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The Philippines must implement broad-based policy actions, including providing high quality education for all, to enable the services sector to contribute to inclusive growth that creates jobs and reduces poverty.
"The services sector has the potential to play an important role in promoting inclusive growth in the Philippines. The sector is already large and has been an important driver of employment and GDP (gross domestic product) growth. However, this has not necessarily led to a rise in the average quality of jobs or productivity gains," the World Bank (WB) said in its latest report.
The Bank said unshackling the constraints on services as a source of inclusive growth is thus imperative. This is through providing high quality education for all, facilitating agglomeration economies and improving the investment climate.
As services move up the value chain, providing high quality education will enable the country meet the demand for skills.
Citing lessons from the country's business process outsourcing (BPO), the Bank said industry will face more human resource constraints both in terms of technical and managerial staff as it continues its fast growth.
"Private and public investment in training, skills and education is critical for the services sector to provide better paid jobs to a wider range of the population. It is also critical for the continued global competitiveness of the Philippines' services sector," it noted.
This investment in skills, it added, will also help to sustain industry growth by facilitating a swift response to new technology and business models. Easing barriers to inter-sectoral labor movements can likewise play a role.
Policies to facilitate agglomeration economies can also help promote inclusive services growth.
"Agglomeration processes can lead to inter-industry linkages due to industrial clustering in certain regions. Allowing these agglomeration economies to develop requires investment in enabling infrastructure in transport and communications, in housing and in water and sanitation," the WB explained.
It said similarly enhancing geographic mobility of the labor force can also help to ease the labor market adjustment as the services sector develops.
Moreover, the Bank underscored the need for the Philippines to improve the investment climate.
"Inclusive growth in the services sector requires improving labor productivity. Beyond skills and education, red tape, crime and security and an overall weak investment climate are key constraints to labor productivity," it said.
The WB further said that if managed appropriately, facilitating foreign investment in the services industry could also assist its growth.
Foreign investment in services can bring best practices on managerial and production processes, bring about knowledge transfers and provide indirect linkages to new markets for domestic firms and transfer, it stressed.
"But the probability and degree of success of opening of services to foreign investment, as well as other modes of trade, depends not only on their effective design and implementation but the presence of supportive institutional or structural characteristics, in particular the investment climate," the report added. -- Danielle Venz, PHILEXPORT News and Features
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