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Viewing cable 08MANILA1610, Mindanao: An Economic Overview

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Reference ID Created Released Classification Origin
08MANILA1610 2008-07-08 09:11 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Manila
VZCZCXYZ0001
OO RUEHWEB

DE RUEHML #1610/01 1900911
ZNR UUUUU ZZH
O 080911Z JUL 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1196
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RHHMUNA/CDR USPACOM HONOLULU HI//FPA//
UNCLAS MANILA 001610 
 
SIPDIS, SENSITIVE 
 
STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA 
STATE PASS EXIM, OPIC, AND USTR 
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE 
TREASURY FOR OASIA 
USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV PGOV RP
SUBJECT:  Mindanao: An Economic Overview 
 
Ref: Manila 1050 
 
1.  (SBU) Introduction and Summary:  Misconceptions abound, both 
inside and outside the Philippines, about the large southern 
Philippine island of Mindanao, where the USG focuses its development 
and counterterrorism activities in the Philippines.  In particular, 
it is easy to over-generalize about a region this large and diverse. 
 This is the first in a series of reports on Mindanao that will 
highlight the diversity of the economic circumstances of different 
regions in order to provide a more textured understanding.  In this 
cable we attempt to make an initial approximation to understanding 
the economic situation of Mindanao as a whole.  Following cables 
will focus on specific regions and issues.  Mindanao includes some 
regions afflicted by political disorder and poverty, and others that 
are relatively stable and prosperous.  Some parts of Mindanao are 
growing rapidly while others are among the poorest places in the 
Philippines.  End summary. 
 
Both Rich and Poor 
------------------ 
 
2.  (U) Mindanao, the Philippines' southernmost region, is one of 
the richest areas of the country in terms of natural resources.  The 
region is the country's top producer of fruits, grains, minerals, 
and forest and marine products.  Nonetheless, the people of Mindanao 
suffer some of the most oppressive poverty in the Philippines.  In 
Tawi-Tawi province, for example, close to 40% of the population are 
unable to afford even basic food requirements.  According to United 
Nations data, the human development index of some of Mindanao's most 
depressed provinces approximate the world's poorest countries such 
as Ghana, Sudan, and Zimbabwe. 
 
Administration of Mindanao 
-------------------------- 
 
3.  (U) Mindanao, including the Sulu archipelago, consists of the 
Autonomous Region of Muslim Mindanao (ARMM) and five other 
administrative regions, each with quite different economic 
characteristics.  Mindanao has about 39 percent of the Philippines' 
total land area, and contains a quarter of its population, but 
produces only about 18 percent of the country's gross domestic 
product.  The latest population census (2007) reveals that the 
population growth rate of Mindanao remains high (2.5 percent), 
stretching available resources among more people.  The population of 
Mindanao consists of descendents of Christian settlers from other 
parts of the Philippines (72 percent), Islamized indigenous people 
(20 percent, but a majority in Muslim Mindanao) and non-Islamized 
indigenous people (eight percent). 
 
Overview of the Mindanao Economy 
-------------------------------- 
 
4.  (U) Mindanao contributes about a fifth to the Philippines' total 
Gross Domestic Product.  It produces about 34 percent of the total 
agricultural production of the Philippines, 15 percent of industrial 
production, and 13 percent of services.  Mindanao's economy is about 
evenly distributed among the agriculture (35 percent), services (35 
percent), and industrial sectors (30 percent).  Before 1995, 
Mindanao was predominantly an agricultural-based economy.  In recent 
years, Mindanao has been able to attract investments in mining and 
quarrying, telecommunications, business process outsourcing, trade, 
and tourism.  These investments have resulted in the significant 
growth of the service sector and the mining industry. 
 
5.  (U) Mindanao's top five exports in 2007 by value were coconut 
(copra), bananas, nickel ores, tuna, and iron ore; while its top 
five export markets were Japan, the United States, China, the 
Netherlands, and South Korea.  Exports from Mindanao increased 
nearly 25 percent in 2007.  In addition to the most productive 
agriculture and fisheries grounds in the Philippines, Mindanao is 
rich in mineral resources, including coal, nickel, iron, chromites, 
and gold.  It has nearly half of the country's gold reserves and 83 
percent of the nickel reserves in the country, which are the largest 
in Asia. 
 
Mindanao and the rest of the Philippines 
---------------------------------------- 
 
6.  (U) The latest National Statistic Coordination Board report on 
poverty issued in April 2008 (reftel) identified Mindanao, on 
average, as by far the poorest part of the Philippines.  The report 
indicates that 62 percent of families in Mindanao live below the 
government-established poverty threshold.  The ten richest provinces 
during 2006 were all on the northern Philippine island of Luzon, 
where Manila is located, while six of the ten poorest provinces were 
in Mindanao - three of them in the ARMM.  The highest incidence of 
poverty in the country, at nearly 80 percent of the population, was 
for Tawi-Tawi, part of the ARMM.  Parts of Mindanao also lag the 
rest of the Philippines on human development indicators such as per 
capita income, literacy rates, life expectancy, and access to health 
services.  In 2000, eight out of the ten worst-off Philippine 
provinces in terms of the United Nations Development Program's Human 
Development Index were in Mindanao. 
 
7.  (SBU) An official of the Moro Islamic Liberation Front recently 
claimed that these statistics confirm the "neo-colonialism of 
Mindanao by imperial Manila."  Some Philippine economists agree that 
the lack of economic development in Mindanao is partly due to 
neglect by the central government.  The historic lack of central 
government spending on infrastructure projects in Mindanao has 
resulted in slow, costly, infrequent, and unreliable transportation 
links to the rest of the Philippines.  Even today, prominent 
Mindanao business and political leaders complain that Mindanao does 
not receive its "fair share" of central government spending.  Not 
only Muslim separatists, but also some mainstream politicians and 
business leaders in Mindanao strongly endorse proposals for more 
regional autonomy and more local control of local resources. 
 
Mindanao's Urban Bright Spots 
----------------------------- 
 
8.  (U) In sharp contrast to this extreme poverty, Mindanao cities 
like Cagayan de Oro, Davao, and General Santos, rank among the most 
developed and prosperous cities in the Philippines.  The Philippines 
National Statistics Office stopped stratifying urban and rural 
poverty in the year 2000, due to a lack of funding to conduct the 
more extensive surveys required to make this distinction.  Thus, it 
is difficult to quantify how much poverty is in rural areas versus 
in urban areas.  However, empirical and anecdotal evidence indicates 
that the areas with the most poverty, lowest education levels, and 
greatest health problems are primarily rural areas. 
 
9.  (U) Cagayan de Oro City in northern Mindanao has the fastest 
growth rate and highest per capita GDP of any Philippine city not on 
Luzon Island.  The factors that make the city relatively prosperous 
include unique geographic advantages, its distance from 
conflict-affected areas, local economic policies that have attracted 
infrastructure, industrial and power generation investment, and 
development of relatively inexpensive transportation links to other 
parts of the country.  It has the largest international and domestic 
seaport in Mindanao.  Cagayan de Oro City has a new Korean-owned 
luxury hotel and golf course, and a rapidly growing container port 
(and a second rapidly growing container port nearby).  Also nearby 
is a new $305 million coal-fired power plant.  The city's biggest 
coup was landing a commitment by the Korean Hanjin Corporation to 
construct a $2 billion shipbuilding facility that promises to bring 
many other investments in its wake, potentially providing employment 
for tens of thousands of workers, according to Philippine Trade and 
Investment officials. 
 
10.  (U) Davao, in southern Mindanao, is a relatively prosperous and 
progressive city with an economic base quite different from that of 
Cagayan de Oro.  Davao has relied heavily on exports of agricultural 
products, particularly bananas; and it has recently begun developing 
new export markets in Russia and the Middle East.  An improved road 
between southern and northern Mindanao has reduced travel time by 
over half and opened new possibilities for trade with other parts of 
the Philippines.  Overall, the Davao region's exports grew by 10.5 
percent in 2007.  Region 11, in which Davao is located, has the 
lowest poverty incidence among Mindanao regions, and Davao City has 
one of the lowest crime rates of any city in the Philippines. 
 
11.  (U) General Santos City is another southern Mindanao city that 
has achieved a relatively high level of development.  U.S. 
development assistance in the 1990's helped the Port of General 
Santos become one of the country's most modern, and financed an 
international airport in the city.  The General Santos Fishport 
Complex -- funded in part by Japan's Overseas Economic Cooperation 
Fund -- is the Philippines' second largest port for fishing boats. 
The Complex services fishing boats and processes fish for boats from 
several Asian countries.  General Santos is the country's leading 
producer of sashimi-grade tuna and largest tuna exporter (the 
Philippines ranks among the top ten tuna producing countries in the 
world.) 
 
Barriers to Economic Growth 
--------------------------- 
 
12.  (SBU) All the regions of Mindanao suffer from the same barriers 
to economic growth that afflict the whole country, though in some 
cases they are more acute in Mindanao.  These include the 
concentration of economic and political power in the hands of a few 
families resulting in cartelization of key sectors, widespread 
corruption, and weak rule of law.  Also shared with the country as a 
whole are the logistical disadvantages of an archipelagic country. 
Some deficiencies in Philippine economic policies have even greater 
impact on Mindanao than on other parts of the country.  For example, 
restricted entry and cartelization of the maritime shipping industry 
and the poor record of the Philippine Ports Authority both make 
transport of cargo and passengers from Mindanao to the rest of the 
country unreasonably expensive. 
 
13.  (SBU) Mindanao, however, also has its own challenges.  Some 
parts of Western Mindanao and the Sulu Archipelago suffer from 
frequent bouts of secessionist violence and terrorism, while a 
simmering communist insurgency affects other parts of the region and 
apolitical banditry affects much of Mindanao.  Traditional Mindanao 
attitudes are also a challenge.  The tradition of "rido" or "blood 
feud" across and even within the different ethnic groups of the 
region adds to the violence.  Some observers assert that the 
traditional culture of indigenous peoples in Mindanao supports 
authoritarian power structures where a single individual often 
exercises control over the resources and people of a district.  This 
traditional outlook may encourage local leaders to view public 
assets as personal property and lead to even more severe governance 
problems than found in other parts of the Philippines. 
Under-investment in infrastructure, education and health care, 
endemic throughout the Philippines, has been particularly severe in 
Mindanao. 
 
14.  (SBU) Comment:  Mindanao is a remote and often misunderstood 
region.  It is also a key region for U.S. interests, as it is on the 
front lines of the war on terror.  This series of cables will focus 
on its economic complexity with an eye to identifying fundamental 
problems and, where possible, potential solutions. 
 
Kenney