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DE RUEHML #1790/01 2110240
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O 290240Z JUL 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1423
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RHHMUNA/CDR USPACOM HONOLULU HI//FPA//

UNCLAS MANILA 001790 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA 
STATE PASS EXIM, OPIC, AND USTR 
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE 
TREASURY FOR OASIA 
USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV PGOV RP
SUBJECT:  Davao: A Mindanao Success Story 
 
Ref: A) Manila 1610, B) Manila 1050, C) Manila 0998 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU) Summary:  Davao, located in the southeastern section of 
Mindanao, is now one of the Philippines' major economic hubs, with 
rich natural resources, good infrastructure, an educated labor pool, 
strong local government support for business, and a pro-active 
business sector.  The city has garnered accolades over the years for 
being among the Philippines and Asia's most competitive and livable 
cities.  Davao actively promotes itself as among the country's 
safest cities and most Davao businesspeople and residents seem to 
condone alleged extra-legal methods used to maintain safety and 
security.  The major concerns of Davao businesspeople and investors 
are the inadequate and unstable electric power supply and high 
domestic shipping costs.  In spite of its accomplishments, the city 
still feels constrained by Mindanao's fragile peace-and-order 
situation.  This is one in a series of cables that highlight the 
economic diversity of Mindanao, a region often associated with 
peace-and-order challenges and high poverty rates (Ref A).  End 
Summary. 
 
Davao: An Agricultural Center... 
-------------------------------- 
 
¶2.  (U) Davao City together with the provinces of Davao del Sur, 
Davao del Norte, Davao Oriental, and Compostela Valley form the 
Davao Region in the southeastern part of Mindanao.  Davao City's 
landscape differs from the more traditional expectations of a city 
in that its 2,444 square-kilometer land area -- the largest among 
Philippine cities -- encompasses vast tracts of agricultural (mainly 
fruit) plantations and timberland/forests.  Agricultural production 
accounts for roughly 45% of economic output.  Dubbed as the "fruit 
basket of the Philippines," Davao is a top exporter of bananas, with 
most exports going to Japan, China, the United States, and Korea. 
Fruit exporters have recently begun developing non-traditional 
markets for fruit in Russia and the Middle East. 
 
...And Mindanao's Service Capital and Economic Hub 
--------------------------------------------- ----- 
 
¶3.  (U) Davao City has evolved into Mindanao's unofficial capital 
and economic hub.  The service sector, mostly trade, tourism, 
education, and financial services, accounts for about 40% of Davao's 
economy.  One of the country's premier convention centers and one of 
Mindanao's top tourism destinations, Davao City accounted for nearly 
35% of Mindanao's 150,400 total foreign visitor arrivals in 2007 
(mostly from the U.S., Japan, Korea, China, and Australia).  The 
city's nearly 50 colleges and universities currently graduate a 
labor pool of 15,000 English-speaking students annually. 
 
Infrastructure Matters 
---------------------- 
 
¶4.  (U) Davao City's relatively good infrastructure and amenities 
have made it among the country's top business and investment sites. 
Davao City attracted over 4 billion pesos ($90 million) in projects 
registered by the Philippine Board of Investments during 2007.  The 
Davao International Airport -- one of the Philippines' busiest -- 
provides direct air linkages to Palau, Singapore, Hong Kong, and 
Manado, Indonesia, as well as domestic routes.  It is Mindanao's 
premier international airport.  The Davao seaport is the busiest in 
Mindanao and among the top five ports nationwide.  Export earnings 
from merchandise shipped from the Davao Port reached about $720 
million in 2007, equivalent to about 30% of Mindanao's total export 
revenues. 
 
Ready for the BPO Industry 
-------------------------- 
 
¶5.  (U) Davao City is aggressively promoting itself as a hub for the 
Business Process Outsourcing (BPO) and call center inustries, 
capitalizing on its telecom infrastructure, excellent human 
resources, and cheaper wages/salaries and electricity rates, 
resulting in overall operating costs roughly 40% below those of 
Metro Manila.  There are presently over 40 Business Process 
Outsourcing operations in Davao providing medical transcription 
services, software development, animation/web development, graphic 
design, engineering, and other call center services. 
 
The Former Murder Capital of the Philippines 
-------------------------------------------- 
¶6.  (SBU) Crime statistics confirm that Davao City is now among the 
safest cities in the country -- a notable achievement from its 
notoriety some two decades ago as the "murder capital of the 
Philippines" for regular insurgent assassinations and criminal 
violence.  Today, Davao City is seen as strongly pro-business and as 
Mindanao's "best and safest investment haven." 
 
¶7.  (SBU) The mayor of Davao since 1989 (except for a brief stint in 
the Philippine Congress from 1998-2001), Davao City's Mayor Rodrigo 
Duterte revels in his reputation for instilling discipline and peace 
and order.  A Time Magazine article in June 2002 dubbed the mayor 
"The Punisher" for his hard line, anti-criminality stance and 
Amnesty International and other human rights groups have raised 
concerns over his alleged involvement in and/or tolerance for 
extra-judicial measures/killings.  The mayor publicly denies 
involvement.  Most Davao businesspeople and residents are aware of 
allegations that their mayor oversteps the law in his pursuit of 
justice and peace and order.  They nevertheless credit his 
leadership as a major factor in lowering crime rates and providing 
the sense of safety and security that businesses need to thrive. 
 
Lowest Poverty Rate in Mindanao 
------------------------------- 
 
¶8.  (SBU) Although a Mindanao success story, Davao City's relative 
economic prosperity also illustrates that inequitable wealth 
distribution and development is as much a challenge within Mindanao 
as it is across the Philippines (Ref B).  Davao City often is 
geographically lumped with Davao del Sur for the purpose of 
generating provincial-level economic statistics.  In large part 
because of Davao City, the province of Davao del Sur has the lowest 
incidence of poverty (27.4%) among all of Mindanao's provinces. 
Davao-based officials of the Philippine government economic planning 
agency unofficially estimate Davao City's poverty rate at between 
20%-22% of its population, well below Mindanao (46.7%) and national 
(32.9%) averages.  With Davao City as its major economic and 
business hub, the Davao Region has the second highest per-capita 
gross domestic output among Mindanao's administrative regions (the 
equivalent of $1,258 in 2006, according to the latest Philippine 
government statistics) and the fourth highest among the country's 
seventeen administrative regions. 
 
Davao City Recognized 
--------------------- 
 
¶9.  (U) Davao City has garnered national and international accolades 
over the years for being among the Philippines' and Asia's "most 
competitive" and "most livable" cities.  Foreign Direct Investment 
Magazine (a Financial Times publication), in its most recent 
2007/2008 issue, ranked Davao City as tenth among Asian cities on 
its report on the "Asian Cities of the Future".  In its latest 
"Philippine Cities Competitiveness Ranking Report" for 2007, the 
Asian Institute of Management ranked Davao City as the most 
competitive metro city overall, with particularly favorable scores 
for the lower cost of doing business, the quality of human 
resources, sufficient infrastructure, and the responsiveness of 
local government. 
 
But Still Surrounded by Lawlessness 
----------------------------------- 
 
¶10.  (SBU) The region surrounding Davao City produces over half of 
mineral-rich Mindanao's total mining and quarrying output.  Guns 
still rule the Diwalwal gold fields of the nearby Compostella 
Valley.  Davao Chamber of Commerce members who had invested in the 
gold fields confessed to econoffs that they routinely pay 
"revolutionary taxes" to the heavily-armed communist/terrorist New 
People's Army insurgents who haunt the region.  They also predicted 
that the national government would be powerless to enforce a recent 
Supreme Court ruling which would give mining rights to the gold 
fields to a large Chinese company (the same Chinese company involved 
in the high profile broadband bribery scandal, Ref C) and allow much 
of the gold fields to be taken from the current small-scale mining 
operations.  A separate report will examine mining in Mindanao in 
greater detail. 
 
¶11.  (SBU) Davao Chamber of Commerce businessmen also spoke of 
Liguasan Marsh -- swamps to the northwest of Davao City that are 
inhabited by criminals and virtually off limits to law enforcement 
officers.  One of the problems cited by the Davao Chamber of 
Commerce was the vulnerability of the power transmission lines, 
which run from hydro-electric plants in northwestern Mindanao all 
the way to Davao City.  The transmission towers are intermittently 
destroyed by insurgents/rebels or bandits, often to extort money. 
Despite aggressive efforts to differentiate Davao City from the 
conflict-afflicted parts of Mindanao, local officials and 
businesspeople lament that Mindanao's peace-and-order stigma 
continues to delay or discourage well-known American and European 
companies from investing.  The business sector wants desperately for 
perceptions to catch up with the reality that Davao City is safe, 
secure, and business friendly, but the fact that it is surrounded by 
regions in which violence and extortion are common has made that 
message difficult to sell. 
 
Additional Challenges 
--------------------- 
 
¶12.  (U) Although Davao's power rates are about 40%-50% cheaper than 
average rates in the northern Philippines, the business sector is 
gravely concerned about the stability and adequacy of the power 
supply.  The Davao Region already experiences intermittent power 
interruptions due to electricity transmission problems in the long 
stretch from Northern Mindanao (which has plentiful 
hydro-electricity) to southern Mindanao, where Davao is located. 
Businesspeople also predict that power shortages in Mindanao will 
become a serious growth constraint by 2010/2011 unless there are 
investments in additional energy-generation capacity, and no such 
investments are currently planned. 
 
¶13. (SBU) The business sector also cites high domestic shipping 
costs as a serious impediment to the competitiveness of Davao's and 
Mindanao's local products.  The Mindanao business sector has long 
called for a review of the Cabotage Law to spur competition and 
bring down shipping rates by liberalizing foreign participation in 
domestic coast wide trade (Ref A).  However, powerful vested 
interests have successfully lobbied against such reforms.  Several 
businesspeople have commented that the response to, and support from 
"imperial Manila" for Mindanao's issues and concerns tend to be slow 
and arduous, which makes an engaged and pro-active business sector 
essential to moving forward. 
 
Comment 
------- 
 
¶14.  (SBU) Davao has made a remarkable turnaround in the past 20 
years from the "murder capital of the Philippines" to a peaceful and 
secure pro-business environment that is internationally recognized 
as one of the most livable cities in Asia.  Although the methods 
which seem to have been used in Davao to obtain peace are not ones 
we would want to see replicated, Davao serves as an example of the 
progress which can be made if peace can be established and good 
economic policies put in place. 
 
Kenney