A hidden wealth no more

Our article "The Philippines does not have to remain poor" (see Philequity Corner, April 3, 2006) two weeks ago elicited some positive response from our readers. With Easter’s message of hope still fresh on our minds and to counter any resulting discouragement from all the uninspiring news that has been hounding the headlines, we thought of following up with another article that tends to look on the brighter things about the Philippines: its overseas Filipino workers (OFWs).

The contribution of the OFWs through their growing remittances to the country has never been more evident than in the past decade when we struggled to recover from the debilitating effects of the Asian financial crisis and from the recent fiscal crisis.

Counting heads

Let’s highlight the key figures, beginning with the OFW population. Statistics from Philippine Overseas Employment Authority show that there were 8.1 million OFWs in end-2004, with 3.2 million permanently working or residing abroad. A bigger portion or 44 percent of the total are based in the Americas and Trust Territories, occupying professional positions (contrary to the common perception that most OFWs hold mostly menial jobs). Of this number, more than 3.5 million are in the US alone. Another 38 percent of the total was based in Asia with the remaining balance deployed in the other continents.

These figures show that OFWs comprise close to 10 percent of the country’s populationand 23 percent of the labor force. With an estimated 16 million households in the country, one in every two Filipino households has an OFW relative.

Counting in their contribution

Based on central bank data, OFWs sent home last year a record $10.7 billion or 25 percent more than the total remittances in the previous year. The amount has been growing at a compounded annual growth rate of 12 percent since 2000, outpacing the comparable two- percent growth in our export receipts. We also note that the central bank data only accounts for remittances through banks and exclude non-bank channels. The bulk or 61 percent of the total remittances came from OFWs in the US and Canada. In January this year, dollar inflows from OFWs have risen to $917 million or at a growth of 16.5 percent y-y that may render the 10-percent estimated growth to be too conservative.

The $10.7 billion in inflows translates to an average annual remittance of $1,300 per OFW. At the current exchange rate, this amounts to P65,000 which is already half the average annual family income as per the latest Family Income and Expenditure Survey. It is also slightly higher than our per capita GDP of $1,234 in 2005. OFW remittances is equivalent to 10 percent of our GNP last year compared to just 7.9 percent in 2001 (at current prices).

The strong inflow of OFW dollars is being credited as one of the key factors that have given the peso its newfound strength. More than this, it has also been fueling and sustaining consumer spending that has helped keep the economy afloat especially during the tougher times.

Not a few industries are benefiting directly and indirectly from this trend. This has also become one of our considerations in formulating our stock market recommendations.

Favor the property and banking sectors

Among the sectors represented in the stock market, we see the property and banking sectors to benefit the most from OFW money. In recent weeks, various property companies have disclosed their growing sales to OFWs. Many of these companies have adopted a strategy of putting up sales offices abroad or have enabled their websites to receive inquiries online and helped facilitate sales. Conducting international roadshows to tap the Filipino immigrant market have also become a norm for many property companies to boost sales.

We are not just talking about low-to mid-cost housing property developers here. Even Ayala Land, for instance, has revealed that OFW purchases account for as much as 21 percent of its high-end and about 30 percent of its mid-end residential sales. In its latest prospectus, Megaworld Corp. also disclosed that it is not unusual for developers to achieve 30 percent to 40 percent of their sales from buyers abroad. This is based on a study it commissioned Colliers International Philippines Inc. to conduct. The buyers ranged from those dreaming to acquire even just a low-end housing unit to the moneyed retirees who could very well afford to acquire units in high-end subdivisions or apartments in the country.

We believe that the figures quoted above are just referring to direct sales to Filipinos abroad and have not yet factored in the purchases made by local residents who depend on an OFW relative for income. It is for this reason that property developers are saying that the current boom in the sector may prevail longer than the usual because the massive inflow of OFW money is a factor that has not come into play in previous boom cycles. The increased activity among property companies has spilled over to the construction sector creating further employment opportunities.

Meanwhile, the banking sector is yet another strong beneficiary. The confluence of low interest rates and strong OFW remittances has also spurred strong growth in lending for real estate acquisition. Based on central bank data, loans to financial institutions, real estate and business services accounted for 27.4 percent of total loans by commercial banks last year. The amount also grew by 15.4 percent y-y even as the total loans of commercial banks barely grew last year. Fees on remittances should also contribute higher to banks’ income this year.

A more direct play

If there is any direct play on the OFW remittances story, it would have to be iVantage Corp. The company acquired 100 percent of E-Business Services, Inc. which is involved in E-commerce payment and money-transfer system under the Western Union franchise system. Western Union is the world’s leader in money transfer services, with more than 225,000 agent locations in over 195 countries and territories worldwide. Aside from E-Business, iVantage is also a player on the banking sector as it owns 20 percent of International Exchange Bank. It is also owns 95 percent of Yehey! Corp. and 20 percent of IEB Currencies Inc.

Last week, the Asian Development Bank reportedly cautioned the government against relying too much on OFW remittances for growth. This may be as prudent advice but it would be just as prudent for the government and the country in general not to underestimate the OFW’s contribution to the economy. For the OFW tale has gone beyond just seeking employment abroad to meet his family’s basic needs. The OFW money factor now plays a wider role in economic development.