PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas
Vol. XXIII No. 4
July - August 2005
Editor's Notes Owning a house has always been associated to affluence, security and stability. Many people would delay buying a car but would really save in their lifetime just to have a place that they can call their own. Especially for a family, homeownership is a very important resource given the economic, psychological and social benefits it offers. For years, many governments, including in the Philippines, have pushed for homeownership, promoting it as the best housing model, following Western notions. Owning is prioritized over renting. Housing programs were geared toward ownership as the end goal. Thus, through the years, the importance of the rental housing stock has often been ignored. )16
Inside the DRN 8
Trade and investment in a globalized setting: the experience in Muslim Mindanao
14 New Phil-Aus project: promoting the use of seasonal climate forecasts in agriculture
DEVEL O PMENT RESEARCH NEWS ISSN 0115-9097
Rental housing: Opening doors for low-income households* Marife M. Ballesteros, Ph.D.**
D
ue to severe economic con straints, poor households in many developing countries resort to informal arrangements to house themselves. Informal housing often takes the form of sharing, unauthorized housing and squatting in public and private lands (including riverbanks, streets, embankments, etc.). These arrangements exist despite the government’s promotion of home-ownership, an approach that has, however, hardly served the poor. Studies show that for low-income earners, homeownership is definitely a tough stretch. The more relevant issue for them is not how to own a house but where and how to find an affordable, decent place to live. With rising poverty and increasing urbanization and modernization of cities, the need for alternative solutions to improve access of the poor to low-cost and decent housing becomes more intense. In the Philippines, the rate of urbanization is
one of the highest in the world. It is estimated that by 2010, urban population will be 60 percent of the population (UNCHS 2001). Moreover, in 2000, it is estimated that more than 20 percent of the 7.5 million urban households had incomes below the poverty threshold of P13,915 per capita per year (less than $1 a day level). Yet to obtain a house in an urban area under government social security programs (e.g., Government Service Insurance System, Home Development Mutual Fund), an annual amortization of at least P24,000 is required. A timely and relevant strategy to meet the demand of the low-income sector is rental
* A condensed version of PIDS Discussion Paper No. 200447 entitled "Rental Housing for Urban Low-Income Households in the Philippines." For a copy of this discussion paper, go to http://publication.pids.gov.ph/ discpaper.phtml. ** Senior Research Fellow, Philippine Institute for Development Studies
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DEVELOPMENT RESEARCH NEWS
With rising poverty and increasing urbanization
July - August 2005
Table 1. Distribution of households by tenure and income group, 2000 (in percent) Tenure
a/
All Income groups
Low-income*
Urban Poor
Middle-toHigh-income
and modernization of cities, the need for alternative solutions to improve access of the poor to low-cost and decent housing becomes more intense...a timely and relevant strategy to meet the demands of the lowincome sector is rental arrangement.
URBAN PHILIPPINES Owner 69.6 Tenant 25.1 Sharer 5.4 All 100.0
64.4 29.1 6.5 100.0
62.8 30.4 6.7 100.0
75.5 20.4 4.1 100.0
METRO MANILA Owner Tenant Sharer All
55.9 34.9 9.3 100.0
51.4 36.9 11.7 100.0
69.5 25.7 4.8 100.0
64.1 29.4 6.6 100.0
Source of basic data: FIES 2000 *Low-income includes urban poor. Note: In Metro Manila, low-income if from 1st to 4th decile, urban poor if from 1st decile, and middle-to-high income if from 5th to 10th decile. a/ Based on UNCHS definition, tenure arrangements in the Philippines have been classified as follows: Owner - Own house and lot, own house and rent-free lot without the consent of owner Tenant - Rent house and lot, own house and rent lot, own house and rent-free lot without the consent of owner Sharer - Rent-free house and lot with or without the consent of owner
arrangement. There is a growing recognition that rental housing offers major opportunities for improving the living standards of the poor (UNCHS 1993). The governments of Colombia, South Africa and Indonesia have started to lay the groundwork to develop the rental housing market as an alternative housing option in urban areas (Gilbert and Varley 1991). In the Philippines, rental housing for the poor is also recognized as a strategy in the Medium Term Development Plan 20042010. However, this stategy has yet to be translated into real action on the ground. The empirical question for most countries is how the rental housing market can meet the demands of the poor and low-income households. Relevance of developing the rental housing market How significant is rental housing to lowincome households in the Philippines? In all urban areas in the country, figures from the 2000 Family Income and Expenditure Survey show that the incidence of ownership is high for all income groups. On the average, owners represent about
75.5 percent of the total middle- and highincome households and 60 percent of the total households in the low-income sector (Table 1). Ownership is broadly defined to include not only legal rights but also de facto rights on land. De facto ownership refers to homes where the household owns the structure but not the land on which it is built. Households in settlements founded through land invasions (e.g., squatters) are also considered owners based on perception of ownership (UNCHS 2003). The picture changes in highly urbanized areas. In Metro Manila, the incidence of ownership among low-income households is comparatively lower, where more than 40 percent are tenants and sharers. Sharers are those who share or borrow homes rentfree or pay rent irregularly. The incidence of renting and sharing is higher in some cities in Metro Manila. The Metropolitan Manila region consists of 17 cities and municipalities. A recent survey by the Asian Development Bank shows that the incidence of renting has been specifically high in depressed areas of Metro Manila. In cities or municipalities where the proportion of depressed settlements to
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DEVELOPMENT RESEARCH NEWS
total land area is high, the bulk of households are either tenants or sharers. As could be gleaned from Table 2, about 70 to 80 percent of households in depressed settlements of Las Piñas, Paranaque, Taguig and Pasay are tenants and about 10 percent are sharers. In the City of Valenzuela, only 5 percent are owners, 53 percent are tenants and 42 percent are sharers. In particular, there have been two responses to acute shortage of housing in the country particularly in metropolitan cities. First, the increase in the growing rental market in informal settlements. Second, the growing significance of sharers. These responses will continue to persist as competition in the informal land markets for housing increases. A major trend in developing economies is that invasions and illegal subdivisions have been increasingly difficult to support financially and politically since the “illegal” land markets have become commercialized. In a study of Cebu City in the Philippines, it has been noted that informal (or illegal) land markets are increasingly attracting middle income households who found it more viable to build
July - August 2005
homes in informal settlements than buy homes in developed subdivisions (Thirkell 1996). As low-income households are eased out of the market, these households are now concentrated in least desirable settlements or are the renters and sharers in informal settlements. Supply of low-cost rental housing The private sector, whether through formal or informal arrangement, supplies most of the housing needs of the low-income sector. The types vary from single house in private subdivisions or depressed settlements to rooms/beds in commercial or industrial establishments. These private spaces for rent are provided mostly by households as a means of augmenting their income or by small business operators. The bulk of these rental accommodations usually operate without local business license. Public rental dwellings provided by government are usually in the form of medium-rise walk-up apartments or single structure buildings called tenements. Based on data from the National Housing Authority (NHA) that oversees the operation and maintenance of public rental
Table 2. Housing tenure in Metro Manila cities and depressed settlements, 2002 Depressed settlements
Total population CITY Manila Quezon City Mandaluyong City San Juan Marikina Pasig City Caloocan City Malabon Navotas Valenzuela Makati City Las Piñas Muntinlupa City Parañaque Pasay City Taguig Pateros
Owner
Renter
Sharer
52.3 66.9 64.3 47.1 35.0 40.0 40.0 76.5 76.3
38.6 24.5 26.3 40.8 50.0 50.0 50.0 18.3 19.0
9.2 8.7 9.4 12.2 15.0 10.0 10.0 5.3 4.8
All 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Owner 57.0 100.0 64.3 25.3 4.7 5.3 7.4 8.8 14.2 -
Renter
Sharer
32.2 0.0 26.3 68.0 53.0 82.0 79.4 71.6 71.5 -
10.7 0.0 9.4 6.8 42.4 12.6 13.2 19.5 14.3 -
Source of basic data: Metro Manila Urban Services for the Poor (MMUSP) Survey, 2003 '-' no data
All 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 -
Population in depressed settlement % to total population 43.0 36.6 33.2 27.5 31.8 11.4 26.0 31.0 41.3 4.0 11.8 16.9 27.3 18.7 22.5 11.0 58.5
Land area of depressed settlement % to total land area 0.3 10.2 19.2 54.0 33.7 1.8 31.3 30.2 -
DEVELOPMENT RESEARCH NEWS
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Figure 1. Distribution of rental housing units by year built, Metro Manila
July - August 2005
were given priority. After the 1980s, the government also shifted to medium-rise buildings or walk-up housing (e.g. condominiums) whereby lease arrangement has become more of an exception rather than the rule. Another reason is the non-availability or insufficiency of funds for rental development or improvement. The cost of conventional building materials is high and financing is needed for the expansion of letting. Small landlords, however, mostly operate through informal arrangement whereby access to formal credit is difficult. Borrowing through the informal sector (e.g., supplier’s credit) creates significant financial burden and risk.
Source of basic data:
Census of Population and Housing 2000, National Statistics Office
housing, there are currently 22 public rental housing projects in the country consisting of 5,949 usable units. About four medium-rise housing are under construction, which will generate an additional 2,712 units. All these buildings are in Metro Manila and have been constructed between 1960 and 2000. These units are provided with a 25-year lease contract and low rental rates. While the rental market has absorbed a significant proportion of the increase in population of Metro Manila in the last decade, the supply of rental housing has not been sufficient. As Figure 1 shows, there has been a slowdown in the supply of rental housing units over the years. One reason is the change in policy and concept of public rental housing. Prior to 1978, it was provided purely on lease. From 1980 onwards, rental units were offered both on lease or lease with option to purchase after three years of occupancy, which, however, benefited mostly middleincome earners given their higher paying capacity. The construction of rental units was also undertaken for specific clients; government employees such as public school teachers, police and military aides
There is also no government support for low-cost housing development. Instead, the rent control law penalizes investment in this sector. An earlier study by this author on the benefit and cost of rent control showed that the law creates disincentives for investments due to lack of protection for landlords against erring tenants (Ballesteros 2002). The profitability of the public rental housing business is also another reason. NHA has mixed experience with respect to the profitability of public rental housing programs. Rental houses constructed before the 1980s are highly subsidized and operate at a loss due to poor rental collection performance and even nonpayment by beneficiaries of fees for maintenance of common facilities (including water supply). There are also cases when beneficiaries who acquired housing elsewhere did not cede the premises to management but sold or transferred their rights to relatives or other households. The option to purchase the units had thus been given to beneficiaries of rental housing. However, this scheme has not been affordable to all residents since they need to pay a price higher than the current rental fees. A scheme tried by the NHA to solve the problem of poor collection is to transfer some aspects of building management to
DEVELOPMENT RESEARCH NEWS
tenants' associations. Rents are paid directly by the beneficiaries to the NHA or to an estate supervisor appointed by the NHA while building management is the responsibility of the tenant association. NHA encourages the estate supervisor to be part of the community since cooperation from the tenants is noted to increase with increased presence and participation of the estate supervisor in the association or in community affairs (Leynes 1989). The tenants' association, specifically its officers, is responsible for collecting the fees for use of the water system, for payment of the fire insurance, and for general maintenance of the building. Public rental operation improved somehow under this new scheme. Nevertheless, some buildings are still operating at a loss. A case in point is Project Site 1, a mediumrise public rental housing in Mandaluyong City that has a collection performance of only 20 percent as compared to Project Site 2 in the same city that has a 100-percent rental performance. Of the total 60 units on lease in Project 1, 54 units are in various stages of arrears. NHA attributed the poor performance mainly to financial reasons. About 73 percent of the beneficiaries have monthly incomes of P7,560 and below. Given the average income of the beneficiaries computed at P2,447 per month and their average expenditure of P1,1573 per month, the monthly rental of P750 to P1,600 is indeed unaffordable to most households (JICA 2003).
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income accommodations are computed based on a reasonable return on capital (i.e., monthly amortization on loan to acquire the property, broker’s fee and depreciation cost of unit), those for lowincome accommodations are based on the existing rent in the area and the affordability levels of target tenants. A commonly used criterion for housing affordability in government programs is that housing expenses should not exceed 30 percent of household income. This standard, however, does not apply in the case of rent. Rent-to-income ratio shows that regardless of income levels, tenants, on the average, allocate less than 15 percent of their incomes for rent. The government has sought to keep rents low through the Rent Control Law that allows for increases in rent but not exceeding the maximum allowable increase. The maximum increase has been variable over the last two decades from 20 percent per year to 15 percent and currently 10 percent.
Issues in rental housing and recommended interventions At least four critical issues affect the rental housing market for the low-income sector. The following section will discuss each issue as well as the needed response from the government to develop this window of opportunity for the poor and low-income households. Rent levels and rent increase Rent levels are set by the market. Landlords consider the existing rental rates in the area for similar structure and adjust the rates based on facilities and affordability of lessees. While rents on middle- and high-
Squatter shanties have become a regular site in many cities in the Philippines particularly in depressed areas.
DEVELOPMENT RESEARCH NEWS
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July - August 2005
cost accommodations and multi-unit apartment dwellings have become a thing of the past. With these scenarios, the government should encourage more and better supply of low-cost rental dwellings. Encouraging beneficiaries of government homeownership programs to rent part of their homes could be a better alternative than other livelihood programs often introduced by government in depressed settlements. The government can also stimulate middle-income landlords to invest in low-cost housing by providing tax incentives and credit.
The pressing issue for the poor is not about how to own a house but where and how to find an affordable, decent place to live.
So, how relevant is the Rent Control Law to low income tenants? In principle, the law is a means to control the rise in rent and protect the poorer groups from exploitation of “rich� landlords. In reality, however, most low-income groups dwell in self-help accommodations built mostly by lowincome people like them. Expectedly, investments in these rental dwellings are also low and so rents are also cheap. Rents in poor settlements also tend to rise and fall with wages. When incomes fall, rents also tend to fall with them. This has been the case in the city of Buenos Aires, where rents decreased in real terms by 44 percent between 1980 and 1990 and by 20 percent during the recession that occurred between 1995 and 1999. In Bogota (Colombia) and in the Mexican cities of Guadalajara and Pueblo, the actual setting of rents is quite arbitrary. Landlords also take into account the ability of the tenant to pay the rent (Datta 1996 in UNCHS 2003). Moreover, developments show that smallscale low-income landlords have taken over the supply of rental accommodation for households in the same income group. Large-scale landlords who contruct low-
Quality of rental housing stock The quality of rental housing is another critical issue to consider. The middle- and high-income sector can easily afford to rent better facilities and structures because they can pay more for better accommodation. However, low-income families cannot afford the rent or mortgage payment of dwellings that provide more improved services and facilities and situated in better locations. Since most of the low-income rental accommodations are in informal settlements, government should undertake or support upgrading programs in these areas. This can provide an opportunity to improve the condition of low-income tenants and sharers. In several countries, upgrading has been noted to provide opportunities for more rental accommodation since owners are encouraged to make improvements of sheltered space (Skinner et al. 1987). Legal issues and eviction A major provision of the Rent Control Law is that ejectment from rental premises is only valid on specific grounds. These grounds include: (a) assignment of lease or subleasing including acceptance of boarders or bedspacers without the written consent of the owner/lessor; (b) arrears in payment of rent for a total of three months; (c) legitimate need of owner/lessor to repossess his property for own use or use of an immediate member of the family as a residential unit, such member not being the owner of any available residential unit within the same city or municipality; (d)
DEVELOPMENT RESEARCH NEWS
absolute ownership by the lessee of another dwelling within the same city or municipality; and (e) need of the lessor to make necessary repairs of the leased premises as certified by appropriate authorities. An almost universal complaint among landlords is the painstaking process of removing difficult tenants from their property. In low-cost dwellings, arrears in rent have been the primary cause of disagreements between landlord and tenant. While the law provides that threemonth arrears on rental is a sufficient ground for eviction, evicting tenants even in informal settlements requires a legal process that can take several months to complete. In some cases, the intervention of barangay officials is sufficient but with difficult tenants, eviction would require court decision. For small landlords, the cost of judicial proceedings is prohibitive. Government can assist small landlords by making low-cost arbitration and conciliation venues available. The speed of decision is critical in low-cost rental dwellings because rental prices do not provide for probable losses due to nonpayment. Management and operation of public rental housing The government has been hesitant to develop the rental housing market for the low-income sector because the projects implemented so far have not been viable. Maintenance of the buildings has been highly subsidized. In particular, public rental buildings mainly occupied by lowincome households, which obtain income from informal sources, are the least viable. The problem is mismanagement rather than poor returns. An assessment of public rental housing shows that the problem lies mainly on two reasons (Leynes 1989): (1) the inability of government to transfer to tenants the expenses arising from the tenants’ use of the building and its facilities; and (2) the failure of the NHA or the tenants association to implement the rules of ejectment. The NHA or the tenants association has been unable to effectively implement the lease contract agreements. For public rental housing, the provisions of
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the lease contract is comprehensive in that it covers all areas of default, losses and depreciation. For instance, interest charges are imposed on late payments; three-month arrears and unauthorized transfer of rights, construction and others are subject to eviction without the need for judicial process. In practice, however, ejectment for these violations has not been carried out successfully. Interventions from local politicians and other pressure groups is one reason. Apprehension of court cases and threats from erring tenants are the other reasons. The lack of involvement and responsibility of the tenants in building management also encourages “free riders” whose presence is a disincentive to conscientious tenants. The operation and management of public rental housing indeed remains a weakness that undoubtedly requires serious attention. The country may learn from the Japanese model of public rental housing operation and management whereby the national government directs its subsidies (from 50 to 65 percent) to local governments which, in turn, manage the construction and operation of public rental housing projects (Ministry of Land, Infrastructure and Transport 2002). The municipality decides on the rent based on actual cost less subsidy from the government. The rent includes management cost, common service charges (e.g., cleaning of common areas, drainage system, waste disposal, etc.), interest expense on the municipality’s funds, and insurance cost. Rents vary depending on resident income, location, size, years, and the rates applied to similar housing units within the area. Management of the building is done by the local government but auxiliary services (e.g. cleaning, parking, repair, rent collection, tenant services, etc.) are usually commissioned to a private organization or the resident organization.
rental buildings mainly occupied by lowincome households, which obtain income from informal sources, are the least viable. The problem is mis-
References Ballesteros, M. 2002. Benefits (and losses) from rent control in the Philippines:
In particular, public
management rather )15
than poor returns.
DEVELOPMENT RESEARCH NEWS
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Trade and investment in a globalized setting: the experience in Muslim Mindanao
http:www.mindanao.org
Sulu and Tawi-Tawi, in particular, are best for seaweed and high-value fruit production and processing, oil and industrial gas depots, and post-harvest facilities for marine products. Basilan is also a potential area for industrial tree plantations, rubber production and processing, gifts, toys and housewares manufacture, and rubber wood processing.
T
oday’s modern and industrial trade processes are influenced by globalization and the Philippines is not exempted to this. It must now exhaust all of its resources to be competitive and acquire a bigger share of the foreign market. A crucial area to develop in the country is Mindanao. As the second largest island in the Philippines, Mindanao has a vast area that is suitable for industry, tourism and agribusiness. Sadly, there are many areas in the region that have long been poor and underdeveloped in terms of infrastructure for business and investment yet are home to existing agribusiness and industrial commodities that are perfect for foreign trading. Mindanao's soil and climate are suitable for growing a wide variety of food and industrial crops. Tawi-Tawi, Basilan, Zamboanga City and Sulu’s rich coastal areas are responsible for making Mindanao the aquaculture and mariculture center of the Philippines. These provinces are also rich in mineral and forest resources.
In Zamboanga, the wood-wool cement board production is a great opportunity for business investment as well as the milkfish and crab culture and the small-scale integrated fruit processing and ornamental horticulture. Indeed, the region is a bustling place for business and investment and, not to forget, an adventure’s paradise for tourists. Unfortunately, a mention of Mindanao is quickly thought of as a sorry state saddled by aggravating poverty, bomb scare, kidnappings and terrorism scar. How unfortunate for a land that has so much to give in terms of investment opportunities, people, heritage and skills! So how does globalization really affect Muslim Mindanao? Does it contribute to the promotion of increased trade and investment in the region? How does the business sector respond to the challenges of globalization? A study entitled “Trade and investment in a globalized setting: The Philippine experience in Muslim areas” conducted by Dr. Habib Macaayong of the Mindanao State University under a Philippine APEC Study Center Network (PASCN) research project and presented in a recent forum organized by the PIDS and the PASCN investigated the perceived effects of globalization on
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trade and investment in the Mindanao Muslim areas. It also looked at how the types of business engaged in by the Mindanao Muslims affect the foreign investment opportunities in the region. The study was conducted for two years, with Muslim business owners and operators who have or had direct or indirect involvement in foreign trade and investment processes as respondents. Totalling 150, the respondents came from Iligan City, Cagayan de Oro City, Davao City, General Santos City, Zamboanga City, Basilan, Tawi-Tawi, and Jolo. Global trade participation of Muslim business owners and operators Participation in global or foreign investment processes is important for Muslim business owners and operators as these would open up opportunities for improving their business stature. Engaging in foreign trade could also decongest the local market especially areas that are already saturated with the same business for so long. For the entire Mindanao, the growth and expansion of business in the region by engaging in foreign trade is important in solving the problems of poverty and unemployment that are affecting a large chunk of the population. Yet despite these positive implications of foreign trade participation, Muslim business owners and operators have not been aggressive in the trade process. For instance, the study found that a large majority of the respondents are distributing their merchandise only in the domestic market (Table 1). Only a small percentage of respondents are engaged in exporting their products. Most of the respondents also have never been involved in foreign trade (i.e., import-export business). Only 49 respondents, or 33 percent, have had involvement. Majority of Muslim busines owners and operators are also at the tail end of the globalization trend, preferring the comfort of the traditional system of commerce that is sole proprietorship (Table 2) with just a few million pesos of capital (Table 3).
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Table 1. Distribution of respondents as to types of market Types of Market
Frequency
Percent
Domestic
108
72
International/Export
25
17
Both Domestic and Export Total
17 150
11 100%
Majority of them are also engaged in trading instead of manufacturing (Table 4). What are the reasons behind this trend? As a whole, trading emerges as the primary economic industry in many Muslim cities because it entails low capital and does not require complex technologies and processes. Many of the respondents disclosed that lack of capital and know-how on modern technologies forced them to settle for the simpler and more manageable trading business. And while there are financial institutions such as banks and insurance companies open for loans that could very well answer their need to raise capital, Muslim business owners also will not avail of such scheme as borrowing money with interest is unacceptable to Islam. Additionally, sole proprietorship is also the preferred form of business because it is easy to handle and only involves small amount of capital. This will discourage foreign investors as they are not likely to trust “small time� business owners in their Table 2. Types of business ownership Types of Ownership
Frequency
Percent
Sole proprietorship
120
80
Partnership
16
11
Corporation
13
8
Corporation w/ foreign
1
1
150
100%
investors Total
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DEVELOPMENT RESEARCH NEWS
July - August 2005
Table 3. Level of capitalization Capitalization
Frequency
Percent
P1,000,000 - P3,000,000
76
51
P3,100,000 – P6,000,000
49
33
P6,100,000 – P9,000,000
13
8
P9,100,000 – P12,000,000
2
1
P12,100,000 – P15,000,000
4
3
P15,100,000 or more Total
6
4
150
100
capability to handle large business transactions. Foreign investors are also wary that they will not be able to amass high levels of profit. Dry goods, textiles, kitchenwares and some office supplies that are also manufactured locally are the main products being merchandised by Muslim traders. This clearly shows that they carry only a limited variety of goods and also sell them mostly in the domestic market----their participation in the global trade undeniably narrow. Japan has been the major supplier of goods to the countries that comprise the Association of Southeast Asian Nations (ASEAN) as well as the Middle East. But compared to Japan, the Philippines, which has a very strong and large Muslim community in the south, could very well be the supplier of similar products to said countries. There are also many Muslim countries that can be potential business
Table 4. Types of business enterprise Types of business enterprise Trading Service industry
Frequency
Percent
130
86
7
5
Crop farming
5
3
Manufacturing/processing
4
3
Fishing
4
Total
150
3 100%
partners for the Muslim Mindanao region but such possibilities are hampered primarily again by the lack of capital and further aggravated by the poor infrastructure facilities in the Muslim areas. Globalization’s effect on tourism Muslim Mindanao’s rich cultural heritage is a mixture of the arts and crafts and cultural heritage of its many tribal communities. For the adventure traveler, the region is a nature’s paradise given its long white sandy beaches perfect for snorkeling, diving, and sailing, comparable or even more spectacular than its foreign counterparts. A fine example is the Maranao lake which is popular for its grace and grandeur. Flowers, too, are in abundance and the delicate and mystic “waling-waling “ orchids are the best in the country. Blessed with many of nature’s rich bounty, Mindanao is such a promising place that can challenge other more popular tourist spots in the country and abroad. Tourism then is seen as one of the areas where Muslim Mindanao can capitalize most of its potentials. For tourism to pick up in the area, however, local businesses like hotels, restaurants, various shops, transportation and communication facilities must be maintained in good quality comparable to world standards. While there are no hard data from the Department of Tourism that could show the effects of globalization on the tourism industry of the Muslim cities, 85 out of the 150 respondents interviewed said that globalization contributed to the influx of tourists in their areas while 83 said that the tourist attractions were improved due to the effects of globalization. Another 76 respondents said globalization led to an increase in sales of tourist-related businesses and about 51 noted the increase in the number of gift shops. Problems of Muslim business owners and operators At the PIDS-PASCN forum where Macaayong presented his study, former National Youth Commissioner Amina Rasul-Bernardo noted
DEVELOPMENT RESEARCH NEWS
that Mindanao is no stranger to international trade. Before the Martial Law years, the region was actively trading with Sabah and with other neighboring countries. Over the years, however, Mindanao's economy was pushed far away and has lagged behind the rest of the country. Today, the infrastructure remains poor. Many Muslim skilled workers are also going abroad to look for greener pastures, thereby aggravating the brain drain problem in the region. Rasul-Bernardo also said that while substantial official development assistance (ODA) is poured into the region, there is very little or no foreign direct investment coming in. Lanao del Norte Representative Ali Dimaporo, meanwhile, noted the government's lack of a concrete development policy for Mindanao. He emphasized the need to invest in the education of the Muslim people. Muslims should not be afraid of globalization, he added. They should study their strengths, develop their positive influences, and address their weaknesses. When asked about the most pressing problems that hinder their participation in foreign trade, Macaayong said that majority of the respondents mentioned lack of capital, peace-and-order problem, lack of government support, and lack of opportunities for engaging in business with foreign traders and investors (Table 5). Poor infrastructure is also a major obstacle as it poses difficulty in moving goods. A good example is General Santos City that serves as port of entry of foreign goods coming from Indonesia, Malaysia and Singapore. Goods entering the city are hard to transport from one city to another to any part of Mindanao ( for example, Marawi City) because of poor infrastructure. These are the areas that the Department of Public Works and Highways and the Department of Transportation and Communication should prioritize in order to promote the region as an auspicious place for investment.
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An earlier study conducted by the author in 1991 on the small and medium enterprises in Lanao del Sur corroborated with these findings regarding problems encountered. Lack of information on government programs and the difficulty in accessing these programs were the most common problems identified by the respondents. Lanao del Sur entrepreneurs were inadequately informed about the existing financial and nonfinancial programs of the government for enterprise development. Information dissemination of these programs through the media is also very poor. Thus, only a few people are aware that these programs exist. Moreover, the study pointed to peace-andorder problem and the government’s failure to control the situation as one of the main deterrents to the region's growth. Political issues and problems also hamper the progress of enterprise development and tourism-related opportunities. When asked of their suggestions to addressing the problems they identified, the respondents in the present study mentioned the need for a focused and more pro-active implementaTable 5. Problems affecting the global trade tion of governparticipation of Muslim business owners ment support and operators programs for business Problem Frequency Percent development and promotion Lack of capital 68 45 of global trade Peace and order 64 42 participation in Lack of support from the gov't 58 39 the region. Specific Lack of opportunities for recommendaconducting business with tions given foreign traders and investors 53 35 include the Lack of technical know-how 48 32 availability of Poor infrastructure facilities 44 29 financial Majority of the enterprises are assistance; maintenance of small and informal 43 29 peace and Conflict in cultural or religious order; conduct beliefs 42 28 of seminars and Poor communication facilities 39 26 workshops for Poor information system 33 22 business
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expansion of business in the region, including the promotion of global trade participation. These are institutional linkages, business development, and infrastructure development. Institutional linkages To have an alternative source of capital and other financial assistance for Muslim business owners and operators, it is important for government agencies such as the Department of Finance (DOF) and the Bangko Sentral ng Pilipinas (BSP) to cooperate with the Islamic Development Bank in the Middle East to establish Islamic bank units in the Muslim areas in the country. These banks offer profitsharing in business projects and not interest-bearing loans that are considered by the Muslims as unacceptable to Islam.
While Metro Manila has seen major road improvements through the years, including the rise of the metro rail transit, Mindanao is still saddled with the slow infrastructure development that hampers foreign investment interest in the region.
owners for promoting global trade; promotion of open trade with foreign countries; improvement of communication facilities; government facilitation of Filipino-Muslim participation in global trade and investment; improvement of infrastructure; government facilitation of foreign Muslim investors’ business deals in the country; and implementation of a program to promote global trade and cultural understanding with foreign business investors. Recommendations Macaayong identified three key areas that need to be addressed for the growth and
Relatedly, it will also be noteworthy for the BSP, DOF and the Autonomous Region of Muslim Mindanao to create an ad hoc committee that will study how the Islamic banking and lending system can be institutionalized in the Muslim areas in the country. This will not only promote trade development in these areas but can also facilitate understanding of the internal conflict in Mindanao. In terms of specific recommendations, Macaayong stressed the need for setting up a local branch of the Development Bank of the Philippines (DBP) in Marawi City as it is the only city in the country that does not have a DBP extension office. Such office is needed to provide direct services and allocate loans intended for the infrastructure, agricultural, and manufacturing developments in Marawi City. This way, residents who wish to avail of the loans need not travel to Iligan City to process their papers. To further provide assistance to the Filipino-Muslim business community, the government can invite selected Middle Eastern countries such as Saudi Arabia and Bahrain to establish development assistance agencies in the country similar to the United States Aid for International Devel-
DEVELOPMENT RESEARCH NEWS
opment (USAID), Canadian International Development Agency (CIDA), and the Japan International Cooperation Agency (JICA). Diplomatic and economic linkages should also be improved with the Muslim nations in the ASEAN for possible assistance in the form of capital and trade cooperation. Inadequate and irregular power supply has long hampered the local economy of the Muslim business community. This is quite ironic considering that the Agus Hydroelectric Power Plant Complex, the main source of hydroelectric power supply in Mindanao, is located only in Lanao del Sur. Stabilization of the power supply is very crucial in attracting foreign investments in the region. Business development Muslim business owners and operators are encouraged to register their enterprises for them to be listed and to have proper evaluation of the business environment. They are also encouraged to form partnerships and corporations that may help them avail of financial assistance from banks and other sources of capital. The Department of Trade and Industry and various local chambers of commerce should assist them. The government should also support business owners and even local government units in establishing suitable and viable manufacturing industries utilizing the raw materials available in their locality. A regular training assistance is also sought after by Muslim business owners to help them be active in the regional economic setting and ultimately prepare them into partnership with foreign investors. Training programs suggested by the respondents include business management, financial and marketing development, production technology, and global trade and investment development. Along with these, information dissemination on global trade investment processes should be conducted by the DTI to help boost global business participation in the region.
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July - August 2005
Infrastructure development One of the reasons why Mindanao is at the tail end of progress when it comes to business, whether local or foreign, is its poor infrastructure and communication facilities. There are not enough roads for trade to flourish and if there are, these roads have long needed widening and concrete repairs. Ditto with the expansion of airport, seaport facilities and warehouses crucial for business and tourism promotion. To add, telephone line systems, as well as internet connection, is also not accessible in many areas hampering the interest of local and foreign investors. Nonetheless, while Muslim Mindanao has long been hampered by peace-and-order problems as well as infrastructure and telecommunication inadequacies, it cannot be denied that the region still has a lot to offer in terms of business potentials, natural resources and people’s skills. What is needed therefore is a more proactive development policy for Mindanao, translated into well-planned, well-targeted and executed programs that can fuel the growth and expansion of business in the region and open the doors for global trade participation. DRN
Seaport facilities in Mindanao need widening and concrete repairs to be at par with other ports within the country and outside.
DEVELOPMENT RESEARCH NEWS
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July - August 2005
New Phil-Aus Project
Promoting the use of seasonal climate forecasts in agriculture
In the recent launching of the ACIAR project on the SCFs, representatives from the various lead agencies came in full force. From left: H.E. Anthony John Kelly of the Australian Embassy, Dr. Peter Hayman of SARDI, Dr. Josef T. Yap of PIDS, Director Graciano Yumul, Jr of PAGASA, Dr. Paciencia Milan of Leyte State University, and Dr. John Mullen of New South Wales Department of Primary Industries.
Whenever we think of extreme weather conditions, the El Niño phenomenon always comes to mind mainly because of its destructive effects. Much of the world is affected by this warming phenomenon in the Pacific Ocean. While it brings heavy rains in some parts, it causes the worst drought in others. In agriculture, its cumulative effects lead to crop losses, water shortages and even forest fires in some areas, which negatively impact on farm productivity and food sufficiency. Added to these is the damage it brings to the livelihood of small farmers. While there is no way that an El Niño and its effects may be stopped, the availability of relevant information to understand this phenomenon as well as reliable seasonal climate forecasts (SCFs) would certainly benefit the farm sector as preparation appears to be the only way it could survive the El Niño and other disruptive weather anomalies with lesser damage. Examining the potential value of SCFs and looking for more effective ways to use such
SCF data in agriculture is the focus of a four-year project between the governments of Australia and the Philippines called “Bridging the gap between seasonal climate forecasts and decisionmakers in agriculture.” The project resulted from a memorandum of subsidiary agreement signed in October 2004 between the Australian Centre for International Agricultural Research (ACIAR), which will also provide project funding, and the Philippine Council for Agriculture, Forestry and Natural Resources Research and Development (PCARDD). Implementing institutions for the Philippines are the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the Philippine Institute for Development Studies (PIDS) and the Leyte State University (LSU) while for Australia, the key institutions involved are the South Australian Research and Development Institute (SARDI), New South Wales Department of Primary Industries (NSW/DPI), and University of Sydney. To introduce the project to the public, it was launched on July 27, 2005 at the Dusit Hotel Nikko in Makati City. Attendees included the project team members, the project steering committee, various government and private agencies, members of the media, Australian embassy and ACIAR representatives, members of the academe, representatives from nongovernment organizations and farmers groups, and regular participants of PAG-ASA’s Quarterly Climate Forum. The launch included presentations of the issues both in the Philippines and in Australia and how the project intends to effectively address these.
the DEVELOPMENT RESEARCH NEWS v a r i o u s When it comes to the El Niño, Australia and the Philippines share a common fate. The direct effects of the El Niño may result in drier-than-normal conditions in the Philippines and in eastern Australia that are particularly disastrous to their rainfed farms. While the El Niño is a phenomenon that occurs in a specific point in the eastern equatorial Pacific Ocean, its effects and impact are nonetheless felt in the two countries because of the interactions between the ocean surface temperature effect and the overlying atmosphere in the tropical Pacific region. This interaction is better known as the El Niño Southern Oscillation (ENSO).
Would you like to know more about the ACIAR project? Visit the project website at http:// dirp3.pids.gov.ph/ACIAR/.
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With the ACIAR project, it is envisioned that both farmers and policymakers would have better appreciation of the potential benefits from the emerging science of SCF. It is believed that the adoption of SCF is hampered in both the Philippines and Australia by the lack of appropriate and robust methods of showing the economic value of SCF. The project hopes to address this shortcoming by developing an approach to valuing SCF in decisionmaking based on insights from economics and psychology. Another is by promoting SCF through farm and policy-level case studies in the two countries to gain practical appreciation on the use of SCF in decisionmaking thereby helping to bridge the gap between the potential and actual use of SCF. At the policy level, the project will look into how certain agencies and decisionmakers are using climate forecasts to adequately address the issues of procurement, storage and distribution of certain crops, in particular, rice and corn. The project also hopes to be able to come up with strategies and approaches that would facilitate the dissemination of climate forecasts to farmers and decisionmakers. DRN
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Rental Housing from page 7 ○
financial and 15 while for
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An empirical study of Metro Manila. Research Paper Series No. 2002-09. Manila: Philippine Institute for Development Studies. Gilbert, A. and A. Varley. 1991. Landlord and tenant: Housing the poor in urban Mexico. London: Routledge, Inc. Japan International Cooperation Agency (JICA). 2003. A survey of private rental housing. Manila, Philippines. Leynes, A.F. 1989. Public sector rental housing maintenance in the Philippines.
Ministry of Land, Infrastructure and Transport, Development Institute of Japan. 2002. Investigation of the guidelines for construction technical removal: maintenance, preservation and improvement of housing. Skinner, R.J., J.L. Taylor and E.A. Wegelin (eds.). 1987. Shelter upgrading for the urban poor: Evaluation of Third World experience. UNCHS and Institute of Housing Studies. Thirkell, A. J. 1996. “Players in urban informal land markets: who wins? Who loses? A case study of Cebu City. Environment and Urbanization 8(2) p. 71-90. United Nations Centre for Human Settlements (UNCHS). 2003. Rental housing: an essential option for the urban poor in developing countries. Nairobi: UNCHS DRN
July - August 2005
While there is no way that an El Niño and its effects may be stopped, the availability of relevant information to understand this phenomenon as well as reliable seasonal climate forecasts (SCFs) would certainly benefit the farm sector as preparation appears to be the only way it could survive the El Niño and other disruptive weather anomalies with lesser damage.
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DEVELOPMENT RESEARCH NEWS
STAFF BOX
Editorial Board: Dr. Josef T. Yap, President; Mr. Mario Feranil, OIC-Vice-President and Director for Project Services; Ms. Jennifer P.T. Liguton, Director for Research Information; Ms. Andrea S. Agcaoili, Director for Operations and Finance; Atty. Roque A. Sorioso, Legal Consultant. Staff: Jennifer P.T. Liguton, Editor-in-Chief; Sheila V. Siar, Issue Editor; Claudette G. Santos; Contributor and Layout Artist; Genna J. Estrabon, Jane C. Alcantara, Ma. Gizelle G. Manuel and Edwin S. Martin, Contributors; Valentina V. Tolentino and Rossana P. Cleofas, Exchange; Delia S. Romero, Galicano A. Godes, Necita Z. Aquino and Alejandro P. Manalili, Circulation and Subscription.
July - August 2005
DEVELOPMENT RESEARCH NEWS is a bimonthly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars. PIDS is a nonstock, nonprofit government research institution engaged in long-term, policyoriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to: DEVELOPMENT RESEARCH NEWS Vol. XXIII No. 4 July-August 2005 ISSN 0115 - 9097
Research Information Staff Philippine Institute for Development Studies Room 304, NEDA sa Makati Bldg., 106 Amorsolo Street, Legaspi Village 1229 Makati City, Philippines Telephone numbers 892-4059 and 893-5705 Telefax numbers (632) 893-9589 and 816-1091 E-mail address: publications@pidsnet.pids.gov.ph Reentered as second class mail at the Business Mail Service Office under Permit No. PS-570-04 NCR. Valid until December 31, 2005. Annual subscription rates are: P200.00 for local subscribers and US$20.00 for foreign subscribers. All rates are inclusive of mailing and handling costs. Prices may change without prior notice.
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But is the homeownership model appropriate for everyone? Not all people have the capacity for homeownership. Those with low incomes are obviously at a disadvantage. After all, homeownership is, first and foremost, a financial issue. Even government social security programs have been ineffective in assisting the poor toward homeownership. Many low-income families are saddled by mortgage payments that they could not afford given their small and irregular incomes. Most of them thus resort to informal and/or illegal housing, living in shanties, occupying other people’s land, and for some, squatting in the most unsanitary and unsafe place unimaginable such as riverbanks, streets, and bridges. What then could be the more viable housing option for the poorer segment of the population? Affordable housing choices are crucial for low-income earners, as housing has become more expensive especially in cities. One of the most telling statistics is the rising incidence of renting particularly in the depressed areas of Metro Manila. A strategy that is increasingly being looked into in many countries to address the housing needs of low-income families and improve their living conditions is to develop the rental housing market. This issue’s cover article discusses the relevance of this housing strategy for the low-income sector especially in the light of the worsening poverty and the deepening urban development in the country that makes land even more expensive. It also takes a look at the supply of low-cost rental housing and examines the factors leading to the shortage of low-cost housing units in the country. As life in the Philippines becomes harder than ever, it is important that the government ensures the availability of affordable rental housing stock to support the needs of low-income families. Utmost attention should also be paid to address the constraints being faced by the private sector---the government's main partner in developing the rental housing market---which supports most of the housing needs of the low-income sector. DRN