Unearthed gem: Mindanao, Philippines

Romeo Montenegro, Director of Investment Promotion, Mindanao Development Authority

The Mindanao Development Authority (MinDA) was formed in the early 1990s under former President Corazon Aquino, previously known as the Mindanao Economic Development Council (MEDCo), to coordinate planning and development across the island-region. In 2010 it became the authority tasked with the economic development of the Philippines’ second largest island. With hopes of a lasting peace following the signing of the Framework Agreement for Bangsamoro by incumbent President Benigno Aquino III and the Moro Islamic Liberation Front (MILF) in October 2012, this island replete with natural resources has already raked in millions of dollars in investment leads from Malaysia. Director of Investment Promotion Romeo Montenegro of MinDA spoke with Inside Investor about power capacity upgrades, the potential of the halal industry and successful companies operating in the island’s Muslim regions.

Q: How does MinDA work with the National Economic and Development Authority (NEDA) and thus a government-run organisation, what budget allocation did MinDA receive for 2012 and 2013?   

A: MinDA works in strong partnership with both NEDA national as well as its regional offices in Mindanao in pursuing parallel work on planning and development. After transitioning as a special office from the Office of the President in 2010, a law was passed making us independent and allocating MinDA an operational budget of 100 million pesos, or $2.5 million per year, but so far we receive about 60 to 80 million pesos annually.

Q: MinDA Chairperson Luwalhati Antonino has cited Mindanao’s Caraga Region as one of the country’s fastest growing regions with a growth rate of 9.6 per cent in 2011. What is propelling this growth and what can Batuan City, the region’s urban hub, offer investors?

A: The Caraga Region is where rapid development in the mineral sector has taken place. Caraga is the richest mineral area in Mindanao and consequently a place where many mining companies operate. Deposits in Caraga range from copper to gold to nickel, and the region is home to one of the largest nickel mining companies in the country. Despite these investments however, the region still lagged behind in terms of improvement in poverty level, hence the need for investments to be job generating by having more processing centers for raw materials to be produced. We’re looking at Butuan area as an industrial hub in the northern Mindanao corridor.

Q: With MILF now largely pacified, many are predicting withstanding peace for Mindanao. However, considering Sulu’s recent claims, what action is MinDA taking to ensure investors’ safety, and which areas are still considered high-risk?

A: MinDA pushes for premium investments in the Autonomous Region in Muslim Mindanao or what could become Bangsamoro areas in the near future. The signing of Framework Agreement on the Bangsamoro certainly augured well for region which stands to benefit from the annex of the peace framework agreement, which currently contains points under discussion that have yet to be hashed out. In terms of prime investment, MinDA is trying to drive projects that promote connectivity and work towards creating economic transition that creates a visible return on investment and a positive impact on the lives of local people. Creating jobs has to be a priority for any foreign investment projects. Caraga is an important case study, as its accelerated growth is taking place in an area where the incidence of poverty is high. Caraga, like the Autonomous Region of Muslim Mindanao (ARMM), needs more focused attention to catch up. Beyond Davao and Cagayan de Oro, the two most developed cities in Mindanao, there are many other areas where viable investment opportunities can be pursued. Regarding security risks as far as violent attacks are concerned, as of late there have been none. There were, however, reports of possible intrusions to mining facilities. Bukidnon province recently has reported attacks by some armed groups, but the incident has been contained. These kinds of incidents tend to reoccur now and then, but have not created a large enough impact for foreign investors to fully withdraw their projects.

Mindanao1Q: Unifrutti Philippines Inc., one of the the largest exporters of bananas in the country, is a great case study of doing business in ARMM. Ninety per cent of their employees are Muslims, many of whom are former MNLF fighters. Are there similar examples for such companies?

A: Agriculture has a significant competitive advantage on our island. Del Monte pineapples come from Bukidnon province and Dole pineapples are grown in South Cotabato, which are usually all shipped mostly en route to the U.S., our largest export market. In the Philippines, eight out of top 10 export agri-commodities come from Mindanao.

Q: Considering that the Philippine Board of Investment posted a 719 per cent increase in business certificate approvals in 2011 in Mindanao, where are most of those from?

A: General Santos City has a thriving real estate market now; BPO operations are also increasingly opening their doors in Mindanao. The services industry in general is inching its way up, making a clear path to drive Mindanao’s economy.

Q: Mindanao’s population was 21.5 million as of 2007. Has there been an updated census? How many people are under the age of 30? What portion of Mindanao is Muslim, Christian?

A: As of 2010 census, Mindanao has a total population of around 22 million. Of this, around 34.7 percent are in the age between 15 to 34, providing Mindanao a productive population and strong workforce. Muslims account for around 10 percent of the island’s population.

Q: The Lanao del Sur region is said to have immense halal potential, with Lake Lanao being a source of fresh water located in a Muslim region. To what extent has the halal industry grown and how can it realise its great potential?

A: We have heard about a proposal to tap Lake Lanao as fresh water source for the bulk water exportation industry, given that mineral bottled water is a $30 billion global industry today. However, this has to be studied further considering that Lake Lanao is also major source for hyrdopower and vast agricultural areas downstream. As far as Mindanao is concerned, MinDA considers the halal industry a priority activity because we are located in the BIMP-EAGA sub-region, a sub-national cooperation within ASEAN. MinDA is working with the National Commission of Muslim Filipinos, which is mandated by the government to accredit halal certifying bodies. For foreign investors looking to invest in ARMM, there are already institutional mechanisms in place. There are many individual personalities at work in this region and there have already been examples of integrated plans to establish economies of scale. Additionally, we’re looking at the Middle East as this is a big market for Mindanao halal products.

Q: Malaysian investors committed to 23 billion pesos [$575 million] of investment in Mindanao, including the Tan Chong Group, Malaysia’s biggest car distributor, and 14 other firms. How is the industrial park north of Davao equipped to handle the energy, human capital and supply chain needs of these newcomers and what other industry nodes are being developed?

A: Davao City, the largest urban centre in Mindanao, will be priortised for the construction of a new port facility, followed by General Santos and Zamboanga. A private port project is being developed in Davao del Norte by the Floriendo Group, one of the largest banana exporters in the country.

maguindanaon-womenQ: What emerging investment opportunities in the tourism industry should investors look out for?

A: The Davao Region is growing as a hub for MICE (meetings, incentives, conferences and exhibitions) with the establishment of new convention center, SMX at SM Lanang Premier and new hotels sprouting up in Davao City.  Forthcoming meetings in Davao include APEC, ASEAN and BIMP-EAGA related meetings to be held in Davao City in 2014 and 2015. The Northern Mindanao Region is also an emerging tourism gateway with the opening of the new Laguindingan Airport on April 30, 2013.

Q: Energy woes have long plagued Mindanao. What is the island’s current capacity and how is its unmet demand being addressed?

A. It is an undeniable fact that Mindanao will have to live with a power deficit for the next two years. Mindanao has not had any investment in energy infrastructure in the past decade, with the exception of a 200 MW facility that was installed in 2007. It may be noted that following the passage of Electric Power Industry Reform Act of 2001, government was no longer allowed to build new capacities, a role now confined to private sector. Right now, Mindanao’s daily power demand ranges from 1,300MW to 1,400 MW, yet our supply capacity stands at just 1200 MW to 1,200 MW, resulting in a deficit of about 100-200MW. In order to address this deficit, we plan to reopen a 100 MW diesel-power plant in Iligan, which was shut down in mid-2000. This would be further supplemented by an Interruptible Load Program mechanism, whereby we draw out standby power from industries, hotels, distribution utilities and malls that have embedded generator sets. The programme could deliver an additional 100MW to 200 MW, but we are waiting for approval from the Energy Regulation Commission before we can implement it, which is expected to be finalised by the end of April 2013. After a new power program has been approved, then we can go ahead. It should be noted that Davao City and Cagayan de Oro are unique on Mindanao as they are not affected by brownouts because of the private energy distribution companies that are in operation and have embedded capacities. In 2016, MinDA expects the Aboitiz Power Company to supply 300 MW of coal-fired energy. They have already started construction of a plant on the border of Davao City and Davao del Sur. Alcantara & Sons, which will be building a 200 MW coal-fired plant, is also expected to generate power by 2016. With regards to renewable energy, several areas in Mindanao such as Bukidnon and Sultan Kudrat have hydropower potential. MinDA is coming up with a framework promoting the sustainable development of a renewable energy industry, highlighting hydropower and biomass projects. Mount Apo, the highest mountain in the Philippines, houses a geothermal plant that generates 100 MW and there are proposals to add another 50 MW of capacity.

Q: Mindanao has had a long history of student exchanges with Israel. What technology transfers have been born through this relationship?

A: Technology transfer has not been strongly pursued yet, but what was done in the past was that our office facilitated scholarships provided by Israel for agri-professionals from Mindanao and for them to take up specific training in new agri-technology being researched in Israel, such as technology for high-value commodities. However, the program has ended and may need to be revisited.

Q: A delegation from Myanmar recently visited Mindanao. Who else?

A: Malaysian business delegations representing various sectors from services to manufacturing and more have made visits to follow up with the 23 billion pesos in investments pledged to Mindanao at the end of 2012.  However, the most prominent representatives have been from the palm oil industry. So far, we have been able to identify at least 67,000 hectares of available land in Agusan del Sur for oil palm plantation. Discussions on these between Malaysian investors and Mindanao counterparts are ongoing.

Q: Does Mindanao have the human capital to compete with Metro Manila?

A. In the area of digital animation and BPO industry, Mindanao has moved ahead if not at par with the rest of major cities in the country where BPOs operate. When compared to their counterparts in the field of BPO (voice and non-voice) in Metro Manila, studies have cited that graduates from Mindanao perform better. I believe that Davao and Cagayan de Oro will become the next great BPO hubs of this country.