Investment in Bangsamoro region breaks record ahead of entity’s creation

From the Business World (Jan 22): Investment in Bangsamoro region breaks record ahead of entity’s creation

INVESTMENT in the war-torn, impoverished southern provinces of the Philippines has grown ahead of the anticipated creation of the Bangsamoro political entity, according to government trade authorities, with the last year’s figure reaching an “unprecedented” P3.867 billion.

However, the proposed creation of the political entity may be incidental to this economic expansion, which Regional Board of Investments (RBOI) Chairman Ishak V. Mastura said took place because of improving security.

Moro Islamic Liberation Front (MILF) chief negotiator Mohagher Iqbal -- who helped broker a peace deal between the government and the armed group -- said that “when a good law is passed in the Congress and implemented on the ground, it will create an atmosphere of peace.”

“And when there is peace, the business community will be attracted,” he added at the sidelines of a House of Representatives hearing on the proposed law for the entity’s creation.

Currently being deliberated by both chambers of Congress, the draft Bangsamoro Basic Law (BBL) was submitted in September 2014, six months after the March signing of the Comprehensive Agreement on the Bangsamoro. The peace agreement brought an end, at least, to the group’s 36-year belligerency.

MILF was a breakaway group of Moro National Liberation Front (MNLF); the Bangsamoro Islamic Freedom Fighters (BIFF) broke off from MILF in 2008 after the Supreme Court nullified the Memorandum of Agreement on Ancestral Domain, an attempt by President Gloria Macapagal-Arroyo to create a Bangsamoro domain.

Once the bill is approved, a plebiscite will be called to put its ratification into vote. This will be held in the present-day ARMM, and in six municipalities in Lanao del Norte, 39 barangays in Cotabato, the cities of Cotabato and Isabela (the capital of Basilan), and government units that petitioned for inclusion in the plebiscite.

The draft BBL has provided the entity devolved governing powers, and it will be governed by a ministerial and parliamentary system with a higher political and fiscal autonomy from the central government.

While it is entitled to an annual block grant from the central government, fiscal autonomy is hoped to be achieved by allowing the region to retain a greater share of local revenues. From a 60-40 scheme, Bangsamoro’s share has been expanded to 75-25.

American Chamber of Commerce of the Philippines (AmCham) Senior Advisor John D. Forbes noted that “Bangsamoro’s first and largest investor opportunity is in agribusiness, as there are extensive undeveloped lands.”

“Light manufacturing is the next opportunity if the new authority can keep wages and other labor costs low to compete with Vietnam and Cambodia, which more developed provinces in the country cannot,” Mr. Forbes added in a text message.

Management Association of the Philippines (MAP) President Gregorio S. Navarro, meanwhile, described the Bangsamoro area as “a very resource-rich region with fertile soil, abundant forest and fish stock -- and yes, plenty of mineral resources.”

GROWTH IN THE SOUTH

For 2015, investment in the current Autonomous Region in Muslim Mindanao is expected by the RBOI to reach at least P1 billion, exceeding the P700-million target it set.

The southernmost province of Tawi-Tawi alone is expected to contribute P800 million of the expected investment -- a copper-nickel mining project in the capital of Panglima Sugala and an oil depot are slated for approval, Mr. Mastura said in a phone interview.

Other prospects include biomass power generation and investments in banana, oil palm, and buckwheat plantations, mostly in mainland Mindanao.

For RBOI, the year 2014, however, was “unprecedented” after investments worth P3.867 billion poured into the region -- a huge 276% jump from the previous figure of P1.46 billion posted in 2013 (the region previously broke the P1-billion mark only with the previous record of P1.6 billion for 2011).

Although most investment prospects were agricultural, RBOI said in an e-mailed statement that biomass power generation accounted for 46% of this figure (nickel mining and agriculture accounted for 31% and 19%, respectively).

The top three investments for the year were: Lamsan Power Corp.’s P921-million biomass power plant in Sultan Kudarat, Maguindanao; Al Mujahidun Agro-Resources and Development, Inc.’s (AMARDI) P570-million cavendish banana plantation taking up 500 hectares of land in Ampatuan, Maguindanao, and; SR Languyan Mining Corp.’s P520-million nickel ore mining and quarrying operation in Languyan, Tawi-Tawi.

The latest to be approved for the year was Pax Libera Mining, Inc.’s P495-million project in Languyan, Tawi-Tawi.

Investments in mining came despite RBOI’s policy of disallowing income tax holidays or fiscal incentives to businesses engaging in extractive industries.

“The regional government wants to avail of the full rents and revenue-generating potential of such investments in the extractive industry,” RBOI said in its statement. These investments led to the creation of 3,433 jobs during the year. ARMM’s economic growth also accelerated to 3.6% in 2013, from 1.1% in 2012.

Mr. Mastura noted that Tawi-Tawi benefits from its proximity to neighboring Malaysia, while Basilan is affected by the collapse of the rubber industry and Sulu by continued local fighting.

Mr. Mastura said that the region is expected to sustain gains in the economy, if not the accelerated growth it had during the past couple of years, as long as the peace and order situation continues to improve.

For this growth to be sustained, Mr. Forbes said that “substantial early successes are possible in these sectors with proper policies.”

THE POTENTIAL FOR HALAL

For Department of Trade and Industry Export Marketing Bureau (DTI-EMB) Director Senen M. Perlada, the Bangsamoro region may benefit from the trend towards the development of halal.

Although he did not name specific companies that have expressed interest in the South’s halal prospects, Mr. Perlada said in an interview that the sovereign wealth fund of the United Arab Emirates had looked into expanding into the production of halal products, diversifying as a global decrease in oil prices hurts oil-dependent producing countries.

Mr. Perlada also noted that countries like India, Pakistan and China are emerging markets with large Muslim populations. However, he was unable to provide figures on how much halal-related investment could possibly contribute to the South’s economy, admitting the country has only started building up the industry.

But to illustrate the potential earnings of the industry, he cited Thailand -- a mostly Buddhist country -- which earns $73 billion in halal exports.

Mr. Perlada said that the Zamboanga City economic zone could serve as a hub for facilities that will ensure that every step of the production process would be compliant with the standards of halal.

To be sure, Bangsamoro was not the sole factor that led to the talks of a halal industry. Mr. Perlada noted that tapping into the Muslim market -- with a consumer base of more than 2 billion worldwide -- has been a global trend. Not only can a halal hub in the South venture into food production, Mr. Perlada said it could also possibly pave the way for Islamic finance and even tourism.

Mr. Mastura, however, nixed the significance of the role the halal industry may play in the economic future of Bangsamoro, saying that for now, it remains far from reality.

“Every then and now, the issue comes up. But it’s pure propaganda -- nothing’s happened,” Mr. Mastura said. “If our focus is market-based and not on action, that will not come from the market.”

The difference with Malaysia, a major halal industry player, was that it established standards governing what constitutes halal.

Asked if the creation of the Bangsamoro entity could address the problem, Mr. Mastura said that formulating standards was not the problem but the compliance and regulation.

Mr. Perlada noted that the National Commission on Muslim Filipinos’ (NCMF) current mandate to regulate halal may be duplicated in the BBL.

POLICY IMPLICATIONS

Besides the common questions over its constitutionality, the draft BBL had been put to test for hang-ups over some unclear delineations of agency jurisdictions, as well as provisions that some stakeholders said would result in limiting investment in the region.

For one, the BBL draft provided for preferential rights for “qualified citizens who are bona fide inhabitants of the Bangsamoro” over exploration, development and utilization of natural resources, including fossil fuels and uranium.

Messrs. Mastura and Perlada both said that this should not hinder investment in the area, because it is a customary practice for locals to strike up partnerships or joint ventures with outsider investors.

For one, Mr. Mastura said locals already enjoy preferential rights under the Organic Act for the Autonomous Region in Muslim Mindanao, the 1988 law that currently governs the special region.

However, “nobody has ever exercised that,” he added. What mattered, Mr. Mastura said, was that the investors have “social acceptability.”

Mr. Perlada, for his part, noted that even Middle Eastern states observe similar customs; an investor hailing from a similar culture would be a plus for local partners.

“It is unusual for businesses to be stand-alone. They have to have a local partner,” Mr. Perlada said.

Mr. Mastura said that, in general, the anticipated creation of the entity would not necessarily affect the mood of investors, considering that the whole of Mindanao had experienced an influx of investment.

“The stepping point here is peace and order. All other concerns are beside the point, be it bureaucracy or regulation. It’s as if investors don’t really care -- I’m a lawyer and I tend to caution them,” said Mr. Mastura.

“If the situation on the ground is alright, they have a local partner and there’s peace... there may be instability in policy, but if there’s no adversary on the ground... we can work with whatever policies are there,” he added.

Asked about this, Mr. Iqbal said: “That is part of the whole equation, meaning: if there’s a good law, there is good governance, there are good leaders, and then the security sector is well taken care of, then this all will emerge.”

For their part, Messrs. Forbes and Navarro said that they have yet to hear of any specific objections from members of AmCham and MAP.

“Security should not deter investors in areas where investors can work with progressive local leaders,” Mr. Forbes said in a text message.

Mr. Navarro, whose group has been asked to help assist in training future Bangsamoro administrators, said: “I think the Bangsamoro can learn from the past experience and study well what policies, rules, and regulations worked and did not work, to enable it to craft investment policies and incentives that will encourage inclusive economic growth.”

If anything, it might be stiff competition from established ports like Davao City and Cagayan de Oro City that might affect the flow of investment into the region, still beset with infrastructure lack that has only begun to be addressed.

“Road and seaport infrastructure should be enhanced,” said Mr. Forbes.

Mr. Mastura, for one, said that Basilan could use the push that enhanced connections with Davao City would bring.

The largest city in Mindanao, found on the opposite side of the island in the southeast, has benefited along with General Santos City due south from enhanced trade with neighboring Indonesia, said Mr. Perlada.

Asked if investors in ARMM tend to be the big enough players who could take risks to enter the scene, Mr. Mastura said instead that these businesses tend to be the ones that know very well what investing in the region entails.

“Those who are investing have long been here, who know what are the problems, who know to put in a lot of money despite the lack of advantage of Davao. For one... they don’t have competitors here, and [they have] raw materials,” said Mr. Mastura.

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