June 8, 2014 7:00 am JST

Peace deal sparks Mindanao development boom

MINORU SATAKE, Nikkei staff writer

Employees from Japanese construction consultancy Chodai inspect the construction site of an industrial park in the city of Butuan, on the Philippine island of Mindanao.

MANILA -- The Philippine island of Mindanao has long been an economic backwater, plagued by a bloody, deep-rooted conflict between Islamic separatist insurgents and a government backed by an overwhelmingly Christian population.

     But a peace deal finalized in early 2014 between the government and the Moro Islamic Liberation Front has halted the violence, ushering in a new era of economic development on the island.

     Signs of Mindanao's economic awakening are emerging in various parts of the island, including Butuan in the south. One project underway in this city of 350,000 people symbolizes the development boom that is rapidly transforming the island's bucolic landscape. On a large swathe of land made available by cutting away a hill, construction work is being done to build a small hydraulic power plant with a capacity of 8MW.

     Until the 1980s, Butuan had a thriving forestry sector and exported timber to Japan and other markets. But reckless deforestation and other factors caused the forest industry to gradually decline. The city's other major industry, shrimp and prawn cultivation, has been devastated by an epidemic. Today, the city's only major industry is agriculture, mainly rice production. The region is one of the least-developed parts of an already woefully underdeveloped island.

Push for power   

Butuan is also struggling with a serious power shortage. Four-hour blackouts are not uncommon.

    Japanese construction consultancy Chodai is working to help the city's push to build up its economy. Working with local builders such as Equi-Parco Construction, Chodai is supporting an array of regional development efforts, including adding more power-generation muscle, nurturing new industries and creating jobs.

     The company is helping construct the Asiga River hydropower plant, which is expected to come on-stream next year. There are plans to build two other power plants, as well. The three projects will create a total power generation capacity of 36MW. The projects are designed to meet growing demand for electricity amid accelerating economic development.

     Consumer businesses are also popping up in the city. A big shopping center opened last year, for example, and Toyota Motor has built a large dealership.

     The region around Butuan is surrounded by mountains and receives a lot of rain. Ronnie Lagnada, chief operating officer at Equi-Parco, says the area is less vulnerable to typhoons than other places on the island and is suitable for farming.

     Major local companies like Equi-Parco are hoping to revitalize the local economy by attracting Japanese agricultural and fishery businesses. As part of the efforts to lure foreign businesses, a 141-hectare industrial park is being built in the city. The Asiga River hydropower plant will provide electricity to the industrial park.

     Also, an eel-farming business is starting up with the help of Japanese experts, with exports to Japan expected to start by the end of this year.

Untapped riches     

Some 20 million people live on Mindanao. Though the island is said to be rich in natural resources, the civil war between the government and the country's largest Muslim insurgency group long hindered its economic development.

     Mindanao provides a striking contrast to Manila, the country's capital, which has grown into a bustling, cosmopolitan city full of skyscrapers and thriving businesses.

     There are many areas of Mindanao, such as Butuan, where rich natural and human resources remain untapped. But the climate for economic development has improved markedly since the government and the Moro Islamic Liberation Front reached an agreement on the final details of the peace deal in January.  Negotiations started in October 2012, when they reached a basic agreement for ending the conflict.

     The pact has set the stage for rapid progress in the island's efforts to put its economy on a growth path. Even so, there are still security risks, such as attacks by communist guerillas, that could pose major obstacles for Japanese companies seeking to expand into the island.

     But the race is already on among companies from across the globe to tap Mindanao's huge potential. Chinese and South Korean companies, in particular, are scrambling to tap the growth there.

     China's Shanghai Electric Power Construction, for instance, has agreed to help Philippine conglomerate Ayala Group build a $1 billion power plant that is expected to be operational by 2017.

     In a unique approach to establishing a foothold on the island, Chodai has teamed up with influential local companies on municipal development projects. Other Japanese companies are closely watching to see how Chodai's strategy pans out.

     Some local government officials are also scoping out Chodai's efforts. Adolph Edward Plaza, governor of Agusan del Sur, a landlocked province adjacent to Butuan, said cooperating with Japanese companies offers a shortcut to economic growth.