New regions seen emerging as growth engines

Global banking giant Citigroup expects rising infrastructure spending to drive a regional “industrial reboot” in the Philippines, transforming the likes of Central Luzon, Central Visayas and Southern and Northern Mindanao into the country’s next growth engines.

In a research note dated Feb. 12 titled “Philippines Long View: The Regions That Could Roar,” Citigroup economist Jun Trinidad said the industries likely to thrive in the regions would be labor-intensive manufacturing, agricultural businesses and information technology parks, which dominate existing and in-development Philippine Economic Zone Authority (Peza) zones.

However, he noted that access to adequate and stable supplies of electricity would be a prerequisite of an “industrial reboot.” Trinidad said infrastructure spending, especially to widen access to electricity and water, would have numerous and self-reinforcing economic benefits, including creating new and competitive industrial clusters.

“Continuing cash transfers and social investment will alleviate poverty, raise education standards and help create sustainable consumer demand,” he said.

To date, the top three economic regions are the National Capital Region, Calabarzon (Cavite-Laguna-Batangas-Rizal-Quezon) and CAR (Cordillera Autonomous Region).

The Citi research tiered other regions into three clusters based on real per capital incomes. Regions comprising cluster 1 are Central Luzon, Central Visayas and Southern and Northern Mindanao.

“With per capita incomes roughly averaging P50,000, economic growth in these regions will probably accelerate the fastest,” the research said, noting that the share of these regions in the budgets of the Department of Public Works and Highways (DPWH) and the Department of Transportation and Communication (DOTC) had exceeded the regional average in the period 2010-2012.

“If regional budget allocations from the key infra agencies were to remain favorable for the cluster 1 areas, alongside their existing higher per-capita incomes, they would almost certainly leap-frog the rest of the archipelago, barring natural disasters or internal political shocks,” the research said.

Other regions are seen enjoying a “natural edge” while lacking the infrastructure budget bias, such as cluster 2 or Central Mindanao, Eastern Visayas, Ilocos and MIMAROPA (Mindoro, Marinduque, Romblon and Palawan or the Southern Tagalog islands).

Trinidad noted that while these areas were not benefiting from the bias in the DPWH/DOTC budget, the following factors have supported the setting up of Peza zones in these regions: Proximity to relatively cheap inputs such as labor and raw materials;  availability of arable land, and beaches/landscapes that attract tourism-related investment.

Meanwhile, the study classified Western Mindanao, Western Visayas, Cagayan Valley, Caraga, Bicol and the Autonomous Region in Muslim Mindanao as cluster 3. In this group, the study noted that Bicol and Western Visayas seemed best positioned economically to vault to cluster 2.

The study also estimated how much the combined budgets of DPWH and DOTC would have to rise for just a 1-percent increase in the share of regional GDP (gross domestic product) per capita for each of the three regional clusters.

For cluster 1, the required fiscal intervention was estimated at P5.9 billion (1.7 percent of average regional GDP) while P5 billion (3.4 percent of average regional GDP) was seen needed by cluster 2 and P7.9 billion (6.7 percent of average regional GDP) for the poorer regions in Cluster 3.

Citing the breakdown of Peza zones, the study noted that manufacturing, agribusiness, IT parks and ecotourism would flourish in these clusters. “We believe that labor-intensive manufacturing industries will do well in these regional clusters, examples ranging from food processing, garments, furniture and fixtures to construction materials,” it said.

Overall, the study said income improvements in any of the regional clusters would help ease the concentration risk of Philippine economic growth.