Best-kept secret

Justin and DOT Sec Ramon Jimenez

Inside Investor Research Analyst Justin Calderon (left) with Philippine Department of Tourism (DOT) Secretary Ramon Jimenez, Jr.

The Philippine tourism industry is expected to become the ignition behind the country’s job machine in the years to come, providing jobs for about 18 per cent of the total workforce, and contributing 8 per cent to 9 per cent of GDP. Department of Tourism (DOT) Secretary Ramon Jimenez, Jr. emerged from a long career in the creative sector to take up the post in September 2011. Inside Investor asked him about future tourism infrastructure projects, the untapped potential of Mindanao and emerging tourism destinations.

By Justin Calderon

Q: Recently I spoke with Executive Director Peter Perfecto at the Makati Business Club, and when asked about the source of the most new jobs in the Philippines, his first answer was the tourism sector, pointing to a lack of infrastructure as its main impediment. Can you tell me what airports, other infrastructure projects and major hotel developments are in the pipeline for 2013?

A: Let’s lay down the figures first: We expect a little over 6,850 hotel rooms to be built by the first quarter of 2014, with about 40 per cent of that coming up in Metro Manila. By the end of 2013, we will open major facilities and mixed entertainment complexes to address growing room demand. Four such complexes of similar size are slated for construction by 2016 in Manila.

Another 20 per cent of development will be in Cebu, frankly speaking the second capital of the Philippines. We are seeing lots of room development there, a boom that is being led by a greater effort to fill a projected room gap of 2,700. Reaching the government’s goals of 10 million arrivals by 2016 will require many more new rooms.

Like many other countries, the bedrock of Philippine tourism is the domestic market. We are projecting 44.1 million domestic travelers in 2013, which would count for 176.2 million domestic trips if you consider both of their routes to and from their destination. About 20 per cent of these domestic travelers just travel home. In 2011, we counted 37.5 million domestic travelers and we project a total of 56.1 million by 2016, which will represent over 220 million trips by the end of 2016.

The challenge now is keeping up with this demand, especially since the Philippines is discovering that is has much more latent demand from international markets than originally thought, including markets as far-flung as Sweden and as close as Malaysia, whose arrivals to the Philippines grew 24 per cent in 2012. Two major source markets surpassed their respective target arrivals for 2012. Japan’s actual visitor arrival output of 412,474 is 3.86 per cent higher than its target of 397,141. Taiwan surpassed 10.46 per cent by registering 216,511 arrivals.

Nobody had seen capacity as a problem before because no one knew what was coming. But when you have a spike in arrivals like what we have seen in the past to two years, then you can’t help but notice that the infrastructure is busting apart at the seams. True, this spike in arrivals has caused business around the airport to grow as an offshoot, but it hasn’t been managed well yet.

By 2016, the Philippines will have 10 to 12 international gateways capable of receiving Airbus 330s, although not quite Airbus 380s yet, for which we will need to build airports from the ground up or totally refurnish existing ones. There will be a totally new airport on Panglao Island, servicing the popular island just off of Bohol, relieving the Tagbilaran airport of its stress. Additionally, the airport in Legazpi, Luzon, which services the Mayon volcano, a popular tourist destination, will be shut down and move to Daraga, where a new international airport will be constructed. The rationale behind this is that, while the Mayon volcano is relatively benign, it is still an active volcano and creates a weather micro-system around it. The current Legazpi airport is useless one month of the year because of this.

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Beach in the Visayas

Q: How much investment would be necessary to upgrade or build up a system of adequate tourism infrastructure in the Philippines that would match regional standards and benchmarks?

A: The Philippines is not part of a contiguous landmass like much of Southeast Asia. Furthermore, we are strict about counting tourist arrivals: If you don’t stay a night, then you are not counted. We don’t count “Coca-Cola tourists,” those who do border crossings to have a quick snack then cross back. If you look at many other countries in the region, a substantial portion of their tourist arrivals are counted mainly from quick transfers or border crossings.

In the Philippines, 99 per cent of arrivals come by air. The rest come by cruise ships, increasingly from Malaysia, as well as from Australian cities such as Darwin, including many a sailboat.

We have a conversion budget for tourism with the Department of Publics Works and Highways, which is a segregated budget, meaning that funds allocated here are strictly used for tourism projects. If we need to build a road to an airport, we have access to this budget. In 2013, a budget of $295 million has been amassed just for road infrastructure, and it is expected that $6.5 billion will be earmarked to support the tourism sector up through to 2016 to help ensure we fill room gaps, add airport connections and more.

Q: When I landed in Clark recently, it was late at night and a Canadian traveler was lost in how to get to Baguio. What incentives are being implemented to help the private sector to establish and support basic tourism infrastructure, such as transport, and how are Tourist Information Offices are operating in the country?

A: First of all, only this morning [February 28, 2013] the Department of Transportation and Communications endorsed the participation of the Bureau of Immigration to be part of a committee tasked to discuss the expansion of the airport system. It is only through this unprecedented level of communication that you can be sure that services are expanding, not just brick and mortar efforts. There is a large learning curve people in the government are going through because they are not used to this growth. It’s hard for them to man passport readers and manage infrastructure. That’s an example of just how fundamental this stage is.

It’s a matter of lining tasks and organisations up properly. That includes the lining up of tourism offices. But budgets and money are no longer the issue here; the issue is scheduling, timing and commitment, and our president supports this stance. President Benigno Aquino III is the most tourism-oriented president in Philippine history. He is very, very into engendering the highest potential of the industry. Just today [February 28, 2013] I will be going to Malacañan Palace to organise a meeting with immigrations, quarantine and customs officials on this matter.

Regarding incentives to promote expansion in the sector, investors in tourism will be allowed to import equipment tax free, and tourism enterprises operating in remote areas may be eligible for a tax holiday, but this depends on the exact location.

Paoay-Church-Ilocos

Paoay church in Ilocos

Q: The Philippines welcomed some 4.27 million foreign tourists in 2012, and is aiming for a lofty figure of 10 million by the end of Aquino’s term in office, 2016, while in 2012, the United Nations’ World Tourism Organisation, or UNWTO, said receipts rose 17 per cent. Which top destinations will attract this new raft of tourists and money?

A: Receipts hit $3.8 billion in 2012 compared to 2011 receipts of $2.9 billion. By 2016, the projection is $10 billion. The tourism industry’s core destinations will still be in the Central Philippines. Mindanao could however, in fact, zoom ahead and surprise us all. We are this close to having a working peace on the island, and this time, the framework agreement signed between the Moro Islamic Liberation Front and President Aquino is really going to quiet things down, despite recent news involving Sabah. Every time you get to this point [in progress], you get last minute hustling; that’s why you are hearing this noise now.

Q: In the 2016 goal, the tourism sector plans to create countless new jobs through what you call a “trickle-across effect,” creating new jobs in niche tourism segments, for example in adventure tourism, such as boat tour guides in the Puerto Princesa Underground River. Can you give some figures on this growth and name some other new jobs and that this effect could create and where they may be?

A: From our latest figures (as of 2011), 3.8 million people were employed in the tourism sector or 10.2 per cent of national employment according to the national data gathered by the National Statistical Coordination Board. By 2016, tourism will employ 7.4 million people, or about 18.8 per cent of the total workforce, contributing 8 per cent to 9 per cent to our GDP, a very significant goal post for the Philippines, making the tourism sector one of the biggest players in the service sectors, which will continue to be led by manufacturing.

Tourism has a very real physical radius around it, unlike other industries. In terms of income employment, it is also very auspicious to point out that after years of agonising over how to spread the wealth, we have thought up the idea of the “trickle-across effect.” Tourism is a great way to spread the wealth, to create jobs that weren’t there before. There was no such thing as a whale shark guide before tours began in Bicol to see them; the Puerto Princesa Underground River didn’t employ any guides either before tourism infrastructure came; the expert biologists taking people through firefly tours are now growing in number as well, as we discovered that we may have more fireflies than we initially thought [mainly in Siquijor, Negros and others islands in the Visayas].

Q: What would you say to claims of animal abuse, such as that purportedly done to tarsiers, the world’s smallest primate, located on Bohol, who are nocturnal animals being shown to tourists during the day?

A: Anyone who comes to the Philippines will think it’s far from being ruined; we never had the money to spoil it. The difficult part is that tourism – especially on the ecological front – is an iterative exercise, because you can only learn these things as they occur. You become a tourism attraction before you become the concern of an ecological group.
When people complain to me about whale shark guides feeding them by hand, I say:  Give us a break, the tribes that are now acting as guides once upon a time used to hunt these whale sharks for food. Moving from killing these animals to making them a sustainable livelihood is clearly a step forward.

Q: The indigenous people of the Aetas tribe in Central Luzon have opened their territory to private investment in the tourism industry. How does the DOT view the intentions of tribes such as them?

A: The Commission on Cultural Minorities, a governmental group, is charged with ensuring that ethnic tribes are not throwing the baby out through the bath water, so to speak. However, the DOT believes local tribes are as much entitled to development as anyone else in the Philippines. We don’t encourage degradation of settlements or culture, but we want them to be the beneficiaries of tourism growth.

The vision of the national tourism plan is that certain no-go areas need to be enforced to protect our local tribes. However, tourism is a people business and [minority groups] are more than deserving of investors’ attention. President Aquino has been very clear about it: This is not about counting South Koreans coming out of an airplane, it’s about creating jobs and businesses and income opportunities.

Q: In alignment with the developmental impetus of President Aquino, what potential do you see in Mindanao’s tourism industry?

A: Cagayan de Oro, the urban center of Northern Mindanao, will be opening up an international airport in April, which is being developed by the Ayala Group. Davao is growing by leaps and bounds: SM Holdings just opened its second convention centre in Davao. We have very active relations with the business community in Davao, precisely because the opportunities are huge. The land is so uniquely rich and pristine. For example, outside of Zamboanga City, there is island called Santa Cruz, which the DOT used to own, and it has light pink sand, a colouration caused by the abundance of red organ pipe coral sediments mixed with the white sand. Zamboanga is actually considered “Asia’s Latin city.“ The language spoken there, Chavacano, is a Spanish-Filipino Creole, and it has Fort Pilar, which is a more preserved relic of colonial Spain than Intramuros in Manila. Spanish culture is very much engrained here, and the city is just a 45-minute flight from Manado, Indonesia, with chartered flights already operating to there.

People like to think what they will of a place before they go [regarding security risks], but I’m telling you that, for example, when visiting Zamboanga, there were already South Korean families there. This place will knock your socks off.

Q: Medical tourism is huge in Thailand, Malaysia and Singapore. How does the Philippines compare?

A: Opportunities would be in personalised molecular medicine, otherwise known as stem cell research, as well as orthodontic, cardiac and orthopedic care. Some of the best bone doctors in the world are Filipinos, because the study of medicine has always been of high priority, further benefiting from an infusion of Filipino-Americans returning home to practice their craft. Our doctors have a long tradition of completing higher education in Europe and the US and then coming back to become senior doctor here.

There is also a great deal more of care givers in the Philippines than before, who are now focused on seniors citizens coming here to retire. Renowned for our unique caring and nurturing spirit, the Philippines has been gaining ground as a healthcare travel destination of choice for tourists seeking better, affordable, and alternative medical care. The Philippines has become an idyllic setting for relaxation, healing, and recovery.

Q: A heavily underrated tourism segment that would be ideal for the Philippines to exploit is yachting. Why are there not enough marinas in easy touristic reach?

A: Previously tourism was something we did on the side; tourism was simply underdeveloped, something we did for ourselves. We are like this incredibly beautiful girl who didn’t know how to dress up.

In actuality, we do have marina facilities, but these are not well-known ports of call. We have always been someone’s best-kept secret. If you go to Samal Island, outside of Davao, Mindanao, you suddenly see this marina with boats docking from Australia. There is also a marina at Punta Fuego in Nasugbu, in Batangas, Luzon, where you will see yachts and boats, a marina of which many people don’t know is already there.

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Chocolate hills in Bohol

Q: One problem of the Philippines is that its location is a bit out of reach, at least for European, Middle Eastern and American travelers. The other issue is that even regional flight connections to the Philippines are comparably scarce and overpriced. How are AirPhil Express and other low-cost airlines tackling this?

A: Domestic airlines based in the Philippines will be adding 33 new aircraft for international traffic in 2013, including Cebu Pacific, Philippine Airlines and Zest Airways. By 2016, new aircraft purchases will reach 120. As we speak, there are pending applications for new flight routes to Perth, Melbourne, Darwin and Sydney in Australia, and cities in China, including Guangzhou and Xiamen, as well as second-tier cities.

The government has identified 10 countries, which are set for air service talks this year. We look forward to serving Australia, Brazil, Canada, France, Indonesia, Italy, Japan, Papua New Guinea, Russia and Taiwan in the years ahead.

We are opening up more connections to Europe pending an upgrade from the European Aviation Safety Agency (EASA), which currently places us in category 2. The EASA downgraded us about six years ago, but we are in the progress of regaining this status as well as others, such as that given by the US Federal Aviation Administration, which would allow Western-based airlines to come back to the Philippines. We have provided tremendous impetus, such as disbanding the common carriers tax, which President Aquino is due to sign any day now. The International Civil Aviation Association (ICAO) recently audited the Philippines and we are now awaiting a favourable report.

Q: I’ve heard that San Vicente, a municipality in northwestern Palawan, is to be an up-and-coming tourist destination that could rival Boracay. Can you expound more on this spot and others like it?

A: Over the next three years, San Vicente will be the beneficiary of tremendous infrastructure investment that will guarantee access, including a tourism road connection to the island’s main artery, which – by national policy – must be constructed to national standards. San Vicente is 14 to 15 kilometers of incredible white sand, compared to Boracay’s four kilometers. This would make Miami look miniature.

While the government will be a strong enabler of this project, it will be mostly led by the private sector. The key thing to note with San Vicente is that we are starting from scratch, and private investors are already scrambling for land. San Vicente is less than one hour from Puerto Princesa, where we are upgrading the airport to be able to receive larger aircraft. In the end, San Vicente may even get its own airport.

There are other places as well, including Samar province, the home of Calicoan Island, where an abandoned airstrip once capable of landing Airbus 340s can be easily refurnished due to the runway’s unique composition of cement and coral, originally used by the US military to fly out bombers towards Japan during World War II.
In general, the Pacific coastline holds an incredible story, including Baler, in Aurora province, in Northern Luzon facing the Pacific. 

About author

Justin Calderon

Justin Calderon is a research analyst for Inside Investor based in Manila, Philippines. His work has been featured in The New York Times, Newsweek (Japan), CNN Travel, GlobalPost, Global Times and The Nation (Bangkok). Living in and out of Asia since 2006, Justin spent two years in Shanghai working for a popular B2B magazine. He also hunkered himself down in Taipei for two years to teach English and study traditional Chinese characters. He is a Mandarin and Thai reader and speaker.

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