By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINES could reap greater productivity gains from the global artificial intelligence (AI) boom by encouraging more businesses to adopt the technology and expanding into higher-value services, according to the World Bank.
In an exclusive interview with BusinessWorld, World Bank Chief Economist for Asia Franziska Ohnsorge said that while the Philippines is already benefiting from stronger demand for AI-related goods, the bigger opportunity lies in using the technology to improve productivity across businesses.
“It is benefiting to some extent. We actually have a chart where we show it’s somewhat midway in the region in the share of AI-enabled goods in gross domestic product, and this has also been reflected in our export forecast upgrade,” she said.
“So, it’s benefiting too. But the biggest gains are likely from adopting and adapting AI to local conditions and really making these 80% of firms that are currently not using it, make them see productive uses,” she added.
Ms. Ohnsorge said a World Bank survey showed that only 12% of Thai firms and 23% of Indian firms have adopted or are adopting AI, compared with 43% of firms in the United States.
“The one pattern that comes out very clearly from all emerging markets, and even the US to some extent, is the thing that prevents adoption of AI is cost,” she added.
Ms. Ohnsorge noted that cheaper AI models only became available about a year to a year and a half ago, giving businesses in emerging and developing economies less time to experiment with the technology and identify productive uses.
The survey had also revealed that around 70% of Thai firms and 80% of Indian firms expect no productivity gains from AI.
“If the private sector doesn’t adopt AI, you won’t see productivity gains from AI,” she said.
Ms. Ohnsorge said governments can encourage AI adoption by clarifying regulations, particularly on data privacy and security, while creating conditions that allow businesses to use the technology.
She said businesses are more likely to adopt AI if they already have the technological foundations and skilled workers needed to use it, while a favorable business environment could also encourage investment.
Meanwhile, World Bank Senior Country Economist for the Philippines Jaffar Al-Rikabi told BusinessWorld the information technology (IT) and business services sector has helped cushion the impact of weaker public investment and higher energy prices on the Philippine economy.
He noted that IT and business services account for approximately 27% of Philippine exports and employ around 1.4 million people.
“Beyond the kind of AI more generally, the business process outsourcing (BPO)sector has been a source of good jobs, has been a source of growth,” he said.
“The opportunity that we see is how we move the BPO sector towards higher value services,” he added.
Mr. Al-Rikabi said the Philippines could capture more gains from AI by expanding into data analytics, financial and legal services, health process management, complex customer support and AI-assisted back-office functions.
“This is where we want to see a more AI-enabled BPO that will help the Philippines go up the value chain. So, that’s building on a strength that the country already has, right? And that’s one way it could leverage AI,” he said.
“So, it’s about really using it to enhance existing jobs. And then… trying to encourage wider AI as well as wider technological adoption across businesses and across the economy,” he added.
RISKS
However, Ms. Ohnsorge warned that a slowdown in global AI investments could pose risks to the Philippines and other economies participating in AI-related supply chains.
“If that global driver fades, if it eases, if it begins to unwind, then it becomes the region’s exposure and participation in these global supply chains does become a source of weakness,” she said.
“That is a risk. It’s not our baseline, but it is a risk. And East Asia and Pacific would be affected through two channels, finance and trade,” she added.
Ms. Ohnsorge said a reversal in AI-related investments could weigh on stock markets in advanced economies, with the impact potentially spilling over to emerging markets through capital flows.
“So, if the investment unwinds, the stock market would also take a hit. Financial markets in general might take a hit. And that’s something that will transmit to all emerging markets that are receiving capital inflows and outflows, right?”
The region could also face weaker demand for electronics exports as global AI-related investments slow, she added.
“But East Asia would also be hit through the trade churn, simply the correction in the supply chain that there is no longer the demand for these electronics that is currently driving growth in East Asia. So, it is a risk,” she added.