Social Costs vs Economy Advantages: POGO Long-term Ramifications

I. Introduction

Philippine Offshore Gaming Operations, more popularly known as POGO, are

Chineseowned gambling companies established in the Philippines that cater to international
clients. POGOs began their operations in November 2016, during the Duterte Administration,
signed in Executive Order No. 13 in February 2017 to strengthen the fight against illegal
gambling and clarify jurisdictions for licensing agencies that regulate and license gambling
facilities and online gambling houses. This is an attempt by the President to intensify the
government's fight against illegal gambling operations. This Philippine gambling law was
expanded so that operators will not try to lease or pass on their operating licenses. Operating
licenses are expensive so when casinos are sold or transfer ownership, operators usually try to
make the switch when their operating lease is up for renewal. Today, it is now rapidly expanding
in the country. NCR hosts a large number of POGOs in cities such as Makati, Pasay, Manila, Las
Piñas, Mandaluyong, Parañaque, and Quezon City. There are also regions outside Metro Manila
that cater to POGOs, including Region III, IV-A, and Region VII. As of May 2022, there are 34
licensed POGOs in the Philippines. More than 200,000 to 300,000 Chinese were believed to
have worked in online gambling operations when the business peaked starting in 2016, boosting
real estate, transport, and food businesses in cities where they were based. The Bureau of Internal
Revenue collected a total of PHP 5.28 billion (US$101 million) in 2020 and PHP 3.47 billion
(US$67 million) in 2021. However, while it is true that they make huge financial contributions to
the Philippine economy, doing so comes with serious social implications that in turn constitute a
reputational risk that could impair the country's business and investment climate, and have
substantial negative social repercussions. As a result, many people in the Philippines worry that
POGO's negative societal effects would eventually exceed the revenue it brings in.
II. Body

Employment Rate According to those who are opposed to the plan, the departure of
POGOs could result in the loss of employment for a significant number of Filipinos. According
to statistics collected by the government in 2019, the year that represented the industry's high
point, there were over 144,000 registered POGO workers in the country, although only 14.5% of
them were Filipinos. As of June of this year, the official count had dropped to just 34,245
registered personnel, with 17,509 (or 51%) being foreign nationals and 16,736 (or 49%) being
locals. This decrease was the result of pandemic restrictions, which had a significant impact on
operations. Figures from the Philippine Amusement and Gaming Corporation (PAGCOR), which
were presented in a hearing held by the Senate one month ago, indicate that there are a total of
approximately 225,400 Filipino and foreign workers in establishments that are connected to
POGO. These figures were presented in the context of the industry. During a previous press
conference, the Association of Service Providers and POGOs (ASPAP) made the claim that
Filipino workers in the POGO industry receive higher wages, which prevents them from needing
to look for work elsewhere. Nelia Leonardo, a former overseas Filipino worker in Taiwan who is
now a translator for POGOs, is a member of the organization and one of its translators. She
mentioned that in addition to her monthly salary of 35,000 yen, she receives perks like free
meals, free housing, and free transportation.

Real Estate Revenue and Loses

A potential loss of between 170 and 200 billion pesos per year to the Philippine economy
could result from the closure of POGOs. The real estate sector would be one of the most severely
affected by this, as offshore gambling companies utilize over one million square meters of office
space and their employees occupy approximately 2.4 million square meters of residential space,
the majority of which is located in Manila. Some have voiced their displeasure that the inflow of
Chinese nationals has resulted in an increase in rental rates, which hurts the locals. This is
because POGOs are willing to pay rates that are anywhere from one to two years in advance, at a
multiple of the initial amount. It would be detrimental to the nation if POGO withdrew suddenly
since it would result in annual losses of 18.9 billion yen in office rent and 28.6 billion yen in
dwelling rent. He pointed out that this is in addition to the tens of billions of dollars more in
workers' pay, government revenue, electricity bills, and everyday spending, among other
expenses and expenditures. At the very least for the time being, the Philippines requires the
POGO industry to protect itself from the impending harm that will be inflicted on the rest of the
world over the course of the next year. Now is the time to actively promote higher levels of
employment and investment than at any other period. However, Senator Grace Poe, who
supports calls to outlaw POGOs, believes that the current real estate scenario may only be a
temporary nuisance and that property owners will soon be able to find alternative uses for their
land. During a hearing in the House of Representatives one month ago, the National Economic
and Development Authority (NEDA) stated that preliminary estimates for 2022 showed that
POGO firms have contributed 53.1 billion to the economy, which is equivalent to about 0.31% of
the country's gross domestic product (GDP). This is a significant decrease from the data that
were released by NEDA in 2019, which said that the industry contributed 104.5 billion, or 0.67%
of the GDP. According to the Bureau of Internal Revenue (BIR), the total amount of tax revenue
collected from January to August 2022 was 4.4 billion yen. When the BIR believed that POGO
operations would revert to their levels before the pandemic, the prediction for the entire year was
32.1 billion yen, which is a significant difference from the current amount.

Social Costs

There has been a lot of discussion on the economic aspect of the problem; nevertheless,
supporters of the ban argue that the social problems that have plagued the sector are too
significant to be ignored. The recent kidnappings and illegal detentions that have been linked to
POGOs are what sparked the investigation that is currently being carried out into the
organization. POGO was involved in 17 out of the 31 documented kidnapping occurrences that
took place from January to September of this year, as stated by the Philippine National Police.
According to the authorities, at least part of these instances can be ascribed to the paucity of
Chinese POGO workers in the nation as a result of pandemic restrictions in China. They said that
companies compete for personnel, even going so far as to hold individuals against their will at
times. Those involved in the industry allege that the offenses were committed by unlicensed
POGO firms. For its part, PAGCOR has stated that the five-year roadmap it has developed not
only aims to raise the amount of revenue derived from POGOs but also includes a more rigorous
regulatory framework that will remove the social evils connected with illicit operations. POGOs
are anticipated to, for several decades, become a significant source of money for the government,
free of the social expenses that are typically connected with such activities. However, it was
discovered that even those who had been granted licenses by the government had violated the
law. For instance, in September, the police rescued scores of Chinese nationals who had been
"detained" at Lucky South 99, a business in Pampanga that had been licensed by PAGCOR prior
to the operation. The enterprise was located in Pampanga. During the same month, at least two
additional businesses were purportedly related to abductions. The companies in question were
Xionwei Technology Co. Ltd. Inc. and L-Y Group Admin Pogo Company, according to the
authorities.

III. Analysis

Despite being largely out of the spotlight throughout the height of the pandemic, the
Philippine Offshore Gaming Operators (POGO) industry is again at the heart of a high-stakes
dispute in 2022. An increase in crimes associated with the industry has prompted a government
investigation into whether the industry's continued operations will be beneficial or harmful to the
country, despite claims that it contributes billions of pesos to the economy. Maintaining
equilibrium is challenging. Those in favor of a POGO ban contend that the industry's "social
costs" are greater than the benefits it provides to the economy. However, many argue that the
exit of these companies would be counterproductive, as it would result in the loss of many jobs
for Filipinos and slow the country's recovery from the coronavirus epidemic. Closing down
POGOs could cost the Philippine economy between 170 billion and 200 billion per year.
However, the underside of the offshore gaming industry is not new. Even before the pandemic,
there were many exposés on the subject, including those on online sex dens, a "powerful"
government official reportedly supporting illegal recruiting, and the "pastillas" bribery scam.
There were also reports of additional labor law infractions, including the hiring of minors.
Although POGO profits contribute to government coffers, the Department of Finance (DOF)
argued that the "modest" contributions of the industry do not outweigh the harm it causes. The
Department of Defense stated that the controversial business not only disrupts peace and order
but also affects investment perception and becomes an economic risk. It predicted substantial
declines in foreign direct investments (FDIs) and incoming tourism income as a result of the
perception of crime and corruption, as well as increased costs for law enforcement and
immigration. The department estimated that potential FDI losses could range between 16.7 and
26.2 billion due to problems plaguing the sector. Regarding tourism, the study indicated that a
1% rise in the crime rate decreases tourist arrivals by 4.97 percent or approximately 8.9 billion
yen annually. The DOF also stated that because POGOs remains illegal in China, permitting
them to operate in the Philippines "incur[s] more reputational risk." However, if it were to be
prohibited, Finance Secretary Gary Teves stated that the timing of its decision and
implementation should be examined, given that inflation and employment are the most pressing
economic concerns for Filipinos now. While expressing support for the ban, Teves said that it
could be preferable for the country to implement it gradually rather than all at once.
Additionally, he stated that the government should be prepared to generate more work options
for people affected.

IV. Recommendation

There is still a need for a review of the policies and regulations that the government has
in place regarding Philippine Offshore Gaming Operators (POGO). There is an overwhelming
amount of support for a change in the current policies, as well as a change in the current laws and
regulations, and a change in the current mentality in law enforcement. Experts recommend
keeping POGO operations within POGO-specific zones that are ringfenced off from the rest of
the country. In certain zones, existing permits will only be permitted to operate for the duration
of their leases, while new licenses will be issued. Any offshore gambling that takes place outside
of these zones will be regarded as illegal, and any offshore gaming that takes place outside of
these locations can be arrested— without a significant amount of additional investigation. Not
only will we be able to limit involvement with the industry that is not necessary, but we will also
be able to ensure that its customers are solely foreign. V. Conclusion and Way Ahead When the
positive effects of the POGO sector on the Philippine economy are weighed against the negative
effects it has on society, the government should prohibit the POGO industry if it is not
adequately regulated. The economic benefits of POGO do not outweigh its underlying
ramifications because the sector makes it possible for crimes and other corrupt dirty dealings to
occur, which in turn costs money and has social implications that would greatly harm the
country. POGOs must be subject to stringent regulations rather than outright bans. Rep. Joey
Sarte-Salceda, the resident economist of the House of Representatives and the author of the 2021
POGO tax law, argued that a blanket ban on a particular industry will be perceived as arbitrary,
given that there are already laws in place to prevent abuses in any type of business. He argues
that this is the case because there are already laws in place to prevent abuses in any type of
business. This will damage our reputation with investors across all industries, not just the gaming
industry. "We are going to be known as a country that burns down houses merely to kill the rat
that is inside," he emphasized multiple times. The Philippines attempts to handle problems by
shoving them under the table or outlawing entire industries to eliminate a small number of bad
apples. It is time for the Philippines as a nation to mature and stop dodging difficulties in favor
of more practical solutions and start confronting them head-on. There is no substitute for solid,
old-fashioned police work when there is a widespread problem with kidnapping or criminal
activity. Even if an activity is made illegal, that does not mean criminals will stop engaging in it.
They won't stop until they find more people to victimize. The ecozones are responsible for a
major portion of the illegal trade. Salceda emphasized that smuggling on a large scale is a form
of economic sabotage. However, the solution is not to shut down all ecozones but rather to step
up enforcement efforts against illegal trade. In a similar vein, the solution to the problem of
illegal POGO is not to shut down all POGOs. As a matter of fact, doing so will simply serve to
establish a whole underground industry. This is a very serious caution. When POGOs are forced
underground, the state will be hit by a triple whammy: the Bureau of Internal Revenue (BIR) and
the Philippine Amusement and Gaming Corporation (PAGCOR) will lose billions of dollars in
taxes and license fees, respectively; Chinese criminal gangs will continue to wreak havoc; and
the government will be in a situation that is much worse than the status quo that it is attempting
to escape. The strategy cannot consist of abandoning an entire sector simply because certain
companies engage in unethical behavior. Every sector has its share of shady characters.

VI. References

Fernandez, D. (2022, October). Pogo revenues “come at significant social costs” — DOF.
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underground – Salceda. Retrieved from [Link]
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Order 13 Its Impact To Philippines Gambling Market. Retrieved from
[Link] Limpot, K. & Mantaring, J.
(2022). PH’s gamble on the multi-billion peso POGO industry. Retrieved from
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Maderazo, J. J. (2022, September). POGOs should be strictly regulated, not banned! Retrieved
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Diplomat. (2022, October 20). Philippines Shuts 214 Illegal Chinese Gambling Operations.
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