms of cybersecurity. This should be a wake-up call to the incoming government that it should look at this matter in earnest. With digitalization becoming more and more pervasive, ensuring that any piece of personal data people send online is safe and secured becomes increasingly important. "The looming threat of cyberattacks could potentially jeopardize the Philippine's e-government initiatives, such as iGovPhil and MITHI, especially those that involve the use or submission of personal/sensitive data. Moreover, these cyberattacks have negative implications on the suitability of the country as an ICT hub, especially after the latest string of cyberattacks on the government," adds Agapito.
  • Place a bigger focus on the BPO industry in the country. The BPO industry is expected to surpass the gross domestic product (GDP) contribution of OFWs. With the local industry trying to gradually shift its focus on traditional voice services to higher-valued services (e.g., knowledge process outsourcing), the government must address the shortage of skilled labor and professionalize the industry. Collaboration with education agencies such as the Department of Education (DepEd) and the Commission on Higher Education (CHED) must be done to align the curriculum with the demands and requirements of the IT sector. The expansion of BPOs in the country greatly helps in the "expansion of ICT wealth" through the rise of next-wave cities. These are viable locations in which BPO incumbents have based their operations to supplement Metro Manila-based businesses.
  • Provide greater support to Smart City initiatives. In connection with the greater support on BPOs, there is also a need for even greater support from the next administration on Smart City initiatives in the country. Although it's good to see a number of Smart City initiatives, such as Cauayan City's electronic government application system (eGAPS), most of the projects in other areas are still stuck at pilot testing stage. "A key roadblock to implementation is budget constraint on the part of the local government. Greater budget should be allocated by the national government in funding Smart City initiatives to help these projects come to fruition. Through Smart Cities, the improvement of quality of life and better delivery of government services will be achieved. Healthy collaboration among the local government, solution providers, and other government agencies is also key in driving these projects forward," says Jerome Dominguez, market analyst, IDC Philippines.
  • Drive growth toward the SME sector. There should also be a strong drive from the government to energize the country's SME sector. So far, there are no government initiatives that aim to grow SMEs in the ICT market. Unlike the Philippines' SME sector, the SME ecosystems, including start-ups and microenterprises, of developed markets such as Singapore are strong because the government supports their actions. There should be effective government funding and assistance schemes to contribute to the success of our own start-ups, with the new administration crafting a pro-business and start-up-friendly nation. The government should help them by providing a strong legal environment, low-tax system, and a readily available workforce.
  • Improve peace and order in the country. The next president should also work on addressing the peace and order situation in the country. With the continuing unrest in certain parts of Mindanao, the negative perception on the country as a safe haven also persists. Mindanao is a fast-growing region in terms of population (projected to grow faster than the national average) and economy (driven by the booming manufacturing and BPO sectors). Foreign investors are already eyeing Mindanao as the next area on which to focus their investments, making the resolution to the conflict highly critical.
  • Put ICT at the forefront of the agenda. IDC strongly encourages the next administration to put ICT usage and adoption at the forefront of its operations moving forward. Optimized system performance and digitization of records in the education sector as well as eHealth innovations in the Philippines bolster ICT usage, as local hospitals continue to adopt electronic medical record/electronic health record (EMR/EHR) and mobile health applications. Deep-dive adoption of cloud-based services for various government transactions is essential. "Digital transformation (DX) in the Philippine government does not only improve the delivery of government services but also democratizes the public's access to national affairs. Greater ICT adoption by the next administration will help the country keep its growth momentum moving forward," adds Alberto.

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