Bernardo M. Villegas
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The Economics of Island Hopping

          The two most important sectors that can contribute to generating employment and eradicating poverty in the next twenty years are agribusiness and tourism.  The highest levels of underemployment and poverty incidence are in the rural areas, especially in those regions highly dependent on the coconut industry and small-scale fishing.  Given the major thrust in improving rural infrastructures under this present Administration, both agribusiness and tourism can be given a big boost in the coming years.   A large number of LGU units have made these two sectors their major anchors for long-term sustainable development.  Among those LGUs I am most familiar with are Antipolo, Puerto Princesa, Laguna, Oriental Mindoro, Negros Oriental, DavaoCity, and Bani, Pangasinan.  These are provinces, cities or municipalities with whom a team of social scientists from the Center of Research and Communication are working to develop road maps for generating employment and combating poverty with a special focus on tourism and agribusiness.

          These and other LGU units all over the Archipelago can be thankful that over the last 7 or 8 years, the major islands of the Philippines have been more efficiently connected through the Strong Republic Nautical Highway, a lasting  legacy of the Administration of Gloria Macapagal Arroyo.  As described in detail by Enrico L. Basilio et al in an issue of the Industry Monitor published regularly by the University of Asia and the Pacific School of Economics (September 2010), starting 2003, the Government implemented the RO-RO policy which paved the way for private sector and local government investments in the development and operation of RO-RO ports and shipping facilities that have formed part of the country's Philippine nautical highway.  Through the RO-RO network, trucks, buses, vans and cars are able to travel to any point of the Philippines.  The existence of this transport network has eliminated cargo handling and wharfage fees, leading to a shift from weight to lane meter in freight charging, the abandonment of the commodity classification system and nationwide coverage.

          As defined in an ADB study (Bridges Across Oceans, 2010), "RO-RO is a mode of shipping designed to carry rolling cargoes which do not require cranes for loading or off-loading (e.g., cars, buses, trucks, chassis-mounted containers, etc.) because they simply roll on and off the RO-RO ship.  RO-RO eliminated cargo handling labor and equipment, and reduces the amount of time required to be in a port which can lead to considerable reductions in sea transport costs and improvement in service quality."  Since its implementation, RO-RO has had a major economic impact on the Philippine economy, especially in some of the lagging regions of the Visayas and Mindanao.  By providing the market with a much simpler and cost effective way of moving goods, the RO-RO system has changed the structure and operations of the maritime industry.  Because of RO-RO's greater operational efficiency as compared to traditional shipping--as well as the elimination of cargo handling costs, wharfage fees and others--the market experienced a dramatic reduction in transport cost.  The big shipping companies increased investments in RO-RO ships.  More investments have been poured into logistics or supply chain companies, both national and multinational.

          The greatest benefits have been reaped by agribusiness and tourism.  Since 2003, RO-RO passenger traffic--a significant portion of which are local and foreign tourists--has been on the rise.  Especially benefited were the tourist destinations in the islands of Panay, Cebu, Bohol, Mindanao and Camiguin.  Because of more attractive rates made possible by the RO-RO system, tourism receipts in Boracay from 2003 to 2006 rose by more than 50%, in Iloilo by 30%, and in Dapitan by 200%.  With the completion of the Central Nautical Highway in 2008, the islands of Cebu, Bohol, and Camiguin have become more accessible to tourists.

          In agriculture, the RO-RO network has enhanced agricultural productivity by helping in reaching a broader market.  Easier access to larger markets have given farmers a stronger incentive to increase their productivity.  Especially notable, as reported by Congressman Rodolfo Valencia of Oriental Mindoro, is the impact on rice, banana and calamansi farmers of his province.  Thanks to the Philippine nautical highway, the farm products of Oriental Mindoro have easy access to the markets of the Visayas and Mindanao and are no longer limited to sending their produce to Luzon.  The monopsony of the National Capital Region has been broken.

            According to Enrico Basilio et al, a microeconomic case showcasing the impact of the RO-RO system is the experience of Nestle Philippines.  Before RO-RO, Nestle had 36 distribution centers scattered all over the country.  Because of infrequent shipping schedules, Nestle's warehouses kept large inventories.  With the efficiencies resulting from the RO-RO system, Nestle's delivery trucks and container vans can now serve as "moving warehouses."   As a result, this multinational food conglomerate now has only three distribution centers nationwide while expanding its reach even to the smallest islands.  I can never forget that 95th birthday celebration of my mother in remote Siquijor island in 2004.  We had given up having ice cream with the birthday cake until we passed by a sari-sari store that was carrying Nestle's products, thanks to the RO-RO system.

          An outstanding case of a small municipality benefiting from the RO-RO system was that of Roxas, Oriental Mindoro.  This sleepy town before the RO-RO port was built as the gateway to Panay from Oriental Mindoro experienced rapid growth in income and employment.  The tremendous growth in vehicular traffic (i.e., rolling cargo) increased the number of gasoline stations (from two to seven) and business establishments increased from 690 to 853 in just one year.  Revenues generated by the municipality increased from 1.6 million pesos in 2006 to 4.4 million pesos in 2008.  What has happened to Roxas, Oriental Mindoro has been replicated in numerous other municipalities through which the Philippine Strong Republic Nautical Highway passes.  Businesses or individuals who are interested in detailed studies showing the impact of the RO-RO system may contact Mr. Enrico Basilio, President of REID Foundation at 470-4830.

For comments, my email address is bvillegas@uap.edu.ph.