MANILA, May 3, 2016 — The Philippines’s ICT growth once again hangs in the balance as the upcoming presidential elections approaches. Election year in the Philippines traditionally brings an uncertain impact on ICT projects and related spending, with the country’s appetite for innovation heavily influenced by the elected leadership.

Despite the government banning major ICT projects during election season, ICT vendors and service providers still enjoy the opportunity to work on election-related projects and various spending measures. But the elections also drives the end users, particularly the enterprise sector, to a wait-and-see attitude toward spending, forcing some to downgrade or scrap major ICT-related expenditures entirely due to uncertainty.

In the last two presidential elections, IDC saw the country's ICT spending experience differing fates. In 2004, the year Gloria Macapagal-Arroyo won the presidency, ICT spending grew by 12%. The following years, ICT spending growth reached a plateau of 5–7%, and increased to 15% growth in the next four years. On the other hand, most government projects were discontinued by President Benigno “Noynoy” Aquino Jr. in 2010 as part of various check-and-balance initiatives. This resulted in an ICT spending growth of 5% by the end of that year. After a similar 5–9% growth in the following two years, 2013 observed a 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 expects the total ICT spending growth in the country to hover between 8−10%,” says Jubert Alberto, Country Head of IDC Philippines. “Barring any major wildcard events such as natural disasters, a worldwide recession, or a political revolution, IDC expects the positive outlook for the country's ICT sector to continue by the end of 2016 and beyond. Although there may be short-term uncertainties, the country's momentum toward ICT adoption is well on an upward track, brought on by the rise of millennials, disruptive technologies, the business process outsourcing (BPO) industry, demands from small and medium-sized enterprises (SMEs), and the impact of next-wave cities."

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

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

• Prioritize the establishment of the Department of Information and Communications Technology (DICT). "This move is crucial for the government to ensure 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 one of the top drivers of employment growth, will be secure in the upcoming years. The DICT can 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, the Philippines is still waiting for large-scale initiatives that could greatly impact the ICT market. "However, iGovPhil and MITHI are good ways to start. We need to support the local ICT vendors to gain a strong foothold in the local, regional, and global scenes so that their top-notch IT skills can be recognized. The government should also support ICT adoption in non-IT industries such as resources and agriculture. Digital agriculture in the long term is needed, in which, for example, farmers can sit in their homes and wait for an alert on their smartphones indicating that their crops can now harvested. But these types of technologies, cannot be rolled out overnight. Collaboration between the public sector and service providers is most important right now," says Alon Anthony Rejano, Associate Market Analyst, IDC Philippines.

• Address the country's connectivity problem on a major scale. The government, exercising its authority, must impose new regulations to accelerate Internet-connection development in the country. Penalties must be levied on telcos that are unable to deliver Internet speeds as promised." In addition, support for the global telco in the Philippine market is also needed to spur competition. This action will ultimately give consumers better services at lower costs. But in the same vein, the government should endeavor to shorten the process of starting a new 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 online leakage by hackers of the confidential information of Filipino voters highlight how the Philippines is falling behind in cybersecurity. This should be a wake-up call for the upcoming government to look at the matter in earnest. The digitalization sector has become more pervasive in ensuring the security of people’s data. "The looming threat of cyberattacks could potentially jeopardize the Philippine's eGovernment initiatives, especially those involving the use or submission of confidential information. Moreover, these cyberattacks have negative implications on the country’s suitability as an ICT hub," 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 gradual change from 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. There must be collaboration with education agencies such as the Department of Education (DepEd) and the Commission on Higher Education (CHED) 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 where BPO incumbents have based their operations to supplement Metro Manila-based businesses.

• Provide greater support to Smart City initiatives. In connection with BPOs, there is also a need for the next administration to staunchly advocate Smart City initiatives in the country. While there exists several viable Smart City initiatives such as Cauayan City's electronic government application system (eGAPS), most of the projects in other areas are still stuck in pilot-testing. "Budget remains a key roadblock to implementation on the part of the local government. Larger budgets 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 delivery of government services will be achieved. Healthy collaboration among the local government, solution providers, and other government agencies is also critical in driving these projects forward," says Jerome Dominguez, Market Analyst, IDC Philippines.

• Drive growth toward the SME sector. People are still waiting for government initiatives to enable more SMEs in the ICT market. The SME ecosystem in Singapore, for example, which includes start-ups and microenterprises, are far more developed than the Philippines' SME sector because the Singaporean government plays an active part in extending funding and support. There should be effective government funding to contribute to the success of our own start-ups, with the new administration crafting a business environment that is conducive to enterprises and start-ups. The government can extend support by providing legal regulations, low-tax system, and a skilled and readily available workforce.

• Improve peace and order in the country. The next president will need to work on addressing the peace and order situation in the country, with particular focus on ending the unrest in certain parts of Mindanao. 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 their next focus area for investments.

• ICT at the forefront of the agenda. IDC strongly encourages the next administration to bring ICT usage and adoption to the forefront as it plans the nation’s way forward. Optimized system performance and digitization of records in the education sector as well as eHealth innovations in the Philippines will bolster ICT usage, as local hospitals continue to adopt electronic medical records/electronic health records (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 spur the continued growth of both IT and non-IT sectors moving forward, “adds Alberto.

For further information on IDC, please contact Jubert Daniel Alberto at jalberto@idc.com. For media inquiries, please contact Trista Efendi at tefendi@idc.com.