Economy and Livelihood. Economy and Livelihood

Transcription

1 Economy and Livelihood C H A P T E R 7 7 Economy and Livelihood 39

2 Bangsamoro Development Plan 7Economy and Livelihood The protracted conflict in the Bangsamoro, combined with its accumulated neglect and its geographical remoteness, has resulted in a vicious cycle of insecurity, poverty, marginalization and deprivation, and underdevelopment (see Chapter 4). This chapter discusses the state of the economy and livelihood opportunities in the Bangsamoro, using data from the ARMM as proxy. It proposes a strategic approach to development in the Bangsamoro based on leveraging its agricultural potential to spur investment and move production up the value-chain. Section 1 assesses the performance of the Bangsamoro economy across its sectoral composition and describes the impact on labor force participation, poverty incidence, and food insecurity. Section 2 provides a strategic framework for improving economic performance and developing livelihood opportunities for sustainable growth in the Bangsamoro. Section 3 outlines a program for economy and livelihood in the transition. A. Context: Economic Performance, Poverty, and Livelihood in the Bangsamoro A.1. Overall Economic Performance Despite recent improvements, economic output, productivity, and incomes in ARMM, it continues to lag significantly behind those of the rest of Mindanao and the Philippines. Though ARMM represents 3.5% of the Philippine population, 48 it contributed only 1% of national Gross Domestic Product (GDP) in With an average annual growth in GRDP of 3.1% ( ) and 2.5% ( ) 49 and a population growing annually at approximately 2.3% (2010), the regional economy can barely keep up with the expanding needs of its residents. As a result, the ARMM had the lowest regional per capita output in the Philippines in 2013 PhP 29,608 per person, barely a quarter of the national average and lower in real terms than per capita output in Less evident in the official data is an active and farreaching informal economy, which provides meager but critical livelihood and employment opportunities to marginalized and vulnerable communities operating in a highly imperfect and disconnected market. Data suggest that close to 60% of workers in Mindanao are involved in the informal sector, with the share in the ARMM being considerably higher. This informal economy is an essential survival tool for poor communities, although it also includes a shadow economy that operates within it that engages in illicit transactions of weapons, drugs, land, and credit, which are significant drivers of violence. 50 Recent governance and policy reforms have nonetheless led to an increase in regional output growth, from an average of 2.9% in the period from 2009 to 2012, to 3.6% in This opportune starting point must be built upon through well-selected interventions to create momentum for sustainable growth and development in the Bangsamoro. 40

3 Economy and Livelihood C H A P T E R 7 A.2. Composition of the ARMM Economy AFF contributed nearly two-thirds of GRDP (63.5%) in Services accounted for 31.4% of output and manufacturing contributed the remaining 5.1% (see Figure 9). Figure 9: Sectoral Composition of ARMM GRDP: Four-Year Average ( ) Though AFF is the dominant sector in the ARMM economy, its performance has been highly uneven and, on average, has registered a decline in recent years, including a 1.1% contraction in 2012 (see Figure 10). Further, as a result of low investment, the agricultural sector specializes in lowvalue crops, such as cassava, corn, coconut and palay (see Figure 11). Similarly, though the ARMM benefits from rich coastal and inland waters and contributes 18% of the national fish catch, the incomes of its fisherfolk remain low because of limited processing facilities. Source: PSA-Regional Income Accounts Figure 10: Agriculture, Fishery and Forestry Sector Growth ( ) The ARMM s share in the country s total production is substantial in cassava (45.76%), coffee (12.2%), corn (10.96%), rubber (9.2%), coconut (8.3%), and abaca (7.3%) (see Table 12). However, it is only in cassava (10.7 mt/per ha), coffee (0.8 mt/per ha), sugarcane (59.3 mt/per ha), and abaca (0.6 mt/per ha) where productivity is higher than the national average, while productivity rates in corn (2.6 mt/per ha), coconut (4.1 mt/per ha) and mango (0.6 mt/per ha) are close to the national average. Considering that productivity in agricultural crops in the Philippines are much lower than in neighboring ASEAN countries, 51 improving agricultural productivity in the ARMM would logically serve as a key objective in improving small farmers income and welfare. Note: Statistical series break beginning 2009 and also at 1985 prices (1996 to 2009 series) and 2000 prices (2009 to 2012 series). Source: PSA-Regional Income Accounts Figure 11: Nominal Value of Production of Top 10 Major Crops in the ARMM: Five-Year Average ( ) The share of the services sector to GRDP has grown in recent years, from 31.4% in 2009 to 32.8% in However, most service-sector jobs are government jobs, and those in other sectors tend to be low-productivity and low-paying jobs. The tourism sector, which has the potential to provide significantly higher revenues to the region and offer higher compensation for workers, is constrained by security concerns and poor infrastructure despite the natural beauty and amenities that the region can offer. Source: DA-BAS 41

4 Bangsamoro Development Plan Table 12: Average Annual Production of Key Crops in 000 mt ( ) Rice Corn Coconut Coffee Cassava Banana Mango Sugarcane Rubber Abaca Philippines 17, , , , , , Region IX , Region X , , , , Region XI , , Region XII 1, , , Region XIII ARMM , , % share of ARMM in Philippines 3.42% 10.96% 8.33% 12.2% 45.76% 4.74% 8.7% 0.3% 9.2% 7.3% Source: DA-BAS Manufacturing comprises only 5.1% of the regional economy and is dominated by micro- and small-scale industries. 52 The uncertainty fueled by the security situation discourages entrepreneurs from investing in the region, and keeps their ventures small so these can easily be scaled down in case of urgent situations. As part of the residents coping mechanisms, most of these microenterprises contribute little, if any, to the government s revenues 53 or are part of the illegal shadow economy. Very few medium- and large-scale enterprises that generate a significant number of jobs have been successful and rely heavily on localized security agreements. The development of an industrial base is further limited by unreliable power supply, unavailability of skilled labor, lack of access to finance, and some cultural factors (e.g., enforcement of industrial discipline among the workers, which presents a challenge because of existing social hierarchies). Map 3 illustrates existing business establishments and financial services per municipality in Mindanao. Due to the limiting factors described above, these establishments and services are sparse inside the proposed Bangsamoro core territory. A.3. Finance and Credit Limited access to capital and credit is one of the binding constraints to higher productivity and growth in the ARMM. Total deposits and loans in the region are negligible (see Figures 12 and 13). Inherent market failures in rural areas, combined with the conflict risks, have made financial inclusion and intermediation almost nonexistent. Only 7% of municipalities and cities in the ARMM are serviced by banks, compared with 48% and 63% in Mindanao and the Philippines, respectively. Furthermore, access to Islamic finance and credit in the region is very limited. The Al-Amanah Islamic Investment Bank of the Philippines, the only bank in the Philippines legally authorized to engage in Islamic financing and credit, has a heavy debt burden and limited reach at the community level. Operations of microfinance institutions are also limited. A survey on the credit sources of residents in the conflict areas reports that the vast majority of respondents rely on family networks as their main source of credit (see Table 13). A.4. Employment and Labor Force Participation The ARMM s deceptively low unemployment and underemployment rates, as noted earlier, conceal the region s real problem, which is labor underutilization and 42

5 Economy and Livelihood C H A P T E R 7 Map 3: Number of Establishments by Municipality (2012) and Municipalities Served by Banks (2013) Source: DTI (2012) and BSP (2014) the poor being trapped in low-productivity, low-income jobs. Labor force participation in the ARMM is only 56.0% (2013), which translates to one million workingage residents outside the labor force. Over a quarter of employed individuals are unpaid typically working for family-owned businesses. Figure 12: Total Bank Deposits in ARMM (as of end Dec 2013) Figure 13: Total Bank Loans in ARMM (as of end Dec 2013) Source: BSP 43

6 Bangsamoro Development Plan Table 13: Sources of Credit in the Bangsamoro (2011) Sources of Credit Lanao del Sur Maguindanao Cotabato City Tawi-Tawi Basilan No access 1% 4% - 32% 19% Relatives/friends 97% 84% 81% 48% 79% Charities/NGOs Local lenders/pawnshops 1% 1% 13% 23% - Banks - 1% 9% - - Cooperatives 1% 1% 15% - - Local Government Units (LGUs) - - 2% - 1% Stores 5% 14% 12% - - Others 2% 2% 2% 11% 2% Source: WFP and WB (2011) Women and youth make up a disproportionate share of the potential but inactive workforce. Women account for 75% of the population outside the labor force. Even allowing for women s typically low participation in the labor force due to housework and childcare, the participation rate in the ARMM is only 32%, compared with the national and Mindanao averages of 50% and 51%, respectively. The same factors explain the low unemployment rates among the youth. Youth labor force participation is only 35.1% and almost a quarter of those aged between 15 to 24 are neither in school nor in the workforce (see Table 14). Lacking the skills to productively participate in the labor market, the out-of-school youth are at high risk of poverty and disaffection, which potentially can lead them to violence and undermine social cohesion. 54 A.5. Poverty Incidence As a result of limited employment opportunities, low investment, and lagging growth, the ARMM has the highest incidence of poverty in the Philippines, more than twice the national average (see Figure 14). Three of the ARMM provinces are among the 20 poorest provinces in the country, with Lanao del Sur registering the highest poverty incidence at 73.8 in Poverty is also closely linked to displacement, which is one of the defining characteristics of conflict in Mindanao. Even minor spikes in violence can lead to large-scale Table 14: Youth Unemployment and Labor Force Participation (2013) Age 15 to 24 (UN definition) 18 to 30 (Official definition) 15 to 40 (Bangsamoro definition) Unemployment Rate Labor Force Participation Rate ARMM Rest of Mindanao Philippines ARMM Rest of Mindanao Philippines Source: PSA-LFS (2013) 44

7 Economy and Livelihood C H A P T E R 7 population displacement. Between 2000 to 2012, over 40% of families in Central Mindanao were displaced at least once, with a high of 82% in Maguindanao. Displaced populations invariably fare much worse than people who have never been displaced, according to such indicators as food consumption, access to basic services, and trust in government and other ethnic/religious groups. 56 Map 4 illustrates the number of households that have been displaced due to armed conflict, infrastructure development, or natural disasters. Figure 14: Poverty Incidence in ARMM ( ) Even returned households are almost as vulnerable as those still displaced, since lengthy displacement results in the loss of one or more harvests, absence from school, and in some cases, forced sale of capital assets in order to meet basic needs. Displacement thus drives the transmission of poverty across generations. Source: PSA (using FIES data) Poverty and low agricultural productivity contribute to food insecurity and malnutrition. An assessment of food security in the five provinces of ARMM 57 showed that 900,000 households, or 46% of the total, had a poor or Map 4: Displaced Households in the Bangsamoro and Surrounding Areas (2009) Note: NHTS data counts households where a family member has been displaced in the last 12 months prior to the survey. Source: DSWD-NHTS (2009) 45

8 Bangsamoro Development Plan borderline consumption score (i.e., 20% poor and 40% borderline consumption). Lanao del Norte, Lanao del Sur, and Maguindanao are particularly badly affected by food insecurity, with IDPs being the worst affected, followed by returned and resettled populations. B. Strategic Goals B.1. Jumpstarting the Economy Addressing low-productivity employment, low labor participation, and unemployment and underemployment rates among the youth and women in the Bangsamoro shall be a key priority during the transition period. Stability and normalization cannot be guaranteed as long as a large pool of potentially productive workers remains underutilized. Poverty reduction will remain an elusive goal without providing productive employment that will yield decent incomes for the workers. In turn, additional incomes in the hands of poor households will have a multiplier effect in the form of generating greater demands for local goods and services. Rising demand will then jumpstart the local economy to reach higher and sustained levels of growth. To attain this goal, the BDP recommends implementation of cash-for-work programs, particularly among the youth, in the maintenance of public facilities, including roads, canals, irrigation facilities, school buildings and premises, health centers and premises. Upscaling the implementation of the community-driven development (CDD) approach in delivering basic infrastructure facilities to the community would immediately provide hundreds if not thousands of jobs to highly qualified Bangsamoro youth. Training programs on food processing, cottage industry and farming/fishing, skills that are demanded by the market, would provide employment opportunities especially for women. Such activities would be viable if accompanied by a small amount of credit to start the business venture. Meanwhile, there is significant human and financial capacity vested in individuals residing outside the Bangsamoro, both in the Philippines and abroad. Offering incentives for increased banking and investment in the Bangsamoro, including the transmission of remittances, could provide a multiplier effect on the investments of the Bangsamoro Government and development partners. Encouraging young Moro professionals, through scholarships and training packages linked to technical posts, could fill the immediate capacity requirements to manage the transition to a growing and prospering Bangsamoro. B.2. Unlocking Growth Potentials B.2.1. Promoting Agricultural Development The large share that AFF contributes to the regional output suggests that unlocking the potential of this sector will be key to generating sustainable and inclusive growth. In the transition period, focusing on small- and medium-scale farmers to increase their productivity, supporting links of subsistence production of small farmers to livelihood in the value-chains, and building resilience to climate change will have an immediate impact across the Bangsamoro, particularly in poor areas, as this will increase food security and provide employment opportunities. In the medium term, removing structural barriers to investment in the Bangsamoro region will be essential to sustainable growth (see Map 5). This approach is enshrined in the BBL, which commits the Bangsamoro Government to advance agriculture as a key development strategy, promote productivity measures, and provide support for farmers and fishers, especially small landholders and marginal fishers. 58 The BBL further states that the Bangsamoro Government shall encourage and support the building up of entrepreneurial capacity in the Bangsamoro [and] shall provide technical and skills training programs, create livelihood and job opportunities, and allocate equitable preferential rights to its inhabitants

9 Economy and Livelihood C H A P T E R 7 Map 5: Agro-Edaphic Maps of the Bangsamoro and Adjacent Areas (as of 2012) Source: Manila Observatory (2012) and the Philippine Human Development Report 2012/2013 In line with this, the BDP proposes four complementary strategic growth paths: a. Harness the potential of small farmers, agricultural workers and fishers by increasing their productivity to attain higher income and ensure food security. b. Promote private sector-led growth through enhancement of agricultural value-chains, with particular focus on linking small farmers and fishers to food processing and commercial development for export in the medium term. c. Promote the growth of the halal food industry. d. Foster sustainable integrated area development planning. B Harness the Potential of Small Farmers, Agricultural Workers, and Fishers The vast majority of workers in the Bangsamoro are small farmers, agricultural workers, and fishers. To attain food security, 60 raise incomes, and meet domestic and regional demand, the BDP envisions to: a. Increase the productivity of small farmers, agricultural workers, and fishers; b. Facilitate growth in value of production by cultivating crops with higher value-added, developing new products, and developing linkages to processing facilities; and c. Increase the sector s resilience to risks, including climate change risks. 47

10 Bangsamoro Development Plan Given that the region is a net importer of food, raising farm productivity will serve as one of the key thrusts of the Bangsamoro Government to increase income and attain food security 61 among its constituents. Increasing farm productivity to bolster the food supply will be an immediate first step to ensuring better access of the poor to food at affordable prices. Food security may be achieved in the short term by complementing current production output with supply from outside sources. On the other hand, food self-sufficiency can be a medium- term goal with increased agricultural productivity and better food logistics. Higher incomes for farmers will be achieved through diversification into crops and activities with higher value-added. Combined with appropriate information and education campaigns, this general thrust for productivity can improve the nutritional status especially of children, the youth, and mothers. This can be achieved through (a) agricultural extension services aimed at improving nutrition and education of the public; (b) adopting sustainable agricultural practices; (c) facilitating access to appropriate technology, production inputs and market information; (d) improved market access through farm-to-market roads and transport; (d) small-scale harvesting and irrigation facilities; and (e) improved access to rural finance. Vulnerable groups are particularly susceptible to poverty and exclusion, and will need to be explicitly targeted across all areas of intervention. Scholarship programs would encourage the youth to return or to stay in school. Livelihood opportunities in infrastructure development and maintenance activities could also be reserved for the out-of-school youth. To provide longer-term employment opportunities for youth, skills-training programs that correspond to industrial labor requirements would be beneficial, as would agricultural training and provision of inputs. Women, whose labor force participation may be constrained by household requirements, could contribute to household income through food processing, cottage industries, or operating trading stands in the home. The BDP gives importance to training and seed funding that encourage women and post-school-age youth to join the labor force within the sector development programs. Increasing value of production by diversifying crops with higher commercial value, developing new products from agricultural commodities, and developing linkages to processing plants and markets can be facilitated by building a better understanding of the value-chain approach to agro-industrial development among the government agencies, the private sector, and farming communities. Small farmers and fishers shall be enabled and encouraged to consolidate their production to facilitate profitable opportunities for common services (such as cold storage, drying and other postharvest facilities) and access to processing facilities; and improving the business environment by simplifying labor regulations, facilitating access to finance, and providing suitable incentives. Improving the sector s resilience to risk will involve a much better understanding of the factors impinging on farmer risks, particularly factors related to climate change, and the design and deployment of appropriate farm finance, insurance products, and better crop selection. B Private Sector-Led Growth: Developing Value- Chain and Commercial Production of Crops To promote further private sector investment, restoring law and order is of paramount importance. In addition, for agricultural ventures, addressing the widespread land tenure problems in the region is vital if land access to potential investors is to be guaranteed. Other elements that will encourage greater private sector investments in the Bangsamoro are reliable infrastructure; access to finance, including Islamic finance; improving local governance; and better-trained workers. 62 Land and property rights require special and urgent attention. For smallholder farmers, increased land tenure security can enhance productivity, as it encourages them to invest in their land, and also enables them to access financial and property markets. For large-scale investors, 48

11 Economy and Livelihood C H A P T E R 7 being able to consolidate land resources, through contract growing or leasehold agreements, and security of tenure over the long-term, are essential to investment viability. Providing these conditions could generate employment opportunities for thousands of landless agricultural workers. The present uncertainty of ownership and overlapping ownerships are a significant obstacle to development and must be addressed. The BBL provides that land management is a concurrent power between the Bangsamoro Government and Central Government, the exercise of which will require coordinated long-term engagement to clarify. Also, the BBL stipulates that the Bangsamoro Government shall institute processes for improved land management. This will be possible with adequate information on the current situation. In the immediate term, the BDP will support surveying of existing land titles and claims and an assessment of the existing land management institutions. In the medium term, priority shall be given to the formulation and passage of a Bangsamoro Land Use Act. Promoting the development of value-chains will result in the creation of new products and encourage the development of a food processing industry. This will generate more jobs and provide the impetus for the growth of the manufacturing sector. The latter will be based initially on food processing but eventually can proceed to light industrial products as the supply of trained workers increases. 63 B Promote a Robust Halal Food Industry Successful development of the halal food industry hinges on implementation of a strategy along the lines proposed for the development of the Bangsamoro agriculture sector. The strategy for the halal food industry is an integral part of that strategy. Development of the halal food industry could be a flagship economic program. This industry provides a rallying point for mobilizing resources for investment, infrastructure support, capacity-building, and introduction of better technologies for improved and efficient agricultural practices. Its impact would cascade all the way down to the community level, involving micro-, small-, or medium-scale farming, as well as processing activities associated with food crops, livestock and poultry, aquaculture/mariculture, fruits, and vegetables. Targeting both issues of low farm productivity and low value of farm produce, the development of the halal food industry could ride on the opportunities offered by the burgeoning global halal economy, the comparative advantage of halal agriculture and food in the Philippines and in the ASEAN region, and the benefits of a cohesive and integrated value-chain. Since the emphasis is on improving the value-chain and linking the farmers to the halal food industry, the benefits of interventions are most felt in increasing the value of farm produce. Apart from linking the farmers to the halal food processors and markets, appropriate technologies and knowhow would be the main intervention in increasing farm yields. Furthermore, by improving technologies and the value of the farm produce, farms (and farmers) become more resilient to price and financial risks. At the heart of this strategy is intensive promotion and development of halal organic farming as a sustainable source of food that is compliant with the Islamic dietary code. Organic farming is a fast-emerging sector in agriculture, with a niche market of its own in the Philippines and in nearby regional and other international markets. The strategy for the halal food industry is, therefore, an entry point in resuscitating an ailing agriculture sector, with halal organic farming at its core.over and above the steps to be taken to revitalize the agriculture sector in general, the thrust of the actions to get the halal food industry up and running would include the following: a. Enacting and strengthening of policies and regulatory laws on halal accreditation and certification, labeling, and food safety; 49

12 Bangsamoro Development Plan b. Designing and implementing an incentives code for halal-compliant ventures, particularly for smallholders and small- and medium-scale enterprises; c. Strengthening the institutions responsible for the promotion and development of the halal industry, with particular emphasis on extension and support services to smallholders and small-scale enterprises engaged in halal food production; d. Developing and implementing a capacity-building program for extension service providers, trainers, and smallholders, and encouraging state universities and colleges to engage in research and introduce new courses to develop the halal industry; and e. Developing and implementing a sustained information and communication program on halal food. More detailed actions will be articulated in a revised and enhanced Regional Halal Food Industry Development Master Plan. This endeavor will require substantial financial resources but identification and validation of production zones as embodied in the Halal Industry Development Framework could catalyze an industry buildup in which infrastructure support, financial resources, capacity-building, and technical support, would be focused for better utilization. The Bangsamoro Government could encourage the private sector to take the lead in such an endeavor by providing the enabling environment and appropriate incentives and other support programs. In some instances, however, public-private sector partnerships may be the most appropriate route. B Fostering Sustainable Integrated Area Development Planning Sustainable integrated area development planning recognizes that some areas are environmentally fragile or have special characteristics that require a significant degree of government intervention, or may require the close consideration of cultural and social dimensions of development. These can involve physically or culturally sensitive areas, including locations where security issues would preclude private sector interest, at least in the short term, due to the level of risk involved. Aside from attention given to productive activities, plans for areas under this approach will be complete plans incorporating physical and social infrastructure. It is important for these interventions to serve as signals of intent of the Bangsamoro Government to ensure inclusive, spatially sensitive, and sustainable development to targeted underdeveloped communities. Determining locations and appropriate types of interventions across the Bangsamoro will require significant study and assessment. In environmentally sensitive river basins where integrated planning focuses on watershed protection, a significantly different approach to securing water catchments and ensuring sustainable forest management will be needed from that to be applied in former MILF camps, which could be redeveloped into integrated agribusiness hubs in peaceful and productive communities. Regardless of the type of intervention, integrated area development programs can be significant sources of employment for displaced populations, returnees, and demobilized forces, with the added benefit of helping foster social cohesion. The specific approach of the Bangsamoro such as location selection criteria, private sector involvement, and transition plans will have to be studied carefully to ensure both the sustainability of investments and the maximization of social and economic benefits. The BDP recommends conducting a study on promoting climate-resilient agriculture through integrated area development planning, and a study on transforming MILF camps into agribusiness centers. While other locations will require further assessment, Polloc Port is being considered in this Plan as a potential manufacturing and trade hub that will later distribute other supportive industries in other areas of the Bangsamoro. It is 50

13 Economy and Livelihood C H A P T E R 7 located in a cove perfect for large vessels to berth and to load and unload cargo. Its location and size is perfect as a Regional Export Processing Zone. The BDP will support necessary assessments that will lead to the attainment of this goal for Polloc Port. B.2.2. Promoting the Development of the Manufacturing Sector Given the low labor-force participation rate and the initially limited labor-absorptive capacity of the agricultural sector, measures must be implemented to promote the rapid growth of the manufacturing sector in the Bangsamoro, particularly labor-intensive manufacturing, primarily related to food processing. The region s abundant land and labor supply, relatively low wages, and geographically strategic location are advantages that will enable the Bangsamoro area to attract sizeable investments in industry. For this to happen, the Bangsamoro Government will need to (a) ensure the security of investors and their investments, (b) provide the policy environment conducive for greater private sector participation, (c) upgrade the skills of the labor force, and (d) address the lingering energy shortage. Rapid expansion of the manufacturing sector is unlikely to be achieved in the short term but will be within reach of the Bangsamoro in the medium term. Many elements are already in place, assuming that security is guaranteed. Natural locations for new manufacturing industries can be found in and around the region s major ports. First, Polloc Port is ideal as a Regional Export Processing Zone. Second, the Bangsamoro Government will have authority under the BBL to pass measures that will facilitate the entry of private sector investors, ranging from giving appropriate land rights and access arrangements to offering incentives to potential investors. Third, the export processing zone could be expanded to other viable areas, such as the Bongao Port in Tawi-Tawi where active trading is already taking place with neighboring Sabah Island. A comprehensive study needs to be conducted during the transition period on how to develop Polloc Port and other ports declared as export processing zones to become the growth hubs for the manufacturing industry in the Bangsamoro, including the appropriate policy environment that would need to be adopted. As with export processing zones elsewhere, it is critical that an open trading policy be adopted in these zones to ensure their success. B.2.3. Extractive Industries The Bangsamoro is generally regarded as having significant potential in the extractive industries. Though more geological studies need to be conducted, the potential revenues from a well-managed extractive industry would contribute considerably to the region s fiscal autonomy. However, extractive industries can take more than a decade before yielding any revenue for the state. To attract investors, the Bangsamoro could generate geological data for use of potential developers to assess technical and financial viability. The Bangsamoro must also be cognizant of the inherent risks of environmental degradation and social displacement by large-scale resource development. The BDP supports the development of geological information-based feasibility and engineering studies, while the institutional and capacity development requirements of managing and regulating extractive industries in the Bangsamoro continue to be assessed. B.2.4. Developing a Tourism Industry in the Bangsamoro The Bangsamoro has some of the most diverse and unique natural resources in the Philippines and a rich cultural history that can yield significant revenues from tourism. The impediments to large-scale development of the tourism potential have been the security situation and poor infrastructure and connectivity. There are also environmental and cultural conservation concerns (see Chapters 10 and 11). 51

14 Bangsamoro Development Plan However, the political and social stability resulting from the peace agreement makes it opportune for the Bangsamoro to lay the groundwork for private-sector development of the tourism industry. Areas of particular natural or cultural significance, such as Central Mindanao and Tawi-Tawi, could be targeted with specific normalization interventions regarding security and governance to encourage investments. Conservation and sustainability measures will need to be prioritized alongside the improvement of security conditions. Supportive access infrastructure, improved tourism facilities, competitive prices for tourism amenities and food, and capacity-building of key actors (from managers to staff) are important requisites for developing the sector. To realize the potential of tourism for significant employment creation, training programs in tourism industry skills could be instituted, with particular focus on women and the out-of-school youth. Demobilized MILF forces could also be trained as guides, considering their extensive knowledge of the region and its history. B.2.5. Improved Access to Credit and Strengthened Islamic Banking and Finance At this stage, both conventional and Islamic banking and finance facilities will inevitably have to coexist in the Bangsamoro. An orderly development of both the conventional and Islamic systems, leading to a better spread of financial risks over the economy, would include: a. Promoting healthy competition, resulting in increased market discipline and improved customer service and value; b. Increasing the deposit base, as products like tabun hajj (a savings account for the annual pilgrimage to Mecca) are introduced; and c. Enabling Muslims and non-muslims alike to choose the financial tools that are most appropriate for their needs. All facets of the conventional banking system will have a role to play in the future Bangsamoro. With peace and order and an improved business and investment climate, development banks, commercial banks, and rural banks will step forward to provide financial support, among others, to enterprises in the informal sector that wish to move into the formal sector to take advantage of the new economic environment. Islamic banking and finance should be viewed as a system, and thus it is critical that the foundations be set for developing institutions and products across all these aspects of the sector, including banking, capital markets, microfinance, and insurance. This must further be viewed from the national as well as from the Bangsamoro perspective, recognizing the legal mandate of the Bangko Sentral ng Pilipinas (BSP) and other Central Government instrumentalities, and taking into consideration the wider national market for Islamic financial products. The banking system s development should not be rushed; it should be driven by business and economic rationales, with market forces and the people s emerging needs being allowed to determine the optimal mix of products. The legislative base would need to be wide and flexible enough to enable the market to do its work, recognizing the rapid evolution of Islamic financial products and their delivery mechanisms. The BSP is working with the other pertinent agencies to lay the groundwork for the necessary legislative and institutional agenda. The aim is to provide the appropriate regulatory framework for licensing and supervision of Islamic banking and other Islamic financial instruments in the country, especially in the Bangsamoro. Having the legal framework for Islamic banking and finance at the national level would reduce the need for legislative action by the Bangsamoro Government. The Bangsamoro Government would need to work with the BSP and the Financial Services Forum (FSF) on this legislative and institutional agenda. Various options are available to the Bangsamoro authorities in establishing an Islamic banking presence in the region. One is for the Bangsamoro Government to establish its own Islamic bank, which could be a new 52

15 Economy and Livelihood C H A P T E R 7 entity or a revived Al-Amanah. If this scenario is chosen, it would be beneficial to encourage private entities to engage also in providing Islamic banking and financial services in the region. Alternatively, conventional banks could be allowed to open Islamic windows in their operations, or even establish fully pledged Islamic subsidiaries. Foreign banks may also want to enter the market, which could be through joint ventures or technical/management agreements with local banks that lack know-how in Islamic banking. Some interest has been expressed by local and foreign commercial banks to take over the Al-Amanah and use it as springboard for introducing a wider range of Islamic banking and finance instruments. Another option is encouraging the establishment and growth of Islamic capital markets, which can be achieved if the Central Government removes discriminatory taxation policy against Islamic financial instruments. Islamic capital markets probably offer the fastest route for introducing Islamic banking and financial products into the Bangsamoro. The Bangsamoro Government and local government units could consider meeting their borrowing needs through the sukuk, 64 as the drive toward financial integration in the ASEAN region (and Asia) is expected to provide a platform for the local development of sukuk, given the growing importance of these instruments in ASEAN countries, particularly Indonesia, Malaysia and Brunei. Use of sukuk is suited for public-private partnerships (PPP) and could form a significant component of the economic development thrust in the Bangsamoro, particularly as a means to finance infrastructure in support of critical privatesector projects. Major private-sector projects in the region could also be encouraged to use sukuk in financing their operations. The financing can be organized onshore or offshore, and can be arranged without having to establish an institutional base in the Bangsamoro or even in the Philippines. 65 Given the dominance of informal activity in the Bangsamoro and the difficulties associated with collateral over property and land, Islamic microfinance facilities could play a major role in expanding the economic base. However, there is a need for service providers with outreach to the rural areas where the need for support is greatest, and a need for suitably designed and affordable instruments tailored to the needs of the Bangsamoro market. In the Philippines, cooperatives and NGOs are likely to be the initial conduits for Islamic microfinance instruments, although rural banks may also be willing to perform that role. 66 The Muhammadiyah model of Indonesia is worth exploring for its applicability to the Bangsamoro. This model also introduces micro-takaful (micro-insurance) as protection to reduce risk associated with the possibility of losses. There is certainly a demand for insurance against crop failure by farmers in the Bangsamoro, although the necessary premiums may currently be beyond reach. Underpinning Islamic banking and financial instruments is the need to ensure that Shari ah compliance arrangements are in place. The BSP is exploring this matter within the context of its legislative and institutional review, and the Bangsamoro Government would need to engage with the BSP on this issue. The best course of action for the Bangsamoro and the Philippines would need to be explored and could involve adopting interim measures, including tapping ASEAN expertise. A communications strategy, based on careful socioeconomic research, would be needed to educate the public on the principles of Islamic banking and finance and on the products that would be available. This strategy would need to address all stakeholders, Muslim and non-muslim alike. Commercial aspects as well as the ethical and religious underpinnings would need to be emphasized. A program is also recommended for developing the necessary capacity and skills of public institutions 53

16 Bangsamoro Development Plan national and regional for overseeing the development of Islamic banking and finance. There is a dearth of skills relating to Islamic financial instruments in the local banking and financial industry that needs to be addressed. Some of it can be addressed through technical assistance and overseas training, but local academic support would be critical. There will also be a need to explore means to support financially the development of suitable courses in academic establishments. Of immediate concern is the capacity of the national institutions to lay the necessary legislative and administrative groundwork for establishing an Islamic banking and finance system, and the capacity of the Bangsamoro authorities to oversee its on-the-ground penetration. Immediate efforts would be needed to obtain technical assistance, and to organize a core team within the Bangsamoro to interface with the BSP and the FSF in laying the groundwork for the legislative and institution agenda. B.2.6. Promoting Active Participation in Regional Economic Cooperation The Bangsamoro is one of the Philippines closest points to the rest of the ASEAN region. Trade between its islands and neighboring islands in Malaysia and Indonesia was extensive prior to Western colonization. The establishment of the Brunei Darussalam, Indonesia, Malaysia and the Philippines-East ASEAN Growth Area (BIMP-EAGA) 67 recognized these historical ties among the islands in the sub-region and declared that its founding was merely a reassertion of the pre-colonial ties binding these places together. The sub-regional economic grouping consequently gained traction immediately after its establishment, with private-sector groups in the four countries spearheading economic cooperation and their governments providing the policy environment for increasing trade. In 2015, the economies of the ASEAN member-countries will be integrated under the ASEAN Economic Integration (AEI) program, under which restrictions on the movement of most goods, the provision of services and the movement of persons will be brought down to essential levels. Together with the BIMP-EAGA, the AEI will increase market opportunities for goods and services produced by member countries. The Bangsamoro region s limited production and export capability may prevent it from immediately accessing the enlarged market base provided by region-wide economic cooperation. However, the BIMP-EAGA presents an important opportunity for Bangsamoro entrepreneurs to learn the dynamics of international trade and eventually to access the regional export market given the advantage of physical proximity to the other ASEAN countries of the BCT. Aside from export markets, these countries markets for competitively priced food and fuel and other production inputs could induce their investors to consider the Bangsamoro region as a viable production location. The Bangsamoro Government, through intergovernmental bodies created for this purpose, would need to ensure that it is represented in trade missions and negotiations in the AEI and the BIMP-EAGA. It would need to encourage the Bangsamoro private sector to participate in these events actively, as they will lead the development of a Bangsamoro export industry. B.2.7. Labor Market Policies The segmentation of the labor market between the formal and informal sector is more pronounced in the Bangsamoro because a sizeable part of the labor force is in the latter. Informal employment in the Bangsamoro can be explained by a situation of both exclusion and voluntary exit. In the former, the lack of productive employment option and of unemployment insurance compels the poor segment of the society to take lowproductivity jobs, typically in the informal sector, rather than to end up being unemployed. 68 In the latter, informality has been associated with lack of productive economic opportunities, which are often attributed to scale and prevalence of violent conflict 54

17 Economy and Livelihood C H A P T E R 7 in the region. This means that informal arrangement is a preferred setup by the households and enterprises to cope with conflict risks. 69 Deepening of the economy demonstrated by an influx of local and foreign direct investments in the Bangsamoro will not happen overnight. It is expected that the excess labor supply in the Bangsamoro will not be absorbed immediately into the formal sector except for those who will be running the new regional government administration. It will gain its momentum once the Bangsamoro consolidates its economy over the medium and the long term. Hence, the labor market policies that the Bangsamoro shall adopt will need to put a premium on increasing productivity in the region through attraction of laborintensive investments and sustained investments in education and trainings on specific skill sets. This should be complemented by other active labor market assistance such as job facilitation services by the Department of Labor and Employment (DOLE) 70 or the Bangsamoro labor ministry, and it can even start much earlier among students through guidance counseling services at schools. At the same time, labor policies must avoid excessive job protection that can otherwise impede job creation or promote further informality with adverse consequences on overall productivity and economic performance. Labor policies should be flexible and less restrictive. Employment protection programs must reflect local conditions in setting welfare standards. At the very least, ensuring safe working environment, protection of child labor, and non-voluntary social assistance (e.g., Conditional Cash Transfer) must be instituted in the informal sector. Along with Pag-IBIG and Social Security System contributions, these employment protection programs will be extended to the formal sector and scaled up over time. Among labor rules in the formal sector that stand out to have adversely affected domestic and foreign companies in the country and this will hold true in the Bangsamoro are the non-consultative determination of minimum wage, lack of freedom in the application of fixed term contracts (e.g., six-month minimum requirement for regularization of new employees), and restrictive policies governing dismissal of workers. To facilitate investment and job creation, there should be preference to relying on collective bargaining mechanisms in minimum wage setting to reflect the local market conditions and to give companies greater flexibility in hiring workers

18 Bangsamoro Development Plan C. Summary of Priority Programs Table 15: Priority Economy and Livelihood Programs Objectives Priority Programs Components Increasing farm productivity and income Assisting in ensuring food security particularly to vulnerable groups Increasing halal-certified producers and service providers Bangsamoro Sustainable Agriculture Program Support for smallholder farmers and fishers, including enterprise development and training and incentive programs Irrigation, postharvest facilities Support to private sector value-chain and commercial development Develop the halal food industry (including organic farming) Integrated Area Development, including study on how to transform MILF camps into flourishing enterprise units in the Bangsamoro Study of promoting climate-resilient agriculture through integrated area development planning Develop Cash-for-Work Program, particulalry for vulnerable groups Higher labor force participation (especially for inactive youth) Higher household income Bridging the labor supply gap Bringing back out-migrated human and financial capital Massive Job Creation Packages, including Creative Service Delivery Balik-Bangsamoro Program Scholarships/trainings, functional literacy programs, skills and jobs matching Support for micro and small entrepreneurs Small skills programs (i.e. skills training, capacity-building, proposal making, etc.) Hiring of community facilitators for scaled-up community-driven development (CDD-BRIDGE) Mass mobilization of health and education workers Incentives for increased banking/investment in the Bangsamoro, including remittances Incentives for young Moro professionals (scholarships and trainings, with required technical posts) Trade openness (long-term) Establishing Open Trade in the Bangsamoro Feasibility studies for Polloc and Bongao Ports and other areas as manufacturing and trading hubs in the Bangsamoro Mainstreaming cross-border trade Study on the impact of adopting an open trading policy in the export processing zones Representation of Bangsamoro Government and private sector in trade missions and negotiations Improving access to credit Banking and Finance Bangsamoro Fund Facility Microcredit according to Shari ah finance system Study on promoting the development of Islamic banking and finance Support for long-term fiscal autonomy and development (for medium- to long-term measurement) Peace Tourism: It s Even More Fun in the Bangsamoro Assessing/Prospecting the Viability of the Extractive Industry Sector Scoping for eco-, cultural, and resort tourism in the Bangsamoro areas Support infrastructure Specific normalization efforts (governance and security) IEC campaign, skills training (livelihood) Development of geological database Analysis of institutional and capacity development requirements for management and regulation of extractive industries Feasibility studies of development of extractive industry 56