Why online gambling is here to stay? Trends and Likely Directions in the Philippine Economy
When Rodrigo Duterte (2016-) befriended China at the start of his term, both supporters and critics expected the uptick of Chinese capital inflows, particularly foreign direct investments, development finance, and construction contracts. After four years of Duterte, the outcome was far below the projections of unrealistic expectations. Indeed, given the issues around land, cumbersome bureaucratic process, and the political economy of infrastructure in the Philippines, such outcomes should have been obvious.
Nonetheless, one sub-sector that has clearly surged during Duterte is online gambling, which is defined as gambling that occurs through computer-mediated communication and new electronic media. The online gambling sector has a long history, starting from Antigua and Barbados before moving to North America and Western Europe, eventually ending up in Russia and East Asia afterwards. Online gambling, particularly those managed by Chinese nationals, has evidently expanded in the Philippines. Prior to Duterte, online gambling firms were limited to the special economic zones managed by the investment promotion agencies. PhilWeb, a private Philippine firm owned by a Filipino oligarch, monopolized online gambling in the cities. When Duterte took power, he did not renew PhilWeb’s contract. He gave Philippine Amusement Gaming Corporation (PAGCOR), a government owned corporation in charge of gambling, the right to facilitate online gambling investments. This led to the development of the Philippine Offshore Gaming Operators, which is a special investment scheme managed by PAGCOR that doles out incentives to online gambling firms.
The POGO scheme eventually resulted in the massive expansion of online gambling firms in the city. Asia Nikkei Review uncovered 68 online gambling firms in the country. In my own work, I find that there are 69 more companies located outside the POGO scheme, and around 12 firms that overlap with the Asia Nikkei Review’s list. The massive expansion of online gambling firms generated multiple social and economic problems across the country. Real estate prices, which were already expensive for Filipinos before Duterte, surged to even greater heights after the influx of online gambling firms. Filipino buyers were largely priced out of the prime real estate in Metro Manila, and some had to sell their existing mortgage to the firms. Non-online gambling firms, particularly in restaurants, stores, and accommodations, expanded to take advantage of the Chinese workers coming in the country. A new wave of Chinese immigrant labor working for a sector partly related or tied to syndicates and money laundering started to make Metro Manila their home. These created social problems as both the new Chinese migrants and Filipinos shared the already crowded Philippine cities, facing each other in malls, public transportations, and government institutions. The new Chinese migrants brought along other unintended consequences, such as increased demand for sex services, work-related suicide or abuses, and disputes with locals.
Given all of these, I suggest that online gambling in the Philippines - whether it is by Chinese nationals or not - is here to stay in the Philippines for several reasons. First, the Philippine economy relies on acquiring rents from foreign firms. A major shortfall in revenue will occur if these firms are hindered. Additionally, the firms also provide rents to officials, which involve low- and high-level state officials. Multiple sectors complained about the issues around online gambling. In response, the Duterte administration and various Philippine elites pushed to increase the taxation around online gambling. Two new provisions have been considered. One is the revision of the online gambling’s mechanism on taxation, which currently mandates firms to pay PAGCOR 5% of its yearly profits. The new provision will tax transactions instead of overall profits. This provision is similar to one of the solutions that I suggested in a policy report by the Center for Integrated Private Enterprises. The other is the House Bill 5777, being lobbied by the Philippine House of Representatives, streamlines revenue payments of foreign online gambling workers. This latter provision would simplify taxation and make loopholes less likely to be exploited.
Second, the Philippine economy’s structural makeup is to provide space for service firms that target an external market. For instance, the business process outsourcing sector, which became a major sub-sector in the early 2000s alongside the outsourcing of production, has been one of the most important drivers of the Philippine economy. Multinational firms in all sectors constitute back office work (customer service, accounting, etc.) that were eventually exported after the development of telecommunications and internet technology. The Philippines, comprising the third largest English-speaking workforce in the world, took advantage by providing office space and cheap workers for the MNCs. The online gambling firms operate similarly, buying up real estate space and acquiring multiple local inputs – local services, food, and maintenance - to create economic activities. Philippine manufacturing ranks far dismal behind its Southeast Asian counterparts, while Philippine extractive industries suffer from regulatory capture by local elites.
Third, online gambling does generate employment for Filipinos, albeit most of these jobs are found in security, gaming hosts, and administration. A large number of unemployed Filipinos in the country vastly increases labor supply, pushing down the wages to the bare minimum; online gambling firms offer slightly higher wages due to the conditions around the sector. Despite generating employment, online gambling firms will always need to import Chinese workers to target the greater East Asian market. Though Filipino workers are slowly learning Mandarin, the vast majority of jobs are given to imported Chinese workers. Due to the gap between the Mandarin-speaking skills of Filipino and Chinese workers, development scholar Hangwei Li and I argue that importing Chinese workers is a necessity for online gambling firms. Higher-level positions and functions in the firms might involve controversial transactions. Giving these responsibilities to Filipino workers might place online gambling firms in a vulnerable situation. Imported Chinese workers can be constrained by the illegal nature of online gambling work and the connection of the firms to the Philippine government. In other words, there will always be demand for Chinese workers.
Alvin Camba is a PhD Candidate at Johns Hopkins University and an incoming Assistant Professor at the Korbel School of International Studies, University of Denver. He is also a non-resident fellow at the Stratbase ADR Institute and the Paramadina Public Policy Institute. Alvin has extensively published academic and non-academic works on Chinese investments in the Philippines and Southeast Asia. You can read more at alvincamba.com