Mindanao - Reaping the peace dividend
Cris Prystay
Money in Mindanao
Cost of Board of Investment-Approved Projects
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1996 1995 Change
( 1,000 pesos ) ( 1,000 pesos ) ( % Rounded )
Western Mindanao 3,447.49 1,445.00 138.58
Northern Mindanao 1,571.03 2,345.86 -33.29
Southern Mindanao 10,864.53 2,601.30 317.66
Central Mindanao 2,660.18 213.10 1,148.31
Total Equity Investment
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1996 1995 Change
( 1,000 pesos ) ( 1,000 pesos ) ( % Rounded )
Western Mindanao
Total Equity 973,573 25,120 3,794.29
Local Investment 776,580 24,120 3,119.65
Foreign Investment 196,993 880 22,285.57
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Northern Mindanao
Total Equity 708,086 1,659,088 -57.32
Local Investment 553,053 1,347,450 -58.96
Foreign Investment 155,033 311,638 -50.25
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Southern Mindanao
Total Equity 4,143,261 618,745 569.62
Local Investment 3,269,806 584,863 459.07
Foreign Investment 873,455 33,882 2,477.93
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Central Mindanao
Total Equity 760,178 59,555 1,176.43
Local Investment 760,178 59,555 1,174.43
Foreign Investment none none none
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Source: The Philippines Department of Trade and Industry
An accord signed eight months ago to end decades of bitter fighting is helping to spark an economic recovery as investors flock to this undeveloped region.
In the heart of Muslim rebel territory in Talayan, Moro Islamic Liberation Front (MILF) regulars farm cassava to supply chips for La Tandena's gin stills in Manila. Peace, it seems in this case, can be better for the economy than war.
The 90-hectare (ha) plantation, set to grow to 20,000 ha, is the fruit of a partnership between La Tandena, a subsidiary of San Miguel Corp, and more than 300 Muslim landowners. The operation was set up within weeks of the 2 September, 1996 peace agreement between the Philippine government and the Moro National Liberation Front (MNLF), which ended, for the most part, decades of bitter fighting.
Further west, Malaysian firm Ekran Berhad is pouring US$250 million into a high-end resort complex on Samal Island, in the Davao Gulf. The resort is expected to draw tourists to its beautiful beaches and lush surroundings, and help ease the burden on Davao's hotels, now booked solid with conferences, trade missions and scouting investors.
In Cotabato City, the capital of the Autonomous Region in Muslim Mindanao (Armm), government officials are planning the flotation of a US$30 billion 'peace' bond to help fund the massive amount of infrastructure works needed to support expected economic growth in the region.
Throughout Mindanao, the impact of the peace deal is being felt. After decades of war and economic stagnation, the inflow of capital is welcome relief.
Says Nur Misuari, former MNLF rebel leader and now governor of Armm: 'The war we fought for over two decades has, for all intents and purposes, come to an end. And the change has been enormous. We have seen not hundreds, but thousands of businessmen arrive in recent months to see what has transpired in the wake of this peace agreement - some out of curiosity, but many who want to take an active role in the resuscitation of our economy.'
The peace agreement set up a four-province autonomous region and a 14-province Southern Philippines Council for Peace and Development, chaired concurrently by Misuari. Along with the pact comes a commitment from the national government to place development of the region's infrastructure as a top priority. At the same time, the establishment of peace and order has given investors new incentive to put their money in Mindanao.
According to the Department of Trade and Industry, the amount of money being invested in most areas of Mindanao increased last year compared to 1995, with Southern and Western Mindanao leading the way. Northern Mindanao investment fell by more than 50% (chart, page 53).
In Cotabato, chamber of commerce president Tony Santos says that since December 1996, about 30 to 40 investors have arrived each week on 'seek and find' missions; before the peace agreement, that number was practically nil.
Mindanao is home to some of the poorest, and most undeveloped, regions in the country. Its status as the 'back door' of the Philippines has gelded through decades of battle and economic neglect, not from lack of investment potential. The second-largest island in the country, after Luzon, is rich in untapped resources such as oil, natural gas, gold and minerals, and has access to some of Asia's most prime fishing grounds. Mindanao also lies outside the typhoon belt, giving it vast potential for year-round agriculture. The island already serves as the country's 'bread basket', providing 44%, or 35 billion Philippine pesos (about US$1.33 billion), to domestic food trade.
Officials are also exalting Mindanao to exporters as a key jumping-off point to the East Asean Growth Area (EAGA), and by extension, the Association of Southeast Asian Nations (Asean). The EAGA growth triangle, set up in 1994, includes the Philippine islands of Mindanao and Palawan, the independent state of Brunei, the Indonesian provinces of North Sulawesi, East and West Kalimintan, and Sabah, Sarawak and Labuan in Malaysia. The idea is not only to attract investment to Asean's 'last frontier', but to boost sub-national trade in the growth area.
Building on the past
Centuries ago, the islands in what is now EAGA formed an integrated economy without national borders to restrict movement and trade. Even today, residents of Sabah's eastern portion and the western Philippine islands off Mindanao move in defiance of borders and trade laws. 'In Manila they call it smuggling. Down here, we call it free trade,' explains Felipe Uy, managing director of the Southern Mindanao Federation of Agricultural
Co-operatives.
On the Philippines island of Tawi Tawi, the Malaysian ringgit and the peso are used interchangeable, and 90% of the economy is estimated to run on barter trade.
Governments in the region hope to build on the common history, religion and trade ties in EAGA. They are now working together to lower tariffs while boosting trade and travel.
Travel and exit taxes have been lifted for people travelling within the growth triangle, and in February, 1995, a limited 'open skies' pact was signed, granting liberal landing rights to designated carriers from the four countries. The activity has spurred domestic and other international airlines to action: Air Philippines will start to fly from Subic Bay to Davao this spring, while Mindanao Express, a new regional airline, is negotiating its first international route to Malaysia; Silk Air began flying 23 March from Singapore to Davao.
Travel from Manado, in Sulawesi, to Davao used to take nine hours, jumping up first to Jakarta, then to Manila, before heading back down to Mindanao. The direct flight across the Celebes Sea now takes one hour.
This year, six direct shipping routes between four key cities in Mindanao and EAGA were established, linking Zamboanga to Labuan Island in Malaysia, and to Bitung port in Manado, Indonesia; General Santos to Bitung; Davao to Bitung; and Cotabato to Labuan. Port fees are being rationalised to encourage domestic shipping operators to call on the region, and the 'near coastal voyage' concept is being applied for vessels registered in EAGA countries, which means domestic port tariffs are applied to vessels trading within the growth area.
Officials hope the EAGA concept, combined with an increasingly peaceful atmosphere, will provide the impetus for Mindanao's economic rebirth.
'We have an historical opportunity to accelerate growth in Mindanao. We can expect an increased allocation for infrastructure and improved transportation links to Asean through Mindanao,' says Paul Dominquez, presidential assistant for Mindanao and chairman of the Mindanao Economic Development Council. 'How rapidly it happens depends on investor response.' Eight months after the peace accord, that response is notable. Investors from Malaysia and Indonesia arrived early and with open wallets.
Ekran Berhad's big-ticket investment at Samal Island tops the scale of on-the-go investment, while in the heart of Armm territory, Malaysian Resources Corp Bhd has committed to invest US$250 million over 10 years to improve the port at Cotabato and establish an 'economic zone' industrial estate outside the city.
PT Ariobimo Akakarma of Indonesia recently signed a Memorandum of Understanding to launch a Mindanao-based regional television station, to be known as Asean TV Broadcasting Service, while the Bakrie Group's Kondur Petro-leum is eyeing an oil exploration venture.
Encouragement from top officials
Much of the enthusiasm exhibited by Mindanao's EAGA neighbours has been encouraged from the top. Indonesian president Suharto, through the auspices of the Organisation of the Islamic Conference, helped mediate the peace talks over a three-year period. Upon their successful conclusion, both Suharto and Malaysian prime minister Mahathir Mohamad announced their intention of aiding their 'Muslim brethren' in Mindanao. Jointly, the two leaders set up a group called 'Friends of Mindanao' to help develop the area, and have taken steps to help Mindanao seek financial assistance from the Islamic Development Bank.
In October, Suharto instructed the Indonesian Chamber of Commerce and Industry to set up a task force to facilitate investment in Armm, and Mahathir has formed a similar group.
Armm governor Misuari says while the spirit of brotherhood plays a role in the economic support, private investment dollars are pouring in for more pragmatic reasons. 'While we acknowledge the sympathy of our Muslims brothers - we belong to one community and have obligations to one another - the greater impulse behind all this arises from the fact that Mindanao is one of the last great untapped frontiers. We are rich in resources, and occupy a strategic part of Southeast Asia.'
Suryo Sulisto, head of the chamber task force, agrees that new peace and investment potential are behind business interest. 'Up to now, investing in Mindanao was not attractive because of the unstable political situation. But now, the peace agreement makes investment possible'. The island's low investment saturation makes the propositions all the more attractive, he adds.
Domestic investors are of like mind. A key indicator of change in sentiment among large investors in Manila comes from Philippine food and beverage giant San Miguel Corp, which is leading the charge, and pumping up its investments in Mindanao. San Miguel is expanding its chicken processing operations in Davao, and in 1995, poured P1.5 billion into a new brewery in Davao in anticipation of major growth in EAGA. Despite the predominately Muslim population in EAGA, the firm maintains there is a large enough beer
market to sustain growth. San Miguel is working to alter corporate international distribution policy to access the market better. All international beer distribution currently originates from Hong Kong. Executives hope to modify policy and turn the Davao brewery into an EAGA hub.
Last October, the company created a specific EAGA desk to help its food, beverage, packaging and property divisions identify and develop business prospects in EAGA, also referred to as Bimp (Brunei-Indonesia-Malaysia-Philippines).
Roy Abas Sobrecary, San Miguel assistant vice-president and manager of the new Bimp-EAGA desk, says the company is eyeing EAGA as a market for production and a source of raw materials. 'Mindanao is the food basket of EAGA, and we are in the food business,' he says.
More words than action
While the EAGA plan - and government promises of infrastructure development - all look good on paper, there is not enough on the ground right now. For the business community in Mindanao, the memory of past practice will only be erased by action. While demand exists for products, investors are frustrated by the lack of transport infrastructure.
'Infrastructure growth has long been stagnated here. We paid a lot of taxes, but got little back. Up to now, we haven't had enough support from government, and it was really holding us back,' says Willie Tan, co-owner of Techno-Trade Resources in Davao. Tan imports materials for his plastic roofing and construction materials products, but says poor shipping service and port infrastructure means it costs more to ship the goods the last leg from Manila to Davao than from Japan to Manila.
As for the EAGA region, Tan says shipping is improving, but tariffs, which have yet to fall under the free trade plan, remain a barrier. 'There [are] a lot of people interested in buying from us, but the tariffs put them off.' The Philippines' import tariffs are lower than its EAGA partners, so 'everybody wants to sell here', says Tan. 'When they look at buying, they check their tariffs and find it's too high.' Tan remains optimistic about the direction of growth. 'This is an adjustment period. We can't expect everything to be solved overnight.'
Misuari shares Tan's frustration, and worries that the government is not moving fast enough to meet rising expectations in Mindanao. Congress has been slow to approve a budget for development in Mindanao, and critics charge that Misuari is lacking pace with reforms.
'Managing a revolution is difficult - but I can assure you that it's much tougher to run a government,' he says wryly.
As investors stand by, tensions run high in the countryside. While tenuous peace talks are under way with the MILF, battles continue to erupt between the government troops and rebels from both the MILF and the extremist Abu Sayif faction. The MILF broke away from the MNLF in the 1970s because its fundamentalist leadership thought Misuari was becoming too conciliatory toward the national government. Critics now wonder whether Misuari can keep the MILF in check.
The situation began to heat up again this year. Local press regularly reports kidnapping-for-ransom heists carried out in the remote countryside. In February, the murder of Catholic Bishop Benjamin De Jesus in the predominantly Muslim island of Jolo brought lingering tensions to a boil.
'The killing of Bishop De Jesus is symptomatic of our failure to address the rising expectations of the people,' Misuari says.
But both Misuari and economic planners are confident that as more of the population, like the MILF rebels at the Talayan cassava farm, enjoy the fruits of economic prosperity, the peace bond will strengthen.
At the Cotabato office of Growth With Equity in Mindanao, an economic and investment development programme run jointly by the Mindanao Office of the President and USAid, staff retrain both MNLF and MILF soldiers to ease the transition from fighter to worker.
'It's all based on the economics of the stomach,' says Alfonso Magbanua, agro-forestry specialist at Growth With Equity. Optimists in the business community agree wholeheartedly.
San Miguel's Sobrecarey, a native of Mindanao, says: 'The peace process has gained momentum. It would take an extraordinary effort to destroy that process. People are seeing the good effects of the absence of war, and they will think twice about turning back.'