Go south, grow Mindanao

my Trade Tripper column in this 26-27 June 2016 issue of BusinessWorld:

If ever there’s a set of numbers Filipinos should know it’s this: Mindanao -- blessed with so many resources that it provides 60% of our agricultural exports, not to mention minerals and fisheries -- has a land area of 135,627 km2 Singapore has only 719.1 km2, with practically no natural resource whatsoever. And yet, the latter beats the former on a GDP per capita basis of around 60:1.

Ironic, really.

Set aside agriculture, Mindanao also represents the Philippines’ biggest reserves in gold, copper, iron, and aluminum. Yet to be verified is Wikileaks claim of Mindanao’s untapped $1 trillion oil and mineral reserve.

There is also Mindanao’s strategic position, businesswise: unlike Luzon (separated from the Asian mainland by huge amounts of sea), Mindanao is practically next door neighbors with Indonesia and Timor-Leste, with Cambodia, Vietnam, Laos, Malaysia, and Thailand just further down, then New Guinea.

Which should therefore make every Filipino scandalized that 11 of the Philippines’ 20 poorest provinces are in Mindanao.

One reason is the woeful neglect in infrastructure, with Mindanao’s near daily power interruptions symptomatic of that.

But Mindanao should be the obvious choice for a marine transport system, what with trade and tourism opportunities that a fully functioning Brunei, Indonesia, Malaysia, and the Philippines East ASEAN Growth Area (BIMP-EAGA) and Indonesia, Malaysia, and Thailand Growth Triangle (IMT-GT) could bring.

That, on top of the vaunted 600 million market population of ASEAN integration.

The island also proved, so long as it can keep its peace and order situation to a reasonable minimum, its export growth rate capabilities could be double of the country’s.

As it stands, the World Bank declared Mindanao presently needing a continuous P350-billion inflow annually in investments, particularly for agriculture, infrastructure, health, and education.

Of infrastructure (aside from roads, irrigation, potable water, power generation, ports, and airports), focus should be on constructing more police stations and judicial offices.

Again, this should not be treated as a hurdle.

According to a McKinsey report, most infrastructure spending has been down particularly for developing countries. Yet, as the Wall Street Journal commentary on the report says: “Governments don’t have to be the only source of new money for projects, the report found. Worldwide, banks and institutional investors such as pension funds and university endowments have about $120 trillion in assets that could be invested in infrastructure. Making it easier to connect that money with projects could close the gap, Mr. Jan Mischke [a senior fellow at the McKinsey Global Institute and one of the report’s authors] said. ‘It’s really a fundamentally quite solvable problem.’”

Another opportunity area would be on international trade.

Interestingly, most of Mindanao’s current top trading partners are not its geographical neighbors: the US, Japan, China, Netherlands, South Korea, Singapore, Switzerland, United Kingdom, and Germany.

Here, the development of small and medium enterprises -- bolstered by easy credit and effective contract/property protection, as well as marginalizing the Armalite happy -- would be a big help.

According to the WTO: “Globally, SMEs make up over 95% of all firms, account for approximately 50% of value added and 60% of total employment. Micro enterprises, the smallest component of the SME sector, are increasingly the largest sources of employment in many developing countries, especially for women and youth.”

Unfortunately, SME’s are very much affected by trade barriers; hence the importance of arrangements like BIMP-EAGA, IMT-GT, and ASEAN.

Agriculture, while an obvious source of Mindanao’s pride, is actually illustrative of its present shortcoming.

Or its great potential.

The reason is that despite its stature, relatively speaking in terms of overall Philippine export trade, Mindanao agriculture is -- to exaggerate for effect -- actually quite pathetic.

This can be seen from Mindanao’s contribution to the country’s GDP: just meagerly above 14%, while desperately needing 12.7% of the nation’s budget (P380.9 billion) for its maintenance.

According to the World Bank, only 11% of its farmers can be considered producing for a marketable surplus, with 89% classifiable as “subsistence” (or “near subsistence”) farming.

Another is that most of Mindanao’s agriculture exports are in “raw” form. Which leaves the potential for value adding or processing, thus opening the possibility of greater income for its farmers.

“The value of farm products can be increased in endless ways: by cleaning and cooling, packaging, processing, distributing, cooking, combining, churning, culturing, grinding, hulling, extracting, drying, smoking, handcrafting, spinning, weaving, labeling, or packaging.” Accordingly, “value-added products can open new markets, create recognition for a farm, expand the market season.” (ATTRA, Adding Value To Farm Products, 2006).

Finally, there is taxation: there is no constitutional reason why Congress can’t make an income and corporate tax system allowing for special and differential treatment for Mindanao.

This should encourage more investments in the area and de-clog Luzon’s population of 50 million plus (in an area of just around 12,000 square kilometers more than Mindanao) vis-à-vis the latter’s 25 million.

Ultimately, whatever change comes to Mindanao could, should, and must be for the country’s unified good.