Business looks southward even as reality hits home

By Krista A. M. Montealegre
National Correspondent

THE RISE to power of President Rodrigo R. Duterte fuelled hopes of finally ending decades of insurgency in Mindanao to help unlock its potential as an investment haven.

When Mr. Duterte emerged as the clear winner in the 2016 national elections, businesses turned south and pledged to allocate more of their resources to Mindanao, which has suffered from underdevelopment due to the longstanding armed conflict. After all, there is a reason to be optimistic: Mr. Duterte, the mayor of Davao City for two decades, is the first president to come from Mindanao.

Then, nearly a year into the Duterte administration, terror struck Mindanao. Islamic State (IS)-inspired militants attacked Marawi City on May 23, forcing Mr. Duterte to cut short his trip to Russia and declare Martial Law in the southern island region.

It was back to square one for once-bullish investors, who were reminded of the gravity of Mindanao’s insurgency problem.

“Sayang lang (It was a pity) because there was strong momentum when [Mr.] Duterte won the elections. When all these promises turned to reality and that reality became Marawi, nagkaroon ng hesitation (returned),” Rens V. Cruz II, analyst at Regina Capital Development Corp., said in a phone interview.

There is definitely room for private sector investment in Mindanao, which has some of the highest poverty rates in the entire Philippines, especially in conflict-affected areas. The province of Lanao del Sur, home to Marawi City, had the highest poverty incidence among provinces in the Philippines at 71.9% in 2015, according to data from the Philippine Statistics Authority.

Still, there were some brave souls who bet big on the long-term prospects of Mindanao despite the attack on Marawi.

Amid the standoff between the army and militants in Marawi, Metro Pacific Investments Corp. (MPIC) pushed through last June with its acquisition of a 50% stake in Alcantara-led Alsons Thermal Energy Corp., which owns base load coal-fired power plant assets in Mindanao.

The investment expanded MPIC’s Mindanao footprint beyond two hospitals: Davao Doctors Hospital and Western Mindanao Medical Center in Zamboanga.

“From what I know, you go there in Mindanao and it’s normal. It’s business as usual,” Karim G. Garcia, MPIC’s executive vice-president for Business Development, said in an interview.

“As opportunities come up, we’ll take a look and if there’s synergies with the group’s core businesses and strengths, we’ll definitely invest.”

After 148 days of fighting, President Duterte announced last Oct. 17 that Marawi had been liberated after Omar Maute and Isnilon Hapilon, leaders of the terrorists, were killed in battle.

The focus now shifts to rebuilding Marawi, which sustained significant damage to infrastructure, agricultural resources and other sources of livelihood. Around 400,000 citizens have been displaced due to the conflict.

“The speed in which a place is able to recover is a big representation of the whole market. If Marawi can come back quickly than what happened in Leyte, that’s a good sign for the big names to come in,” Regina Capital’s Mr. Cruz said, referring to rehabilitation efforts in Leyte which supertyphoon Yolanda hit in early November 2013.

With the Marawi incident still fresh in the minds of investors, businesses are taking it slow and adopting a cautious approach.

A construction company executive urged the government to let the military start the rebuilding process in Marawi before letting the private sector take over.

“We are as good kung sasama ang mga tao namin (if we are in this togehter). Kung gusto namin pero ayaw sumama ng tao because of security, mahirap sabihin (If we are willing but others are not because of fears to their security, it will be difficult to say when rebuilding can start),” the official said.

Despite the apprehension, Mary Jade Roxas-Divinagracia, managing partner for deals and corporate finance at PwC Philippines, sees the agriculture, utilities and infrastructure sectors getting “a lot of interest” from local businessmen, even as foreign investors remain “jittery.”

“I hope peace will come to Mindanao sooner. With that, investments in other sectors will also flourish like tourism and even manufacturing,” Ms. Divinagracia said in a mobile phone message.

Another major bet in Mindanao is San Miguel Corp.’s 2,000-hectare industrial estate in Malita, Davao Occidental where the conglomerate is building a $700-million integrated packaging plant and a 600-megawatt power generation facility.

San Miguel plans to bring small- and medium-scale enterprises and a number of manufacturing companies into the estate.

Apart from security, other concerns have deterred investments in Mindanao.

A World Bank report showed that cities in Mindanao have trailed other East Asian cities on Doing Business indicators. For instance, Mindanao top performers General Santos and Davao ranked 124th and 125th respectively, among 151 cities for starting a business, compared to Singapore (1st), Thailand (59th) and Malaysia (71st).

The same report bared that skills shortages have plagued various sectors like information technology-business process outsourcing, manufacturing and construction because of the minimal investment in basic education, inadequate training programs and the migration of skilled workers.

Also, the time spent and cost involved in registering a property in Mindanao’s cities were the worst in the Philippines, the World Bank report showed, noting it has resulted in reduced incentives to develop land and slowed infrastructure projects with right-of-way issues.

Ironically, most of the Philippine tycoons’ exposure in Mindanao is in real estate, with behemoths Ayala Land, Inc. and Megaworld Corp. bringing their expertise in building mixed-use developments particularly in Davao City.

“We’re already significantly invested in Mindanao, both socially and business-wise. Ayala Land’s there. We’re all over,” AC Infrastructure Holdings, Inc. President and CEO Jose Rene D. Almendras said in an interview.

Between now and 2021, there are around 10,000 residential condominium units, 60,000 square meters of office space, 70,000 square meters of retail space and more than 1,200 hotel keys in the pipeline in Mindanao, Claro dG. Cordero, Jr., head of Jones Lang LaLSalle (JLL) Philippines’ research, consulting and valuation advisory services, said in a mobile phone message.

Most of the developments are mainly located in the urban centers, particularly Davao City followed by Cagayan de Oro City, Mr. Cordero added.

”I believe Mindanao as a future growth center would be [Mr.] Duterte’s legacy,” Cristina S. Ulang, First Metro Investment Corp. (FMIC) head of Research, said in an interview.

“It is the prospect of peace and security made credible by [Mr.] Duterte’s ability to deliver on his anti-terrorism campaign, (with the) defeat of Maute in Marawi. It is raising hopes for Mindanao’s bankability as an investment destination.”