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Oana Aristide

The Next Asian Tiger Could Be a Philippine Island

by Oana Aristide | Dun & Bradstreet Editor

June 9, 2015 | No Comments »

Philippines-Mindanao_FlickrCC_6038139354_3eaa1d1488_o_1100pxWith a population of more than 20 million people and vast natural resources, the Philippines’ second-largest island, Mindanao, should be on the radar of global investors. However, a four-decade-long conflict between the Philippine government and various secessionist rebel fronts has prevented the region from attaining its economic potential. Central to the island’s immense investment potential are its minerals, as the region holds most of the Philippines’ estimated gold, bauxite, nickel, and copper reserves. Total mineral deposits on Mindanao are estimated at $312 billion.

Business opportunities on Mindanao are not limited to mining. Additional resources include palm oil plantations and cash crops such as rubber and coffee. Meanwhile, the services sector will undoubtedly benefit from increased investment in the region. Indeed, businesses are already taking note, with foreign direct investment in the region growing sharply in 2014 and early 2015. In the last few years, Mindanao has been among the fastest-growing regions in the Philippines.

Local authorities (the Mindanao Development Authority) have divided the region into three development areas, depending on their geography, existing infrastructure, and natural resources. A Northern Mindanao corridor is intended to become the industrial and services centre. Western Mindanao is to become the Philippines’ gateway to the nearest ASEAN nations (Brunei, Indonesia, Malaysia). South-Central Mindanao is to focus on food production.

Peacekeepers have long attempted to end the region’s conflict. After some progress, investors did come to Mindanao in the late 1990s, only for the island to descend back into armed conflict. The government has had difficulty negotiating with the Moro Islamic Liberation Front (MILF); to obfuscate matters, there have been skirmishes with rebel factions that reject their authority. Most recently, 44 Philippine policemen were killed in January 2015 in clashes with rebel groups, further complicating the peace process.

Some peace efforts appear promising. In early 2014 the Philippine government signed a comprehensive peace agreement with the local rebels, which also stipulated the start and terms of rebel disarmament. This had long been a major point of contention and an obstacle to an effective implementation of any agreement. The next administrative steps are for the Philippine Congress to vote through the Bangsamoro Basic Law (BBL), the legal framework for a new autonomous Muslim region.

Due to decades of conflict, Mindanao has received much less investment than the rest of the Philippines. Putting aside political conflicts, any investor must have the temerity to brave the island’s poor infrastructure. Several major infrastructure projects are in the planning stages, including a massive railway program that will link the region’s main cities. However, implementation is likely to be slow.

The bottom line is that there are severe risks involved in investing in Mindanao, but the upside potential is enormous. According to some forecasts, should the peace process advance as planned, the region’s GDP will increase by 50% over the next decade. The Philippines as a whole is expected to be one of the fastest-growing countries in the world. Dun & Bradstreet forecasts 6.5% growth in 2015, and 5.5% growth on average in the years through 2019. The IMF forecasts 6.7% growth in 2015 and 6.3% in 2016. If the progress made on the Mindanao peace process is sustained, the region’s growth will likely outstrip even those predictions.

Oana Aristide is a Senior Economist on D&B’s Global Data, Insight and Analytics team. Based in the UK, she covers three Scandinavian countries as well as Romania, Japan, Malaysia, and the Philippines as a contributor to D&B’s Macro Market/Country Insight Products. She has a background in central banking.

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Photo by Flickr user Jojo Nicdao, used under a Creative Commons license.

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