The Waves of Philippine Business P. 4

OFW Remittances Revisited

No one should belittle the impact OFWs have made for the country. Obviously, having a lot of OFWs also signifies that there is an underlying fundamental problem within the country. Nonetheless, they are and will continue to be the driving force for the local economy.

I discussed about how - knowingly or unknowingly - we have moved up the value chain in terms of talent exports, by sending engineers, interior designers, and recently, nurses.

I would like to explore how OFW remittances have also moved up the higher value spending chain.

It used to be that remittances brought back home would go to necessities - food and clothing. The first high value product were the household appliances, foremost of that was the TV. I was blessed to have travelled abroad while I was still young. I distinctly remember a lot of our compatriots sending back TV sets. While waiting for your baggage at the luggage counter, you'd see a lot of them being ferried out.

Fast forward to the present and now OFW remittances are being used to pay for college education, automobiles, and until recently cart franchises and real estate. As I've said in the second part of this series, an important charting tool to forecast what the next Philippine business wave will be is to understand where and what OFW remittances are being spent on.

However, you don't always need to have the latest data for you to know the answer. You just have to be more perceptive of your surrounding. Take for instance the franchising industry in the country. The franchising business in the country is said to be worth an estimated 15 percent of the annual (Philippine) retail sales of roughly $5 billion. Where did the money come from to fuel enormous growth rates for the franchising industry? Why the OFW remittances of course.

Even though most of our overseas Filipinos have established their lives offshore, I don't doubt that when they are near retiring age, they will return to their homeland. But since they know the value of hard earned money, they don't want to come back here empty handed.

It is for this reason that they have setup a business for their children (or for themselves). That way, they'd still have a source of livelihood once they are here. Some OFWs don't wait until retirement age to come back. These people build up their capital and come back here to put up their SME's.

If business does not suit their tastes, then a roof above their heads is something that holds mass appeal. OFW remittances, proving their economic clout once again, fueled the growth of the local real estate sector. With the burdgeoning supply though, it remains to be seen if this sector will continue to post record gains. Demand has to plateau and it will take a number of years before demand catches up with supply. I touched lightly on the property sector a few posts back.

In tracking the progress of OFW remittances, I project that the next wave of growth would be in the arena of investments. This won't necessarily translate into instant huge volumes in the local stock market though, chap. But the remittances have found their way into the subscription of retail investments like mutual funds and unit investment trust funds.

In fact, I am behind the curve already. Based from the SEC, in the year 2000, our mutual fund industry was already valued at US$ 161M.

These three - business, real estate and investments - are where the money is and will be. Among the three, business, particularly SME's will continue to thrive as opposed to real estate and investments. Cohesively, all three are considered investments anyway. Investments don't just mean mutual funds and stocks and bonds. They also mean putting money in real estate or a going concern. Since we have been in this Investment Wave for quite some time already, probably 3-5 years, growth won't be as insane as in years past. So it's important to extend our lenses even further.

In my bold attempt at trying to be a pseudo business guru, I think the next logical wave would be in the area of healthcare. I'll talk about that in my next entry.