PHL lags in AI adoption despite digital access, PIDS warns

Despite possessing near-universal access to computers and the internet, Philippine businesses are exhibiting slow adoption of Artificial Intelligence (AI).

Data from the Philippine Statistics Authority (PSA) indicate that 90.8% of establishments own computers and 81% have internet access, yet only 14.9% of firms use AI tools.

This finding comes from the Philippine Institute for Development Studies (PIDS) discussion paper, Readiness for AI Adoption of Philippine Business and Industry: The Government’s Role in Fostering Innovation- and AI-Driven Industrial Development, authored by PIDS Senior Research Fellow Francis Mark A. Quimba, former Supervising Research Specialist Neil Irwin S. Moreno, and former Research Analyst Alliah Mae C. Salazar.

The study highlighted a significant widening gap between basic digital penetration and advanced technology use.

The study reveals that the overall rate of AI adoption across industries was just 3.02 percent in 2021, concentrated primarily in large companies (5.29 percent rate) and specific urban centers like Metro Manila (National Capital Region) and CALABARZON, particularly within the ICT sector (5.94 percent rate) and the BPO industry (7.19 percent rate).

The authors identified several structural barriers hampering AI uptake, including weak digital infrastructure, limited awareness of emerging technologies, significant skills gaps, and scarce funding opportunities, which particularly affect micro, small, and medium enterprises (MSMEs).

The authors noted the need for greater technology literacy as “The overall awareness of AI and other Fourth Industrial Revolution technologies remains notably low among Philippine firms, with only about one in five firms being cognizant of these technologies.”

These challenges are compounded by severe gaps in human capital, as the Philippines shows low scores in the Oxford AI Readiness Index indicators for the Quality of Engineering and Technology Higher Education (0.00) and ICT skills (5.08), suggesting a workforce deemed unprepared for AI-intensive industries.

Geography also widens the digital divide, with less urbanized areas such as the agriculture sector trailing significantly at an adoption rate of 1.55 percent, while even basic connectivity is uneven, with only 21.7% of establishments having a website and 31.2% engaging in e-commerce.

Financial constraints present another major obstacle, demonstrated by the country’s extremely low score of 6.00 in Venture Capital (VC) Availability according to the Oxford index, signaling a critical lack of capital for AI innovation and related digital transformation efforts.

Recognizing AI’s substantial economic potential—expected to contribute approximately USD 15.7 trillion to the global economy by 2030—the Philippine government has begun laying the groundwork for AI readiness.

Government initiatives include the Department of Trade and Industry’s (DTI) National AI Strategy Roadmap and the planned Center for AI Research (CAIR), which aims to position the Philippines as an AI Center for Excellence, as further stressed by the Philippine Development Plan (2023-2028), which emphasizes the revitalization of industry and services through emerging technologies like AI.

The authors observed that “The current policy environment in the Philippines strongly supports the promotion of AI use across various sectors,” but noted that translating these policies into actual business-level adoption remains a major challenge, especially since many firms, particularly MSMEs, remain in the early stages of digital transformation.

They emphasized that “AI has the potential to drive significant economic growth by enhancing productivity, reducing operational costs, and enabling the development of new products and services.”

To ensure AI adoption benefits both industries and citizens, the study proposes strategic interventions across three critical domains: market facilitation, capability building, and ecosystem coordination, which require “coordinated action across government agencies, substantial investment in digital infrastructure and education, and the establishment of clear governance frameworks,” the authors explained.

These findings are timely for the nation’s observance of the 23rd Development Policy Research Month (DPRM) this September, themed “Reimagining Governance in the Age of AI,” which aims to provide crucial evidence for policymakers and encourage stakeholders to gain insights on leveraging AI for national development.