Mindanao hopes for peace to drive development and investment

The streets of Davao, capital of the same region on the Philippines’ island of Mindanao, are busier than ever at night, when scores of young workers join their night shifts at dozens of call centres across the city.

Davao was once dubbed a 'killing field' by many residents, during the dark years when Muslim and Communist terrorism was a daily threat. Now its businessmen sing the praises of Rodrigo Duterte, the former mayor who secured the city with a ruthless, divisive war on crime, and who has since become the country’s president.

Safety dividends

“Mr Duterte’s peace and order approach helped us hire more people,” says Michael Hao Bian, president of SixEleven, a local business process outsourcing (BPO) company mostly covering the US time zone (night time in the Philippines) to serve overseas clients. “Parents used to be hesitant over allowing their sons and daughters to work nightshifts. Now [that the situation is safer] they are less so,” he adds.

Although security risks in Davao remain high (in September, a bomb exploded in a crowded night market, killing 15 people), the city has partly emancipated itself from its violent past and turned into a dynamic urban economy with a vibrant BPO industry.

The rest of the island now hopes to replicate its success as Mr Duterte, who spent most of his life in Mindanao, has put its development high up in his reform agenda and is committed to continuing peace negotiations with the rebel groups. Should these ever be finalised, the potential of the island’s human talent and natural resources could finally be realised.

Davao’s redemption

Mindanao is the second largest island of the Philippines, and the third largest contributor to its GDP, with a share of 14.4% in 2014. The island boasts vast natural resources, and accounts for most of the country’s agricultural output in products such as rubber, pineapple and bananas. Its soil is believed to retain half of the Philippines' once-fabled gold reserves, as well as a range of mineral deposits, including copper, lead, zinc and ore.

Despite this potential, the tribal, religious and political tensions that have recurrently plagued Mindanao over the years, combined with legal constraints to investment, particularly in the mining sector, have been a major deterrent to its development potential.

Davao was no exception, until it became a test ground for the ruthless peace and order policies engineered by Mr Duterte, who intermittently ruled over the city for about 30 years until 2016. Despite often questioned over the legitimacy of his strategy – and even more so now that he is applying it on a national scale – Mr Duterte largely returned security to the city, thus restoring the credibility of its political institutions and liberating its business community.

Today, Davao ranks as the most competitive urban area in the Philippines outside metropolitan Manila, according to a score produced by the National Competitiveness Council, which looks at economic dynamism, government efficiency and infrastructure development.

Getting noticed

Against the backdrop of this favourable business environment, the Davao region has emerged as one of the Philippines' engines of growth. It expanded by 7.9% and 9.3% in fiscal years 2014-15 and 2013-14, respectively, versus a national average of 5.9% and 6.2%, according to figures from the Philippine Statistics Authority.

Other cities across Mindanao are following in Davao’s footsteps and shaping up as dynamic business hubs, primarily Cagayan de Oro in northern Mindanao. And foreign investors are taking note of the island’s improving profile.

“There are more than 1200 big companies, both local and foreign, active across the island and we are receiving increasing interest in sectors such has agriculture, food production and ICT, with business delegations visiting on a weekly basis,” says Gil Dureza, head of the local branch of the national Board of Investments.

“In the past eight years, a lot of investment went into the development of basic infrastructure, from power plants to ports and industrial parks. More will come through in the next five years,” he adds.

Powering up

Mindanao’s annual investment averaged $125m from 2001 to 2010, but jumped to $1.2bn a year between 2011 and 2015, Datu Abul Khayr Alonto, chairman of the Mindanao Development Authority, told a Japanese business delegation in Davao led by prime minister Shinzo Abe in January.  

The increase of the past four years has been buoyed by capital investments in the energy sector, with $3.5bn coming in from 2011 to 2014. A 300-megawatt coal-fired power plant by Filipino Abitiz Power and the first 105-megawatt unit of a 210-megawatt coal-fired plant by a joint venture between local Alsons Consolidated Resources and Japanese Toyota Tsusho has come on line, enabling the island to tackle its chronic power shortages.

With Mr Duterte putting the emphasis on much-needed infrastructure development across the country, the government seems keen to press on with several big-ticket projects in Mindanao, including a 2000-kilometre east-west railway, the upgrade of Davao’s Sasa port, and the Mindanao Logistics Infrastructure Network, a road network spanning the island for which the government has allocated 31.5bn pesos ($633m) in its 2017 Budget.

BPO boom

With Mindanao’s infrastructure receiving a necessary upgrade, local authorities are focusing on the development of three major sectors to promote investment: agriculture, tourism and BPO. The latter, in particular, is booming, piggybacking on a national trend that has made the Philippines a global outsourcing hotspot.

“The sector now employs 35,000 people in Davao alone, and we hope to double that in the next six years,” says Belinda Torres, vice-president at the city’s chamber of commerce. She is promoting Davao’s availability of office space and its English-speaking, cost-competitive workforce (voice operators earn between $300 and $500 a month) ahead of the more saturated BPO markets of Manila or Cebu.  

Tourism and agriculture are also on the rise, and both sectors expect to reap further benefits from the ongoing peace talks with the rebel groups. So far, Mr Duterte has followed up on his campaign promise to continue talks with both the Muslim and Communist rebels that have been active for years and whose demands can be partly traced back to the economic and social underdevelopment that still afflicts part of Mindanao.

The road ahead is an uphill one, however, with the most extreme factions of the Muslim rebels such as the Abu Sayyaf group – which has reportedly intensified its linkages with Islamic State in recent months – remaining extraneous to the peace process, at the same time, and a ceasefire with the Communist rebels was lifted in early February.

Mr Duterte gained the nickname of 'the Punisher' as mayor of Davao. Now that he is president of the Philippines, however, his ability to bring peace to the island of Mindanao is to prove vital if it is to continue along its path to prosperity.