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Targeted Interventions for Conflict Areas and Economic Integration to Unleash Development Potential of Southern Philippines

July 20, 2010

MANILA, AUGUST 4, 2010 — Achieving peace and promoting economic integration, both within itself and with the rest of the country, will help propel development in resource-rich but conflict-affected Mindanao, according to a new report by the World Bank and the Australian Agency for International Development (AusAID).

The study, titled “Behind the Veil of Conflict: Moving Toward Economic Integration for Sustained Development and Peace in Mindanao,” says that an end to conflict is not enough; Mindanao needs to “achieve economic integration—both internal and external—to fulfill its development potential and as a peace-building strategy.”

At the same time, the study argues against deferring development until conflict is fully over. Many areas, including some conflict-affected areas, have good prospects for economic integration and can benefit from their existing links with growth centers, it says.

“Sustained growth and development for all of Mindanao cannot happen without paying attention to the development needs of conflict-affected areas, comprising a sizeable portion of lagging regions on the island,” says World Bank Country Director Bert Hofman during the launch of the report. “This study can provide options for the government and Mindanao stakeholders to develop concrete action plans and institutional arrangements for peace and development in conflict-affected Mindanao.”

With a third of the country’s total land area, good soil and rainfall, and a relatively typhoon-free climate, Mindanao has earned a reputation as the country’s food basket, contributing about 38 percent of the country’s farms and about 60 percent of the country’s total agricultural exports.

Yet, the report says, Mindanao contributes only 15 percent each of the industry and service sectors, about a fifth of the real Philippine gross domestic product, and a fourth of total employment.

Using the analytical framework adapted from the World Bank’s World Development Report 2009, the new study examines Mindanao’s economic geography along three dimensions—economic density, distance, and division—which help explain spatial disparities and convergence that characterize economic development in an area.

The study says that while peace is a necessary prerequisite to growth and development in Mindanao, "an end to conflict is not enough." It says that "low density, wide distances, and deep divisions" are the core issues that will determine whether Mindanao can realize its potential to become an economically integrated island with modern agricultural production and processing systems that cater to wide domestic and global markets.

On the low density of development in Mindanao, the report points out that robust economic activities are concentrated in only five cities on the vast island, namely, General Santos, Cagayan de Oro, Iligan, Davao, and Zamboanga. Such low economic density results in wide income disparities among the various regions in Mindanao, impeding further economic growth.

Ms. Mary Judd, World Bank’s Mindanao Program Coordinator, and study team leader said that some areas will need spatially focused and targeted interventions to make institutions and infrastructure work. Such areas are those with low economic integration that are vulnerable to multiple sources of conflict, and urban slum areas made up of communities that have been displaced by recurrent conflict.

“The targeted interventions should include, among them, universal access to basic education, health services and security, crucial for developing human capital and improving living standards in both lagging and growth areas,” she said.

Aside from being few, the growth centers are separated by long economic distances from lagging areas, which effectively prevents capital from financing viable projects.

The report explains: “Distances caused by inadequate infrastructure—transport, telecommunication, and energy—in Mindanao create the high cost of doing business, a disincentive to investment. Poor labor and capital mobility also increase economic distances in Mindanao, slowing the growth of economic density and impeding spillover benefits.”

Divisions, described by the report as “man-made barriers to economic transactions,” further weaken economic linkages within Mindanao. Territorial and political disputes, as well as language, ethnic, cultural, and religious disparities, lead to social tensions and armed conflict that constrain the island’s economic integration.

According to the report, a large part of the island experiences a type of conflict that is relatively confined and manageable, leaving sufficient opportunities for small entrepreneurs to engage in specialization, increased productivity and market expansion linked to growth areas—when they have adequate connectivity to growth centers.

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