Peace dividends: Mindanao attracts investors

Malaysia’s Felda Global Ventures, the world’s largest crude palm oil producer, is the first foreign investor to evince interest in Mindanao after the government agreed on a historic peace deal with Moro rebels, potentially opening up tracts of farm land.

President Benigno Aquino announced on Sunday that the government and the Moro Islamic Liberation Front (MILF) had agreed on a framework accord to end 40 years of conflict in impoverished Mindanao.

Officials have cautioned that the deal is only a first step as the two sides need to thrash out details on the scope and powers of a new autonomous region, to be called Bangsamoro.

Conflict-wracked Mindanao has the most suitable land in the Philippines for oil palms, Sabri Ahmad, chief executive of cash-rich Felda Global said in an interview with Reuters.

“We will go there for oil palms,” he said in Kuala Lumpur late on Monday. “There is ample area for oil palms to meet strong local demand,” he added.

Felda Global had a $3.1-billion listing earlier this year, at the time the largest in the world after Facebook’s IPO, and had said it planned to use the funds to expand in Southeast Asia and Africa.

Development

The National Economic and Development Authority (Neda) expects the preliminary peace accord to lead to development in the Moro region of Mindanao.

Rosemarie Edillon, director of Neda’s National Planning and Policy Staff, said the end of the Mindanao conflict would correct the disparity between the contribution of the Autonomous Region in Muslim Mindanao (ARMM) to total economic output and its labor capital.

Citing latest figures, Edillon noted that the ARMM contributed only 0.8 percent to the total economic output despite having 3.5 percent of the labor capital.

The Philippine Chamber of Commerce and Industry (PCCI) also sees development coming to Mindanao with the signing on Oct. 15 of the preliminary peace agreement.

Power, agribusiness and tourism are among the sectors that will benefit most from fresh investments in Mindanao, said Miguel B. Varela, PCCI president.

Middle East investors

Varela said the agreement would open a good opportunity for investors, as it would lead to stability, peace and security.

“Investors will probably be more encouraged to invest, especially in Mindanao,” Varela told reporters on the sidelines of the Philippine Business Conference and Expo in Manila.

“It is a very important area because it is a food basket for the country,” he said.

With the framework agreement, investors from Saudi Arabia and other Islamic countries are expected to be interested in investing in Mindanao.

Some economic missions from Saudi Arabia, Iraq, United Arab Emirates and other Middle Eastern countries have contacted the PCCI and following up talks with local counterparts, Varela said.

Earlier, acting ARMM Gov. Mujiv Hataman said in an interview on Radyo Inquirer 990AM that there would be a “guaranteed” economic boost in the region once it had been replaced by Bangsamoro.

Technology, BPO

Fermin Adriano, a consultant on Mindanao peace and development of the World Bank, said that while power, agribusiness and tourism were big attractions for ARMM, other industries, such as technology and business process outsourcing could also get ahead by investing where costs were competitive.

According to the ARMM, the government is investing P8.59 billion to speed up development in the region.

Private investments in the ARMM reached P1 billion at the end of 2011, the first time that level was recorded. Investments could increase further with peace attracting new investors, Ishak Mastura, chair of the ARMM Board of Investments, said in a forum earlier this year.

With its agriculture and fishery resources, Edillon said the ARMM had a huge potential to penetrate the halal food markets in nearby Muslim countries, such as Malaysia and Indonesia.

Unique culture

“You have Muslim Mindanao that’s home to a unique culture. I think we have not been able to make use of the potential,” she said.

“This group actually can relate to other Muslim countries. They’re the ones that we can tap for trade. … We’re talking about let’s say the halal food industry. It’s a very big industry [with a] very big demand,” she said.

Data from the National Statistical Coordination Board show that the ARMM’s gross regional domestic product fell to negative 0.1 percent in 2011, a reversal from the 2.3-percent growth in 2010 as its agriculture, hunting, forestry and fishing sectors declined while the industry and service sectors decelerated.

Palm oil demand

“In the past, especially when you had [a hostile situation], government presence is always equated with hostilities. If there’s peace, then government presence will be equated with development, which is actually a very big thing for them,” Edillon said.

The fighting in Mindanao has deterred any widespread foreign investment in the agriculture and mineral-rich region.

Despite the natural resources, the Philippines imports more than 500,000 tons of crude palm oil a year to meet strong local demand for the product, used mostly for cooking.

While Sabri did not give an estimate for how many hectares Felda Global was looking to develop, he said plantation companies would need to invest in at least 10,000 hectares to gain economies of scale.

“We would have to look at building up the infrastructure. It will have to be a holistic approach,” he said.

Rush for land

Mindanao has about 1 million ha of grasslands, equivalent to the size of Puerto Rico, that can be turned into oil palm estates, the Philippines Palm Oil Development Council (PPDCI) has estimated.

Mindanao could become the next destination for land-hungry companies like Malaysia’s Sime Darby and Singapore-listed Wilmar, which have struggled with  environmental restrictions in top palm oil producer Indonesia and harsh weather conditions in Africa.

The rush for land comes as benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange have nearly doubled over a decade, driven by demand for its products ranging from cooking oil and biofuel to cosmetics.

Felda Global could bring to the Philippines the farmer’s cooperative model developed by its parent—the Malaysian government’s Federal Land Development Authority, Sabri said.

Everyone wins

The government gave the rural poor cheap loans to acquire and develop small tracts of land. Felda Global in turn, buys palm fruits from the farmers to ensure a steady income flow.

“When commodity prices are high, these farmers have the leeway to improve their lives. Everyone wins,” Sabri said.

With Felda Global buying up palm fruits from the farmers and other independent farmers to process, it has become the world’s largest crude palm oil producer with an annual output of around 3.3 million tons. Reports from Ana G. Roa and Riza T. Olchondra