IT investment pledges in economic zones plunge

Investment pledges in the country’s top sunrise sector, information technology (IT) services, have fallen, with companies likely holding off new investments after overestimating demand last year. The Philippine Economic Zone Authority (PEZA) registered just P392 million in investments slated for IT parks in the first two months, down by 63.4 percent from P1.07 billion a year earlier, the agency’s public relations head Elmer H. San Pascual said in a telephone interview. Companies may have overestimated demand when they expanded facilities last year and are thus holding off new investments, an industry expert said. The decline came on the heels of reports that business process outsourcing (BPO) growth slowed last year. Sales grew by almost a fifth to P7.2 billion last year, slower than almost a quarter growth in the prior year, according to the Business Processing Association of the Philippines (BPA/P). The industry group is targeting faster growth of 32 percent this year. So far, IT parks, whose locators accounted for 55.5 percent of industry sales last year, have received fewer investment pledges, San Pascual said. Sought for comment, BPA/P Director Danilo L. Reyes pointed to overcapacity as the possible culprit. "Investments were done in late 2008 and early 2009. But the pick-up has been slow," Reyes said in a telephone interview on Sunday. "Because of the downturn, the capacity built up has not been totally filled up. There might be excess requirement," he said. While the downturn may have prodded firms to outsource noncore operations to cut costs, the number of clients, especially in the banking sector, has been reduced in the midst of takeovers. "They were still consolidating their requirements, so decisions to outsource did not happen," Reyes said. "But we should be expecting an uptick in investments in the second or third quarter this year. It’s just a timing issue," he added. San Pascual similarly brushed off the decline in investment commitments. "We’re not worried about this. A lot are telling us they are gearing up for new clients… for mid-2010," he said. Last year, pledges for IT projects registered with the PEZA grew by 23.4 percent to P14.299 billion from a year earlier. These accounted for 8.15 percent of total commitments to the state agency. — Jessica Anne D. Hermosa, BusinessWorld